My first experience with a mysterious appraisal valuation

[Ray Johnson]

Found a Freddie Mac REO property that was in great shape.

My agent provided me comps from the last 6 months between $274,000 and $305,000 so I thought getting this property for $199,900 before it went to the investor pool and get bided up to market value was a good move.

I locked in financing and the bank sent the appraiser out, I get a report stating the following:

Sales Comp 1 - $224,300  (Comp from 9 months ago)

Sales Comp 2 - $276,500

Sales Comp 3 - $277,500 (same street 6 properties away and sold 4 months ago)

Sales Comp 4 - $274,000

Sales Comp 5 - $295,000

Sales price - $199,900

Appraised value to the bank came in at $225,000. It came in at $25,000 or 12.5% above sales price which is fine for a buy and hold property since this won’t affect the deal in a negative manner, but definitely not what I was expecting.

The appraisal report clearly states the property is in good condition, no problems, nothing needs to be repaired, there were no negative statements/comments on the report, no declining market conditions, etc..

 Is there a reason why the appraiser the bank sent out came back appraised as close to the sales price as possible, If it weren’t for “Sales Comp 1” on the report I wonder how this would have appraised.

Any thoughts or experiences with this sort of appraisal valuation mystery?

[Ray Johnson]

@Chris Mason Thank you for the great information, That would definitely explain why he used the $225,000 it is the closest to the sales price in almost a year.

I didn't know about the database that maintains the Fannie and Freddie Mac stats on appraised value versus sales price. I did read on another BP post from an industry person stating that they do not like it if the appraisal comes back 15% or higher above sales price. I came in at 12.5% higher so I think the appraiser may have done me a very big favor by using the one low priced Comp in the bunch even if it was 9 months old. 

I guess it's safe to say mystery solved for the low number. I'm good with it coming in at $225,000 for sure, I have a feeling it'll be made up whenever I decide to sell the property or if I every refi'd the property as a BRR strategy. 

Yes, It has the owner occupant requirement of move-in within 60 days of closing and I cannot sell or rent it for the first 12 months from the closing date. I have no problem moving from my current home to this one for the potential profit in this deal.

I was able to get it under contract very quick, I start the analysis process immediately, about two hours after it came online for Owner Occupants only. This one came online around 4pm one day and when I saw the Comps were as high as they were, I had my agent meet me at the property at 9am the next morning, I had my full priced offer in before noon knowing it was worth more than list and there may be others not coming in at full price anticipating the typical request for "Best and Final offers". There was no need to ask for any discount based on the numbers. I did ask for the 3% closing which they said yes to so that was $6,000 added onto the deal. They accepted my offer on day 6.