How to get your Purchase contract value to match the Appraised Value

The all Important Appraised Value in Preforeclosure Real Estate

By Deb McMillan © 2008

That part is easy. The question really is "How to get the Appraised Value to match my purchase contract that I have already submitted to the bank".

You figure out a fair price that you want to pay for the pre-foreclosure house. You put the number on your purchase contract. Your buyer grumbles and you explain to them you can always go up but you can never go down on your offer. You want to start low and see what the bank will accept. They say OK and sign the document.

You get back to your office and put together your short sale packet with all the back up documentation to demonstrate your offer is a good, as-is condition offer. You believe it will fly. Then the bank says they will be sending out an independent appraiser to determine the current as-is condition of the house. Ugh. You thought you were done.

How can you ethically influence the outcome of the appraisal? If the roof doesn't leak, you DON'T want to say the roof leaks. You have to figure out what really is wrong with the house.

Paint, carpet, new windows, furnace, how about updated electric? They are all fine. How about crime stats? Are there a lot of break-ins? Are there a lot of other vacant houses in the area? Any houses boarded up?

I once faxed a page of the newspaper to the bank of a map that had a dot for every murder in the city. As luck would have it, I got the house pretty cheap cause there was a dot right down the street from the house I wanted to short sale. I've used that same map a couple times since then.

And then the bank asks, "If it is such a bad neighborhood, why do you want it?" That's a pretty valid Question. Think about it for a second. What would you say to that?

Come up with an answer…that the bank would accept? Here's what I said, "I have a manager who doesn't mind going into those neighborhoods. We don't make much money today, but we are investing that the value will increase in a couple years. And we will make some money on it then."

Do you know why this is a good answer? Banks don't have time to wait to make their money. They want to sell now. They want their money making money for them. They are not in the business of renting or holding houses. They just need to hear a good justification of why you would be better at owning this house than they would. And this is it. I've not gotten turned down on this explanation.

When the bank realizes you are going to hold it (they don't want to) and not sell it and makes lots of money now (this IS what they want to do), they will usually let you have it for a price they think is fair. And demonstrating that the repairs are high, the area is not great, and even tenants might be hard to come by, will let you get the house, not them!

Be creative and don't lie. The banks take training! They can tell when you are lying, so don't. Be an ethical investor and good deals will come your way!

Deb McMillan, OPHP, CMI, is a real estate investor and writer living in Hamilton, Ohio. She has written a home study course on Short Sale Success Systems, which teaches investors how to get deep discounts from the bank when buying pre-foreclosures.

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