My Life as a San Francisco Realtor: Be Very Careful with FHA Appraisals

Be Very Careful with FHA Appraisals

Be Very Careful with FHA Appraisals

I have a Short Sale Listing. List price: $255,000.00 An offer came in at $258,000. Buyer is using FHA financing.  Submitted to short sale lender and got an approval. FHA Appraisal came in at $258,000. So far so good. Inspections OK. Then buyer's wife decides she doesn't like the house???? Deal falls apart. Back on Market.

New offer comes in at $263,000. Seller accepts. Submitted to short sale lender and got an approval. Appraisal comes in at $263,000. All is well.

One week from closing, buyer's loan agent advises of the following from underwriting:

APPRAISAL ALREADY COMPLETED FOR THIS PROPERTY & HAS NOT EXPIRED

(LOGGED IN FHA CONNECTION). PROVIDE COPY OF APPRAISAL & MUST BE USED INUNDERWRITING DETERMINATION, PER HUD, EVEN IF BWR HAS CHANGED

1.

APPRAISAL CAME IN AT $258,000 PER FHA CONNECTION. BROKER TO ADVISE IF

PURCHASE ADDENDUM WILL BE PROVIDED & LOAN MUST BE UPDATED

ACCORDINGLY

 

So, what next. Resubmit to short sale lender at a sales price of $258,000. Advise them of the FHA conditions. Ask them to consider their previous approval of $258,000. Hope for the best!

 

By the way, buyer's are pissed they had to pay for a new appraisal when it couldn't be used.....

 

 

John M Scott, Broker / Owner, Scott Keys Properties, Certified Distressed Property Expert (CDPE), Council of Real Estate Brokerage Managers (CRB), serving San Francisco and the surrounding San Francisco Bay Area

Comment balloon 13 commentsJohn M. Scott • December 30 2011 08:49PM

Comments

John, 
Here in California, if a house is appraised for an FHA loan, the appraisal is set in stone for 6 months. It is extremly difficult to change it. I have seen agents lose deals because they appraised it much too high or much too low for the comps, and couldn't get another appraisal. 

Why didn't you tell them that it was just appraised, and second, why didn't you tell them that it didn't appraise for what their offer was? If the bank accepted the first offer, why not adjust the mls according?

It sounds like a lawsuit waiting to happen.....

Good luck and keep us posted.

Andrew

Posted by Andrew Mendez, Century 21 Americana (Century 21 Americana - Covina, CA) almost 7 years ago

Andrew, it was disclosed on the MLS. The buyer's agent knew it, the buyer's loan agent knew it. I talked to the buyer's agent about it. It wasn't disclosed at the time of the 2nd offer that it would go FHA. Let's hope for the best from the short sale lender. I wrote this post because I know many agents don't understand this about FHA loans. 

Posted by John M. Scott, Broker / Owner San Francisco Bay Area (BRE # 01442690, Scott Keys Properties) almost 7 years ago

John, I've worked a few short sales, but not many and this is new that I need to be aware of...fortunately I haven't had this problem...yet.

Posted by Nick T Pappas, Madison & Huntsville Alabama Real Estate Resource (Assoc. Broker/Broker ABR, CRS, SFR, e-Pro, @Homes Realty Group, @HomesBirmingham & Providence Property Mgmnt, LLC Huntsville AL) almost 7 years ago

Nick, and now you won't have this problem because you are "in the know"!

Posted by John M. Scott, Broker / Owner San Francisco Bay Area (BRE # 01442690, Scott Keys Properties) almost 7 years ago

John

That actually happened to one of my buyers who was getting an FHA loan. His loan officer discovered that another FHA application is on file. So he had to go through the motions of getting that FHA application removed from the file before we could proceed. It took coordination between him, the listing agent and the previous lender to clear the records to set the stage free for my buyer's application.

Thanks for bringing this up. Everyone will run into this at one time or another.

Posted by Pacita Dimacali, Alameda/Contra Costa Counties CA (Alain Pinel) almost 7 years ago

Uh oh.  One could argue that the first appraisal was low, but... Oh well.

Posted by Jane Peters, Connecting you to the L.A. real estate market (Home Jane Realty) almost 7 years ago

Pacita, I didn't even know that one could get one removed from the file. There is a lot of mystery here. One more thing for us to be knowledgable of!

Posted by John M. Scott, Broker / Owner San Francisco Bay Area (BRE # 01442690, Scott Keys Properties) almost 7 years ago

Jane, I resubmitted to the short sale lender...... tried to explain the whole problem. I'll let you all know what happened. Thankfully the lender had approved the sale at the previous appraisal!

Posted by John M. Scott, Broker / Owner San Francisco Bay Area (BRE # 01442690, Scott Keys Properties) almost 7 years ago

Wow John,

 

Thanks for writing this post, I had no idea that could happen, and I can understand the buyer's frustration in throwing away about $500.

Posted by Mark R. Hardy, Short Sale Specialist Realtor - Mesa AZ (Short Sales, REO, New Builds, First Time Buyer) almost 7 years ago

John~I'd be curious to find out how the second appraisal got ordered with a new case number for the same address. Did the second lender actually get a second case number, or just order the appraisal first without checking? I would be curious to hear how this played out.

Have an awesome day!

 

Posted by Michael S. Bolton, MN Appraiser (Michael S. Bolton,Inc.) almost 7 years ago

Mark, I've even heard that if a buyer makes an FHA application for a property and they don't get the loan, it can take months to have that application removed so a new buyer can apply on the same property.

Posted by John M. Scott, Broker / Owner San Francisco Bay Area (BRE # 01442690, Scott Keys Properties) almost 7 years ago

Thank You David. It's a tough world out there, and I appreciate your vote of confidence and referrals.

Posted by John M. Scott, Broker / Owner San Francisco Bay Area (BRE # 01442690, Scott Keys Properties) almost 7 years ago

Michael, I am not sure but I believe the second lender did not check. The short sale lender approved the lower appraisal and we are moving toward a close. Apparently the 1st lender demanded payment for the appraisal from the 2nd lender, and since the new buyers had already paid, the 2nd lender had to eat the $400. That's all spelled out in the FHA guidelines too. 

Posted by John M. Scott, Broker / Owner San Francisco Bay Area (BRE # 01442690, Scott Keys Properties) almost 7 years ago

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