Full-Offer Contract Signed, But Issue w/ Appraisal! Help!

[Vishesh Shah]

Hello,

I recently completed my first flip in Northern NJ. I bought the place for 125k, spent about 65k into it, with 10k more in miscellaneous & holding costs. I listed it for 289k and got multiple full offers the first day on the market. I went forward and signed a contract with a buyer through bank financing. Everything went well thus far, they did the home inspection and we agreed to do all the minor touchups and stuff on the report. They did an oil tank sweep and there was no tank residue or history, so that was a plus. Everything went well until yesterday 6/18 when we got the appraisal back. It came back at 270k, with another appraisal the bank got at 265k. Both these are severely low, as there are similar houses on the same street w/ no garage & that still needed work done for 265k. Also, we converted the attic to a 3rd bedroom, but both appraisals only list them as 2 bed (not sure what the FHA laws are regarding SFH and attic bedrooms.) We want to dispute the appraisal but want to know the best way to do so. Apparently, with bank financing, the seller's aren't allowed to bring their own appraisers. Could someone please advise who has experience in a situation like this? Thanks so much!

[Peter Stewart]

If you feel you can make a strong case, then I would challenge the appraisal. I've done that multiple times successfully. Address each comp the bank used and explain why it's not a good comp, and then provide your own with your reasoning as to why they're better. The more detail you can provide the better. I would go line by line through each property to make sure they made the adjustments property (like condition, the garage you mentioned, etc).

It's my understanding that the appraisers can only count legal sq footage, bedrooms, baths, etc. So, if the attic space was converted to a bedroom without the proper permits (to make it a "legal" bedroom and put the finished sq footage on the tax records) then they won't be able to factor that into their values. 

If you lose the appeal, then you're stuck with the FHA appraisal for 120 days. Worst case you'll have to go to another buyer who can do conventional financing. If you received multiples the first day on market, that shouldn't be an issue.

You can also ask the buyer to bring the add'l cash to closing to bridge the gap. If they want the property badly they'll find a way. Of course I understand many buyers go FHA because they have limited resources, so it may not be an option. Since you had multiple offers when you listed, I would not be afraid to cut ties with this buyer and move on to the next.