Option$ when your flip does not appraise to your agreed price

[Nick Cucci]

Hey BP! I am just about finished with my first flip. We made SO many mistakes (budget blown, took way too long), but the end result is a beautiful house in an up and coming neighborhood in New Jersey. We have a buyer and an agreed upon sales price. We're about to get everything moving and I have a suspicion that the house is not going to appraise for the agreed upon price. I don't want to abandon the deal, so I'm considering my options. I need to pay back my hard money lender asap, so was considering holding a portion of the note so the sale can still happen. Has anyone done this when there is a traditional mortgage involved? I imagine a lender would not be very enthusiastic about me holding a small note on the property, but wondering if anyone has dealt with a similar scenario before? 

I was also considering refi-ing the property, renting it for 2-3 years and then selling at a higher price. It is in a neighborhood that will be trending upward for the foreseeable future, but I would prefer to sell so I can invest in other areas. 

Thank you for any insights! 

[James C.]

Nick,

FSBO or did you have an agent? If you had an agent (that listed your property), then they should have done a comparative market analysis. If you have that, and the comparable sales are less than 12 months old, then have the agent present them to the appraiser, and explain how they arrived at the value.

If you didn't have an agent, then you should consider showing the appraiser how you got your ARV. Again, your sold comparables should be under 12 months. Re-run your ARV using the newest sales information, and give those to the appraiser.

In the future, consider bringing your local appraisers into your network. Not only can they be a lifesaver if you need help understanding what is happening in a market, they can be a valuable ally when you have those top of the market deals. 

I would find out who is the biggest lenders are in the area, and who they use for appraisers. Then make business connections with the mortgage brokers, and appraisers. When you have a buyer, give them a list with your favorite mortgage broker at the top (you can even have the mortgage broker do promotional materials for you with both names on them, usually for no cost). 

You may suggest to your buyer that the list you have given them contains the best, easiest to work with, most professional lenders in the area. Offer to make the appointment for them, if they would like, and ask them what would be a good time. Then call/text whichever one they choose and set the appointment. Then have your mortgage broker (if possible, ask nicely) use your appraiser business associate. The appraiser can't make a 100K property worth 200K (well, not usually), but if you want to be in more control of your deals, this is one way you can.

Another option (for this deal, worth a shot) is to ask some agents who the best appraiser (most liberal/friendly) is, and see if the buyers mortgage company will use that appraiser, and then feed him your sales comparables.

Hope this helps.

Good Luck!

Jim