Turnkey is asking to ignore the appraisal value

San Francisco, CA · Member since 2019 · 21 posts · 7 votes

I'm I not reasonable for not signing my turnkey contract because it has this condition?

"If the property appraises for $120,000 or more the buyer agrees to purchase the property at the $129,950 purchase price indicated in this contract."

Do you find that condition common in turnkeys contracts?

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Mike Dymski

Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes

Only if you like starting off $10k in the hole...

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Account Closed
Specialist · San Antonio, TX · Member since 2012 · 865 posts · 351 votes
6y
@Ahmed Youssef you pay more for the convenience. Things cost more at the Shell gas station than at the local supermarket. My kids loves getting treats when I stop to fuel up on gas. Due to the timing of their request I usually over pay for the convenience. My time is to valued to say, “ no children I’ll take you to the grocery store instead. On the other hand I would be foolish to only buy my food at a gas station as the only method.
9 Reply
Theresa HarrisPro Member
Member since 2019 · 15k+ posts · 11k+ votes
6y
@Ahmed Youssef It is your money and your choice, but why would you buy something worth $120K for $129K?
10 Reply
Mike Dymski
Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes
6y
Only if you like starting off $10k in the hole...
12 Reply
Account Closed
Specialist · Paradise Valley, AZ · Member since 2018 · 3k+ posts · 2k+ votes
6y
Originally posted by @Ahmed Youssef:
I'm I not reasonable for not signing my turnkey contract because it has this condition?
"If the property appraises for $120,000 or more the buyer agrees to purchase the property at the $129,950 purchase price indicated in this contract."
Do you find that condition common in turnkeys contracts?

Strike out the ~~$120,000~~ and put in $130,000 and see what they say. It's common to negotiate contracts.
10 Reply
Jeff Kobernus
Real Estate Agent · El Dorado Hills · Member since 2018 · 32 posts · 41 votes
6y
I wouldn't consider that being $10k in the hole. Many times in a competitive situation I will write a contract stating buyer is purchasing the property at $500k. Buyer willing to pay up to $15k over appraisal price with a cash of $500k.
Meaning if the property appraisers at $485k or higher they are paying $500k. It protects the buyer so they know they have a max out of pocket of $15k. This is done when buyer can't totally waive an appraisal.
If it appraises at $470k they are paying $485k. Appraisals are opinion of value. You can have 3 different appraisers appraise a property and I will guarantee they will all be different prices.
THE REALITY is it depends on the deal. Sometimes the deal has great cash flow, or is in a great area or a buyer really wants a property and they are willing to pay over an appraised value to get it. Just depends on what you see as the potential. IF you think your going to hold the property for 15-20 years and it produces great income will $10k be the difference of a good or bad deal? Your discretion.
What if the property appraised for $145k what would it mean? the answer is NOTHING doesn't mean you can sell it for $145k doesn't mean you can refi and pull that $15k out. Maybe I am misunderstanding the question but I see this come up when a house has multiple buyers involved.
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Russell BrazilBusiness Member
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Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
6y
Turnkey you are often paying a premium for it to be turnkey.
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Michael King
Rental Property Investor · Navarre, FL · Member since 2019 · 913 posts · 640 votes
6y
Sold my residence in Texas. List price was $299K and a buyer offered full price. The buyer's contract said if it appraises for $290K or more, the buyer will pay list price. And if it didn't appraise, then we'd be back to negotiating. It appraised.
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Matt K.
Walnut Creek, CA · Member since 2015 · 3k+ posts · 2k+ votes
6y
Give me 5k and I'll find you something ready to go that at a minimum apprises for purchase price lol
1 Reply
Andrey Y.
Specialist · Honolulu, HI · Member since 2014 · 1k+ posts · 1k+ votes
6y
Originally posted by @Ahmed Youssef:
I'm I not reasonable for not signing my turnkey contract because it has this condition?
"If the property appraises for $120,000 or more the buyer agrees to purchase the property at the $129,950 purchase price indicated in this contract."
Do you find that condition common in turnkeys contracts?

Ask yourself.. who profits more from a SFH Turnkey transaction - The buyer or the seller ? It shouldn't take a lot of thinking to arrive at the answer.
3 Reply
Chris ClothierBusiness Member
Rental Property Investor · memphis, TN · Member since 2009 · 2k+ posts · 3k+ votes
6y
Originally posted by @Ahmed Youssef:
I'm I not reasonable for not signing my turnkey contract because it has this condition?
"If the property appraises for $120,000 or more the buyer agrees to purchase the property at the $129,950 purchase price indicated in this contract."
Do you find that condition common in turnkeys contracts?

