The Captain
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Post by The Captain on Sept 4, 2013 9:48:18 GMT -5
We currently have offers pending on two investment properties. We know appraisals are coming in stupid low in our area from a refinance we recently did on our primary residence.
The appraisal came in on the three flat. It's in good repair, properly licensed and all three units are rented for a total of a little over $2K a month. It is an older house but the electric, furnace, water heaters and roof have all be replaced within the past 10 years. The driveway was recently sealcoated etc.
Appraisal was $105K. Over 100% below the original asking price and significantly below our offer. Even our loan officer was stunned and has already submitted the paperwork requesting support/comps etc as well as requesting a reassment.
Sigh.
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skubikky
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Post by skubikky on Sept 4, 2013 9:53:57 GMT -5
This is a property that you made an offer on or that you're selling?
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Deleted
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Post by Deleted on Sept 4, 2013 9:55:03 GMT -5
Negotiate it down!
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swamp
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Post by swamp on Sept 4, 2013 9:55:10 GMT -5
Sometimes you have to wonder what the appraiser is smoking.
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Tiny
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Post by Tiny on Sept 4, 2013 10:01:29 GMT -5
For a property that's generating 2K (or so a month in income). That apprasial is insane. Sucks to be the seller in this case If I was a buyer I'd be really happy if the property would sell for about that amount.
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Deleted
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Post by Deleted on Sept 4, 2013 10:05:42 GMT -5
How can an appraisal be 100% below the original asking price? Wouldn't that be 0?
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The Captain
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Post by The Captain on Sept 4, 2013 10:06:11 GMT -5
We are making an offer, not selling. This is one of two investment properties with offers pending.
We are pre-qualfied for way more than the purchase price(s). Cash is sufficient for 25% down on both properties at our offering prices. If I have to bring more cash to the table (to keep the loan to value ratio at 75%) then our cash reserves will be completely wiped out. Not something I'm willing to do.
The owner of the three flat is supposed to be leaving for a two week vacation to FL tomorrow as we though this was a done deal considering how much he came down on his asking price. He actually has been very decent and made all requested repairs even going above and beyond to things right.
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The Captain
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Post by The Captain on Sept 4, 2013 10:09:54 GMT -5
How can an appraisal be 100% below the original asking price? Wouldn't that be 0? Sorry, fuzzy math before first pot of coffee. Original asking price $210k. Sat on market for two years then reduced significantly. We came in (with our prequalification letter) and lowballed the reduced price even more. Last property the owner has to sell off from his portfolio of 20+ properties and he wants to be able to travel/move so he agreed.
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Deleted
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Post by Deleted on Sept 4, 2013 10:31:39 GMT -5
The Captain,
I'm on my first cup of coffee too! I wasn't sure if it was me or you!
Will the seller do a long term carry @ the same terms as the bank? He's probably one of the few sellers who should think about it for tax reasons.
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The Captain
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Post by The Captain on Sept 4, 2013 10:52:20 GMT -5
We will have to see. I'm calling the real estate agent right now.
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haapai
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Post by haapai on Sept 4, 2013 12:36:22 GMT -5
<thumpa> <thumpa> <pause> RED LINES
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The Captain
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Post by The Captain on Sept 4, 2013 12:52:02 GMT -5
Not sure I understand this..are you referring to changing the price in the contract? Oh wait, you're referring to a medical monitor where someone dies, right? I don't think this will stop the deal, we'll figure something out (both sides are motivated). Real Estate agent didn't act too surprised. Apparently he's run into this issue several times and thinks the appraiser is pulling Hud/REO foreclosures as comps. Yes, some of those are selling for as little as 50-60K but no way in hell would I touch them given the shape they are in. I know, I've been in about 20 of them.
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haapai
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Post by haapai on Sept 4, 2013 12:59:30 GMT -5
I'm referring to the practice of banks red-lining areas.
Not so long ago banks simply drew red lines around areas that they didn't want to invest in.
That's illegal now but there are a few ways of doing the same thing. Hiring an appraiser who will respond to hints that the bank doesn't want to underwrite this one is one of those ways.
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lurkyloo
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Post by lurkyloo on Sept 4, 2013 13:45:28 GMT -5
Good luck with challenging the appraisal. We pointed out several errors and a number of more comparable comps; the appraisal board cheerfully admitted to the errors but refused to change their appraisal value. At least we made them do a bunch more paperwork for their fee.
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The Captain
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Post by The Captain on Sept 5, 2013 12:00:55 GMT -5
Good luck with challenging the appraisal. We pointed out several errors and a number of more comparable comps; the appraisal board cheerfully admitted to the errors but refused to change their appraisal value. At least we made them do a bunch more paperwork for their fee. Yep. No kidding. The appraisal was (IMHO) crap. The appraiser used HUD foreclosures (including one with the copper pipes ripped out) as comps. There was only one out of 5 that I would consider comparable. It had 5 bedrooms (as opposed to 8) and sold for 98,500. From the pictures the interior was in pretty rough shape and it was not currently leased. We went back to the seller with a compromise offer: Take the price down $8K and carry $12K as owner financing for three years at 5%. They accepted. I don't think it will cause any problems with the bank and at least I can use the appraisal in the real estate tax protest . I'm starting to think the area is "red lined". To be honest, I can't blame the banks. The amount of foreclosures in the area is just ridiculous.
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haapai
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Post by haapai on Sept 5, 2013 12:29:43 GMT -5
It's also possible that the appraiser isn't taking hints from the bank but merely adhering to the rules dictated by his profession. If an area only has distressed properties changing hands, it can be darned difficult for an appraiser to come up with an appraisal that isn't based on those sales. The comps can only be so old or so far away and there must be a certain number.
You can call it algorithmic redlining but the effect is pretty similar to the old-fashioned type. Conventional lending simply doesn't happen in a certain area.
It sounds like you might be benefiting from the situation, at least in the short run. There are, however, quite a few longer-term implications to buying in an area where conventional, ho-hum lending is not happening.
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Deleted
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Post by Deleted on Sept 5, 2013 23:50:03 GMT -5
It's also possible that the appraiser isn't taking hints from the bank but merely adhering to the rules dictated by his profession. If an area only has distressed properties changing hands, it can be darned difficult for an appraiser to come up with an appraisal that isn't based on those sales. The comps can only be so old or so far away and there must be a certain number. You can call it algorithmic redlining but the effect is pretty similar to the old-fashioned type. Conventional lending simply doesn't happen in a certain area. It sounds like you might be benefiting from the situation, at least in the short run. There are, however, quite a few longer-term implications to buying in an area where conventional, ho-hum lending is not happening. This is a good point. What are the crime stats compared to other parts of the city? The pro forma may look good but if it's high crime I'm guessing you'll have a hard time collecting rent w/o a gun and high turn over.
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The Captain
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Post by The Captain on Sept 6, 2013 7:03:26 GMT -5
I drive through the area (could actually pass the house if I wanted to) every day to and from work. It's a blue collar working class area. Violent crime in general is down (supposedly attributable to the landlord/safe neighborhoods program) but burglary is up. Drug related crime is down substantially.
It's the kind of neighborhood in which I grew up.
There are parts of this section of town where I wouldn't purchase a rental but this area had a lot of young families and people sit out on their porches and talk to their neighbors at night.
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