The appraisal. Sounds so simple, however, this is one of the biggest killers of Jacksonville Short Sales.
Short sales are unique in that you have two valuations from two different sources that need to match up, or at least come close. If they do, the chances of a successful short sale goes up dramatically. If they don't...then it becomes a big hurdle that may or may not be insurmountable.
Imagine my surprise when I got an e-mail yesterday saying the appraisal on a Jacksonville short sale for one of my buyers came in short. And not just short...but 20% short. We were supposed to close on this short sale late next week, everything was complete, just a few last minute items on the loan...then news that the appraisal came in short.
This is an FHA short sale. HUD guidelines require the lienholder to have a FHA appraisal of the property to determine the sales price under the HUD Preforeclosure Sale guidelines that apply to all short sales that involve an FHA loan on the selling side. The seller's lienholder has an appraisal showing this northwest St Johns County townhouse is worth $100,000. Our contract price is several thousand below that. The buyer's appraisal came in at only $80,000. How did this happen? Lack of consistency in the appraisal industry. Theoretically two separate appraisers, both following FHA guidelines, should have come up with a value that was the virtually identical. So how did they come up a full 20% different? Does the fact that the buyer's lender OWNS the company who was responsible for the buyer's appraisal come into play? Is that why this appraisal came in ridiculously low? Why is this practice still being allowed?
Two appraisals by FHA approved appraisers should not have come in so different. So who is right? The buyer's lender will not consider that their appraiser could be off. The only solution is for the buyer to come up with more money down. Not a possibility with most cash-poor FHA borrowers. So the best hope in this type of situation is that the seller's lienholder will listen to reason and take the buyer's FHA appraisal into account (which is allowed under FHA guidelines, but at the discretion of the negotiator and lender) and allow the buyer to buy at a lower price. But 20% lower? If the seller's lienholder says "forget it" then the seller's only option is to put the house back on the market and try to find another buyer. Then the likelihood is that the new buyer's appraisal could be too low as well since the margin between the two appraisals is so large. Even a 5-10% disparity will likely kill the deal in the future.
The buyer can go on to find another property and soon forget this one. The seller will be the REAL loser in this. They will end up having a foreclosure on their record when they made every attempt to help the lender sale the property and mitigate their losses. Their credit will be ruined for years. All because two appraisers,FOLLOWING THE SAME GUIDELINES, have said two drastically different things about the value of a Jacksonville short sale property.