Question about Appraisals and ARV

4 Replies

What big ticket items are inspected by an appraiser and hold the most weight in determining the ARV? If I am using the BRRRR strategy and need the home to appraise as high as possible what items do I absolutely need to rehab in order to receive the highest appraisal?

An appraiser is going to look at similar income producing properties in the area that sold in the previous six months. The appraiser will evaluate the rents, condition and characteristics of the comps. He then adjusts the comps to best match the subject property. The value is derived from these factors. If all the recent comps were in great condition, had updated kitchens/ bathrooms, granite tops and so on, then you could reasonably expect the value of the subject property to be similar if it also had many of the same characteristics.

In regards to specific items, say granite tops or updated bathrooms, you need to think about your target renter. You also need think about the type of renter that is drawn to live in the neighborhood where your property is located. Are they college students, families, or some other type? What features do your target renters demand most? College students are going to prefer different characteristics in a rental compared to wealthier working professionals and vise versa. 

@Dave Zarcone I'm sure an appraiser will jump in here and give a better answer but I think Step 1 is looking at comps. I don't know if there's a technical term for "Price Ceiling" but just because I put in a Viking range doesn't mean my ARV will increase $5K if the other properties in the neighborhood have Whirlpool. You'll get more bang for the ol' buck by going from: disaster -> average than average -> great.

To your original question...fit and finish are awesome but I'd imagine a "big ticket item" that would make a material difference is during a 3 bedroom/1 bath into a 3 bedroom/2 bath.  

Thank you both for your response. I can imagine that adding a bed or bath is a great way to add value if the sqft will allow. it. 

I am curious about what types of rehabs or updates add the most value. For instance, most of the properties I'm looking at are in need of all sorts of upgrades, but which items have the most impact on the appraised value. The intent of this question is not to see what needs to be rehabbed in order to sell the property, but what should be rehabbed in order to have the highest appraised ARV so I could cash-out refinance.

Let's say that a completely renovated home in the neighborhood is selling for $300k. I buy a property for $200k and it needs $30k in rehab in order to be comparable, but I only have $10k in my budget... Where would I spend that $10k in order to get the most value in the eyes of an appraiser? Flooring, paint, updated kitchen, bath? 

Again, I appreciate all your responses. 

Buy a cheaper house and do a proper rehab... pretty simple.

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