Do appraisers just hate flippers or what?

Question

So here's a crazy story.

We picked up n REO to rehab.  This home is a half mile away from another one that we sold in February for $111,000.  The two homes are identical for all intents & purposes - 3/2 brick ranches, 1100 square feet.

We rehabbed house #2 (subject property) identically to house #1 (february sale of 111k).  Updated everything, granite, ceramic tile, wet bar in basement, etc.

We put house #2 on the market and got it under contract literally in 12 HOURS for $113,000.

The appraiser comes in and says we're all good.

Then the file gets flagged for review - we're told this is a formality.

Then, they come in and throw out all the comps that had any value, and tell us the only legitimate comp is a house a MILE away that sold for $95K.  They mark it up by $3K because the $95K house had ORIGINAL kitchen and bath (we're talking about 1950 houses).

Appraiser comes back and says our house is worth $100K - completely disregards the house WE SOLD a half mile away 4 months ago for 111K!!

I'm totally convinced that it is these folks who are killing the market.

J Scott · Answer

Personally, I see no reason to ever sit on a good offer from a qualified buyer.  And I especially see no reason to treat a buyer in a way that makes him feel like he's dealing with a big corporate entity (Aaron's suggestion for how to stall).

We have agents that essentially tell us, "As soon as you put a house on the market, please let me know...I love working with you and want my buyers to have first chance at your houses."

The reason they say that is that they know we'll treat them and their buyers like gold -- we'll negotiate quickly and in good faith, we'll give the selling agent a bonus for bringing us a good buyer, we'll make most indicated repairs from inspections, we'll handle all aspects of the appraisal and closing, etc.  All we will ask in return is that the buyer move quickly to close the deal, and if at all possible, to use our mortgage broker and closing attorney.

Playing games (stalling for a week on an offer) just gives the buyer a reason to get annoyed and not want to deal with you.  If you don't believe me, think about the last time you put in an REO offer and it took a week or two to get a first response from the asset manager -- how did you feel?

Chris G. · Answer

I would NOT discount the property.
Keep it at $113K and find another buyer with a different bank who will get a new appraisal with a new appraiser.

Stupid appraiser

Jon Holdman · Answer

No, I don't think appraisers hate flippers.  I do think they're being very conservative.  They're only the tip of the knive.  Its the lenders that are being very conservative.

You're comparing your recent sale to one other specific house.  That's very optimistic.  Maybe the appraiser chooses that one.  Probably not.  You need to understand all the available comps an appraiser might choose.  Then you need to use the lower ones when evaluating your property.

Trying to compare to another property you sold is very dangerous, IMHO.  I know of at least two neighborhoods in our area where this was the basis of a scam.  In one case, a builder built three houses and "sold" them at inflated prices to straw buyers for cash.  Then, he, along with an appraiser and a mortgage broker went to town.  They found unsuspecting subprime buyers.  They used those three comps as the basis for an appraisal.  The broker shoved the loans through.  They made a ton of money, and a bunch of buyers got stuck with overpriced houses and unaffordable loans.

If the appraiser did use your sale as a comp, the underwriter may have figured that out and flagged the file.

You must be very conservative in your appraisals.  A house I made a loan on in October 2009 had a pre-fixup appraisal that considered the proposed work and came up with a value of $213K.  When we finally sold the house in December 2010, after repossessing it in July 2010 and doing MUCH more work than was originally planned, the appraisal was only for $172.  I didn't see that appraisal, but I did see one from May 2010 for a previous buyer that cam in at $166K.  I also had an agent pull ALL sales in the area.  The appraiser had used lower comps, and one probate sale that was marginal, but I can't honestly say the appraisal was bogus.  You must be conservative in determining your value.

Joel Owens · Answer

J do you favor paying a bonus instead of a higher co-op??

The reason I ask is years ago builders loved to offer bonuses.The problem came up is that many times bonuses were used as a hook "bait and switch".

The builder would say it has to close by a certain date,or it has to be a certain price,no closing costs paid,etc.

So basically many times the buyers broker would get screwed and get shafted with the bonus.

The seller offering the bonus new they had outs to not pay up.Soon we had brokers/agents avoiding bonus properties tied to conditions.

There is a big difference between a higher co-op (you will get paid more period when it closes) and a bonus (you might get more money if A,B,C,D happens but if not so sorry).

Just wondering what your experience has been.

J Scott · Answer

Is it possible that you need longer to get critical mass of exposure on your houses than I do?

