Appraisal Came In Way Too Low

[Russell Gronsky]

Never thought this would happen but even in a hot, seller's market, Murphy finds ways to strike.

I bought a fix and flip in Feb of this year and while I was remodeling, I saw houses in the same development, with the same square footage, floor plan...everything, continue to sell at higher price points with no remodel. In fact, the exact same house as mine just sold down the street for $234K, 2 weeks ago. It was not remodeled.

On Thursday of last week, the appraiser came to do the appraisal for a conventional loan for my buyer. Now mind you, last 3 comps that are identical to mine sold for $229, $232 and $234. All were not remodeled. The appraiser appraised mine at $237 and it has been fully remodeled, top to bottom! I even threw in some premium things not found in any comps (LED can lights and quartz counter tops; they didn't cost me any more than normal stuff would and they look great). So my full remodel is only worth $3K over an un-remodeled place? The kitchen cabinets alone are worth more in added value.

I protested the appraisal but mortgage company told me to pound sand. My agent suggested I get my own appraisal. It's about $400. MY question is, is it worth the effort to do this? Will this change the mortgage company's opinion and approve the loan at the new appraised value (assuming the appraisal I pay for comes in higher than the 1st one)?

My other option is to break the contract and put the house back on the market. Not ideal since that's another 30 days at least before I can close but I'm confident I'd get a better appraisal/offer.

So, do any of you guys see anything I've missed? Should I push for the second appraisal? Break the contract and put the house back on the market? 

[Russell Brazil]

Your agent should be providing comps to the appraiser.  Part of the appraisal is assigning conditions to the properties. The scale goes from C1 to C6. A newly rehabbed house is a C2.  In order to get a higher dollar value on the condition adjustment against the comps, sometimes you need to have the comp downgraded from say a C3 to a C4. Also if the comps your agent is proving to the appraiser all have lower numbers than what you are trying to hit, then he is pricing the wrong comps. You did not mention what price you were trying to hit here...but say it was $250k...then providing a bunch of $230k comps, even if yours is significantly better wont get you to the number you need to be at. Having one low comp, that you can build value onto through a condition adjustment, or a feature adjustment like an extra bathroom might be ok....but you need higher priced comps as well, even if they will have a downward adjustment in price. So say you have 3 bathrooms, and the comps is higher priced and has 4 bathrooms, then there would be a downward price adjustment for the comp.

All that being said your agent should have a good idea of what he can get the property to appraise for, and how to arrive at that appraisal and should be working with the appraiser to get that number. Now every now and then you will run into an appraiser who plays hard ball and will not take any input from an agent, but those are few and far between. It is much more common for that to happen with a homeowner, but not common for it to happen with an agent for a variety of reasons.