RE Headaches #1: Lenders let "As-Is" Appraisals affect the loan??

[Jimmy O'Connor]

I was recently working with my investor to lock down a property in West Philly and his lender changed the rates since the "As-Is" appraisal came in 15k lower than purchase price of the property (the appraiser ignored the condition of the property and comparing it to properties that were damn near shells, but I digress.) As a result my buyer had to bring an additional 33k to the table when he was originally expecting to bring 13k, which caused a little bit of chaos since this was all found out literally the day before closing. 

To my hard money lenders or investors that understand the process better than I do, why do lenders account for the "as-is appraisal" when, in all reality, the ARV is what is going to be influencing the borrower's ability to satisfy the loan?

[Mark Safrin]

Originally posted by @Jimmy O'Connor:

I was recently working with my investor to lock down a property in West Philly and his lender changed the rates since the "As-Is" appraisal came in 15k lower than purchase price of the property (the appraiser ignored the condition of the property and comparing it to properties that were damn near shells, but I digress.) As a result my buyer had to bring an additional 33k to the table when he was originally expecting to bring 13k, which caused a little bit of chaos since this was all found out literally the day before closing. 

To my hard money lenders or investors that understand the process better than I do, why do lenders account for the "as-is appraisal" when, in all reality, the ARV is what is going to be influencing the borrower's ability to satisfy the loan?

Risk Management. If I give you money, what is to stop you from taking off and living the good life in the Bahamas or gambling it away at your favorite casino? As hard money lenders your loan from us is guaranteed by a first position lien on the property in question. If we, or whoever holds the note, have to foreclose on the property we want to make sure there is plenty of equity in the property for us to recoup our money. Included in that is the costs and hassles of foreclosing and what happens if there is a market downturn and we end up with a property worth less than the mortgage?

The main issue that I see is that you were told this only a day before closing. Sounds like either closing was arranged too close to the appraisal report date or the report was delayed or someone was sitting on this info.