Short Sale Appraisal Came out Way higher than initial Drive by Appraisal - Kills Deal?

Question

So I'm making offers on a short sale where I know the agent as well as the short sale seller.

This is a deal in Los Angeles county. Initially, the bank told the agent that the "drive-by" appraisal was only $245k.  So I made an offer on the house for exactly $246k cash. I'm not even sure if cash helps because the bank told my agent cash or non-cash offers do not matter!!

The bank replied that they require a "regular" appraisal and this came back at a whopping $365k. ($119k higher) This is despite the fact that the property is distressed, has a dead landscape, trash everywhere, and is completely run down and out of date compared with anything comparable.

The bank said they will only accept 95% of the $365k, which is  $346k and not even a decent deal.  ARV comparables are around $390k and we have to do about $25k in rehab.  So basically it would break even, but not after closing costs.

I was thinking of raising my offer to $275k, but that's still not anywhere near the $365k they want.

Also just FYI the amount owed on the property is like $378k

At this point what are my options? Should I just make another low offer to the bank?  Could I just talk directly to the owner of the house? He simply wants to "unload it and not do any work". Could I have my agent do a BPO or will that accomplish anything?

Phil Z. · Answer

Banks don't use drive-bys for their short sale valuations.  And I find it hard to believe they were $100k off with their drive-by if it only needs $25k on a $390k neighborhood. Doesn't sound right.

Sounds like you are wasting your time chasing short sale deals that are not fit for an investor.  Even you said that the house is worth $390k fixed and only needs $25k.  Unless there are 3+ sales in similar condition and size selling for $245k, then this is going no where.

Also by knowing the seller personally this is not an arms-length transaction and you will be commiting mortgage fraud.

Account Closed · Answer

Don't go getting a deed at this point. Owning the property won't help you negotiate a better deal. The bank has an idea of value from a supposedly objective source. My experience is that once the lenders get their own appraisal, they can get pretty rigid.  You could submit multiple quotes for various systems repairs and updating.  That worked for me once.  Lots of paperwork and it might not have any affect.

As Wayne mentioned, if it's a HUD insured reverse mortgage, the lender won't/can't entertain anything less than 95% of current appraised value.  They'll foreclose before accepting less because the loan is insured by the feds.

Wayne Brooks · Answer

The seller has no control or influence over the price the bank will accept, unless he wants to kick in the difference.

Wayne Brooks · Answer

This sounds like a reverse mtg being shorted, as they require 95% of an FHA appraisal.  Other than that, the price seems reasonable from the bank's point of view if the comps are $390k and this house needs 25k worth of work.  Their job isn't to give it you with a $100k spread.

Andy Collins · Answer

If the bank thinks it's worth $365k, they aren't going to accept a offer too much lower until they have sat on the property for awhile.

The way you jumped at the $275k price I'm assuming the value is probable somewhere between $275k and $365k,,what do your comps say its worth?

andy

Will F. · Answer

Kristine Marie Poe undefined

hey thanks for reply. I had read one of your old posts about doing a deed. I'm a bit confused, but I want to figure something out as I can see this potentially being a  good deal.

I'm not sure if I'll have much access to the forums for about a week on a trip, but I'd like to discuss this further

Account Closed · Answer

@Will F.,

There are deals, but you might not make $25K on each deal. Same investors say there are no deals in Indiana.

Joe Gore

Will F. · Answer

Deals? in LA??! hehe what are you smoking! jk :)

Are you active in LA? There's some great areas in Los Angeles (tend to be within miles of the ocean) and a ton of really terrible over priced gang-ridden nieghborhoods. If you have a deal where you can net 25k fairly easily on a flip I'll buy it all cash right now! ;)

Desirable areas in the LA market are extremely saturated. I get about 15 direct mail letters a week in my po box from cash investors.

Account Closed · Answer

A drive-by appraisal does not mean anything. All you need to do is look; there are deals all over LA.

My 2cents,

Joe Gore

Will F. · Answer

Hey @Phil Z.  How would this be fraud? The bank is aware that I'm making the offer through the same agent.  Their only reply is that they will take 95% of the appraisal price.  Anyways they were over $100k off with drive as I've already seen the documents. Perhaps it is different in Connecticut?

I'm trying to learn, as this would be my first short sale. I've made about 30 short sale offers on flips and buy/holds in the last couple years.

Anyways I'm most likely going to offer the 95% ($346k). I recently got a couple more comparables that were very top of the line renovated, but came in at $435-450k in the area.  So perhaps I could put 30-35k into the flip and have some profit.

The whole learning experience from this might make it worth my time.

Perhaps I'll make 10k-20k flipping it.  At this point I can't find any deals in LA and just want to get a few flips under my belt.  I'm really more of a buy and hold type of guy...

Either way thanks everyone for your input....I'll probably just jump into this and see what happens.

Short Sale Appraisal Came out Way higher than initial Drive by Appraisal - Kills Deal?

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