Honolulu, HI · Member since 2016 · 9 posts · 7 votes
I made an offer $12K below asking price for a vacation condo in Hawaii and have it under contract. Everything has been going smoothly with the process until I just saw that the appraisal came back BELOW our purchase price! by -$32K!
I haven't heard yet whether that will keep my bank from funding the loan or not but doesn't that mean I am paying way too much for it?
Definately use this as a bargaining tool to get the price reduced. Do you have a standard contingency clause that says house must appraise for sell price? If so make the arguement that the house is only worth what the appraisal says and the bank will only loan on that much and then sit back and listen. Wait for them to offer less don't say anything until they reply.
Would be better to talk in %... what price range are we talking about? What are the other factors? Does it come furnished? Is it a previously STR property? How did it perform?
Appraisals are purely impacted by traditional Real Estate criteria, while STR = Real Estate + Tourism.
@Jared Cornelison
Generally your only option is to pay the difference in appraisal vs sale price (the 32k) or walk away.
You should have a financIng clause in your contract so you won’t lose your deposit.
The 32k cash will likely kill your ROI and I had this happen one time in Kauai; I canceled the transaction and walked away.
It doesn’t mean you’re over paying. If the numbers work they work and I stand by my offer price from which this happened to me. However, appraisers will do what appraisers will do.
No it won't come furnished. It was now being used for vacation rentals before; it had tenants in there for 10 years. I have heard other units nearby are doing great but no numbers on this particular condo.
@Jared Cornelison
That is an option. You can use it request they reduce the price to the appraisal.... at 32k it’s unlikely. You might be able to meet half way or somewhere close.
My sellers said I was getting a great deal and wouldn’t budge an inch- it’s still on the market over a year later. What can ya do? Sellers are emotional and some feel like their condo is the BEST in the world! Lol
Your deal is prob dead unless they come down or you eat it which I don’t recommend.
7% is a big gap. Asking price is never relevant for me. I run comps, through MLS or Zillow. Appraisal is not an exact science , neither are comps, but 7% is a lot. I would use the appraisal as a reason to ask for price reduction or walk away.
Definately use this as a bargaining tool to get the price reduced. Do you have a standard contingency clause that says house must appraise for sell price? If so make the arguement that the house is only worth what the appraisal says and the bank will only loan on that much and then sit back and listen. Wait for them to offer less don't say anything until they reply.
There are too many things wrong with this. I'd walk away. We looked at some houses and even put down earnest money with our offer. For whatever reason, we ended up not buying the house and getting our money back. A few months later we bought a better house for the same offering price.
It's like dating women. They usually get better the older you get. You can weed out the skanks and keep the cougars.
I think this can be a positive situation, deepening on the sellers point of view. If the numbers made sense at your offer price, then great. If its worth it to come out of pocket a little more cash to secure the deal, go for it. Firstly, I would ask the seller to reduce the purchase price to the appraisal price. IF he doesn't agree then come up with a negotiated amount which satisfies both of you.
As far as the bank funding is concerned, they will only finance based on the appraisal. The seller might try to appeal the appraisal, it's hard to beat but it happens!
Don't let this deter you (this is part of the industry :-)) unless you reevaluate your numbers and feel otherwise...it could be a good "exit" out of this deal. If the numbers make sense, figure out a solution and get the deal done!
I agree with @John Underwood, in CA real estate law says that Realtors and sellers have to disclose anything affecting value or desirability.
That means that any problems that the buyer finds with the property while in escrow will have to be disclosed to any future buyers. A 32k difference in appraisal is going to have to be disclosed to any future buyer. It's very possible that you can just get them to reduce the price down to 425k.
A 32k difference (unless FHA or VA) will not need to be disclosed to any future buyer.. They will have their own appraisal done which will likely be different..
Use this as a bargaining chip to get them to lower price to appraised value.. If they don't, then you prob walk, as coming out of pocket 32k will kill ROI as others have said..
I agree with @John Underwood, in CA real estate law says that Realtors and sellers have to disclose anything affecting value or desirability.
That means that any problems that the buyer finds with the property while in escrow will have to be disclosed to any future buyers. A 32k difference in appraisal is going to have to be disclosed to any future buyer. It's very possible that you can just get them to reduce the price down to 425k.
