Appraisal came in $33k low what are options?

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Appraisal came in $33k low what are options?

David McClain
Cincinnati, OH · Member since 2018 · 6 posts · 6 votes

Hey there! Question about home appraisals and what to do when your selling price doesn’t match the buyers loan appraisal

I’m selling a house I rehabbed. Did the deal and rehab all in cash. Had an offer within 24 hours and purchase agreement made out for $240k. I did a contingency with the buyer allowing her to sell her home first. That happened and she is closing on September 11. The appraisal happened yesterday and the buyer’s loan officer called her and said they won’t have it back for a week because it’s with the underwriter but that he saw the number and it was $207k. The buyer said she can go to $215k.

I told her I’m not canceling the deal on this phone call but my initial response is that the price is $240k. Comps show about 215-225, but there isn’t a true apples to apples comp in the county.

Can I ask for a reappraisal? Any chance the underwriter approves a $240k purchase price? Do I carry a note on the difference? What will carrying a note for $25k do to her ability to get her mortgage?

Cheers!

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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
6y

if she is getting an FHA loan that appraisal is now in the system I think for 6 months.. going to be hard to get a non conventional loan buyer to come up.. they usually dont have the money even if they wanted to.. and seller carry back seconds are tricky.. most lenders will balk at those.. there are times were you can over improve a property.

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  • Jonathan R McLaughlin
    Rental Property Investor · Boston, Massachusetts (MA) · Member since 2016 · 2k+ posts · 2k+ votes
    6y

    We requested a full appraisal after a drive-by appraisal of 175 and it came back at 197, same bank. Maybe there was a pro-forma look and not a full analysis? Worth asking them.

    0Reply
  • Michael Brattelli
    Real Estate Broker · Medford, NJ · Member since 2018 · 236 posts · 177 votes
    6y

    @David McClain as a sellers agent I always attend the appraisal, bring my own comps, and list of all upgrades and ages of things. Ages of things are important as that’s what gives value. I almost always have comps that appraisers miss as well. At the end of the day it’s that particular appraisers “opinion”.

    3Reply
  • Aaron K.
    Specialist · Riverside, CA · Member since 2015 · 6k+ posts · 3k+ votes
    6y

    Everybody here seems to hate appraisers, but most of the time they are right about the value of a house, the problem is that sellers don't want to sell a house for what it's true value is and many buyers are willing to pay more than what a house's true value is because they are impatient, or make an emotional decision, or have a realtor who is a good salesperson etc. 

    For appraisers it is math, for buyers it is emotion.

    1Reply
  • Rigo V.
    Investor · Morris Plains, NJ · Member since 2017 · 294 posts · 47 votes
    6y

    I once did a brrr and had an after repair appraisal done  at purchase for $200K which allowed me to do the deal. 6 months later during the refi the first appraiser came up with $138K. Keep in mind this was fully renovated duplex. I would not be able to buy this property for $138K EVER. I ended canceling my deal with that lender and going with another who got an appraisal for $203K. Appraisers are often a crapshoot, especially if your market is small and the appraiser isn't local. 

    0Reply
  • Michael Watson
    Rental Property Investor · New Orleans, LA · Member since 2020 · 22 posts · 12 votes
    6y

    @Aaron K. It's not hate but what appraisers do is def not math. It's opinion of what is comparable. Only math is in commercial earnings based appraisal and then comp is still relative.

    Mine generally appraised for the sale price at sale and higher when I get a blind appraisal.

    0Reply
  • Brendan H.
    Real Estate Agent · Denver, CO · Member since 2015 · 125 posts · 43 votes
    6y

    @Ben Haab. I appealed an

    appraisal (as the buyer) on a VA jumbo loan in 2018. It came in 35K low, so I would have needed to bring 35K to the table. My lender said he had never seen a VA appraisal get overturned, but he would submit an appeal if I could put it together in 24hrs. I already had all my own comps, so I wrote up a very respectful appeal. End game - they overturned the original valuation and it ended up appraising for slightly more than my contract price.

    Items I highlighted:

    - 3 bedrooms + 2 baths on one level (most comp’d homes had 2 bedrooms on one level, and one in the basement... more subjective value to families with kids in having all bedrooms on the same level).

    - some basements of properties used in the comps had lower ceilings, and as such, were technically non-conforming. aka lower value.

    - some rooms listed as bedrooms in comps didn’t have closets. Also technically non-conforming.

    - significant landscaping differences that were not taken into account.

    Bottom line - know your comps, and never be afraid to (respectfully) submit an appeal. Even on VA or FHA loans. And always submit the appraisal appeal respectfully, because appraisers are people, too. They most likely already feel attacked as you are attempting to tell them their "opinion" is wrong... so tread lightly.

