Did I just become an early victim of the next housing market crash?
In this video post I explain how I just lost $8,000 from a low house appraisal after the start of the Coronavirus (COVID-19) pandemic. I also explain how I was able to negotiate $2,500 back and what I would do differently next time.
Since the end of 2018 I’ve flipped 6 homes for myself and others.
Most recently my fiance and I worked together to flip this hundred year old home over the course of several months.
We purchased the house for $46,000, put ~$12,000 in for repairs and improvements, and another ~$4,000 in mortgage and closing related expenses.
We listed the house in December for $95,000 and after a couple months reached an agreement with a buyer in March for $88,000.
The day after we reached an agreement on price the state issued a stay at home order as a result of the Coronavirus pandemic. We thought we got the deal done just in the nick of time, but as fate would have it, we were about to accept a 10% lower price…
We were working with an FHA (Federal Housing Administration) buyer. FHA loans are notoriously difficult to work with given their laundry list of conditions and contingencies.
Within a week the FHA appraisal came back with their opinion the house was only worth $80,000, $8,000 below our previously agreed upon sale price with the buyer.
This low appraisal came in despite similar properties being sold for $88,000 within the last month within less than a mile (and on less desirable blocks I might add).
I had worked for months on this house to elevate the standard of living. In the video in this post you can see a 60 second walk through of the renovated house along side with some matching before pictures. The house was above any standard required by a conventional loan (we had used a conventional mortgage to secure the property in the first place before all the repairs were made). And just about the only comment the FHA appraiser had to say was about chipping paint on a 100 year old basement foundation and chipping paint on a slightly less old garage (both of which I had already painted).
I immediately questioned going through with this deal all together. But we were now more or less held hostage by the FHA appraisal, as even if we went back to market potential buyers would see that $80,000 appraisal and point to it as justification for another $80,000 offer.
Ultimately knowing what we know now about how COVID-19 has rocked the economy we’re okay with how this turned out.
In the video I go into more detail about how I specifically was able to negotiate back $2,500 of the $8,000 we lost. The majority of this discount was achieved by asking the listing agent and the buyer’s agent to reduce their commissions from 3% each to 2%. This saved us $1,600. The rest of the money we were able to save came from evaluating closing and escrow costs with the title company line by line. They were able to exclude items such as an insurance expense unnecessarily paid for by the seller and they issued an additional discount in the form of an instant rebate.
Low appraisals can happen in any economy so I’d love to hear your thoughts. Is this an early sign of a housing market crash in 2020? Or just a coincidence?