Buyer offers 208k and appraisal lands at 195k. Now what?

Question

Hi. I’m flipping a 3/2 starter in Albuquerque, NM and we listed for sale at 189k, got 9 offers (all FHA and all above list) on the first weekend showing, and accepted the high offer at 208k. Now, a month along, the punch list is done, closing is next week, and the appraisal comes in 13k low at 195k. Yes, that was a surprise but likely close to accurate. I want to process the deal but I’d really like 199k. The buyer’s prequalification letter okays 210k or 202,650 for FHA. 1) Any regulations or cautions against asking for buyer (if he has it) to bring 4k to closing? 2) Or? Is is possibly better for the buyer to pay all the (several thousand $ in) closing fees and roll it into his FHA loan? I’ve not been down this road and could really use some advice. How would you close it? Help!

Glen

Joshua Christensen · Answer

@Glen Holmen this is a common occurance these days.  It is tricky to navigate.

You have a couple of options.

1. Ask the Buyer to bring the difference.  More than likely if they are doing an FHA loan, they don't have the difference in cash.

2. Split the difference - this is what it sounds like you're trying to do at $199k.  there are 2 challenges here.  First, does the buyer want to buy a house that is not worth what they are paying?  Second, do they have the money to do it?

3. Bite the Bullet - Close on the lower appraised value.  You improved the property the highest and best it will go in current market.  You're a week from closing.  Don't make the mistake of getting into bidding wars when loans are involved that an appraisal could kill the deal like this.  You were listed at $189 which tells me you have room to do it.  Take the $195k, 6k over and rejoice in the win.

4. Terminate, keep making money and HOPE that a new buyer will pay more.

My best advice is to take the $6000 over your original asking price and move on to your next deal in a week.  These buyers probably don't have the money to bring to the table or they have just enough left in savings after closing to feel safe buying a house.

Best wishes.  I'd be interested to hear what you decide.

Joshua Young · Answer

@Glen Holmen typically a lender won’t lend beyond the appraised value ($195K) so the buyer needs to come up with the difference.

Alternatively, do you have comps that you could use to challenge the appraisal and try to bring it up to the $199K value?

I’m assuming you are not working with a realtor.

Glen Holmen · Answer

Progress. Here’s the house FYI.

https://www.realtor.com/reales...

I used the classic Brandon Turner ‘price anchoring’

“I don’t need it to land at 208. I’m just trying to process the deal in good faith with the new windows and us still paying the title costs. Can we move ahead with the deal at 199?” They responded (in classic style) let’s split the difference. We can do 197.

Now, I know I don’t have 197 until they do the contract and closing at 197. But we will know more on Monday morning.

Russell Brazil · Answer

All your offers were FHA. FHA appraisal will stick with the property for months. So keep that in mind.

Glen Holmen · Answer

Thx all for your comments. I bet both parties would like to close and I doubt the deal will blow up over a small concession. So, I asked for the $4k out of pocket. He’s not going to offer on his own so I have to ask. I’ll find out the answer soon. thx again!

Wayne Brooks · Answer

Are you paying part of the buyer closing cost as per your contract?  If so, you could eliminate that, if the buyer is willing. The buyer can’t “roll their closing costs into the loan”.

So you know, this $195k appraisal will stick your house for either 3 or 6 months for Any future FHA buyer.

You can always ask for $199k, which means the buyer must bring an extra $4k to closing, and see what happens.

Glen Holmen · Answer

Well, here’s what happened.  Buyer offers 208k, appraisal drops at 195k, I asked for 199k and he countered with 1/2 that at 197k. And, although the buyers agent and lender said he couldn’t come up with it, he found it somewhere. Yes, there is a risk he could have walked. We were both motivated to close it. It’s all done. An extra 2k matters to me for my work. Glad I asked.

Waylon Zook · Answer

@Allan C. I understand that part what I really dont like is how two different appraisers can be off from each other so much.

I will say that is very rare that two homes are exactly alike hence making appraisals very difficult. Being that he had several offers above asking price would indicate that the market considers that the value.

Again I understand the reason why to keep the banks from getting in trouble but there are flaws in the system.

Allan C. · Answer

@Waylon Zook appraisals are to protect the lenders not the buyers. If buyer defaults on loan then banks need to recoup principal on subsequent sale.

Waylon Zook · Answer

@Glen Holmen last year i had a listing where with ine if the alphabet loans ( dint remember which one) that came in low. Put it back in the market and reeived a conventional offer for more then the first. Closed without any issues.

I understand the reasoning why we have appraisals but imo they are a bit of joke. My understanding is something is worth what a willing and able buyer is willing to pay.

Buyer offers 208k and appraisal lands at 195k. Now what?

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