    Side note - There is a stigma around VA loans that I would like to see disappear eventually, because the perception can hurt the very people those loans are designed to help.

    0Reply
  • Mike Dymski
    Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes
    6y
    Originally posted by @Aaron K.:

    Everybody here seems to hate appraisers, but most of the time they are right about the value of a house, the problem is that sellers don't want to sell a house for what it's true value is and many buyers are willing to pay more than what a house's true value is because they are impatient, or make an emotional decision, or have a realtor who is a good salesperson etc. 

    For appraisers it is math, for buyers it is emotion.

    Many appraisals have blatant math problems and severe comp selection issues in both commercial and residential. Many of us routinely run into these challenges and have to pivot to deal with it. Last year, I had a renovated apartment community appraise for a 10 cap...and duplexes the year before appraise for six figures below true value (both properties in strong markets). I had an appraisal on my personal residence two years ago and it was way off...and I live in a national builder neighborhood where all homes sell within a very tight price per sqft (cookie cutter). Appraisals are a very weak spot in the industry. And it's not about emotion.

    0Reply
  • Caleb Christopher
    Title Representative · Denver, CO · Member since 2020 · 126 posts · 66 votes
    6y

    @David McClain

    So that's a lessons-learned for all of us. And it was on the BP podcast too (IDK what episode)...

    **If you have a number in mind for an appraiser, you have to do the work ahead of time to go get comps and show how your pretty is either similar or different.** After the fact is too late.

    You can only do so much, but most appraisers (according to the podcast) would at least look at what you have to show. It may make their job easier, for one thing.

    You can't "influence" but you can sure make it easy for them to do their job.

    0Reply
  • Caleb Christopher
    Title Representative · Denver, CO · Member since 2020 · 126 posts · 66 votes
    6y

    @David McClain I'm not roasting you here, but I want to make sure we all get to share lessons-learned.

    So this lesson learned is about exit strategies. On this case it bart have been unavoidable, but it sounds important to have more than one exit strategy from the start.

    Needing capital back limits or eliminates the rental option, and that's tough.

    I know you're still trying to figure out the right answer but I wonder if you'd let us know how you'd do things differently (if at all) based on these lessons-learned.

    0Reply
  • Caleb Christopher
    Title Representative · Denver, CO · Member since 2020 · 126 posts · 66 votes
    6y

    @David McClain

    I like the spirit of your acceptance of the contingency. I may well have done the same because I thought they were the right PERSON. What I just learned though is that the right person is a nice-to-have and not a functional requirement of the sale.

    So my lesson is that making a potential deal-killing concession for the nice-to-have benefit of selling to a kindred spirit is not worth it.

    0Reply
  • Joe Scaparra
    Investor · Austin, TX · Member since 2013 · 680 posts · 1k+ votes
    6y

    @David McClain, the pangs of flipping.  Just this January I was involved in the same thing, but on the other side.  It involved a duplex originally priced at $209k and worth every bit of it.  But it was in a sleepy little town just outside of Austin, TX.  RE in that town just beginning to POP.  Contract on it right away but fell through days later, they called us to see if we wanted to resubmit our 193k low ball offer.  Sensing they were in panic mode we offered 189k they accepted.  Appraiser hosed them over and valued the duplex at 168k.  The appraiser was out to lunch but would not change his mind.  We smelled blood in the water and settled for 174k.  Unbelievable.  This duplex will be valued at 300k in three years or less.  I sensed for some reason the owner had to sell and the small time realtors panic.

    I only tell you this because you are looking at your situation only from your eyes.  You will be lucky if the buyer(not investor) is going to step up and pay more for your house than the appraiser stated.  Why, because I don't see Cincinnati has a hot real estate market similar to Austin TX.  If not then I don't see people flocking to overbid.  

    The pangs of flipping!  Your options, Lower your price and move on, rent for a year or 6 months and put back on the market, move into it yourself, or keep it on the market and be frustrated.  Get out the notion that a cash buyer is going to come in and buy your property.  NOT GOING TO HAPPEN.  Cash buyers are investors looking for a fabulous deal.  This doesn't sound like one.  

    The good new (I hope for You), it that this deal is not going to kill you.  So take away a few lessons.  On a significant rehab that you are hoping appraises higher than the neighbored, be there when the appraiser shows and make sure he has all the available information.  Go as far as giving him comparable that you would like for him to use.  People are lazy and if you make sense and let him know what you need you have a better chance of getting your price needed.  Remember in everything you do, you're not in the RE business, YOU'RE IN THE PEOPLE BUSINESS.    2nd (possible) lesson, did I over do the improvements and/or did I under estimate the cost of REHAB.  The two hardest items to get right on a rehab is repair cost and appraisal.  Make sure you have significant slop in both figures.  Cheers.

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