paying more than appraised value?

Buying & Selling Real Estate
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paying more than appraised value?

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

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

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Kelly N.
Investor · SE, MI · Member since 2013 · 1k+ posts · 461 votes
13y

Hi Mary,

I'm new too, just responding to your thoughts on giving up if this deal doesn't happen...

I fell in love with a house, beautiful duplex that had EVERYTHING updated. We bid low on it, they countered, we countered again, ended up loosing it to another buyer who paid 90% of their asking price- we were at about 80%. You know what happened next? We quickly found another deal! Got it for 2/3 the listing price, fully occupied and cash flowing. This was actually a house I initially rejected, mainly on emotions. Not the prettiest thing, and the studio apartment has a funky layout, but the thing rents fine. We've since got a contract on a second triplex, got a great deal on this one too! We're paying about 93% of the asking price, but they'd just lowered the price by 22% so I still feel we got a deal. Our inspector was shocked at the price we got and this house is prettier than the first. And more importantly, will make more $$

Anyway, the point is, you decided this was something you wanted and went for it. It may not work out on the first house, but there will always be another house, another deal, and possibly better ones. So keep going, keep after it, make this happen! I'm a stay at home mom too, looking forward to teaching my kids the ropes so they can be financially secure too!

Kelly

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  • Mary Hoyt
    OP
    Clarkston, GA · Member since 2013 · 24 posts · 2 votes
    13y

    so Bank of America was selling it for $37,000 in January? but no one bought it? (cash only i assume?) and now fannie mae wants $67,000 for it?

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  • Mary Hoyt
    OP
    Clarkston, GA · Member since 2013 · 24 posts · 2 votes
    13y

    hey, guess what! I just talked to the appriaser.

    I found his cell phone online, and I know the guy!

    well, i met him once two years ago. he's a realtor as well and showed us a few houses once. so he was super nice on the
    phone and said he didn't mean to imply that the as-is value if only 21K - he thinks it's more like 40-45K. I agree. Selling bank still thinks it's 62K, so can't we all agree on 50K and someone give us a loan? :)

    Anyways, he's happy to sit down with me and my realtor next week and discuss options in depth. He knows our hearts for the community we live in and says that our ties to the refugee community here and our desire to provide well-run, affordable housing could be helpful to share with fannie mae (maybe send a family pic like ....was it Brandon?....did recently?).

    so there are options.

    wishing i had 50k right now instead of 20k and could just buy it cash and then re-fi to do construction, but oh well...

    let me know if you have any other thoughts/advice!!!
    next move will be on mon/tues

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  • Account Closed
    Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes
    13y
    Originally posted by Mary Hoyt:
    so Bank of America was selling it for $37,000 in January? but no one bought it? (cash only i assume?) and now fannie mae wants $67,000 for it?

    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.

    1Reply
  • Account Closed
    Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes
    13y

    duplicate post

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  • Mary Hoyt
    OP
    Clarkston, GA · Member since 2013 · 24 posts · 2 votes
    13y

    Ali, I love your blog. Thanks so much for the perspective...kind of discouraging news but good info nonetheless. I'm still trying to figure out what a hipster is and if I'm too old to be one.

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  • Account Closed
    Investor · Milwaukee, WI · Member since 2013 · 1k+ posts · 1k+ votes
    13y

    @Mary

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

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  • Mary Hoyt
    OP
    Clarkston, GA · Member since 2013 · 24 posts · 2 votes
    13y

    below is the urban dictionary's definition of hipster.

    alas...i think i have been and will have to be content to remain a friend-of-hipsters with a quasi-hipster mindset (i.e. low consumerism, progressive politics, counter-culture, love of art, lit, and knowledge in general) ... i do shop almost exclusively at thrift stores, but I don't think I could pull off the "effortlessly cool" look or a sudden love for indie rock...alas...

    - "Hipsters are a subculture of men and women typically in their 20's and 30's that value independent thinking, counter-culture, progressive politics, an appreciation of art and indie-rock, creativity, intelligence, and witty banter. The greatest concentrations of hipsters can be found living in the Williamsburg, Wicker Park, and Mission District neighborhoods of major cosmopolitan centers such as New York, Chicago, and San Francisco respectively. Although "hipsterism" is really a state of mind,it is also often intertwined with distinct fashion sensibilities. Hipsters reject the culturally-ignorant attitudes of mainstream consumers, and are often be seen wearing vintage and thrift store inspired fashions, tight-fitting jeans, old-school sneakers, and sometimes thick rimmed glasses. Both hipster men and women sport similar androgynous hair styles that include combinations of messy shag cuts and asymmetric side-swept bangs. Such styles are often associated with the work of creative stylists at urban salons, and are usually too "edgy" for the culturally-sheltered mainstream consumer. The "effortless cool" urban bohemian look of a hipster is exemplified in Urban Outfitters and American Apparel ads which cater towards the hipster demographic. Despite misconceptions based on their aesthetic tastes, hipsters tend to be well educated and often have liberal arts degrees, or degrees in maths and sciences, which also require certain creative analytical thinking abilities."

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  • Bill Gulley
    Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
    13y

    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. :)

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  • Mary Hoyt
    OP
    Clarkston, GA · Member since 2013 · 24 posts · 2 votes
    13y

    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.

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  • Mary Hoyt
    OP
    Clarkston, GA · Member since 2013 · 24 posts · 2 votes
    13y

    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."

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  • Account Closed
    Investor · Milwaukee, WI · Member since 2013 · 1k+ posts · 1k+ votes
    13y

    @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.

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