When the document arrived in our inbox my husband Dave and I were giddy with excitement. “What’s your guess?” Dave asked me curiously. Want more articles like this? Create an account today to get BiggerPocket's best blog articles delivered to your inbox Sign up for free “I think $297,900. What do you think?” I replied excitedly. “Well… I hope $305,000, or more, but it will probably be $299,000. Let’s see …. “ The room fell silent as we both stared in shock at the number that was before us … appraised value of $289,000. “Well, that’s what happens when appraisers have access to MLS and can see what you paid for a property.” I said dejectedly. You see … we are very confident that this house we paid $289,000 for is actually worth over $300,000 … and in fact when we do a few repairs and give it a little cleaning we think the value would be more like $310,000. When we ran an electronic property valuation (a new tool available in our province of BC that uses recent sales and assessment data to calculate a value), the report valued this place at $321,000. We think that value is a little too high, but the challenge is that there are very few properties like it. It’s an old character home, on a very unique and desirable street, with an ocean view. Homes on other streets nearby sell for $20,000 to $30,000 less. The houses on this particular street generally sell at a premium. But very few homes on this street have traded in the past six months, and anything before that isn’t a real comparable because the market conditions were so different. It’s also hard to put a value on an ocean view. Everyone knows there is value there but how much? So it wasn’t an easy job for the appraiser … but as we looked through the appraisal report we found issue after issue. We ended up sending her some comparables she should have used, we challenged the market rent rate she came up with, and the replacement cost numbers she used. Basically we had to have her redo her report because the first one not only gave us a much lower than market assessment, but some things in the report were downright wrong! Appraisals are an opinion of value not a scientific fact. And the bottom line is that many appraisals default to the “safe” answer which is usually what you paid for it. That can be a kick in the teeth if you’re paying under market value but trying to get a lender, a partner or a tenant-buyer to work with you at it’s market value. Many of our colleagues have suggested that the best way to influence the appraisal is to greet the appraiser with your own deal summary, including the comparables you used to complete your market valuation. You can also include the rent rates for nearby rentals that are similar to this property, and indicate any work you’ve done to improve the property to ensure that it’s all included in the valuation. We’ve never done this because we always wanted to see what the unbiased value is. We didn’t want to influence the number in anyway … but simply by our purchase price being information the appraiser can access, we’ve already influenced the value. So we have no problem getting the appraisal report redone … and that is what we did. So, go ahead and use the tactics of our fellow investors, and hand a package to the appraiser. They should do their own research, but let’s face it, they are human and if you can make it easier on them they just might take the easy route. But when you’re reviewing the appraisal report, even if you’re happy with the valuation assigned to the property, take a close look at: The comparable properties used: No two properties are the same, but to make the valuation as accurate as possible the comparable sale dates need to be very recent (max 6 months old … ideally 3 months or less), the circumstances of sale need to be similar (don’t use a foreclosure as a comparison to a market sale or a non arms length transaction as a comparison to an arms length one), and the location of the property needs to be very comparable – preferably nearby. Value assigned to special features: In this case, the appraiser assigned no special value for the premium street or for the ocean view. To us that resulted in a valuation below the market value. None of the comparable properties used in the appraisal had ocean views and there was only one property on the same street. Watch the rent rates, replacement cost numbers and other specific details that change quickly. This particular appraiser had valued the rent for this home $300 lower than market rent rates. After we challenged her on it, she called around to local property managers and realized her mistake. We’re not sure if she was out of date or just out to lunch. She also had the replacement costs for the building at a much lower rate than any builder we’ve ever talked to can build for. We asked for the contact details of the builder she got her numbers from because we’d like to work with him. 🙂 Whether it’s before you get the report or after the report is complete, you have every right to make sure that the valuation has been done correctly. It is an opinion, and an opinion can be changed and it certainly can be influenced. And while the banks, partners, and other parties that rely on the appraisals may not want to accept that fact, as a real estate investor it’s a reality you have to work with. Now we’re awaiting the revised report. We don’t expect the value to change that much but we do know we’ll be doing things a little differently from now on.