Appraisal came in 70k short, sellers being stubborn

[Kavi S.]

Hey everyone,

I'm buying my first property ever and it's been quite an experience.

I had an offer accepted, 645k for a 3 unit on the edge of Boston - Hyde Park. I thought that was a bit high. My agent said he thought it reflected the area and said going in at list price was my only shot, if the bank appraisal disagrees then I can renegotiate. Sure thing. Did it. I'm buying it from a relocating investor who has done very well. He bought it in 2014 for 405k.

The rents are 1100, 1700, 1500. I'd be occupying one of those, but that's a different story. Assuming 50% operating costs, that's a 4.0% CAP rate. There's better to be had, but I'm factoring in my personal quality of life here and can take that hit.

The sellers insisted on a clause in the P&S that said we would split the difference between appraisal and offer 50/50 by default. My attorney was not happy that they snuck it in there, the deal almost fell apart but we landed on 60/40 split in my favor with a low appraisal limit of 600k.

The appraisal came back at 575k. With the 60/40 split deal I pretty much agreed to pay up to 3% above market value, so I applied that to the value from the appraiser and offered them $592,250. They decided they would walk. Then they decided they might not. I was told they would come down to 624k. It's funny because that's 14k more than the price their 50/50 split would have gotten them. At 624k I need to produce 49k extra out of pocket.

I can probably make it happen, but this deal has gotten pretty rough. I feel a bit disrespected that after not asking them for anything post-inspection, allowing them a trick clause in the P&S and even letting them push closing back for 3 months that they would ask for more than their own deal set them up for.

I should walk. But I did spend a long time looking for this property. But what kind of investor makes a bad deal because it's taken too much time? But it could still make a little bit of money. But that extra cash could be used for a second investment. 

I'm obviously not a savvy real estate purchasing machine. Any advice?

Thanks!