Ok, we went back to the drawing board last night and decided what kind of cash offer we are comfortable with on this distressed triplex (a 1935 house turned into a triplex in 1995 that has stayed at 90% or higher occupancy since -right around the corner from us - high rental demand area and location is right next to bus stop/technical college, etc) We have been under contract at 71K for 5 weeks. Appraiser had the hardest time completing appraisal b/c of lack of comps. He ended up using some old quadplexes in the area and came up with an as is value of 21k. (59k after the 38k of work we are planning to put into it). By the way it is very rentable as is (just needs new carpet and paint), but most the 38K would really preserve the investment, solidify the rental income, and we want to be responsible landlords. We have decided not to touch the equity in our primary mortgage (most of it was a gift from my parents, so I especially want to respect that.) Currently, we have a request into Fannie Mae to reduce the sales price to 21K according to the appraisal. We are expecting them to say "no." And then we are planning to do a cash offer. We have 17k cash on hand to work with and we can access a 401k loan at 4% for 5 years, so our "highest and best" will be 35k cash and then re-fi for 70% of appraised after-construction value (59K) - WF lender (who was wrong last time) is still saying we can easily get that to do the construction. #s below. cash offer 35000 attorney fees 1000 401k loan 24000 our cash 11000 Re-Fi - amount out 41,300 70% of 21k plus 38k = 59k pay construction 38000 re-fi closing costs- cash 5000 pay cash leftover from re-fi 3300 7300 total cash for emergencies monthly cash flow: re-fi loan 210 41,300 over 30 years 401k loan payment for 5 years 448 24000 over 5 taxes 167 insurance 100 total month pymnt 925 Rental income/expense: years 1-5 rental income minimum 1675 500, 550, 625 initial monthly pymt -925 first 5 years rental profit 750 taxes on profit 10% -75 reapirs per month -200 rent loss empty units -100 profit 375

Without see the trustee's sale notice, I can't for say for certain what the minimum bid was, but appraiser is saying BofA got it back for $37K. Without researching the title you can't really know what was going on. It could be that the other investors stayed away for a good reason, and/or because the foreclosure would solve some title issues. There's a lot of things that could have made it not worth bidding on at sale. There could have been past due property taxes and code compliance issues. Could have been some other kind of liens that needed to be wiped out at sale.

@David Krulac - A common misconception about appraisals is that they are supposed to be absolutely accurate. Another misconception is that they are ordered because the parties invloved have no clue what the value is. As for accuracy, the industry considers an appraisal accurate if it is within +/- 10%. Thats a 20% spread in the range of value if the property is valued in the middle. I have seen markets where the range of value for similar properties can be much, much more. Another aspect is that an appraisal estimates the value of a subject property by incorporating the sale prices of other properties. Ever see two properties exactly similar? How about the human dynamic? One realtor might price high to get a larger commision while the next might price low to get a faster sale - you wont see that line item adjusted for in an appraisal. I could go on and on. All of this brings me to the second misconception. You may ask, if an appraisal is most often not absolutely accurate, what's the point in the first place? The answer is two part. First, an appraisal is only reasonably accurate, and what is reasonable is decided by the client who orders the appraisal. The accuracy needed determines the scope of work (or level of research and analysis). In the case of a mortgage appraisal, the lender knows full well the reliability of the appraisal (which is one reason they only lend 80%), but for them it provides accuracy within a certain parameter. How many borrowers would you suspect would be willing to pay $1000 or more for an appraisal? There is a balance to the system that often gets overlooked. The second part of the answer is why 99.999% of all residential appraisals are ordered in the first place, dishonesty. The appraiser is the person who does not have any interest in the outcome of the transaction. Their fee is not tied to the value as most all other parties are. So, calculating a value is not the main reason appraisals are ordered. The majority of people on this forum can estimate the value of a property as competently and accurately as any appraiser. An appraisal is nothing more than a tool for lenders and municipalities. If people were honest, there would be no appraisal industry.

@Mary Interesting thread. I have something to say, but would prefer to say it privately. Would you please email me your email?

and here's a note i just got from an appraiser who looked over the appraisal for me - before doing a cash offer (which we can only go up so high on that) we were considering having him do an independent appraisal - but I think we're trying to go conventional loan first - here's his note:"Here is what I am seeing. I would replace the lowest adjusted value comp in his report and add the highlighted duplex below. This would at least mix it up where all the comps are not quads. I would also add one the active triplex's to the report in the place of his comp 5 or 6. If you look at the actives and pendings you can see you are getting the least expensive multilevel left in that area so I don't think the price is off by that much. I would probably end up getting closer to value with the switches but it is up to you."

ok, bill, good idea. we're hoping to sit down with him and our realtor monday to come up with a plan of action - probably making a conventional loan offer of around 55 to start with - thinking they're going to re-list around 62K - and then get another appriasal an/or have this appriaser re-do this appraisal to an as-is appraisal and then we can reserve the cash needed to do the minimum repairs and make additional repairs over time.

Hmmm, sure implied 21k to me, but, next time you talk to him, if it's available, ask him for a "letter of opinion" stating he had done the appraisal, (which should have had an as is value in some manner) and attach the letter with your offer. :)

paying more than appraised value?

Mary Hoyt

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Clarkston, GA · Member since 2013 · 24 posts · 2 votes

13y

i would love to hear any thoughts on this deal, but I guess my driving question is, do you cash investors ever do this? pay more than appraised value b/c of the rental value even though you may not be able to sell it except to another cash investor? or should we just sit on the 21K appraised value offer and wait it out???

of course, you're not supposed to fall in love, and I mostly haven't. but it is a really, really cool old house in an amazing location and potential renters lined up, and....

paying more than appraised value?

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