My 1st North Dallas Flip Sold For $130,000 Over Appraised Value
In my previous post, I talked about my house-flipping strategy and my takeaways from my 1st out-of-state flip. However, when I wrote that article, I hadn’t officially sold the home yet. But today, I’m happy to announce that I’ve officially sold the home! While it was a happy ending, when I first listed the home for sale, the listing really got off on the wrong foot. Today, I will share the full story with you.
As a recap, I purchased my 1st out-of-state flip in the Dallas metro area for $485,000. Summing up all my expenses, including the rehab, hard money loan mortgage payments, acquisition costs, and selling costs, my profit was projected to be $43,459 (25.7% ROI) if I sold the home for $650,000. As you will soon find out, my home ultimately sold above the list price, but I had to endure a bit of drama to get there!
March 24, 2021 - Day Before Listing
On March 24, 2021, the day before I listed my property for sale on the MLS, my realtor and her husband scrambled to clean the house top to bottom on their own. Why? Because my contractor did an awful job cleaning up after themselves. My realtor went out of her way to really prep the house in time for the sale and I am so grateful! But scrambling at the last minute to get the house ready was super stressful for both my realtor and me, and I should’ve taken that as a bad sign for the coming listing.
March 25, 2021 - Listed for Sale
On March 25, 2021, I listed my property for sale on the MLS for $649,900. I intentionally listed on a Thursday to garner some initial interest leading up to the first weekend of open houses.
March 26, 2021 - The Leak
Immediately there was a lot of interest in the property, a great sign as the seller! That Friday, we had 5 private showings of the home scheduled, not including the overwhelming interest for the open house over the weekend!
During the 1st showing, the buyer’s agent called to tell us that there was a leak in the ceiling in one of the downstairs closets! I immediately instructed my realtor to cancel all showings for the rest of the day and to take the home off the market temporarily while I scrambled to get my contractor back to the property and repair everything. What a disaster!
April 1, 2021 - Relisted for Sale
As a seller, you never want your house to sit on the market for a long time. Typically, the more DOM (days on market), the more questions from potential buyers who wonder what’s wrong with the house and why it’s taking so long to sell.
Fortunately, I was able to repair the leak, patch up the ceiling, and repaint it before the following Thursday. So on April 1, 2021, exactly 1 week after I initially listed the home for sale, I relisted the home and crossed my fingers for some great showings over the weekend.
April 7, 2021 - In Contract
Again, there was a lot of interest in the home and there were many showings over the next couple of days. However, many buyers were hesitant to put in an offer, fearing that the home may not appraise for the list price. Why is that a big deal? Well, if the home appraises for less than the purchase price, the buyer has to pay the difference entirely out of pocket. For example, if an appraisal report says the home is valued at $600K but the buyer’s purchase price is $650K, the buyer would have to pay $50K out of pocket. This means that they would need to come up with $170K ($600K * 20% + $50K) for the down payment. If the home had appraised for the purchase price of $650K, they would only need to come up with $130K ($650 * 20%) for the down payment.
Luckily, I received two solid offers. The 1st was at $640K and the 2nd was at $660K. I decided to counter the 1st buyer at $665K and they accepted! This was a great outcome since I only anticipated my flip to sell at $650K (actually, when I bought the property, my initial calculations only expected a $630K sale).
In addition to accepting the 1st offer at $665K, I also accepted a backup offer from the 2nd buyer at $660K. So if the 1st buyer backs out for any reason, I would immediately go under contract with the backup offer.
April 14, 2021 - Deal Falls Through
In the first 5 days after getting into contract, the buyers must do their due diligence on the property. This period of the contract is the scariest window as a seller and is known as the “options period.” I call this time the buyers’ “get-out-of-jail-free card” because they can break the contract for any reason at all.
During this period, my backup offer canceled their contract because they wanted to make an offer on a different home. Because they canceled, I kept their $500 deposit (a small win for me).
On the very last day of my buyers’ options period, they decided to counter my offer with over-the-top requests like a $30K credit to replace the entire HVAC system, plus about $20K in miscellaneous repairs. Clearly, this was their way of backing out of the contract or getting a steal from this deal. No, thanks. So my deal fell through, a sellers’ worst nightmare.
