Investor · Jensen Beach, FL · Member since 2017 · 19 posts · 17 votes
I am suppose to close this week on a duplex that didn’t appraise. The Purchase price is 150k and it appraised at 120k. I am locked in due to various circumstances and will loose my 13k deposit plus miscellaneous inspection and other costs totaling around 15k.
Crazy thing is The cash flow of the property is still outstanding.
Owner will not budge on price due to the income the property throws off. It Makes 1900 per month.
Do I walk away from this deal and forfeit the money I have put out for deposit and miscellaneous expenses or do I take the appraisal on the chin and take over this property in the negative?
1. Depending on the circumstance, if you back out the owner will have to display the appraisal price to future buyers (if he is using a real estate agent), so you could bring that up/talk to your agent about it
2. Get physical confirmation on the rents - receipts, leases, damage deposits, etc
3. If it is cash flowing, why back out? You wanted it at 150k so, in my opinion, who cares what it appraised it - equity isn't "real money" anyway. Home value is for the bank and everything that affects the home value, to some degree, is out of your control.
4. I don't know your financial position, but losing 13K would be a hit in my opinion and isn't worth backing out simply from that.
5. The duplex I just sold last Friday for 250K was throwing off $2800/month and I purchased it for 207K a year ago. I asked 250K because of the cashflow - I did to my buyer the same thing that is happening to you. The bank appraised my property at 220K yet I still had a cash offer within 2 days of being on the market.
6. At the end of the day if you like it, I don't think it matters what the bank appraises it at.
Investor · Topeka, KS · Member since 2015 · 1k+ posts · 1k+ votes
7y
I question whether it really clash flows that amount but why walk away from a deal that will recoup your cash in around 8 months, based on the cash flow?
1. Is your bank willing to do the loan at 120K? If so, get the owner to carry the 30k difference in a note, if you are still comfortable paying 150K. Better yet, convince him to carry the whole thing on a note.
2. Are there currently any repairs/improvements that can be made to bring that number closer to the 150K?
3. Are the rents inline with the market? If not, how soon can this be corrected?
Rental Property Investor · Clearwater & Daytona Beach, FL · Member since 2019 · 194 posts · 197 votes
7y
That’s a lot to walk away from so I would try to make it work. I would ask the owner to finance the difference with a balloon payment due in 2-3 years.
This will be a learning experience to always keep your deposit protected. There is no reason to ever forfeit a deposit. An extension should have been signed.
Real Estate Agent · Merritt Island, FL · Member since 2017 · 986 posts · 1k+ votes
7y
@Russ Marlborough - if you have a financing contingency in the contract and you haven't gone past the approval deadline, you should have an out. Check your contract out. FAR/BAR AS-IS?
Rental Property Investor · Kalamazoo, MI · Member since 2018 · 117 posts · 235 votes
7y
@Russ Marlborough
Oops, you made a mistake. 8 months from now you’re free from the burden of the mistake. 10 years from now you’ll have made 180k from the property.... I highly doubt you’ll be kicking yourself then.
Peachtree Corners · Member since 2017 · 42 posts · 12 votes
7y
Look around for family and/or private money to borrow/lend the 30k as cash money. Let you lender cover 130k loan and you pay 30k cash. Can you take a personal insecure loan? Are you buying from a private seller or an institution? This can dictate if you can ask for seller financing. Look for an investor to cover the money, but they will ask for some share on the deal.
1. Depending on the circumstance, if you back out the owner will have to display the appraisal price to future buyers (if he is using a real estate agent), so you could bring that up/talk to your agent about it
2. Get physical confirmation on the rents - receipts, leases, damage deposits, etc
3. If it is cash flowing, why back out? You wanted it at 150k so, in my opinion, who cares what it appraised it - equity isn't "real money" anyway. Home value is for the bank and everything that affects the home value, to some degree, is out of your control.
4. I don't know your financial position, but losing 13K would be a hit in my opinion and isn't worth backing out simply from that.
5. The duplex I just sold last Friday for 250K was throwing off $2800/month and I purchased it for 207K a year ago. I asked 250K because of the cashflow - I did to my buyer the same thing that is happening to you. The bank appraised my property at 220K yet I still had a cash offer within 2 days of being on the market.
6. At the end of the day if you like it, I don't think it matters what the bank appraises it at.
REALTOR® · Brockport, NY · Member since 2015 · 3k+ posts · 4k+ votes
7y
If all your data is right and you are happy I would try and make it work. Assuming you can find a way to cover the difference. Getting the owner to finance may not be as easy as it sounds. "I can just wait and take $13,000 next week and still have the house.... or I can take on a risky second position loan that you could stop paying next month, have no real recourse to get it back easily if you default and I have to play second fiddle to the bank"?
