Comps Low Due to Wholesale Deals

[Stacey Bochenski]

Since the beginning of the year, I have purchased several properties in a neighborhood from a wholesaler, and I personally know of a second investor who has also purchased several in the same neighborhood from wholesalers (between us, we have 8 in the neighborhood of about 50 properties). When the sale gets recorded, the "sale price" is what the wholesaler and the owner agreed upon, and doesn't include the wholesaler's assignor fee (the price I actually pay). The lower "sale price" is what is being reflected on zillow/MLS sites, thus we are bringing down our own comps.

I wouldn't care, except I would like to refi and pull the cash out of them and I'm afraid the properties will not appraise high enough because our comps are artificially low.  There have been two "on market" sales that are substantially higher than our properties, so that helps, but I don't think the appraiser will use only 2 out of 10 sales in the neighborhood in the past 6 months. 

All I can think of so far is to do a rebuttal on the appraisal and submit my HUD statements, but I don't feel comfortable asking the other investor for their HUDs. Has anyone experienced this, and if so, how do you get an accurate appraisal?

Thanks! :)

[Joe Splitrock]

@Stacey Bochenski in the example you gave, the sales price of the property was $50K, so they are recording it correctly. The $10K is an assignment fee, like an appraisal fee or any other fee you may pay at closing. Appraisals use comparable market sales. If eight properties sold for $50K, those are valid comparable sales. It doesn't matter if they sold through the MLS or through a wholesaler. If a high number of properties are selling through wholesalers in a neighborhood, it is usually a statement on the neighborhood or the salability of the properties through other methods, like the MLS. You probably just need to wait unit your sales are a year plus old and they will stop looking at them for comparison.

To be quite honest if you paid $60K for properties that will sell for $90K, my advice is hold for a year an sell. These low cost properties have high CAPEX ratios and serve subprime tenants, which means extra management time. If you can walk away for $20K in those type of neighborhoods, that is a win.