April 15, 2021 - Relisted for Sale
The very next day happened to be a Thursday, one of my favorite days of the week to list a home for sale. So my realtor and I went back to the drawing board and relisted the home at the original list price of $650K, despite having received multiple offers above that price.
April 23, 2021 - In Contract
The weekend had decent foot traffic, but it wasn’t nearly as good as the very first set of open houses. I didn’t receive any offers immediately, and every minute I didn’t have an offer was stressful! But in a couple of days, I received two new offers.
The 1st offer was a $660K offer with a VA loan. Right then and there, I knew that accepting a VA loan came with more strings attached and the loan & appraisal contingencies were more complicated than meets the eye. Still, a $660K offer is fantastic.
The 2nd offer also came in at $660K, which was lower than the $665K offer I was originally in contract for. However, the other aspects of the offer were great (i.e. short options period, no appraisal contingency). The buyers were also flush with cash and shared a $400K bank balance with me as proof. This gave me lots of confidence that these buyers didn’t need their appraisal contingency and they’d be more than qualified for a loan.
My realtor actually represented these buyers, so after learning more about the buyers, I felt confident (maybe overly confident) they were emotionally attached to my property. So guess what? I countered them back at $670K, a higher price than my original buyers had, and they accepted!
Again, my realtor brought these buyers to the table, so all credit goes to her! I am so grateful and lucky that her buyers were on the market for a home in this exact neighborhood.
The Buyers’ Appraisal - A $130,000 Gap!!
The options period expired a few days after I went into contract. Phew! To me, that indicated that I was pretty much out of the woods and the deal would complete smoothly. Well, I was right, at least for me, not so much for the buyers.
As all lenders do, they send an appraiser to the property to assess the fair market value of the home. Based on the appraisal report, the lender will typically lend up to 80% of the appraised value. Well, the appraiser valued the home at just $540,000, a whopping $130,000 below their $670,000 purchase price!!
When I learned of this, I was just shocked. I expected the home to appraise for at least $600K. This was absurd. Luckily, the buyers had at least $400K in cash, though. And they were well past the options period for them to back out of the deal without losing their earnest money.
Regardless, I decided to try to help them out by giving them my appraisal estimate of $630K when I first acquired the home. I had hoped that giving this to them would give them ammo with their lender to send out a different appraiser. Unfortunately, the lender rejected their request and essentially forced them to pay the $130K difference out-of-pocket.. Ouch!
So Why Was I Lucky?
Well, while my first buyers fell through during the options period, they actually had an appraisal contingency of $600K or higher in place. That means that if the appraisal came in for less than $600K, like it ultimately did for my final buyer, they could’ve (and they would’ve, seeing how they used their get-out-of-jail-free card on me) backed out of the deal. On top of that, the appraisal happens about 2-3 weeks into the transaction! So in a way, I’m lucky my original buyers backed out in less than a week into the contract. If they stayed, they could’ve backed out 2-3 weeks into the deal instead.
I’m also lucky my realtor brought my final buyers into the picture at the right time. They wanted a home in this exact neighborhood because they wanted to keep their kids in the same schools. They also had tons of cash to cover the disaster of an appraisal that happened to them. And lastly, because the original buyers backed out, my final buyers’ purchase price ended up being $5K higher at $670K!
May 24, 2021 - Close Date
Congratulations to me because I officially closed this past Monday! Phew, what a rollercoaster. But I’m finally across the finish line and can officially call my very 1st out-of-state flip a win! While there was quite a bit of drama, I realistically didn’t spend too much time on the project; it was just a lot of phone calls over the course of a few months.
Having experienced firsthand how crazy the Dallas metro housing market is, it’s clear that appraisals are not able to keep up with the surge in housing prices due to such high demand. My 2nd out-of-state flip is still underway, so I will certainly be applying my lessons learned from my 1st flip. How I price my home for sale and how I decide which offer to pick, keeping a close eye on the appraisal contingency, are aspects I will be more cautious with as I continue to invest in this red hot market!
