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Update: Left Hand Meet Right Hand

May I Introduce You To A Bank With Two Left Hands?

This is an update to my previous post about the infamous AofB transaction that I’m currently working on.

9/23/2011 – Bank finally sends FHA appraiser out to the property.
9/24/2011 – Appraiser contacts me asking for the Purchase & Sale Contract because the bank mistakenly sent him the wrong contract (someone else’s deal?)
9/26/2011 – FHA Appraisal is received by AofB who then tells our mutual client that the appraisal came in $12,000 lower than the purchase price.

Hmm… The last appraisal (from the now failed conventional financing debacle a few weeks ago) came in at value.  Has the market dropped that much in 2 weeks?

What’s even more frustrating is that the bank doesn’t seem to care, because hey, that’s just how the market is, right?

What Happens When Appraisals Come In Under Value

This used to be a rare occurrence, but I see it happening more frequently in this strange market.  But, what happens when it does occur?  What are the options?

The buyer can put the seller on notice of his/her intent to terminate the contract unless the seller is willing to:

  1. Reduce the purchase price down the the appraised value, or
  2. Provide a reappraisal by the same appraiser (or another appraisal acceptable to the lender) which comes in at no less than the purchase price

If the seller is unable or unwilling to do either of the above options, the buyer may terminate the agreement OR the buyer may pay the difference such that the lender is not lending above the appraised value.  This is what I did on a home purchase in California back in the late 1980’s when I (like everyone else) thought that the real estate market would continue to rise indefinitely and I would recoup that investment fivefold.

The Importance Of Adjustments

No, I’m not referring to my back problems (I’m sure my chiropractor would love a plug here though…). It is rare in life that you find two identical properties from which to compare. that’s where adjustments come in.  Appraisers will find “comparable” properties and adjust for things like condition, view, amenities, etc.  I go through the exact same process when completing BPOs (Broker Price Opinions).  The hardest part about any appraisal or BPO is determining how much or how many adjustments are necessary to derive a fair market value of any particular property.  There are general guidelines, but like everything in life, these are subjective.  For example, is a view of Lake Washington equal in value to one of Cottage Lake?

CondosTake a look at the photo to the right.  How much more would you pay for a condo that is located on the top floor of a building vs. a ground floor unit?  In the top floor unit, you get a better view, vaulted ceilings, and no noise from above.  In Bellevue, WA I’ve seen values increase anywhere from $5000 – $10000 for every floor increase.  But, is this the norm or the exception?  Is $1000 per floor appropriate? What do you think?

Close The Vents

I’m frustrated right now, and just blowing off steam. The vent is now closed… Back to our regularly scheduled posts.

When REALiTY BiTES, bite back!


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