Rental Property Investor · Cold Spring, MN · Member since 2019 · 25 posts · 11 votes
7y
@Russ Marlborough If the cash flow is good and you can take the hit on interest, look at getting a commercial loan. Banks tend to lend based on the rates of the property not its appraisal value. If you can present the paperwork and show that even at that price you can make the payments and still cashflow they shouldn't have an issue lending to you.
Real Estate Coach · Charlotte, NC · Member since 2016 · 399 posts · 341 votes
7y
@Russ Marlborough how did your deposit get to $13k??
Agree with others to make it work if it cash flows, but confused as to how you’re spending $13k in non-refundable deposits...on my $160k fourplex with an expensive appraisal and inspection I’m at $1900 non refundable...
Lender · Iowa City, IA · Member since 2018 · 17 posts · 4 votes
7y
@Russ Marlborough
You could talk to your bank and see if they’ll loan on a stabilized or improved value. I just had a multi-unit appraise a bit lower than the purchase price on an as-is basis but the stabilizes value was above the purchase price. The bank was able to take the lesser of the stabilized value or the purchase price so we were good to close at the original purchase price. The deal made sense to me st the purchase price so the lower appraisal didn’t scare me off. This was a community bank with a commercial loan, FYI.
Rental Property Investor · Member since 2019 · 62 posts · 46 votes
7y
@Russ Marlborough borrow money from somewhere else to make up the difference, I say go thru with it, don’t back out and lose that deposit. If it cash flow $1900...why worry? Appraisal is just a number that will go up and down with market, doesn’t matter until you sell.
Real Estate Agent · Mesa, AZ · Member since 2019 · 125 posts · 60 votes
7y
@Russ Marlborough if the numbers work at 150 who cares what the appraiser said. Their just a educated opinion. If the numbers are outstanding at 150 don’t miss out.
Real Estate Consultant · new york, NY · Member since 2019 · 34 posts · 28 votes
7y
@Russ Marlborough Do you have equity in another property that you can do a HELOC on? Or maybe you can get approved for the loan using other assets as collateral for the 30k difference?
Investor · Milwaukee, WI · Member since 2013 · 1k+ posts · 1k+ votes
7y
From a mortgage appraiser of 14 years,
If appraised for the bank, who typically go with FNMA Guidelines, the bank will not secure the property according to a value derived through the Income Approach to value, only the Sales Comparison Approach to value. So, even if the appraiser had weighted the Income Approach in their final reconciliation of value, resulting in a higher value, the bank would have sifted through the appraisal to find the value estimated derived from the Sales Comparison Approach and used that number. It's an underwriting thing and IMO, a prudent measure.
That said, it ought to raise your eyebrow if other investors are paying a significant amount less than you are. An appraisal defined as a price is of course always subject to the inherent variance in the market, but it can be a clear signal you are paying top dollar @ $150k, or maybe even more than top dollar.
At the end of the day however, cash is king and if you have it, pay whatever amount you want to! If you prefer to use other peoples money well, then they often get a say in it.
any sold comps nearby to challenge this appraisal?
LOL. Good luck with that.
why? been done before. it's not like appraising properties is an exact science, is it? :)
Well, we landed on the moon too, once, maybe twice, I dunno...
So lets see, a buyer applying for a loan, even an investor, is going to have more experience, more education, more understanding of appraisal and more access to sales data than an appraiser right? And, it is going to be super easy to get another human being to admit they have made an error, which is essentially what a reconsideration of value is right - the appraiser is dumb and the loan applicant is smarter right? And, one comp does not a market make. And, what are the chances the appraiser did not see and further consider the one comp you pull out of the hat?
As an appraiser, it is amazing, and infinitely annoying, possibly illegal even, how often a reconsideration of value request comes through when the appraisal does not hit the sales contract bulls-eye. To date, I have changed value exactly zero times, though had to do extra work further explaining 100% of the time. To date, "comps" provided to me were remotely relevant only once, and again, I saw those too. To date, not once has a reconsideration of value come around when I opined higher than the sales contract. Hmm...
The best chance of getting a different value is starting all over with a different lender, because lenders are no longer allowed to appraisal shop. That one time you heard an appraisal got changed was an anomaly, just like that one comp you found that supports your goals.
All said, the only real chance you have with a reconsideration of value is IF you can dig up MULTIPLE sales that were sold off-market AND the APPRAISER is able to VERIFY the terms of sale. Tall, tall order my friend, but still better chances of that than you have of landing on the moon.
So yea, that's why. And no, appraisal is not an exact science.
PS - Appraisers are required to "analyze" all current agreements of sale which means, they know how much it needs to appraise for or the deal is dead. What they also know, is when too many deals die from a "low" appraisal, the phone stops ringing. So therefore, if "your" appraisal comes in "low", chances are your bid is high, not that the appraiser was incompetent. Food for thought.
Or, keep beating your head against a brick wall because others advised you to do so and see how that works out for you. Maybe you'll hit a weak spot and break it down someday. LOL.