In the last update I posted for this house I had mentioned that due to the buyer using an FHA loan and I having owned the house for less than 90 days, two appraisal would be required. I knew that was coming.
First off, the buyer did his inspection and no major items came out of it. That always makes me happy because it means we did a good job with repairs during the rehab period. The only repairs the buyer requested were minor: adjust the patio door, fix a leaking (loose) shower head, fix the latch for the attic door, add smoke detectors and minor adjustments elsewhere.
I thought it was funny that the inspection report noted that there were no GFCI protected outlets in the kitchen and baths and they were required. I know they are required which is why I had them installed as part of the rehab!
Confused, I asked them to review this finding and it turned out to be it was a leftover item in the report from some other inspection in another house...
Anyway, the next hurdle was the appraisals. Whenever an appraiser is going out to one of my rehabs I go out to the house and meet with them. I think this is crucially important because I am able to explain to them all the work we have done to the house and answer any questions they might have.
Appraisals nowadays have become very rushed and there is a "just get them done" mentality. Because I make so many changes to a house when I rehab it and then try to sell it at a significantly higher price than what I bought it I have to go through great lengths to justify my asking price.
To achieve this whenever I meet with an appraiser I provide them with a folder that has the following:
- Copy of the sales contract - so they know the price we have agreed to sell the house for.
- Pictures of the house before I fixed it - so they can see the previous condition
- List of all repairs I did to the house - many appraisers don't know much about construction so they might not understand the costs involved by just looking at the house
- List of comparable sales in the vicinity - to justify my asking price
I try to establish some rapport with the appraiser while I am with them and let them know that I am just trying to help and make their work easier. These guys have to churn out appraisal after appraisal day in and day out and it would be easy for them to miss some details.
This has always worked very well for me as we have had a very good record of our properties appraising for at least contract price (House #6 was the first exception). Unfortunately all of this was not enough and the appraisal came in under contract price...significantly under contract price.
But it gets better...
Remember that two appraisals are required for this house. I did the same thing with the second appraiser and...the second appraisal came in significantly above contract price...what the heck!!
Unfortunately for me which appraisal do you think the buyers lender is going with?... that's right, the lower one.
It's not a super low price and it's close to what I had projected I could sell the house for way at the beginning. But it still bites that it's lower than contract price. This is the reality of the business I am in and selling houses in this market.
However, other than that the buyers qualifications are pretty solid and there should be no other hurdles to getting this closed by next week. Knock on wood...
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