House #28: Appraisal Issue

The Full House has been under contract for a few weeks now, and we’ve just run into our first major issue — the appraisal come in $10,000 too low!

To be fair, it’s not as bad as it seems — we got the house under contract for full price, which was $5,000 more than we expected it to appraise for (we would have loved something higher, but didn’t expect it). So, instead of the appraisal costing us $10,000 (since the appraisal price is what we’ll have to sell the property for), it really only cost us $5,000. On top of that, the buyers agreed to lower the amount of closing costs they’re asking from us by $3,600, and the buyer’s agent has agreed to take half as much bonus on the sale, which saves us another $500.

So, overall, we’re only going to make about $1000 less in profit than we originally expected due to the appraisal issue.

The more annoying part of the low appraisal is that it’s going to be a relatively low comp in that area, so we’ll need to adjust our property values downwards for future investments in this location.

Btw, the reason the appraisal came in lower than expected is that this property is several hundred square feet smaller than the comps the appraiser used (which, interestingly, were all our sold houses in the neighborhood — The Leak House, The Trifecta House and The Fourfecta House). I expected that the appraiser would value the difference in the square footage between the houses at $15 per square foot — which is very typical for appraisals in this area — but instead, the appraiser used $20 per square foot, bring our value down about $5,000 more than expected.

Assuming no further issues, we are expecting to close on the sale of this house in about two weeks…