All Forum Posts by: Lee Graham

Thank you all for you advice.

Latest update; I negotiated the price down $50k($10k over appraisal). Looks like, if all goest well, we will close at that price. 

Ultimately, I feel good so far about the deal-getting it more in line with the appraisal gives me much more room for unplanned expenses.As this wave of price valuations goes up, and I'm raising rents to cover the increased taxes and insurance costs, the margins get so much tighter on a deal like this, that seeing the seller adjust as needed makes me feel much more ready to tackle the unforeseen. Termites are a regular occurrence here, and tenting can cost several thousand dollars-taking out a months worth of rent, or 4 months of profit on long term rentals-very quickly. I am having to do this at one of my other properties right now, and having bought it at such a low valuation years ago makes it a faint blip on the profit chart, instead of a massive red line...

Onwards and Forward!

Eric

• Investor
• Orlando, FL

Replied 12 hours ago

Check the sales price on the appraisal. As @Russell Brazil said, the appraisals normally come in around the sales price. I had a low appraisal with a contingency and was ready to back out when the seller noticed that the appraiser used the wrong sales price. Once they change the sales price to the correct number and redid the appraisal, low and behold, the property appraised for $5K over the sales price. You can always challenge the appraisal if you can find better comps as well.

Unfortunately, the numbers are correct. The last unit sold that was similar to the one I`m under contract for was sold 6 months ago, and it had been under a new build contract for a year, so the price was artificially low. That, ultimately, is the issue; as they look at comparable sales, they are looking at dated data, because there is very little being sold as a new duplex in this area-it is a historic area with mostly 100 year old homes. The single family home three houses down, that was the same size as one of the units in the duplex I am under contract for, sold for less than half of what I am under contract for for the duplex last month. It was 100 years old, and would require 75k worth of work to make it rentable. The one I am under contract for is 3 years old.

If I had something that was a black and white comparison that I could show an appraiser, I would be apt to get another appraiser, try to convince the seller to wait, and go through the waiting game with another lender. But this seller is trying to close fast, and apparently I am up against cash offers.

I`m working on getting the price down. But ultimately, I anticipate the seller deferring to a cash offer if I do not cover the gap...

Thank you all for your advice.

Russell BrazilPREMIUM

• Real Estate Agent
• Washington, D.C.

MODERATORReplied 11 minutes ago

Switch lenders to get a new appraisal.

Thanks for that advice Russell; since I'm already at close to 30 days in, and paid $700 for this appraisal, that at least seems logical and pragmatic, I doubt another appraisal would come in much higher, unless another similar property close by was already under contract that I could show the appraiser. Going back to the seller, getting them to extend the contract, paying another $700, without a reasonable chance of raising the number, seems like throwing good money down the drain...

I have closed three deals with my lender, and the appraisals have always been fair and the deals have worked well. We have a good relationship. I originally compared other lenders to them, but they always were at least .10 percent lower, and are a local bank that I feel good supporting.

Do you disagree?

Kim Meredith HamptonPREMIUM

• Real Estate Broker
• St Petersburg & Orlando

Replied May 24 2022, 15:40

@Lee Graham I would negotiate that waaaayyy down. I notice too that the market is softening somewhat, properties are sitting longer on the market and sellers will need to pay attention to what’s going on around them. If you are a buy and hold guy, look at your rental income and what you’re paying, plus what are the averages of appreciation (precovid) in your area. This will tell you what you need to know and if you should proceed.

Hampton Real Estate Advisors, LLCContact

Property appreciation is intense here; the property I last bought was a value add, and has doubled in value over 18 months since I purchased it. This property I am under contract for was purchased new in 2019 for 500k, and with absolutely no modifications since purchase was 260k over what they purchased it for. I don't have much experience in a rapidly appreciating market, so at first, when I would lose bidding wars on properties, I would just shrug it off and move to the next one. But I'm seeing these properties that I lost the bids on get resold for 100k over what the winning offer was 6 months later, and the financial reserves I have are being eaten away by inflation. Since it takes so many months to find the right property, I hesitate to walk away from this-since I have a low interest rate loan already approved.

I'm looking at the rental income, and it would be a 3 percent cap rate at what I am under contract for. But if I turn it into a short term rental(which I have a a lot of experience in), then I could make it an 8 cap.

Hey Joe,

Thanks for the quick reply.

That was my first instinct as well. I explained the situation to their agent, and they are currently discussing with the seller about potentially lowering the price.

That said, I'd like to fully process where I'm at when they come back to me. I'm not sure exactly what the other offers were that I beat, but, in my experience in this market, I doubt any were below asking, and there should have been several in cash. Sure, I had the highest offer, which is one of the reasons they picked me(no inspection contingency and high escrow deposit as well), but, I can't really imagine they are going to lower the cost to meet the appraisal. Their list price was 50k over appraisal...

Hello BP Community,

I` d appreciate some advice on a decision I am making about moving forward with a duplex I have under contract. I currently have three multifamily properties, ranging from 4 to 8 units. I'm doing well with all of them, and generating healthy cash flow. It's been 18 months since I made a purchase, and have been outbid on 7 units over that time. I've gotten more and more aggressive in my offers, ranging from  cash only for smaller properties, large nonrefundable escrows, no inspections, etc.

I had an offer accepted on a newer, 3 year old duplex last month. The sellers agent said they were considering multiple offers the first day, many of them cash. I have seen cash offers here up to 1 million on the others I have lost. I made a bid 10k over asking, and the seller accepted my offer. The appraisal came back 60k less than my offer today.

If I proceed, my lender would expect me to cover the appraisal gap. I could come up with the cash to cover the gap, but I'm concerned, with how the market is potentially softening in our area, that I may be saddled with a property that will be difficult to sell in the next few years. I tend to be a buy and hold investor, but am open to other strategies.

I have another lot that I could potentially build a duplex on , in the same area, and come in with a new build right at the appraisal value-a $60k savings. But, with the delays in our area in construction, it'd likely be a year to 18 months at a minimum prior to completion. I have locked in a  4.25 rate now on the mortgage for this duplex.

Would you wait and build, save the 60k now, and likely be saddled with a higher interest rate for the new build? Or forge ahead, cover the appraisal gap, and have an up and running duplex now?

Thanks for your advice...