Appraisal higher than purchase price

My understanding is appraisals are almost always the lower of purchase price or appraisal. Is it ever possible to have a loan based on appraisal if the purchase price is far below the appraisal?

The property I have under contract is appraised at $3,300,000 (which is low) and the purchase price is $1,850,000, which represents about 56% of the appraised value and is $1,450,000 below the appraisal.

I’d like a better LTV than 70% of purchase because there is genuinely a large amount of equity in the project, but most of the financing institutions always do the lower of appraised value or purchase. I have no problem with conservative lending rules, but the intrinsic value is so much higher than the sales price that I would prefer a more aggressive LTV than I’m currently being offered.

Any suggestions would be helpful.

We had the same thing happen on a park we bought in the Cincinnati metro, with almost the same numbers except the purchase price was about $2.3 million with an appraisal of $3.3 million. In that case they did 70% of appraisal because it was a conduit lender, and that’s how they are set up. It was nearly a zero down deal as a result. It would be hard, if not impossible, to pull that off with a conventional bank which, as you have pointed out, typically go with the lower of either appraisal or purchase price. The difference is that the conduit lender is much more educated and the typical bank is unable to tell what the real value is, so they are running scared at all times.

I would contact Security Mortgage Group at (585) 423-0230 and see if you could get a conduit loan on it.

Thank you Frank, I will call them immediately.

I didn’t realize you personally respond to these queries. Since you’re here I should thank you for more than just that answer - you made me more than $1MM in the last 6 months which I very much appreciate. I need to send you a gift one of these days. In fact the spread would be slightly wider than what I made because after reading a short book you and your partner wrote, I abandoned one project (that in retrospect had the potential to lose money) and pursued some others which turned out.

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As a present, how about doing an interview with me on our Lecture Series that we do periodically? All you have to do is phone in and let me interview you for an hour on the park business.

Oh man Frank! That post and others has to go on the front page of your website, your marketing materials, everything. I love it!