West Hollywood, CA · Member since 2016 · 235 posts · 72 votes
Hey everyone.
I could use some advice from some creative thinkers out there. Here is the situation...
A client of mine is about to lose her financing because she just quit her job to move to another state, Before she quit, we found her a triplex that is producing $3250/month in revenue and we went under contract for $385k.
Now, the appraisal is coming in at $308k but the income value according to the appraiser is $355k.
Regardless, the seller will probably not accept $365k, let alone $308k and there will be a decent gap. If the deal falls apart, my client won't be able to use financing for 3 years or so and will lose the $2000 in appraisals, inspections, etc. and of course the seller will lose out on the sale and the time and effort.
Is there something I am missing besides the buyer either paying the difference in cash or walking?
Anything that would benefit both sides would be great. Thank you!
They will often use that if the property is currently performing.
Also, I don't think current rents would increase the value that much though. Perhaps pull some comps and see if the price is substantiated. If it isn't then don't have your client buy it. That's not a ton of income for that price point (unless there is upside potential on improving rents).
They will often use that if the property is currently performing.
Also, I don't think current rents would increase the value that much though. Perhaps pull some comps and see if the price is substantiated. If it isn't then don't have your client buy it. That's not a ton of income for that price point (unless there is upside potential on improving rents).
I had a similar situation as the contract buyer of a four-plex. I was told that appraisers go purely on comps for 4 units or less because they are residential properties, not commercial. Rental income didn't matter. I wound up passing on the property because the sellers wouldn't lower their price anywhere near the appraised value. It sucked to lose the money but spending that cash was part of my due diligence and part of how it goes sometimes.
@Bradley De comarmond Has your client talked to the bank? Given it's a triplex I would have though the bank would use comp appraisals rather than an income approach to arrive at a value. If the bank is willing to use an income approach it sounds like a "$30K problem" rather than a "$77K problem". If I were in your shoes I'd be asking the sellers agent for their thoughts. They have to know that subsequent appraisals are going to come in (unless one of the appraisers is incompetent) at a similar value so it's going to kill any/all future offers that are dependent on financing. If you limit your options to all-cash deals you lower your buyer-pool and that more limited buyer pool will be wanting an all-cash "discount" of some sort.
Maybe another question to posit is: Why is your buyer is so eager to pay $385K for a property appraised at $308K? I don't like the idea of paying 125% of the appraised value for a property, but who knows, maybe there's a good reason.
I could use some advice from some creative thinkers out there. Here is the situation...
A client of mine is about to lose her financing because she just quit her job to move to another state, Before she quit, we found her a triplex that is producing $3250/month in revenue and we went under contract for $385k.
Now, the appraisal is coming in at $308k but the income value according to the appraiser is $355k.
Regardless, the seller will probably not accept $365k, let alone $308k and there will be a decent gap. If the deal falls apart, my client won't be able to use financing for 3 years or so and will lose the $2000 in appraisals, inspections, etc. and of course the seller will lose out on the sale and the time and effort.
Is there something I am missing besides the buyer either paying the difference in cash or walking?
Anything that would benefit both sides would be great. Thank you!
-Brad
Reading between the lines here, I have a question.
Are you aware that people doing GSE gov't subsidized loans verify employment independently a few days before the loan funds? It's not like "oh we had paystubs when we went under contract, so it's not a problem that she now has no income!" 2006 was over a decade ago.
@Chris Mason Her HR verified employment already and said they would for the next few weeks since she's using vacation time so hopefully that works but I'm fuzzy on that.
@Andrew Johnson The seller is an agent is isn't very motivated. They want to buy a similar property an hour closer to them to self manage but obviously they're not looking to lose much. As for the buyer, she's down to $360k being her number after the appraisal and inspection. Bottom line is that the market is so hot that there aren't any other properties in her price range and location with that amount of cashflow. If she bails, her financing would be gone and won't be using cash. It's just high demand, low supply, take the cashflow you can get type of situation.
Thanks @Lora P. That may be the case here but hoping not.
@Anthony Angotti yeah we proved leases that were going for 3 years and a few hundred under market rents (which the appraisal also revealed)
@Chris Mason Her HR verified employment already and said they would for the next few weeks since she's using vacation time so hopefully that works but I'm fuzzy on that.
@Andrew Johnson The seller is an agent is isn't very motivated. They want to buy a similar property an hour closer to them to self manage but obviously they're not looking to lose much. As for the buyer, she's down to $360k being her number after the appraisal and inspection. Bottom line is that the market is so hot that there aren't any other properties in her price range and location with that amount of cashflow. If she bails, her financing would be gone and won't be using cash. It's just high demand, low supply, take the cashflow you can get type of situation.
Thanks @Lora P. That may be the case here but hoping not.
@Anthony Angotti yeah we proved leases that were going for 3 years and a few hundred under market rents (which the appraisal also revealed)
That's super borderline, I hope your buyer has contingencies in place.