House I'm Trying to Flip Appraised Lower than Asking Price

[Cathy Wilson]

I just bought and fixed up my first flip. It sold in less than a week and I had three full price offers. The one I picked was FHA and now that we are down to closing, it passed inspection but appraised at 26K less than the sale price. My realtor is trying to appeal the appraisal because she feels the appraiser was not from the area and didn't know the market. If this doesn't work, does anyone have any other suggestions? Or dealt with this type of thing? I'm thinking I may just rent it out for awhile if I can't get what I want for it?

[Matthew Olszak]

@Cathy Wilson Were any of the offers conventional, or were they all FHA? The appraisal will stick with FHA for any FHA buyers for (I believe) 6 months. If you don't want to or can't take the $26k hit, cancel the contract and go with a conventional buyer - their new appraisal will stick with their particular transaction and lender. You could also see if the buyer will possibly qualify for conventional w/ a 5% down payment, which would allow them to get a new appraisal.

If you accept the $26k drop, see if the buyer can either bring more cash to the table, or if they have more then a 3.5% down payment, ask them to instead apply that cash over 3.5% to a higher purchase price. Their preapproval should list the loan amount, so you'll be able to figure out how much % down payment they are bringing.

Have you personally looked at the appraisal and compared the comps used against those you used to arrive at your list price? Did you pick the best comps within the past 6 months/0.5 mile radius, or could they possibly have been biased (like did you maybe pick the best ones to justify your price)? Many times a low appraisal is somewhat due to the appraiser's lack of knowledge of the area, but if it takes a very intimate knowledge of your immediate market to justify your price, you're probably going to run into the same problem with the next appraisal.