Appraisal came in $5k short, run or stay?

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Submitted by ccutequeen on March 13, 2010 - 11:59am

Ok, so I have been looking for a cute little place for myself for the past 2 years and finally find this condo in mission valley that i like. Its from 80s and need some update but it has 2bed/2bath, two story which I don't find often, if at all, in my price range. Being a REO, I offered a little bit more than asking with 20% down. Now couple weeks later, did inspection, ordered HOA doc...appraisal came back and it show $5k short. The bank, B of A (really don't like them), refuse to adjust the price base on appraisal and insist buyer to pay the difference.
I am very confused right now as of what to do. If I back out, I am $900 out and got nothing. If I go with it, I will have to $5k more...and I just don't know if its a good idea to buy something for $5k more if appraisal set the value to be less. Being first time home buyer, I am just bit lost right now.
Any advise is appreciated!

Submitted by sdrealtor on March 13, 2010 - 12:08pm.

It really depends upon what its worth compared to the comps. The appraisal may have been overly conservative. Sometimes a property is relatively rare and there just arent good comps for it. I had that happen last week in Murrietta on a listing for a 1 story on an 19,000 sq ft lot in a neighborhood of homes like that. There werent good recent comps so they went to the neighborhood next door and tried to use a 2 story on a 6,000 sq ft lot as a comp. I told the U/W to go F^%&*^K himself. They ordered an appraisal review, saw what I was talking about and resolved the issue in my favor. It doesnt always work that way even though it should.

With that said, by closing in the next month you will get an $8,000 1st time homebuyer credit from Uncle Sam which you might not get on the enxt property. Without intiminate knowledge of the property its hard to say but it could easily be worth going forward due to the $8K credit.

At that price they will likely have no problem finding someone else to step up.

Submitted by Arraya on March 13, 2010 - 12:15pm.

Why are you thinking of over paying rather than them thinking of selling it for what it's worth? With all the shadow inventory you should not be comfortable overpaying.

Submitted by sdrealtor on March 13, 2010 - 12:26pm.

Just to clarify an appraisal is not necessarily an opinion of market value but rather appraised value. Here is an extreme example. Someone discovers a new item. It's impossible to appraise it because there is nothing like it to base its value on so the market will determie the market value. While appraisals are often good estimates of fair market value they arent always. If the property doesnt have good comps of similar properties the appraisal will be tough but that doesnt mean the property isnt worth it.

You really need someone to do a good market analysis to see if the price holds water.

Submitted by SD Realtor on March 13, 2010 - 12:39pm.

I would also add that I have seen two different appraisers appraise the same property and come in at different valuations. If you really love the home then to me 5k is not a dealbreaker. If your priority is financially driven then you tell the seller take the appraised value or I walk and follow through.

Submitted by ccutequeen on March 13, 2010 - 12:43pm.

Thanks for the reply.
I did have my realtor do the market analysis. There were two comps, which appraiser also listed in his report, sold on and before Nov 09. They have the same floor plan. The difference is unit I am looking to buy is located in middle of complex, face a nice green area with fountain while another two units are located in same building facing complex parking lot. The interior of this unit has new carpet, new paint and newer appliance (I don't really know how much diff those makes but thought it should make some) while comps has appliance from 80s, older carpret and no new paint. Would those difference justify some price difference? The appraiser has put in "same" when compare those factors.

Submitted by danielwis on March 13, 2010 - 1:33pm.

ccutequeen wrote:
Thanks for the reply.
I did have my realtor do the market analysis. There were two comps, which appraiser also listed in his report, sold on and before Nov 09. They have the same floor plan. The difference is unit I am looking to buy is located in middle of complex, face a nice green area with fountain while another two units are located in same building facing complex parking lot. The interior of this unit has new carpet, new paint and newer appliance (I don't really know how much diff those makes but thought it should make some) while comps has appliance from 80s, older carpret and no new paint. Would those difference justify some price difference? The appraiser has put in "same" when compare those factors.

To me, the nice view would be worth the 5,000 by itself. I would pay that to not look at a parking lot. Wouldn't you? Throw in the newer appliances and new carpeting, and I would say that definitely covers any difference.

In the big scheme of things, 5,000 is not that much, if you feel confident that you have looked at enough inventory and feel this is the unit you want.

That said, it would not hurt to tell your realtor that you want to get the appraisal price. See what the seller does. If they don't budge, then you have a decision to make. I think you want this unit though, and personally I would not let the 5000 break the deal.

Submitted by tc on March 13, 2010 - 1:38pm.

Be careful with B of A. I posted the other day about them pulling out of a short sale to do a loan mod for the sellers. But they also changed the terms of the sale on us twice. In the first stage they countered the price up. We accepted that and continued with the process. But after the third stage they adjusted the price again and took away the 2% closing cost. So be warned BofA is a bunch of crooks.

