FHA 203(K) Appraisal Mess

[Keenan K.]

Hey All -- 

Was hoping to get some opinions/solutions for what I can do here. 

I'm under contract to purchase a duplex -- financing it via FHA 203(k). Purchase price $191,000 and was approved for $125,000 in rehab ($316,000 total). Everything was going smooth until the appraisal was ordered. These FHA 203(k) typically only require an After Repair Value (ARV) appraisal & that's what was ordered.

The ARV appraisal value came back at $288,000. This was a really low number for the area, but FHA allows the ARV value to be 110% of (purchase price + renovation dollars) so it checked out. However, the appraiser opined on the "as-is" value in the ARV appraisal report (although it was just 1 sentence in the addendum section) and claimed it was $70,000. I honestly thought it was a typo. Nothing trades anything close to that low. My realtor friends in area were baffled. Anyways, that "as-is" value caused major issues for the bank. If the appraiser simply omitted that 1 sentence from his report or was fine using the purchase price as the as-is value, the bank had no issues. But as a result, the bank's new condition was for me to make up the difference ($121,000) at closing, which I obviously don't want to do.

My immediate thoughts were to get a new ARV appraisal. But unfortunately FHA guidelines don't allow that. Bank said my only option would be for me to use same appraiser and pay for a separate "as-is" appraisal & hope he somehow changes his mind from $70K to closer to $191K. Granted he'd need actual comps now, but I don't have any faith here.

Sorry for long story. Looking for some solutions.  Closing is scheduled for 12/1 so running out of days here.  Seller is getting incredibly frustrated as I've already had to delay closing multiple times -- real chance they could walk after 12/1.  Would be all cash offers at that 191K price. 

Thanks all.