Like I said, I have a list of agents in my area who want to know when I have houses coming available; a couple days before I list a house, my wife sends an email to all the agents we work with and let them know that a house is coming on the market on Friday (we generally list on Friday).  Any of the agents that we work with who have buyers in that area/price range will know about the house and will generally schedule showings that first weekend.

If we get an acceptable offer the first weekend, we're happy to take it because we know that our showings are going to drop off considerably after that weekend, and we'd much rather work with an agent that we have a relationship with a random agent who we don't know.

How often do you have repeat agents bring you buyers?  My guess is that if you offered some incentive (and didn't play games, like stalling on responding to offers), the repeat business would likely increase to more than it currently is.

As an example, there are a couple downpayment programs in my area where buyers spend months qualifying (one is NACA).  Once the buyers for these programs get qualified, it's nearly 100% certain they'll be able to close on the house they choose (the underwriting is mostly done up-front).  In other words, other than cash buyers, these are the best buyers out there.

The in-house agents for those programs love us, and when someone is ready to buy, they often call us to ask what we have available.  The bonuses we pay to get the attention of these agents is well worth it; in fact, I'd happily pay A LOT MORE than we do to get these buyers to look at our houses first.

For me, it boils down to the fact that I sleep better knowing my properties are under contract, even if that means a slightly lower selling price or a bonus to the selling agent.  Especially given the fact that the longer a property sits on the market, the less likely it is to sell at the current list price.

Kevin Suksi · Answer

Quick update - we ended up approaching the buyer and asking them to split the difference with us and bring some more cash to the table in order to make the deal go.  They agreed and we are settling for $105,000.

Joel Owens · Answer

4 months is a LIFETIME in a declining or volatile market.

The lender probably wanted the appraiser to weigh more recent properties data more heavily even though it's not an exact match.

Remember on exit the rehab sale price you have to account for market changes.

When buying this property did you look at the last 6 months data and get statistics on pricing drop averages??

If you didn't factor that in that could make for the 12k difference in a 4 month span in a declining market.

If the market keeps dropping and new inventory hits and cuts down prices even more you will wish you would have kept this buyer.

Maybe get the buyer to bring some cash to closing to make up the difference or you could finance the rest but the lender might not allow that and not disclosing could be defrauding the lender.

The reason is the lender will assess more risk of default if the buyer has additional payment besides the senior loan.

Account Closed · Answer

Day 1....HI, received the offer, will send to the asset manager when I get back to the office.

Day 2.   Sent off to the AM this morning (had a late showing sorry), will touch base with him later today to confirm his receipt.

Day 3.   They did get the offer, had a few questions about the BPO i did, looks pretty solid.   Will keep you posted.

Day 4 or 5.   We did get a verbal approval, but the AM is caught in a meeting.   Waiting on written confirmation.

Weekend....

Monday morning, here you go.  Lets get this thing closed asap.    Thanks again for showing my listing.

Stalling is easy and expected.   Usually I don't even bother with the above, i just tell them I can't submit offers till the 5th listed day or something like that.     Other than that, if the buyer is going to flake on a contract written on the first day then they aren't more than likely going to make it 30 more.

Had a house listed for 79,9k recently that appraised for 62k.    I told the usda lender he needs to fire the appraisal and get another.   Told me he couldn't.    Told the buyer's agent to get a new lender if he wants this deal to work.   New USDA appraisal came in at 80k.    Deal closed 3 weeks later.     My bpo put this house at anywhere between 75-85k, hence the 80k listed price.

Plenty of bad stories to go with the good ones.   If a house is worth 111k than thats what it is worth, shouldn't be a problem to drop a buyer or push them around a little bit to get what you need.   That said, if you are wrong about what it is worth you may be wasting a bunch of time and losing a bit of cash.    I had a house appraise 3 times at 130k when we wanted 150k, had to hold a private mortgage for the 20k difference.

Levi Gale · Answer

I understand your point on waiting and I agree with you, but I wanted to know does the current market change that at all?  I mean buyers have plenty of options right now so if you get an offer at your asking price on day one would you lock it up, or try to get a better offer?  Does waiting to get more risk the potential buyer?  They now have time to think about their options, and look at more homes.  But all that is out the window if the bank wonâ€™t loan that much.

Account Closed · Answer

easy there fantasm....

Have the buyer switch lenders, if the appraisal comes in low again i'd highly consider taking it and running.

That said, if you accepted their offer on the first day without giving it AT LEAST 3-4 days on the market you are silly.

Do appraisers just hate flippers or what?

Most Popular Reply