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Flipping Property Foreclosures and Appraisers: Update on House #6
House Flipping Tips | Atlanta Foreclosures
Property Foreclosures is part of a series on house flipping and flipping House #6.
The saga of House #6 is not over. Such is the drama often associated with flipping houses but by now I have learned this…one house sells in 4 weeks with no hassles and then…there’s House #6.
Although we already started working on House #7, House Flip #6 has been on the market this whole time in big part due to the high rate of property foreclosures in Atlanta.
You might recall that we got an offer on this house pretty quickly after listing it at the end of 2010. After more than two months of struggles, that contract fell through due to buyer financing issues.
The house then went back on the market and in about two weeks was once again under contract…once again with multiple offers…and once again the buyers are struggling to get their mortgage approved!
I know what you are thinking…”but why didn’t you make sure this time…”
First of all I found a new lender that is highly recommended by another investor that specializes in property foreclosures. So I had these buyers pre-qualify with this lender, which basically means he runs their credit report and asks a few questions regarding their income, tax returns and so on.
He gave them the thumbs up…check.
I also agreed to a due diligence period of no more than 10 days and a financing contingency of 15 days. Bottom line: in no more than two weeks we would know if they were going to be able to purchase this house…check.
There was one more thing…they were going to be using a down payment assistance program from the county. I was fine with this because it’s the same program that the buyers of House #5 used and that went without a hitch…check.
Soooo…it seemed like everything should work out this time around…
So what happened then?
First, they chose not to do a formal home inspection. That was fine with me. That saved me the hassle of dealing with an inspector plus the inspection from the previous buyer did not bring up any significant issues so I know this house is in great shape.
Second, they turned in all the documentation for their mortgage application promptly so the appraisal was ordered right away…great.
The appraiser came in to do his thing; I met him and gave him a list of repairs made, before and after pictures and a list of similar homes that had recently sold nearby. I do this because when flipping Atlanta foreclosures, you get scrutinized twice as hard by everyone involved. So I know I need to be prepared for the worst (this is one of the best house flipping tips I have gotten).
Unfortunately the appraiser and I did not see eye to eye on what comparables to use for the appraisal. I had found several homes outside of the same subdivision that were similar build, age and size to mine and that had sold for more than the contract price. Instead he chose to use several property foreclosures within the subdivision as comparables in the appraisal.
The homes he used for comparison were property foreclosures with less bedrooms, less square footage, no basement and not in the same renovated condition as mine. But all that did not matter, even though he made adjustments to their sales price to compensate for these differences it all led to him appraising my house for $5,000 less than the contract price…mega bummer
Now...this sucks because the previous appraisal on this house was for $10,000 more than the contract price. Unfortunately during the time span between one appraisal and the other several property foreclosures had popped up in the neighborhood that contributed to bringing the price on my property down.
So what can I do about this low appraisal?...
One, I could fight the appraisal (a totally uphill battle)…
Two, reduce the sale price to the appraised amount, or…
Three, keep the sale price as is and ask the buyer to bring $5,000 to the closing table since their loan was only going to be approved for the appraised amount…
Option one would take time, delay the closing and had a low probability of success.
Option three I considered for about 30 seconds...think about it…since the buyers were already using down payment assistance, it would have probably been easier to get the appraisal reversed than getting them to bring $5,000 to the closing table!
So I chose option two - reduce the sale price…Why?…
I am in the business of selling houses, not holding houses or marketing houses for 6 months or more. My priority is getting this house sold, getting my profit and moving on to buying more property foreclosures.
Sure, reducing the sale price by $5k was going to sting (especially after getting the house under contract TWICE at FULL PRICE) but the way this crazy market is going no one can assure me that the next appraisal is not going to be even lower.
Finally, after agreeing to lower the price the next hold up was that the county has such a back log of applications for down payment assistance (a sign of the times) that the buyers application processing got delayed by three weeks .
Fast forward to last week and the county finally gave their approval! Now all we have left is paper work processing time and final mortgage underwriting approval. We are scheduled to close next week on this sale!!...KNOCK ON WOOD ;-)
Catch up on the history of House #6:
Flipping Home #6: My Skinniest Deal Yet?
House #6: Real Estate Investing With Foreclosures
Flipping Real Estate – Update on House #6
Flipping Properties – House #6 Update
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