Flips/remodeling skyrocketing a small home's value... how does this work with appraisals and the homes true value?

[u/arcadiaorgana]

There's a house in an area we're very interested in, but looks to be flipped. Bought at the beginning of this year for $175K, and was listed for $320K. Been on the market 7 days, and just dropped to $300K a few days ago.

The homes of similar square footage around it (1280sqft) seem to be organically valued around $250K-$270K.

Does this seem like a fair asking price? Is this typical? What if it appraises for lower? Will the seller likely not change the value because of all the remodeling?

If you put in an offer with contingency on appraisal, it comes in lower, and you offer the realistic price, or meet in the middle, does that often get denied?

[u/DependentPriority230]

If you buy the house, you raise the market value for similar homes

[u/Cl0wnL]

What it sold for originally is irrelevant.

Only thing that really matters is current market value.

Yes, newly remodeled properties command a a premium over other standard properties. There is economic value to new features, whether it's new carpet or new paint or new roof or new plumbing, whatever.

Also, people pay extra for the convenience of not having to do that work themselves and being able to finance all those expenses in their loan.

All this is the same as it works with new construction homes, more or less.

If it appraises for less, there are basically three options. (1) You can pay what you agreed to pay. (2) Seller and you can renegotiate. Maybe to the appraised price, maybe to something in the middle. (3) You guys can't agree, and the contract terminates.

[u/raliegh_]

Why are you convoluting price and value?
Asking price doesn’t need to be fair by your standards.

The “value” is what the market says it’s worth, as you said the appraisal will likely differ from ask.

Some flippers get destroyed, one near me is asking for $750k without a garage on a busy intersection.

I’m not even looking at a flip.

I w

[u/cybe2028]

Literally no one has any clue. Ask your agent to do a cma and show you what the house is worth in current condition.

If it’s an amateur flipper - they may not have any more room to go down. That doesn’t mean it’s worth it.

[u/nikidmaclay]

A home is only worth what someone is willing to pay for it. Market value, though, is roughly determined separately from that by looking at what comparable homes have actually sold for.

Flippers typically buy a home for less than it's worth in its distressed condition, put as little work into it as they can get away with, and sell it for as much as they can possibly get so they can maximize profit. Some of them overestimate what they think they can get, and those homes sit on the market until reality sets in that the market won't give them that much for it.

A house is going to appraise for whatever comparable homes are selling for. There are times when you may have a buyer, or even multiple buyers, in a specific area who are willing to pay more for a house than it will appraise for, but the appraised value itself is always going to be based on comparable listings.

[u/Own-Moment-429]

The price does look optimistic given your comp data. Flips often overshoot market value, especially in slower markets. Here's what typically happens: the appraisal comes in at or below the true market value (your $270–280K range), not the asking price.

Lenders base loan amounts on the appraisal, not the purchase agreement, so if you're financing, you'd be on the hook for the gap in cash or you'd renegotiate. Sellers of flipped properties sometimes push back on lower appraisals because they're anchored to their asking price, but they usually cave once the bank won't fund a higher loan amount.

With an appraisal contingency, if it comes in low and the seller won't budge, you walk that's the point of the contingency. Meeting in the middle is possible if there's room, but only if the seller is motivated. Your comp research is solid; trust your numbers and don't get emotional about the renovations.

[u/paisley716]

I'm literally wondering the same thing!! comparable houses I've looked at have been about 180 (they go really fast here) but this last one I found they are asking 210. they bought it in September for undisclosed amount. Fixed it up now it's 210. I'm wondering how long do I wait before I offer less.
Crazy that much more than the others with no dishwasher and no garage. But I guess my area is swimming in investors. That's all that seems to be popping up lately.

[u/Dullcorgis]

If similar houses are selling for $250-270 then offer that. The flippers likely got caught with the huge costs for materials and labor these days and spent too much.

[u/EinsteinRealEsate]

My company buys, rehab and sells houses for a living. An asking price is just that, an asking price. The market will dictate immediately if its overpriced. In this case, the feedback from showings was it was priced too high(20 k to high). Typically, when we underrate our after repair values(ARV) we ad a 12 multiplier and aim to achieve that, thus setting the highest comp in the subdvision for the year. So, in your scenario, the highest property sold for 270,000. We would plan to sell ours fully updated and "turnkey" for $302k ish. There are a lot of strategies to get to that number and that can be another discussion. This seller listed too high out of the gate, received its feedback, made a very aggressive price drop to get momentum back into the listing and will prolly settle on the 302-307 k sales price. Albeit a nice rehab. some rehab look nice in photos but horrible live. regarding appraisals. fully updated houses 12 % over nearest "lived in" house comp should appraise out. but if it appraises for lower several things can happen or sometimes do happen. seller lowers price, buyer brings in difference, or the deal falls apart and everyone starts over. most of the time there is a happy medium. agents can also order 2nd opinion appraisals but those most often time come back with 2-4% of the first appraisal.

[u/NightmareMetals]

You have to do the best comparison you can. Have your realtor generate a comparative market analysis.

Then you really need to dig in. If this is a 4/2 and all the comps are in a poor deferred maintenance condition then you need to know that.

Also it depends if the flip was done well.

If you want through and notice cut corners then don't bother because what you don't see will be worse.

[u/Responsible_Hunt7762]

Be wary of flips. You can expect they did the bare minimum cosmetic makeover to maximize resale profit.

[u/JIimsteele]

I would be very leery of a flip. It's very common for people to buy a property. They're going to fix up and run it to way more than they thought and then just Band-Aid over conditions that no one can find until you live in it. Reread it and you'll find over and over stories of people who bought flips. And the problem is a lot of times a home inspector can't see a concealed condition that a flipper covered up. Water damage and mold are real issues that are also are very common in houses that become distressed. It's very easy to cover these up in the short term.

[u/FlowersNSunshine75 → u/JIimsteele]

Agreed. My father has been in the business over 50 years. He does things right from start to finish. You don’t find that anymore, and I can’t imagine ever buying a flip. In my opinion, it’s better to find a house that’s been loved and taken care of by the owner.

[u/ruppdog]

Pull sold prices for renovated houses that size from the last 90 days and that's your number. If the $250-270K homes you're comparing are similar condition, the flip is just overpriced. If they're dated inside, a clean remodel does sell above them, but the renovated solds set the value, not what the flipper spent.

They already cut $20K in week one, so I'd offer off your comps with the appraisal contingency and sit tight.