Appraisal Woes

Buying & Selling Real Estate

Appraisal Woes

Wholesaler · Downers Grove, IL · Member since 2010 · 108 posts · 26 votes

Long story short, we just completed a rehab put it on the market a couple of Fridays ago, and had five offers on the property by the end of the weekend. We had several offers at or near list price, and decided negotiate with one that had a conventional loan w/20% down, as opposed to several FHA and VA offer above the conventional one.

Appraisal came back today 20K under the contract price of 253K. We knew going in we may have a little trouble based on the comps in the area, and we made a huge mistake of not being around when the appraiser came by (that's a story for a different day).

What are our options at this point? Obviously we could decrease the contract price to 233K, or possibly meet in the middle.

What are the underwriting rules regarding low appraisals with conventional financing. Since the loan amount will still be under the appraised value, will the lender still write the loan? The buyers will just have to pay PMI correct? 86.8% LTV vs 80%LTV.

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Residential Real Estate Broker · Pensacola, FL · Member since 2012 · 221 posts · 49 votes

13y

Several offers within 2 weeks is a great sign that you didn't over price. Especially if the offers were at or close to your list. This is a situation where I would use my "gut gauge." If closing this deal would be a life changing event for you, then make it work. If it's not a big deal and you wouldn't mind waiting for the next offer, then don't stress it.

I would have your agent tell the buyer agent that you had 5 offers within 2 weeks and they need to pay the difference out of pocket or you're going to call the other 4 offering parties, probably causing a bidding war. IF they're paying 20% down, the can likely afford the extra 7% our of pocket.

Good luck.

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James H.
Investor · Fort Worth, TX · Member since 2011 · 1k+ posts · 450 votes
13y
you could diispute the appraisal and have another one done.
0 Reply
Ryan O.
OP
Wholesaler · Downers Grove, IL · Member since 2010 · 108 posts · 26 votes
13y
I think disputing the appraisal will be tough, the comps that were used weren't the worst ones available. The main problem I have with the appraisal was bassicly no adjustments were made for the renovation. The appraisal gave no value to the gut rehab we did.

Now, that was my fault for allowing the appraiser to be at the house without myself or our realtor there to "educate" him. But that ship has sailed.

I guess we do have the option of allowing the buyer to try another lender, but would obviously rather just have them have a higher LTV loan, will the underwriter allow that?

-Ryan
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Sandy Blanton
Residential Real Estate Broker · Pensacola, FL · Member since 2012 · 221 posts · 49 votes
13y
Several offers within 2 weeks is a great sign that you didn't over price. Especially if the offers were at or close to your list. This is a situation where I would use my "gut gauge." If closing this deal would be a life changing event for you, then make it work. If it's not a big deal and you wouldn't mind waiting for the next offer, then don't stress it.

I would have your agent tell the buyer agent that you had 5 offers within 2 weeks and they need to pay the difference out of pocket or you're going to call the other 4 offering parties, probably causing a bidding war. IF they're paying 20% down, the can likely afford the extra 7% our of pocket.

Good luck.
2 Reply
David NilesBusiness Member
Property Manager · DeLand FL · Member since 2012 · 860 posts · 243 votes
13y
As you said Ryan O. seems that the appraisal ship has sailed so I would agree with Sandy Blanton strategy and make the buyers work it out for you. That many offers that quick means the value should definitely be there even if the appraiser couldnt reach it.
0 Reply
Randy Bearden
Winston, GA · Member since 2011 · 18 posts · 2 votes
13y
We knew going in we may have a little trouble based on the comps in the area
0 Reply
Ryan O.
OP
Wholesaler · Downers Grove, IL · Member since 2010 · 108 posts · 26 votes
13y
Sandy Blanton I have no problem waiting on another offer, and i think I'm going to take your advice and tell the buyers to purchase at the contract price or start looking for another property. David Niles the value is defiantly there, after reviewing the appraisal there is very little risk in putting it back on the market. I can't see any way another apraisal could come in lower than the one we have now, as such I'm willing to risk another 4-6 weeks holding cost.
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Will BarnardPro Member
Moderator
Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
13y
Every situation is different and without all the fine line details of your scenario, it is hard to say what you should do.

Options that seem appropriate are:
1. Tell buyers to pony up the difference or you are cancelling contract and going with any one of your other 5 buyers.
2. Tell your buyers to meet you in the middle or else you will cancel and go with another offer.
3. Dispute appraisal - likely the worst choice as success rates are poor once they are in
4. Cancel contract and go with another buyer.

Your decision should be based on what your holding costs are, loss to opportunity costs, and how quickly any one of the other offers could perform when starting over.
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James H.
Investor · Fort Worth, TX · Member since 2011 · 1k+ posts · 450 votes
13y
Originally posted by Will Barnard:
3. Dispute appraisal - likely the worst choice as success rates are poor once they are in

Will,

Is this your experience? I'm guessing it is. I have a good friend that is a mortgage underwriter and he said that he sees the majority of disputed appraisals coming back higher than the first. That being said, it could be that the majority that get disputed may be grossly under appraised unlike OP's situation.

