STR appraised $120,000 less than offer

Member since 2022 · 3 posts · 1 vote

Hello friends,

I am currently under contract with my first STR in northern Michigan. The location we chose will be a 4 season rental (skiing, snowmobiling, boating, fishing, golfing) with lake/dock access. Our offer was $260,000 (which we thought was close to value) but the appraisal came back at $140,000! What do we do?? A bit of a red flag I suppose.. The previous owners have had it for only months and they paid $220,000. There are comps in the $220's but 140k is still quite far from that even!
I think I’m dealing with a management company, is there a chance they would like to off load this property before year end even at a loss to avoid paying taxes and such?
Thanks in advance for your advice!

Jason

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Nicholas L.Pro Member

Flipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes

everyone is speculating about the appraiser here without enough info.

if the seller is basing the sale price on the STR income, and the appraiser is basing the appraisal on comps, there's no contradiction...

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Caleb Brown
Real Estate Agent · Kansas City · Member since 2018 · 4k+ posts · 3k+ votes
3y
That seems absurd. Can your agent pull comps? You could try to dispute it(long shot). You could order another appraisal too. Biggest thing is look at comps within the last few months. Also look over the appraisal report and see what comps they used.
2 Reply
Nick Velez
Lender · Member since 2019 · 250 posts · 219 votes
3y
@Jason Warner
The appraisal sounds like it is massively under value and might be a case of an incompetent appraiser. You could challenge it, but I think its very unlikely that the appraiser will come up enough to make a difference. I think your best bet is having your broker pivot this file to another lender and order another appraisal. We have had instances where an out of area appraiser appraises a property for significantly under value, and we order a new one and have a 200k increase in the appraised value.
8 Reply
Andrew SteffensBusiness Member
Tampa, FL · Member since 2022 · 3k+ posts · 3k+ votes
3y
I agree this seems to be a case of incompetent appraiser. I have had some similar cases on refinances I did last year. Im about 50/50 on getting any increased value from appraiser (you need to supply proof like comps etc) and maybe 10% success rate in getting it to where I want it or need it to be. Good luck!
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Luke CarlPro Member
Rental Property Investor · Tennessee Florida · Member since 2016 · 4k+ posts · 5k+ votes
3y
I'm guessing your appraiser is clueless. Keep digging before you give up.
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Gurbeer Sangha
Realtor · Fresno, CA · Member since 2022 · 58 posts · 41 votes
3y
Try and have the appraisal appealed and reappraised.
If that does not work, you might want to look into a DSCR loan to get qualified through expected rent. In that case, the value of the house is irrelevant, it's about the ratio of monthly payment to rent.
2 Reply
Charles Heistand
Investor · Germantown, OH · Member since 2021 · 10 posts · 8 votes
3y
When you say northern MI where to you exactly mean? My wife and I have 2 houses in the Gaylord area. Houses in norther MI are still going for a premium and nothing has slowed down from the selling/buying standpoint. You don't have bidding wars any longer but houses still sell in just a couple of days if they are priced right. Is this house on or by a lake? When we purchased our houses (July 2022) on a small interior lake and just the frontage was worth $650 per linear foot! We paid 159K for our houses together and the 10 acres of land.There is massive amount of renovations that we are going through currently to get them to be just livable and will be worth several times what we paid for them. Once the renovations are complete we will also be turning both of them into STRs and use them for vacation/remote work when not rented. The appraiser gave no value to both houses and the barn because of the condition of them. A developer down the road from us is selling a new build on 2 acres at 1700sq/ft for 429K and will more than likely get somewhere around that because that isn't insane for our area. I agree with everyone else that you need to find another appraiser to look at the property because this doesn't sound like the northern MI I know unless there is something we don't know about your property. I wish you luck with getting this property and enjoying norther MI like my wife and I do!
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Dan Thomas
Rental Property Investor · Bow, NH · Member since 2016 · 216 posts · 185 votes
3y
@Jason Warner
There is value in appealing, it isn't that much of a long shot. I had offered 425 on a place that appraised for 225. I asked my lender to confirm there were not any errors. The appraiser said there were no errors. I provided three comps and filled out a form my lender provided and the appraiser adjusted it to 425 and sighted a "fat finger error". Some appraisers are better than others I suppose.
2 Reply
Brian Barch
Member since 2022 · 272 posts · 253 votes
3y
I’m more concerned the sellers are offloading so soon, any back story there?
5 Reply
Bruce WoodruffPro Member
Contractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes
3y
When the next appraiser shows up, have your Realtor hand them the recent comps that show the real value. A good Realtor should have done this anyway.
3 Reply
Scott Mac
Austin, TX · Member since 2019 · 5k+ posts · 5k+ votes
3y
Could it be the falling economy (the Gales of November)?
Have you spoken to the appraiser--did the bank instruct him/her to be cautious in valuation or something like that.
Maybe the lender knows something you don't know...it might be a good idea to talk the lender too about the value.
Good Luck!
1 Reply
Dave Skow
Lender · Seattle, WA · Member since 2014 · 2k+ posts · 899 votes
3y
@Jason Warner 1) are you using a traditional lender ? if so - ask if you can ask for a reconsideration of value ...in order for this to have any chance to work you will need to review the appraisal and provide a list of any errors and also bettter more applicable comps that the appraiser shouldve used ...if you cant provide any details to increase value - it wont change 2) does your purchase contract have any wording on being able to adjust the price should value drop 3) if you want the property - can you adjust the loan amt to 119K ( 85% of appraised value ) and bring in the 141K difference ?
2 Reply
Nicholas L.Pro Member
Flipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes
3y
everyone is speculating about the appraiser here without enough info.
if the seller is basing the sale price on the STR income, and the appraiser is basing the appraisal on comps, there's no contradiction...
9 Reply
Sarah Pelton
Member since 2022 · 12 posts · 9 votes
3y
Is it possible there was a type and it should have read $240,000? I would inquire about that and then ask for a second opinion. When I did that once, they modified the original appraisal after I provided plenty of proof that the appraisal was way off base.
3 Reply
Josh GreenBusiness Member
Realtor · Tampa/St Pete/Clearwater/Bradenton · Member since 2020 · 396 posts · 353 votes
3y
@Jason Warner
I agree with @nick Velez above. The best chance you have to get this to close is to move the file AND/OR get the sellers to drop the price. The latter sounds unreasonable if they paid $220k months ago
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Tom Fidrych
Member since 2020 · 241 posts · 179 votes
3y
Quote from @Sarah Pelton:

Is it possible there was a type and it should have read $240,000? I would inquire about that and then ask for a second opinion. When I did that once, they modified the original appraisal after I provided plenty of proof that the appraisal was way off base.

A typo is possible.
I'd also look at what is being marketed versus what the county recognizes. For example, did a previous owner double the square feet without permits? Perhaps the appraiser only used the assessors SF.
0 Reply
Lyndsay Zwirlein
Lender · Member since 2020 · 331 posts · 209 votes
3y
Quote from @Jason Warner:

Hello friends,

I am currently under contract with my first STR in northern Michigan. The location we chose will be a 4 season rental (skiing, snowmobiling, boating, fishing, golfing) with lake/dock access. Our offer was $260,000 (which we thought was close to value) but the appraisal came back at $140,000! What do we do?? A bit of a red flag I suppose.. The previous owners have had it for only months and they paid $220,000. There are comps in the $220's but 140k is still quite far from that even!
I think I’m dealing with a management company, is there a chance they would like to off load this property before year end even at a loss to avoid paying taxes and such?
Thanks in advance for your advice!

Jason

Hey Jason! I would start with having your lender do a reconsideration of value and provide new comps. See if the appraiser will come up on value.
Also have you read through the report? See if there are any notes anywhere and check to see if the comps they used were in the same wheelhouse. What's unique about your situation is that the subject property itself is essentially a comp if the owner bought it recently enough. Usually within a 6 month timeframe is considered valid.
I have just started having appraisals come in under contract prices, but this is such a huge delta in your situation. It seems like there is something missing here...
2 Reply
Sebastian MarroquinPro Member
Real Estate Agent · Pasadena, CA · Member since 2015 · 476 posts · 263 votes
3y
what is the seller saying… Let them know that your lender will only lend if the value is there…
I don't know why everyone keeps saying to appeal this… (if you were the seller, I would say to go that route… but you are the buyer… this is actually a good thing for you, as you can negotiate the price down to the current value). Of course , that would assume that the appraisal was correct.
Understanding or proving a value discrepancy of 10k to 30k is much more difficult… but if every other similar home is selling for $200k to $240k and yours is at $140k then there is something completely wrong here…
What are other homes selling for in the area? Price per square foot with similar condition?
I bet if you post the address on here more than one of us will go to Zillow or redfin and arrive at a more accurate value with 20k + -
Even Zillow Is not that far off.
I would suggest:
Look at the other homes on the market?
Look at the sold homes with similar condition and sq footage?
If the value is supposed to be there: get another appraisal or another lender.
If the value is not there at all… Runnnn away.
Good luck
1 Reply
Jason Warner
OP
Member since 2022 · 3 posts · 1 vote
3y
Quote from @Nick Velez:

@Jason Warner
The appraisal sounds like it is massively under value and might be a case of an incompetent appraiser. You could challenge it, but I think its very unlikely that the appraiser will come up enough to make a difference. I think your best bet is having your broker pivot this file to another lender and order another appraisal. We have had instances where an out of area appraiser appraises a property for significantly under value, and we order a new one and have a 200k increase in the appraised value.
Got a call today from my lender stating that the appraiser mis-reported a few items (he/she recorded it as a 1 bedroom vs 2 bedroom + loft & pulled comps from 2012 that aren’t even relevant). We believe the findings are inaccurate and ordered a new appraisal in hopes of capturing a more “honest” approach.
1 Reply
Jason Warner
OP
Member since 2022 · 3 posts · 1 vote
3y
Quote from @Brian Barch:

I’m more concerned the sellers are offloading so soon, any back story there?
I would like to know as well.. I didn’t push it on my realtor. All I know is that the seller/s are from out of state and they are motivated. It appears that they rehabbed the place a bit to sell. Not sure if it was a true flip, decided to work on another project, the numbers didn’t match for ROI, etc.. I believe there is still value but with this first appraisal, it has me thinking.