Submitted by fsbo on March 13, 2010 - 2:07pm.

Do you have an agent representing you? If so, you can talk to him/her as 5K is not a big gap. Usually he/she should be able to work out a deal for you by negotiating with the listing agent. Together they can contribute partial of 5K if not all from their 5~6% of commission. If you walk away, your agent gets nothing.

Submitted by akbarpunjabi on March 14, 2010 - 7:39am.

Be careful of older condos from the 80's after 30 years many plumbing and roofing and other expensive stuff starts to pop up. I've lived in an older complex in Mission Valley for the past 3 years and have seen my share of problems. Fine to rent, but owning is another story. There are 2 bed 1.5 baths that rent for $1200 in this older area and everywhere you look in the complex there are lockboxes scattered on every railing.

Submitted by desmond on March 14, 2010 - 10:05am.

Christopher Cross says "Run Like the Wind"

Submitted by ccutequeen on March 19, 2010 - 3:00pm.

Thanks everyone for the advise and comment!

The bank just came back and willing to pay $2500 towarding closing cost without reducing the price, which for me is $2500 less cash to pay so end up to be same thing. I was just about to accept the bank's new offer...its a miracle B of A even considered to do this..and then I got the HOA document.

The HOA document provide another surprise..or is it...that base on last year's reserve fund study/analysis done by professional reserve fund study company (forgive me if I am using wrong words, not sure what they called), the HOA is currently 24% funded. Is that really low?

Submitted by patb on March 19, 2010 - 3:22pm.

ccutequeen wrote:
Thanks everyone for the advise and comment!

The bank just came back and willing to pay $2500 towarding closing cost without reducing the price, which for me is $2500 less cash to pay so end up to be same thing. I was just about to accept the bank's new offer...its a miracle B of A even considered to do this..and then I got the HOA document.

The HOA document provide another surprise..or is it...that base on last year's reserve fund study/analysis done by professional reserve fund study company (forgive me if I am using wrong words, not sure what they called), the HOA is currently 24% funded. Is that really low?

I don't know what you mean.

If the answer is "We have in reserve, 24% of the expected costs over the next 5 years", then it's fine.

If the answer is "We have in reserve, 24% of the expected costs for the coming year," that can be an issue

if the answer is "We will have in reserve, 24% of the expected costs for the year by the end of the year", then it's just awful.

I'd call a real estate lawyer, show them the report, ask them.

Reserves are a huge problem for Condos if the reserves are poor, you can get a 2K assessment when the sewer pipes start leaking.

Submitted by tc on March 19, 2010 - 3:37pm.

My wife works for an HOA company. She had to have a special assesment done for some condos. It ended up costing everyone in the HOA a couple grand. So you can get a special assesment out of nowhere. Also BofA has three stages of approval. We got through the first stage with BofA excepting our 2% closing cost from the seller. However after the third stage it was removed from the contract. Of course they offered a loan mod to the seller so that didnt matter much.
Just asked the wife and she says that anything under 60% isn't good. Below that and you risk having a special assesment if anything major stops working.

Submitted by ccutequeen on March 19, 2010 - 3:56pm.

Ok, to clarify, the report said something like" Base on the projected spending for the next 5 years, the hoa is 24% funded". Then it talk about how and how much it would cost to bring hoa to 100% funded in 5 years.

60% ....hmm..this is quite far from it. I just talked to someone i know who just bought a condo. He didnt even read his hoa doc carefully. we looked at it now and it show his hoa is 17% funded.

By the way, this complex is called Creekwood river run. Anyone know anything specific about it?

Submitted by briansd1 on March 19, 2010 - 5:06pm.

It's only $5000 and an REO.

I think that if you walk, the bank will come down. They want it sold just as much as you want to buy.

And the Realtor wants to complete the transaction too. Everything is lined up for you to buy now.

If I were you, I'd stand firm.

But of course, it all depends how much you the condo. I have a feeling that if you stand firm, you'll get a lower price.

Submitted by SD Realtor on March 19, 2010 - 5:29pm.

You mean Creekwood at River Run.

Submitted by 4plexowner on March 19, 2010 - 6:26pm.

it's a condo in a river bed with an underfunded HOA - not a place where I would sink (pun intended) my money - but that's just me

Submitted by HLS on March 19, 2010 - 7:21pm.

If you are expecting to get a loan and a condo cert is required and one hasn't been approved by an underwriter, you are wasting your time even thinking about buying the place.

Many people qualify as borrowers but the condo complex doesn't qualify. There are various reasons for this, and it doesn't matter how high your credit score is or how much you are putting down or how much money you make.

Even an 800 credit score wanting to put 75% down can't get financing on some condos.

If you are going to pay cash, you can buy whatever you want.
Expect to pay $50 to $100 to get a cert filled out by the mgmt company, and around $400 for an appraisal. You can also be charged $100-$200 to have the lender named as add'l insured on the master policy.