You have a LAW in CA that says if this deal falls thru, the seller has to disclose to any future buyers this? That would be rediculous if this law exists.
I would try and negotiate a lower purchase price but be 100% prepared for the seller to say no and either expect you to help argue the appraisal, come up with more money, or walk.
@Brian Pulaski my understanding of the law and my Brokers understanding of the law is that a seller and the seller's agent must disclose anything that can affect the value or desirability of the property. This could be anything from road noise to the neighbors having parties every night at 10 p.m.
I had a home fall out of Escrow because the inspector claimed there was mold in the Attic. I was required to inform any buyers that the reason it fell out was because someone claimed there was mold in the Attic. It wasn't until we got our own inspector to give it a clean bill of Health that we got another buyer to buy the home.
If I failed to disclose something like that and the buyer found out about it, I could be sued and the seller could also be sued
I’d just go with the appraisal in hand and go to the seller with a new offer of 425,000. If not walk. This is a business decision not a emotional one. Heck I might even go at 420,000.
@Jordan Leithart I guess CA might be a different animal. I have never read any law that states I would have to disclose my neighbors having parties at 10 PM, or that a previous appraisal came in well under my asking price. I can understand disclosing a mold issue, or repairs done (more so than just updating) but a law stating you have to disclose anything someone may feel could be a negative on a property... that's far too vague and open to interpretation.
I just had a house appraise at full price. Buyers walked. New buyers had it appraised and it came in at $26k under their offer. Which should I disclose to the next buyer??? This is also on a $240k sale.
Exactly Brian.. Not even with California's soft, weird, and over the top disclosure laws would disclosing neighbors parties, or low conventional appraisals make any sense.. As far as a low appraisal goes, that conventional appraisal isn't technically even the sellers property to disclose.. The buyer owns the rights to that, for that specific transaction.. Once that transaction either happens or doesnt, I don't see any way how that appraisal isn't dead to everyone (like Mr Wonderful would say)
Just had this happen to me as a seller last week. We agreed on price, appraisal came in 10k less than what they offered, they asked me to lower to appraised price, I said no, buyer walked. Accepted another offer today - who knows, appraisal might come in low again...
@Brian Pulaski my apologies Brian. I just talked with my broker to make sure I understood the disclosure law and he agreed with you. Thanks for making me check on myself!
@Jared Cornelison “I have heard other units nearby are doing great but no numbers on this particular condo”.
This is a bigger problem than your appraisal. You don’t even know how much money this thing will make. If it won’t do 1.5% of the PP per month don’t bother. Do your research. It’s not about “this particular condo” it’s about the “nearby units”. If they’re X size and X bedrooms and making X money and yours is X and X you will make X. Give or take.
Otherwise take @Eric C. Advice on the appraisal dilemma.
@Jared Cornelison
I actually had this situation come up on my VR purchased a few months ago. Seller had the home listed for 415k and it fell through many times. It went back on the market for 370k and I put an offer on it right away for 360k contingent on home inspection/appraisal. The house appraised for 315k. The reason for the appraisal being lower was the home is a 2/2. Most comps at that time for the price range the seller wanted was based on a 3/2. There wasn’t many 2/2 homes sold at that time. The seller had a lot of personal issues and just wanted to get out of the property. They didn’t want to have everything fall through again and restart the process. We ended up settling at 315k. I put a little work into it and it is now running as a successful VR. So yes, I would definitely go back to the seller and work with them even if that means paying a little more than the appraised if the numbers still work. Hopefully you had a contingency in place.
I appreciated everyone's feedback so much on this thread, it helped a lot! As I ran the numbers more and more I was convinced that the property as a STR was still worth my offer price, but I didn't have the spare cash to fill the gap. I became increasingly convinced that I got a bad appraisal especially since I saw a unit in my same complex (same floor plan, and in worse shape) appraise really well.
I was actually able to appeal the appraisal. The appraiser had come from Maui which might as well be a different state and just wasn't familiar enough to use correct comps. We were able to acquire the comps that other appraisers had been using which were more similar and request they be considered. I was a bit skeptical since I was told appraisers can be a bit sticklers about their appraisals after they are done but was happy when a modified appraisal came through for my asking price!
We closed on Tuesday and I get the keys today! I am pretty stoked!