Appraiser Value is less then Sale price? what should I do

21 Replies

Hello BP members...

I have a flip home that's in the contract for $132K.

The buyer is going thru an FHA loan, and the appraised value came out to $125.

The buyers don't have the 7K to cover the difference, and b/c its some sort of FHA loan.. they pretty much have little Down Payment.

Can anyone suggest any other option for the buyers (and or me) so that this deal can close at 132k?

- Jai

Can you seller finance the $7k and let them make you payments at a set interest rate?

Are there comps that actually support the $132k price or is the $125k a fair appraisal?

If you look at it like a numbers game you need to ask yourself the following.

First and foremost: 

"Is the appraised value of $125k accurate?" -If it is you have to either a) lower your price b) exclude certain buyers c) fight the appraised value

"How many months can I float this loan (132k or whatever you financed) before I lose out on a potential $7k I would have to eat if I lowered my price?" -Lets pretend it is 7 months. ($1k monthly payment on your finance)

"In 7 months will I get another offer of $132k?" -depends on the market and price point.

"Will that other offer, be able to make up that $7k difference?" - My gut would say no, just because you are at such a low price point already.

So what are your options?

A) Sell for $125k, take your lumps, make a little less money, learn some lessons.

B) Submit documentation to the appraiser and try to get that appraised value raised.

C) Leave it on the market and slowly bleed out that $7k until another offer come along.

D) Set up a lease to own option with the people looking to buy the home.

I am sure more experienced investors can come up with a better idea but as it stands now those seem to be the options I see. And your response might change given how you financed the flip (hard money vs personal funds) and what your long term goals might be.

@Brian Garrett Actually the comps do not support $132.  there hasn't been a sale in this neighborhood in a while. I do think the $125k is probably where it should sell..  But I will be at a loss.  

and I have had 8 offers, all offering at 132 or more. 

Why not go with a different offer? 

Surely someone can come up with the difference.

Especially in a multiple offer situation if they really want the house.

Did you show 8 offers at $132k or higher to the appraiser?

@Michael Randle   I think $125K is where it should be, however, the house has been on the market for 5 days.. and basically, I Have had 8 offers between 130 -134K. (technically speaking it was on the market for 4 days) 

I do Have a hard money loan. so I want to get rid of this quick.  

My agent is doing option B right now as we speak. 

Thank you for your response. 

If you look at it like a numbers game you need to ask yourself the following.

First and foremost:

"Is the appraised value of $125k accurate?" -If it is you have to either a) lower your price b) exclude certain buyers c) fight the appraised value

"How many months can I float this loan (132k or whatever you financed) before I lose out on a potential $7k I would have to eat if I lowered my price?" -Lets pretend it is 7 months. ($1k monthly payment on your finance)

"In 7 months will I get another offer of $132k?" -depends on the market and price point.

"Will that other offer, be able to make up that $7k difference?" - My gut would say no, just because you are at such a low price point already.

So what are your options?

A) Sell for $125k, take your lumps, make a little less money, learn some lessons.

B) Submit documentation to the appraiser and try to get that appraised value raised.

C) Leave it on the market and slowly bleed out that $7k until another offer come along.

D) Set up a lease to own option with the people looking to buy the home.

I am sure more experienced investors can come up with a better idea but as it stands now those seem to be the options I see. And your response might change given how you financed the flip (hard money vs personal funds) and what your long term goals might be.

@Matt K.   So I had 8 offers... 

The first offer I accepted, it was a cash deal. turned out he offered many homes and picked the best 4 or 5 homes (mine was not on that list) then I took an offer with someone, in which they didn't like the inspection report. 3rd contract was with someone who lost their job during the loan process. And so I took this offer with FHA.. they had a family.. and wanted to make sure they get this home.

Originally posted by @Jaison Emmanuel :

@Matt K.   So I had 8 offers... 

The first offer I accepted, it was a cash deal. turned out he offered many homes and picked the best 4 or 5 homes (mine was not on that list) then I took an offer with someone, in which they didn't like the inspection report. 3rd contract was with someone who lost their job during the loan process. And so I took this offer with FHA.. they had a family.. and wanted to make sure they get this home.