I am not sure about other Turnkey contracts and to be fair, there is very little "common" to the turnkey business model because the word itself has been so over-used to where it has so many different meanings. However, I would not view it as a negative of the company. They are telling you on the front-end, before you sign a contract that the price listed is the final price. They are alerting you before you sign the contract that regardless of appraisal, the price listed is the price. This is not a bad thing. The real question for the buyer is about value. Not just the value of the property but the value of the investment and the experience. Is it reasonable that the property is worth the asking price and the investment and the way it is delivered to me will both be positive? If so, then am I satisfied enough that I would not walk away from my Ernest money and bring more dollars to closing? Remember, that the additional money you bring is also earning the same return as your original down payment.
I have personally talked to many investors who just aren't willing to do that. It goes against their natural grain. At the same time, I have talked to just as many who see it simply as an investment tool and they are more concerned with their over-all IRR on their investment so they are looking at more than just purchase price when closing. In the end, I don't think its unreasonable at all if you are not comfortable. I think that is absolutely personal preference as an investor. But, I also don't view that statement as a negative. I think it gives you good reason to take a pause and make sure that you are comfortable that the company and property both will give you the positive experience and return that you expect.
Good luck to you!
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8 Reply
Lynnette E.
Rental Property Investor · TN · Member since 2018 · 2k+ posts · 2k+ votes
6y
I would never pay over the appraisal value for a house unless it was in a very hot market and I personally needed a place to live. For investment purposes, nope, there are too many properties to choose from where I would not owe more than its worth. Even more so when most of these turnkeys are in the hood and there are lots of properties for the turnkey company to pick up for nothing and rehab. Not shortage of property there. Also no shortage of out of state investors who want in the game with more money than other things.
6 Reply
Ahmed Youssef
OP
San Francisco, CA · Member since 2019 · 21 posts · 7 votes
6y
@Account Closed I'm still new to RE investing, and honestly I can't afford investing where I live in CA nor have the time to travel to a different state to manage a rehab project, so I though turnkey is they most suitable option for me, and from what I've been reading everyone says that turnkey doesn't necessarily mean I've to pay more or pay a premium, they buy distressed houses at cheap, rehab them and sell them at the market price. So, what I was looking for is the market price, I wasn't looking for adding instant equity after closing not low balling a seller. If that option wasn't part of the contract and the appraisal came low the seller can walk away from the contract, but with this condition, I have to bring $10K to the closing table or lose the $2500 EMD. More out of pocket means less COC and $10K is a lot of money compared to the initial expected 25% down ($32000) that would have brought the COC 4~5% down
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Ahmed Youssef
OP
San Francisco, CA · Member since 2019 · 21 posts · 7 votes
6y
@Mike Dymski @Theresa Harris I absolutely don't want to do that, specially with my first investment property, and that's why I walked away from the deal despite it was a decent one. but $10K is a hell lot of money compared to the $32K down payment and will bring the COC down aggressively
2 Reply
Ahmed Youssef
OP
San Francisco, CA · Member since 2019 · 21 posts · 7 votes
6y
Originally posted by @Account Closed:
Originally posted by @Ahmed Youssef:
I'm I not reasonable for not signing my turnkey contract because it has this condition?
"If the property appraises for $120,000 or more the buyer agrees to purchase the property at the $129,950 purchase price indicated in this contract."
Do you find that condition common in turnkeys contracts?

Strike out the ~~$120,000~~ and put in $130,000 and see what they say. It's common to negotiate contracts.

I did but they didn't budge and asked to cancel the contract, I didn't know that KCMO market is that hot, I know it a good market to invest in, but I don't think it reached the level where I should bring 30% of the down payment as extra cash to the closing table.

0 Reply
Ahmed Youssef
OP
San Francisco, CA · Member since 2019 · 21 posts · 7 votes
6y
@Andrey Y. I'm not sure what you mean, could you please explain?
0 Reply
Account Closed
Member since 2019 · 1k+ posts · 1k+ votes
6y
@Ahmed Youssef
$10,000 on $120,000 total value is over 8%. If you can’t personally appraise that house yourself with confidence more accurately than 8.5% what are you buying it for? If you CAN personally appraise that house because you’ve studied accurate and applicable SOLD comps for the last 4 months and have inspected it in person closely enough that you KNOW it’ll appraise low or high then this becomes and easy question to answer. Why people buy houses based off a dozen pamphlet pictures in a town they’ve never been to is beyond me. That wording alone makes it seem like the turnkey co is fairly sure they’ve priced it over likely appraisal. I’ve got a $40,000 Trans Am I’ll sell you for $45,000 if you want. Heck it’s even 1 of 7 ever produced.
2 Reply
Ahmed Youssef
OP
San Francisco, CA · Member since 2019 · 21 posts · 7 votes
6y
@Account Closed Actually what you said is what I was thinking, the surprise is that contract came from one of the most reputable turnkey companies in KCMO on BP.
Also, not only they're asking me to bring $10K extra to the closing table, but also they offloaded all the closing cost on me. even the obvious seller closing cost like the buyer's title insurance or even splitting the escrow.
0 Reply
Ahmed Youssef
OP
San Francisco, CA · Member since 2019 · 21 posts · 7 votes
6y
Originally posted by @Jeff Kobernus:
I wouldn't consider that being $10k in the hole. Many times in a competitive situation I will write a contract stating buyer is purchasing the property at $500k. Buyer willing to pay up to $15k over appraisal price with a cash of $500k.
Meaning if the property appraisers at $485k or higher they are paying $500k. It protects the buyer so they know they have a max out of pocket of $15k. This is done when buyer can't totally waive an appraisal.
If it appraises at $470k they are paying $485k. Appraisals are opinion of value. You can have 3 different appraisers appraise a property and I will guarantee they will all be different prices.
THE REALITY is it depends on the deal. Sometimes the deal has great cash flow, or is in a great area or a buyer really wants a property and they are willing to pay over an appraised value to get it. Just depends on what you see as the potential. IF you think your going to hold the property for 15-20 years and it produces great income will $10k be the difference of a good or bad deal? Your discretion.
What if the property appraised for $145k what would it mean? the answer is NOTHING doesn't mean you can sell it for $145k doesn't mean you can refi and pull that $15k out. Maybe I am misunderstanding the question but I see this come up when a house has multiple buyers involved.