Although, my lender did reach out to me and state the appraiser did have a couple of errors. At this point we decided to more forward with a second appraisal in hopes to reaching a more accurate assessment.
0 Reply
Bill B.
Investor · Las Vegas, NV · Member since 2013 · 8k+ posts · 10k+ votes
3y
I agree with @Sebastian Marroquin you should be excited it appraised so low. If they paid $220k a few months ago, the average property has probably fallen 2-5% since then? (Maybe more if it’s not a feasible year round primary homestead.). So it could be worth $210-$215?
Offer to bail them out at $210k or 220k after you show them the appraisal. Borrow the 80% of $140k or whatever you planning on, take another $100k heloc or 2nd or whatever on your primary. Heck maybe they’ll finance the $100k unless they’re trying to flip it and have no equity after realtors fees.
It does seem like they’re close to randomly picking a price that after realtor fees leaves them with a small profit. Is that you’re feeling that property values are up 20% over the last 4 months? That’s pretty steep when most people would take 2%, or even just break even over the last 4 months.
1 Reply
Account Closed
New York, NY · Member since 2021 · 13 posts · 3 votes
3y
Quote from @Jason Warner:

Quote from @Nick Velez:

@Jason Warner
The appraisal sounds like it is massively under value and might be a case of an incompetent appraiser. You could challenge it, but I think its very unlikely that the appraiser will come up enough to make a difference. I think your best bet is having your broker pivot this file to another lender and order another appraisal. We have had instances where an out of area appraiser appraises a property for significantly under value, and we order a new one and have a 200k increase in the appraised value.
Got a call today from my lender stating that the appraiser mis-reported a few items (he/she recorded it as a 1 bedroom vs 2 bedroom + loft & pulled comps from 2012 that aren’t even relevant). We believe the findings are inaccurate and ordered a new appraisal in hopes of capturing a more “honest” approach.

If there are comps in 220s how did you arrive at 260 offer? Whats accounting for the 40k difference in your comps? These came from your agent?

Did the lender themselves stated it was “misreported” or is that your belief? I’m hoping to you got that in writing.
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Luka Milicevic
Real Estate Agent · Nashville, TN · Member since 2015 · 2k+ posts · 2k+ votes
3y
I would ask to bank to go to the appraiser and do what's called a "reconsideration of value"
I would also send them comps that you think are more in line with the property you are looking at. They may or may not consider them.
If it comes back at the same value, I would ask the lender to order another appraisal. They may or may not do so.
One big consideration here is if your city has different zoning laws for STR and non STR properties. For example in Nashville a NOO STR eligible zoning code will appraise for WAY more than the exact same house next door if it does not allow NOO STR. Up to $100/sft price difference. This might not at all be the case in your city, but just a thought....
I have had two appraisals in my career come back WAY under actual value. One came back at 220k and the lender ordered another one which came back at 440k. (No typo). Didn't submit a reconsideration of value, just straight up ordered a new one.
Another one came back at 535 vs actual value was 750. This was a hard money loan and the lender didn't even use the appraisal and went with my ARV.
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Chris SeveneyBusiness Member
Moderator
Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
3y
@Jason Warner
Before ordering a second appraisal I would share that one with them. If they adjust price great - if not get a second opinion
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Bill B.
Investor · Las Vegas, NV · Member since 2013 · 8k+ posts · 10k+ votes
3y
Let’s say you bail. And th e middle of December they get another offer for $230-$240k if rates haven’t climbed. And the appraisal also comes back under $200k for new buyer?
There could be an error, there could be a banker that doesn’t believe property values have risen 20% in the last 4 months. Think about the lenders risk. Let’s say you otu down 20% and the real value is $220k, just what they paid 4 months ago. If they lend you $208k on $260k loan they probably upside down for a year or two after selling costs if values don’t go up or down. Maybe you should buy one of the comps for $240k? If you’re thinking prices will be significantly higher in 3 months than today you’re in a very small group. Wait it out. Better deal in January or February anyway.
Either way. GL and let us knows what happens. But you’re doing all the worrying that the seller should be doing, not you.
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Nancy Bachety
Rental Property Investor · North Fork, NY · Member since 2016 · 1k+ posts · 631 votes
3y
Quote from @Nicholas L.:

everyone is speculating about the appraiser here without enough info.
if the seller is basing the sale price on the STR income, and the appraiser is basing the appraisal on comps, there's no contradiction...
He stated the appraiser based it on comps. No appraiser will base it on STR income.
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