September 13, 2009

Home Sale Spoiled by FHA Appraisal

It looks like FHA's appraisal policies have sunk my chances for selling my property in Dale City. Under FHA's new appraisal rules, the appraisal stays with the house for six months! So a ridiculously low appraisal has ruined the value of my house.

We had a contract on the house and the buyers wanted an FHA loan. The appraiser selected bargain properties to use as comparables: a short sale, a couple of foreclosures, and another house that sold twice within two months. He used both sales on that same house as separate comparables, even though the first was about $30K cheaper than the second. Obviously, the first sale was a tremendous bargain for someone who turned around and flipped the property for a much higher price. So I think the appraiser should have excluded the first sale; it's low price was not indicative of current market value. That one combined with the short sale and foreclosures (which are also not indicative of true market value since they are distress sales) brought down the average and so the figure he came up with was $32,000 lower than the agreed-upon selling price.

When we accepted the contract, we had another offer which was almost as good so I don't think our price was high. Frank studied comparables carefully when we set the price in the first place. So I was not willing to accept a $32K cut in price and the buyers could not borrow more than the appraisal amount. So we released them from the contract and put the house back on the market.

Housing prices are going up in Prince William County, which is where we used to live. (Still, they are only about half of what they were a few years ago.) Unfortunately, most buyers who are looking for homes in Dale City are using FHA mortgages because of the low down payment. And their lenders will use the same dumb appraisal. So now the pool of potential buyers has just about disappeared.

Second Choice: Rent it Out

I hoped to sell the house after my tenant left because it is too far away for us to maintain easily. The house is still listed for sale but we are also listing it for rent at $1295 per month. We require good credit and references with the rental application and a $1295 security deposit.

Listed on Homes Database

POSTSCRIPT - House sold October 27. See comments.

1 comment:

  1. Within a week we had another offer. This buyer planned to get a conventional mortgage. After negotiating a price, we had to make additional repairs after home inspection. (For one thing, squirrels had chewed up wires in the attic!)

    New appraisal came in at the agreed-on price, which was $25,000 above the FHA appraisal. As settlement day approached, buyer decided she could not afford a large down-payment and applied for FHA loan. FHA accepted the new appraisal! We went to settlement yesterday with no further problems.


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