That makes sense if the market is a really hot market, that's the case in CA for example, you bid higher than the purchase price because what you're looking for is the appreciation not the cash flow. But that contract was on a property in KCMO which is supposed to be a cash flow market, one only considers purchasing a property when they run the numbers with 25% down payment and a reasonable closing cost and the property produces a reasonable cash flow and COC return, but adding $10K extra in cash, takes 4~5% out of the COC

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Account Closed
Member since 2019 · 1k+ posts · 1k+ votes
6y
@Ahmed Youssef
Just my opinion but if they’re big and successful etc they should absolutely be able to narrow that spread with confidence. If they can’t, they’re letting some part of the process slip. If they’ve completed 1,000 or 100 or heck even a dozen just like it in that market they should have a more accurate idea of what it will appraise for.
1 Reply
Ahmed Youssef
OP
San Francisco, CA · Member since 2019 · 21 posts · 7 votes
6y
@Account Closed Do you know turnkey companies in KCMO which you would recommend?
0 Reply
Account Closed
Member since 2019 · 1k+ posts · 1k+ votes
6y
@Ahmed Youssef
No sir, I do not.
0 Reply
Matt BurrPro Member
Real Estate Investor · Chelsea, MI · Member since 2017 · 56 posts · 13 votes
6y
@Ahmed Youssef @Jeff Kobernus is spot on. You are already buying from a turnkey company. Nothing wrong with that but that means you know your not buying the greatest deal on earth.
This line is just a protection for them to keep from getting nickel and dimed by appraisers. Think about it they are just saying within 5% we will stick to our purchase price.
If you stay in real estate long enough you will find yourself a believe in the fact the appraiser is just taking his best guess. It isn’t the end all be all. It is a snap shot in time markets easily fluctuate over that five percent in a few years time. The more important thing is is this house an an area you believe will go up?
Also as suggested by Jeff what is the cash flow on this deal. If you cash flow $1,000 a month compared to other deals at $500 wouldn’t you rather just buy this for slightly more than appraised value?
3 Reply
Account Closed
Rental Property Investor · Brooke Park Drive · Member since 2018 · 1k+ posts · 2k+ votes
6y
@Ahmed Youssef
4% is to small
You must find a bigger coc

0 Reply
Account Closed
Investor · Milwaukee, WI · Member since 2013 · 1k+ posts · 1k+ votes
6y

If you need the bank to cover the turn-key premium, then offer $10k less.

The $129k list price reflects more than just the property itself. This is why it is likely the appraised value will be less, and why the contract is asking you to agree to not back out in the event the appraised value is less than the contract price. What you could do, is write an addendum that says you will not back out if the property appraises to a value equal the list price minus the turn-key premium. That will save you from paying more than the property is worth, but won't save you from paying the premium. If you are purchasing with credit, the bank is not likely to lend you money for the turn-key premium.
So, they aren't so much asking you to ignore the appraised value, rather are being up-front and transparent about the presence of the premium. I dunno...that seems more-legit and less-sketchy to me than pretending like it isn't thrown in there.
The premium is usually paid because the property has already been assessed for and repaired, management is in-place and offered for the future and finally, tenants are already in the units paying rent. It seems the market value for these things in KC is $10k. Or, is it???? LOL.
Good luck!

0 Reply
Bob Prisco
Specialist · Cleveland, OH · Member since 2018 · 1k+ posts · 666 votes
6y
@Ahmed Youssef I have never heard of this. I have flipped about 500 props to CA and Israel investors. My PP includes any and all rehabs, passing all inspections and placing the tenant . All sales are below appraised value . Its not about making a home run on every deal, singles and doubles " win the race" its all about referrals. You need to find a better team,
Good Luck
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