What about the other 4? Pretty sure FHA appraisals stick with the property for something around a year... but I'm not sure of the exact details. Why not go w/ someone else who was stronger candidate and not using FHA...

Originally posted by @Jaison Emmanuel :

Hello BP members...

I have a flip home that's in the contract for $132K.

The buyer is going thru an FHA loan, and the appraised value came out to $125.

The buyers don't have the 7K to cover the difference, and b/c its some sort of FHA loan.. they pretty much have little Down Payment.

Can anyone suggest any other option for the buyers (and or me) so that this deal can close at 132k?

- Jai

 Take the offer with the highest down payment that's conventional. 

Let's say someone wants to put 25% down @ $132k as an owner occupant. They will be applying for a 75%*$132= $99,000 loan @ 75% LTV. Suppose their appraisal also comes in at $125k.

$125k * 80% = $100,000. Meaning the lender will lend up to $100,000 @ 80% LTV. Whelp, they only applied to borrow $99k, so this can still go through with ZERO additional down payment required.

LLPA for 75% v 80% for an owner occupant with good credit will be 0.25% delta holding constant the rate... meaning if the buyer pushes back, you can offer a seller credit for 0.25% of the loan amount ($247.50), and the buyer gets the same net interest rate pricing as if it were a 75% LTV loan because you're covering the delta.

I of course cannot predict how the next appraisal will turn out or negotiations. But the above outcome is ONLY possible for someone coming in with 25% down. It'll vary if someone wants to do 20% down or 15% down, but the idea will still apply. 

@Matt K.   Well now I have to figure if those people still willing to buy. Its been 2 months since they offered.  and closing is supposed to be next week.   Waiting around for another potential 90 days is long and wast of time. 

Originally posted by @Jaison Emmanuel :

@Matt K.   Well now I have to figure if those people still willing to buy. Its been 2 months since they offered.  and closing is supposed to be next week.   Waiting around for another potential 90 days is long and wast of time. 

 Which is why you should of evaluated and picked the strongest offer upfront....  I had friends that benefited greatly from a situation like this because of 2 offers in a bidding war one was cash investor the other first time home buyer... Investor walked and first time home buyer couldn't close. So my friends came in and got house for less than asking and no haggling since they had good money down and strong pre-approval... and seller was deadlines they couldn't push.

Why not delay closing and put it out for back up offers and if one comes in that's strong go with it... but from the sounds of it, the appraisal is probably right price.

If they're representative of your local market... then you'd probably want to go through with this. I know my local area people will toss out high offers all day long, but with appraisal contingency (won't pay over appraisal). So a house or whatever may get crazy offers, but if the appraisal doesn't back it up then it's kind of a moot point.

Keep the closing date. Tell them to come up with $7k. Suggest to them they look to their 401k's or family. If they really want it, they will find the money. In the meantime, shop around for a backup offer. 

If I read this right :you have such little profit on a 130 k house deal that if it sold at 125 you would lose money .. geez that is not even worth the time or trouble to flip

How was it that you ended up with such a slim margin?  I'm sure you have gained some valuable knowledge and I'd like to hear about what costs you did not account for.  

As for your problem, if it indeed did not get solved, there is also an option of renting the house and refinancing out of the hml.  You'd leave several thousand in cash in the property but you'd have income and better loan terms.  Just a thought

Thanks

@Jaison Emmanuel I'm reading through the posts above and one important number I'm not seeing is your list price. If your list price is $132k, but you do not have comps to back that up then you're in a pickle. If your list price is closer to $125k and the offers came in higher, then an addendum to the prospective buyer would be they must make up the difference between appraisal and their offer $ or you take the hit. If the appraisal is coming in under your list and you feel it is priced correctly then fight it with the appraiser, but it sounds like you do not have the comps to support, lesson learned it sounds like.

It is a common occurrence up here with our low inventory, if you are solid on your numbers then the buyer needs to make up the difference, assuming it appraises at or above list. It also falls on the buyers agent comping the house and making sure their offer can withstand.

Just my two cents...