Submitted by moneymaker on March 19, 2010 - 8:30pm.

If HLS is correct then how do places like this get sold. I'm pretty sure that investors would not buy them. Not many condo buyers pay with all cash, atleast I wouldn't think so.

Submitted by HLS on March 19, 2010 - 9:18pm.

They get sold for cash, and prices plummet.
In Florida, there are condos that were $200K a few years ago that were recently $30K-$40K.

I knew someone that wanted to give a damaged unit away, just to get rid of it. The monthly assessment was up to $600+ a month, and it had been hurricane damaged.

There are local condo complexes that are headed for trouble, especially conversions.
There are lots of foolish "investors" who have more money than brains. Some things never change, greed is one of them.

It's also harder to finance a condo bought as a rental property vs. primary residence.

Submitted by 4plexowner on March 20, 2010 - 8:26am.

lenders continue to dis-favor loans on condos even for owner-occupied units

Fannie recently changed the rule on the number of units that any one owner can have in a given complex

the rule, as I understand it, applies to 10 units and less - a few months ago a single owner could have no more than 49% of the units and now can have no more than 10% of the units (ie, could own 4 units before the change and can only own 1 now)

look at how that affects the other owners in the complex - if any single owner has more than one unit, NOBODY in the complex is eligible for Fannie loans

I believe the dis-favoring of condo loans is a trend and something that all condo buyers should consider - the value of condos decreases as loans become harder / more expensive to obtain

Submitted by 4plexowner on March 20, 2010 - 8:33am.

"I'm pretty sure that investors would not buy them"

when the time comes (we aren't even close) investors will be buying them with cash - cash buyers get BIG discounts or they don't buy - they'll pay 30 or 40 cents on the dollar from peak prices would be my guess

Submitted by sreeb on March 20, 2010 - 9:49am.

The 24% funding is not good. A lot of condos have low reserves because they are owed money by non paying owners who are in foreclosure. Much of this will be payed as the units are sold. The condo may also have had a big expense lately. If all the units just got a new roof and paint job this may be no big deal. If they just spent the money repairing flood damage then it is a big problem.

The main impact on you is that HOA fees will be higher until the reserve is brought up. Try and discern from the documents if the current fees include enough reserve payments to bring the reserve to fully funded in 5 years. If not, take the shortfall, divide it by the number of units and 60 months. Your HOA fees will probably go up about that much.

Another concern is deferred maintenance. If there is a backlog of repairs or major items like roofing or repaving then you need to add that to the reserve deficit. Similar to a house only you have no control over the timing.

There have been several comments on difficulties financing condos. I think the banks have overshot and things will get better later which is good for you if you can buy now. I would look at rental cash flow. If it would cash flow at prevailing rental rates you will be able to sell it.

Submitted by eyePod on March 20, 2010 - 10:47am.

A lot of condos have low reserves because the builder sets the HOA too low in order to facilitate sales. Then none of the owners want HOA to go up. OK when condo is new, time bomb at the 30 year mark. 2K assesment? What about 20K when everybody needs a new roof, etc.

Submitted by ccutequeen on March 20, 2010 - 5:23pm.

sd realtor,
yes, I mean Creekwood at River Run. Its the blue and white complex pass 805 on the way to Ikea.

sreeb,
Yes, according the management company, the condo just had some bigger expense in pass two years including external painting for buildings, new covering for car ports, re-surface pool and spa, replace 17 out of 18 boiler.

To give a full picture of the situation, here are some the stuff that have been disclose to me.
The loan has been approved, so i guess the complex was good enough for the lender to willing to lend the money. The complex has 65% owner occupancy rate. HOA doc show 14 out of 252 are late on their HOA fee. The price is acceptable now after Bank agree to give 2500 toward closing cost, it "only" took one week of negociation.

Here is the exact word in their percentage funded report:
"Based on the estimated total current replacement cost of $3,143,098 and estimated service lives and remaining useful lives for the individual reserve components, the annual reserve funding for the hoa is $248,224 and the fully funded reserve as of fiscal year end 31-Dec-2009 is $2,105,260. As of this date, the association has projected $507,398 to be in savings available for reserves. This will be a deficit of $1,597,862 under the fully funded reserve. Based on these numbers, the creekwood hoa will be 24% funded as of 31-Dec-2009"
I am simply not quite sure how to understand this report and not sure how other mission valley HOA are doing. They really should make this kind information public.

Submitted by ccutequeen on March 21, 2010 - 10:52pm.

After talking to some friends and ppl know more about living/buying into condo, combine with everyone's input here, I have decided against purchase this condo. The fear of big special assessment bills base on 24% funded number overcame any other feeling I had for the place.

Just want to thank everyone for your input!!!

Submitted by sdrealtor on March 22, 2010 - 7:48pm.

Dont know if you'll be interested but I may be getting something you would probably like nearby. Check your private message.

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