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Johann Jells
Rental Property Investor · Jersey City, NJ · Member since 2011 · 1k+ posts · 876 votes
13y
On a refi I tried to get a reappraisal when they undermeasured the sq ft by 20% and left off a bedroom. The banker told me the appraiser said it would come back the same! I walked away and reported the appraiser to the NJ Consumer Affairs, his licensing agency. I'm waiting to hear back.

2 weeks ago the NY Times had an article on this issue, one quote saying the odds were better hitting the lottery than getting an appraisal revised.
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Sean Brennan
Rental Property Investor · Manchester, NH · Member since 2013 · 447 posts · 81 votes
13y
I would always recommend giving the appraiser as much info. as possible beforehand. Offers, how much money you put into it, comps, etc. Appraisers make mistakes, miss info. and some suck...After the fact I have made adjustments to my appraisals because I missed something (not often :)). But you have to convince the lender first and have them approach the appraiser ( the lender is the appraisers client in this situation not the borrower).
1 Reply
Kevin PolitePro Member
Investor · Decatur Atlanta, GA · Member since 2011 · 610 posts · 232 votes
13y
I have the same situation with a rental I want to refinance. The home is in an older, intown, appreciating area. we did two flips on this street $210k and $240k. However the rental we didn't completely remodel, it's a 4/1 and two 3/1's sold for $160k in april & June 2012, yet our appraisal came in at $147k. comps used were in the neighborhood, but not on our block. 95% of the homes on this cul-de-sac are brick. the one comp he used on this block he called a bungalow, but is' 1 of 3 modular homes on a cul-de-sac with with maybe 80 homes. calling the credit union tomorrow should i threatened to get the loan from someone else? I've done business with them before and actually just did a refinance last month with them.
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Ed O.
Investor · Statewide, MO · Member since 2011 · 814 posts · 425 votes
13y
Brian Hoyt For what it's worth, I had 3 appraisals blow up this summer. The woman missed recent, relevant comps and appraised 3 homes with distinct, different characteristics (bedrooms, updates, land), all for the same value.
When I disputed the appraisals and supplied relative, credible information to the bank, the bank's procedure went like this:
Send my info to the appraiser and ask her to reconsider. She said no. End of story. She didn't return my polite phone call or email as well. She used all, run down, vacant derelect reos to comp out my completely rehabbed homes and totally was off by a mile.
No consequence to her. She spent 2-3 hours and made $1200 or so. A pretty good day I'd say.

The skinny of it, IMO, is that appraisers, the same ones that played a massive part in creating the mortgage mess, have walked away from the ruins of it, with even more power and less accountability than ever before. I'm not calling them all bad by any sense.
Here in my state, Ameriquest Mortgage was having appraisers pull comps 30-60 miles away on rural deals and using watermelons to compare to apples. I have never heard of a shady appraiser suffering so much as a petty fine for their abuses.

Also, In my years and the 30 or so appraisals I have needed, 2 times they have been done by women. I have only had problems, 3 times. Just sayin.
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Ryan O.
OP
Wholesaler · Downers Grove, IL · Member since 2010 · 108 posts · 26 votes
13y
Ed O. That's exactly how it played out for us, we tried to dispute the appraisal by supplying better comps closer to our property, but the appraiser refused to even consider them.

We finally closed yesterday. We ended up giving up a couple thousand dollars just to get the deal done, but we were prepared to put it back on the market if we needed to. The buyers had to come up with the difference between the appraised value and the final contract price. In the end it worked out for us but we learned several valuable lessons, the most important being do not under any circumstances let an appraiser in your property without being there to educate them.
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Ryan Lundquist
Carmichael, CA · Member since 2012 · 26 posts · 6 votes
13y
Ryan O. Did you try to give the appraiser comps directly? Or did you do it through the lender? A rebuttal is best to go through the lender and write up some commentary along with it. I actually have a blog post that'll go live today on the subject. I'm really glad for you the buyer was able to meet the difference (must have been conventional and not FHA).
0 Reply
Ryan O.
OP
Wholesaler · Downers Grove, IL · Member since 2010 · 108 posts · 26 votes
13y
Ryan Lundquist Or rebuttal went through the lender. The buyers were indeed conventional buyers with 20% down. In the market we focus on we have been fortunate to be able to choose conventional buyers over FHA or VA.
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Ryan Lundquist
Carmichael, CA · Member since 2012 · 26 posts · 6 votes
13y
I'm glad it worked out Ryan O..
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James Ebert
Westlake Village, CA · Member since 2015 · 2 posts · 0 votes
8y
We hear this often. The agents typically need to get involved more than in the past.
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Orita Issartel
Real Estate Investor / Realtor · Miami, FL · Member since 2017 · 125 posts · 67 votes
8y
I'm glad it worked out for you guys. I always prepare a package with comps in the area to give to the appraiser, and make sure to be there. Lenders often will send an appraiser to an area he's not familiar with.
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