May 13th, 2011  

"Nine out of ten times the appraisal is no problem and then again..."

Hi

We just closed a rent to own deal last week and it was not as smooth as we had expected.

In the beginning everything was going smoothly - Tenant buyers with good income and bruised credit were found and put under contract, a house of the tenants' choosing was procured and a great low rate mortgage was conditionally approved then.....'The monkey wrench!'

The appraiser determined that the value of the property was about $35k less than the asking price with less than 2 weeks before the closing. For those that have ever received a mortgage in the past know that lenders fund the lower of the purchase price and the appraisal.  

So, this supposedly straight forward step became an unnerving and stressful experience. We began scrambling to save the deal. The options included coming up with extra funds to make up the shortfall, getting a second mortgage and approaching a new mortgage company (which meant getting a new appraisal).   

Each option had its pros and cons so we decided to go with a new mortgage lender  and try to get a new appraisal and hope that it could get it all done before the close date.  

We had to keep in mind that if the deal collapsed then the deposit would be lost, the seller may be able to sue for damages and the tenants would be homeless. 

Luckily the new appraiser was able to appraise the property on Easter Monday, create the report within 24 hours and best of all ascertain the property value that we needed (and expected in the first place)!  

 So why was the first appraiser so far off? ...We still haven't been able to find out.  

Anyway, after a few more smaller bumps the positive cash flowing rent to own deal closed.

...Now on to the next deal (adventure)!  

Chris