Appraisal came in 11k under. The seller met me at the number.

Side by side duplex, both units two bed one bath, built in the fifties. Contract at 342k. Appraisal came back at 331k and I sat with that email for about an hour before I understood what it meant for me.

My lender's explanation, once I got the right person on the phone, was that the loan gets sized off the lower of contract price or appraised value. So the 11k gap was mine to bring in cash or renegotiate away. I got two different versions of that from two people at the same lender before I got the one that held up, so get yours in writing.

What I tried first was a reconsideration of value. The appraiser used three comps and one of them was a single family that had been split into two units, which is a different animal from a purpose built side by side. I sent two duplex sales from within a mile, both about six months old. It went nowhere. Appraisers are not obliged to change their number and this one didn't.

What saved it was that the seller had already moved out of state and was paying two housing costs. I asked for 331k, he came back at 337k, we signed at 333k and I brought the 2k difference.

Rents are 1,450 and 1,375. Taxes 3,900, insurance 2,050, water and sewer runs about 95 a month on one meter, and I hold 250 a month for repairs.

The thing I'd keep is that I had a walk away number written down before the appraisal existed. Mine was 336k. Without that I would have talked myself into paying the whole gap because I was tired.

5 replies

1raj_mehta14CapitalPRO6

Can the gap be carried as a second lien or a seller note instead of cash? I still don't understand whether a lender lets you do that on a residential 2-4 unit loan. Did anyone raise that with you, anchor, or is it one of those things that exists in books and not on actual closings? Genuinely asking, I get this wrong a lot.

4renee_dubois Get yours

Numbers look survivable, but 250 a month across two units is light. On my three buildings the repair spend has averaged closer to 200 per unit per month once you count the years with a water heater in them. And your water is on one meter, which means the day one tenant starts leaving the tub running you have no way to bill it back. Mine did exactly that and it took me four months to notice.

Also run the vacancy version. One unit empty for two months at 1,375 is 2,750 out. That's your whole annual reserve plus the turn cost. Not saying the deal is bad. Saying the 2k you brought at closing was never the number that would hurt you.

1karen_whitfieldPG4APRO7

Having the walk away number on paper before the emotion arrives is most of the skill. Everything else you did was cleanup.

3chriswalton8CC1CPRO8

The comp problem you hit is worth understanding because it repeats. There is simply less transaction volume in 2-4 units than in single family, and in a slow market an appraiser can be working from four or five sales in a whole county, some of which are odd conversions. That's part of why buyers of these get surprised more often on value than duplex owners expect.

Also worth knowing that a reconsideration request usually goes through the lender rather than direct to the appraiser, and the appraiser is under no obligation to move. You did the process correctly and still lost it, which is the normal outcome. Your leverage was the seller's carrying cost, and you read that right.

Appraisal came in 11k under. The seller met me at the number.

5 replies