We bought a home in Bloomington in September. An agent brought us the deal as a first day "pocket" listing and we made a full price offer within a few hours. The price on this 3 bedroom 1435 sqft home was $63,600. I felt the ARV on the home would be about $90-95k based on the comps during that time.
There wasn't really enough room to comfortably flip this home because it did need around $10,000 in repairs to make it tops in the neighborhood. We decided we would keep this home as a rental because market rent appeared to be $1250-1300/month.
Fast forward two months: Our rehab was complete and we have about 5-6 applicants ready to move in once we give the thumbs up. Well, we weren't too excited about any of the applicants that had applied, and I started to notice some higher listings and pending sales in the neighborhood. Some of them up around $115,000 and $125,000 or so. The market was really tightening up and there were very few fixed properties available. Taking all this into consideration, we decided to list the home for 3 weeks to see what kind of interest we might get. Our thinking was if we get a buyer for $100k, we'd take it, pocket the cash and move on.
We listed for $119,900. Within the first 4 days we had cash offers of $100k, $125k as well as conventional financing offers of $140k, $150k & $165k. Wow! Wait a minute. We know this is the game that buyers have to play in order to get their offer taken seriously. Write an outrageously high offer, wait for the appraisal to come in low and then begin negotiating. Knowing full well that there is NO way our house would appraise for anywhere north of $125k or so, we decided to go with the buyer who agreed to pay us $10k over whatever the appraised value ended up being. It happened to be the $150k buyer.
Being an appraiser myself, I always put together a little packet for the appraiser with a few items:
1) A cover letter describing the circumstances of the entire situation.
I explain that the home was a foreclosure in need of massive repair and was not able to be financed. I briefly list the repairs/improvements that we have done to the home and the money that was spent doing so. Finally I explain that we had multiple offers once the home was listed and there is huge demand for our product in this neighborhood. If there is a shortage of available homes in the area (i.e. all "active" listings are short sales), be sure to point it out!
2) A before & after photo sheet of the house.
If you had a real junker of a house to start with, this page can really make an impact. Just one or two pages will do. If you've taken a video of the house, give the appraiser a link to view it.
3) Comps supporting the purchase price.
This is a tricky one because without comps, your sunk. The house really must be worth what you say it is based on actual data. In the markets I tend to focus on, there are plenty of comps to show you what an average REO is worth, but very few comps to demonstrate the market value for a clean fixed-up house. Try to stay within the typical lender guidelines here; 1 mile radius, closed date of 6 months back maximum (try to stay within 3 months) and similar in square footage, age and bedroom count. Cherry pick the few good comps and highlight the similarities. You don't need a lot, just two or three will do.
Back to the house in Bloomington. I met the appraiser at the property (critical), gave him the package, had a nice conversation about the market and held my breath. I had included comps in the $120k's to $140k hoping for the best. To my surprise, the appraisal came in at $146,000. The review process came and went and we closed a few weeks ago.
Not only is this buyer happy because he gets the house he wanted; the neighborhood now has a $146,000 comp to use to help their values. Win-Win-Win! By the way, this home previously sold for $317,000 in December 2005.
I understand this is quite the exception to normal circumstances concerning appraisals, but I'm certain that the info package I provided, coupled with a friendly smile and willingness to "help" the appraiser however I could, didn't hurt.
