Real Estate Articles

Getting Your Investment to Appraise | By: Pine Financial

Getting Your Investment to Appraise

A simple three step approach

By: Pine Financial Group, Inc.

A common problem with rehab investors is getting their properties to appraise once the rehab is done.  This is true if your plan is to resell the home but is especially true to those of us that will be refinancing the property.  A bad appraisal could ruin your deal and your profit.

It is a common misconception that you cannot meet or have a conversation with the appraiser under the new appraisal independence rules found in the Dodd Frank Financial Reform.  The reason this is confusing is because mortgage brokers have strict rules about how they order the appraisals and their communication with the appraiser.  The idea is to stop inflated reports or unnecessary influence.  (All of this is at a higher cost to you of course but that is a different article)  The truth is if it is your home you will most likely have the opportunity to speak with the appraiser and there are no rules against the home owner having a much need conversation.  I want to repeat there are no rules preventing you, the investor, from speaking with the appraiser.  Because of the importance of appraisals I think you should have a plan to deal with them. 

Here is a three step approach you can take to help get a quality appraisal:

Make the property look good

This sounds so simple but it is often overlooked.  An appraisal is just one person's opinion of value.  If the house is not completely ready to show it could leave a negative feeling in the appraiser's mind.  This could actually influence the comps that he or she elects to use.  You want the best highest priced comps in the area to show up in the appraisal so you need to make your property similar.  Most of those homes are similar to model homes.  They are completely clean and staged.  There is absolutely no clutter.  It will be as open as possible to include all the window coverings and it will most likely have a pleasant smell.  Glad Plug Ins work great.

If this is a rental property and there is a tenant it is best to have the tenant leave when you have the appointment with the appraiser.  The last thing you want is the tenant talking to the appraiser. 

Schedule a meeting

He or she will need to call you or your Realtor for access.  Be sure to set a specific time and let him or her know that you will be meeting them at the property to let them in.  They won't think much of it and will actually appreciate the information you can provide.

Prepare and deliver an information package

Your package should include any previous reports that you have, updated comps, and a list of the repairs you made.  If it is a large transformation I would also include some before and after photos. If you got a loan when you purchased the house you more than likely received an appraisal from the rehab lender.  I would assume the value was where you wanted it or you would not have purchased the house.  Most of the comps will still be good since you just rehabbed it.  I love giving appraiser’s previous reports and letting them know I would expect the value to be similar.  After all, that is a fair expectation.  If other houses have sold recently that have been fully remodeled be sure they are either in the previous appraisal or provide them separately.  You might even write a few notes on the comp explaining why you think it is a good comp and should be considered.  Finally, a full list of repairs made with the costs of the repairs is a good idea.  There is a really good chance there is a significant value change from what you paid and the appraiser is going to be asked to justify that value increase.  Help him or her by providing the scope of work. 

If all this fails you will be forced to either rebut the report or get a new one.  (which is another $500) If you are selling the house there is a good chance you will lose the buyer if the report comes in really low.  For a rebuttal you will need to be prepared.  You need to understand how an appraiser looks at comps and what they look for in comps.  You will then need to supply your documentation with notes as to why your comps are a better indication of value.  Again it needs to be well thought out and professional or you have no chance.  I would ask for the help of another competent appraiser or Realtor if you are forced to rebut a value.

Good luck out there!