A price drop that doesn't sell your flip can also kill your refinance.

Rehabbing & House Flipping
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A price drop that doesn't sell your flip can also kill your refinance.

Jada Thoele
Lender · Member since 2023 · 58 posts · 33 votes

I had a borrower come to me last week with a flip that wouldn't move.

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$50K into rehab. Priced at $700K. Dropped it to $650K trying to get traction.

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Meanwhile, he's bleeding hard money fees every month with no exit in sight.

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He decided to refinance and keep the property as a rental to stop the bleeding.

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Most flippers assume refinancing is straightforward once the rehab is done — especially if the appraisal comes in strong.

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So they drop the price, wait for the right buyer, and plan to refi if it doesn't sell.

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☝️ What they DON’T know is that price drop just became the number their lender has to work with.

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If your property is listed — or was listed in the last 6 months — a DSCR lender cannot use appraised value. They use the lowest list price on record.

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So his math changed fast.

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Property appraised at $700K. Loan at 75% LTV. He wanted $525K out.

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But the lender had to base the loan on that $650K price drop. His actual loan came in at $487,500.

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That's $37K less than he was counting on.

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The fix: don’t drop and delist before you apply.

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  👉 Most lenders need 6 months off market before they can ignore the list price history and go back to appraised value.

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Know this before you cut the price.

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If you're sitting on a flip that isn't moving and you're thinking about refinancing out, get off market first.

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THEN start the conversation with your lender.

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Timing this wrong is an expensive lesson. Hopefully this saves someone from learning it the hard way.

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Richard Golding
Contractor · NYC/Los Angeles · Member since 2019 · 91 posts · 55 votes
5mo

This is a good reminder that the exit strategy has to be underwritten before the rehab starts. If the flip only works as a sale at a strong ARV, but the backup refinance depends on that same optimistic value, you do not really have two exits. You have one hopeful number.

I would model sale and refinance separately. For sale, use realistic sold comps, days on market, commissions, closing costs, seller credits, and possible price reductions. For refinance, use conservative appraised value, lender haircut, seasoning rules, DSCR/rent assumptions if relevant, cash-out limits, and the cost of keeping the property if it does not sell.

A price drop can signal to both buyers and appraisers that the first number was too high. It may not always kill value, but it can weaken the story if the market is already soft.

The safest approach is to buy and rehab to a number that works without needing a perfect sale. That means conservative ARV, realistic rehab, real holding costs, and a backup plan that stands on its own.

If the refinance backup only works at the same aggressive ARV as the retail exit, I would not treat it as a true safety net.

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  • Peter MckernanBusiness Member
    Residential Real Estate Agent · Irvine, CA · Member since 2013 · 2k+ posts · 1k+ votes
    6mo

    Great topic to bring up, this is of course not everyone that is trying to sell their flip. There are most times people cannot even do a Refi on it to make ends meet. There are many people that are currently in the market flipping and starting to drop the price are really just needing to get out of their property and the margins are not even there to refi. Most people are bleeding fees to the HML as you mentioned, but also their margins are off due to DOM and rehab budget included. This is great info for the ones that have significant margins, but the ones that are dropping $50K, or large drops are ones that are now in the red and no one will lend to them. Most of the people that can refi are ones that are either cash investors or ones that still have a solid margin with the ability to drop to get to a positive number or breakeven. Pulling the property off the market is not the move for the vast majority of investors these days, they need to move it and pulling it off the market for 1-2 weeks or longer to try to figure out a refi move with no margins is the wrong move in my opinion.

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  • Ryan ThomsonBusiness Member
    Real Estate Agent · Colorado Springs, CO · Member since 2018 · 1k+ posts · 1k+ votes
    6mo

    This is something a lot of flippers don't think about until it bites them.

    When you drop the price on your listing and it finally closes, that sale becomes a comp. Appraisers are pulling sales from the last 90 days within roughly a half mile. So now your low-ball exit price is potentially the ceiling on your refi appraisal too.

    The real problem is timing. You're usually on hard money at 10-12% with points ticking every month. You dropped the price to move the property. It didn't move. Now you need to refi out of that loan to stop the bleeding, but the comps in the neighborhood (including your own price cut history if it's showing as a pending or recent sale) are working against you.

    Lenders on the refi are going to want you at a certain LTV, usually 70-75% of appraised value. If the appraisal comes in $30-40k below where you underwrote, you either have to bring cash to close the refi or you're stuck.

    The move most people don't consider early enough is pulling the listing entirely before it picks up days-on-market stigma, then doing a short-term rental or even a lease-option to buy time and cover carrying costs while the market corrects or better comps come in.

    What's the current ARV vs what you originally underwrote? That gap tells you whether this is a timing problem or an underwriting problem, and the fix is different for each.

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    • Jada Thoele
      OP
      Lender · Member since 2023 · 58 posts · 33 votes
      1mo

      "When you drop the price on your listing and it finally closes, that sale becomes a comp. Appraisers are pulling sales from the last 90 days within roughly a half mile. So now your low-ball exit price is potentially the ceiling on your refi appraisal too."

      That is the perfect way to put it.

      Great idea to pull off market, as well.

      0Reply
  • Stacy RaskinBusiness Member
    Lender · Member since 2022 · 1k+ posts · 521 votes
    6mo

    Yes, this is a topic worth discussing. DSCR lenders will generally default to the lower of the appraised value or the lowest listing price if the property has been on the market in the last 6 months. There are different versions of this for different lenders and it can change depending on the market. This is something that most investors don't know. Some refinance deals can still work but some can't depending on the specific situation.

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    • Jada Thoele
      OP
      Lender · Member since 2023 · 58 posts · 33 votes
      1mo

      Exactly. More investors need to be aware of this or their underwriting can go straight out the window.

      0Reply
  • Richard Golding
    Contractor · NYC/Los Angeles · Member since 2019 · 91 posts · 55 votes
    5mo

    This is a good reminder that the exit strategy has to be underwritten before the rehab starts. If the flip only works as a sale at a strong ARV, but the backup refinance depends on that same optimistic value, you do not really have two exits. You have one hopeful number.

    I would model sale and refinance separately. For sale, use realistic sold comps, days on market, commissions, closing costs, seller credits, and possible price reductions. For refinance, use conservative appraised value, lender haircut, seasoning rules, DSCR/rent assumptions if relevant, cash-out limits, and the cost of keeping the property if it does not sell.

    A price drop can signal to both buyers and appraisers that the first number was too high. It may not always kill value, but it can weaken the story if the market is already soft.

    The safest approach is to buy and rehab to a number that works without needing a perfect sale. That means conservative ARV, realistic rehab, real holding costs, and a backup plan that stands on its own.

    If the refinance backup only works at the same aggressive ARV as the retail exit, I would not treat it as a true safety net.

    1Reply
  • Lipa F.
    Investor · Member since 2024 · 79 posts · 32 votes
    1mo

    I have in the past that the apprasir came in much higher then the listing price and the lender used the apprasied value even the listing price was a price drop

    1Reply
    • Jada Thoele
      OP
      Lender · Member since 2023 · 58 posts · 33 votes
      1mo

      That's awesome! Fewer lenders have allowed this. Do you remember who you were using?

      0Reply
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