I am looking to buy a house to flip in the Austin area, and in addition to my contractor inspecting the property I am wondering if anyone thinks there is value in also having a professional real estate appraiser come to give a valuation on the house as well before we close the deal. My thinking is that the appraiser could confirm the exact market value of the house so we can know for certain if we are getting a good deal, even though it would not be required since we are not financing through a traditional mortgage. Is this a common or advisable practice for investors who are buying with cash?
I have to disagree with everyone saying not to hire an appraiser, esp for a flip. Disclaimer: I flip homes, I have been a Broker in Charge. I am NOT an appraiser. Agents find your "value" off SF, comps, and recently sold. Fair enough. This does give you a value. This may or may not give your buyer confidence. A "certifiedappraiser" can give you a "certified appraisal" that a potential buyer can:
1- take to the bank, or mortgage company.
2- This is an excellent sales tool when it comes to a buyer signing on the bottom line, and unless your buyer is paying cash, it needs to be done anyways.
3- Is a solid and certified validation with regards to your asking price.
4- Lets you know for sure how much money is too much money on the project /
A CMA is subject to the RE agent choosing comps within a given area, and thus subject to that agents "opinion" of which properties work best on a comparative level. Agents are not appraisers, and a lender will not lend on a CMA. Each individual property has it's own attributes. Depending on how deep you are going into your rehab, (ie. new elec, HVAC, and so on) adds a value beyond what comps can see.
So is it necessary? No it is not. Is it wise? Well, you can decide when showing your shinny new property to a potential buyer, and give them a copy of a "certified appraisal" to take home, and the bank. If nothing else, it will tell them you are on your A game. It further lets you know, an agent isn't blowing sunshine up your *** to potentially gain the listing when the property is complete. For me personally, $400 - in the scope of a rehab, is money in the bank, money well spent.
@Nicholas Jones I certainly wouldn't. A CMA from a from a competent real estate agent will give you an accurate valuation of the property and will be a lot less expensive (if not free) than hiring an appraiser.
I would say this is an expensive practice to start if you plan to scale your business. As you buy more homes you will look at many but buy few. If you send an appraiser out every time you want to put in an offer, you will be broke in no time at all.
@Nicholas Jones An appraiser is also just giving an (educated) opinion of value. It's not THE market value. Any good real estate agent should be able to give you a small range of value for any given property. I would not pay for an appraisal.
I would only hire an appraiser on properties you put under contract to verify the current market value and the after repair value to make sure you deal works. Otherwise this would get quite spendy. An appraiser will give you the actual market values for both. Using an real estate agent may get you somewhat close sometimes but they are not in the business of valuing properties and have no training in how to do so. Some seasoned investor friendly agents will be better than others but good luck.
Hey Nicholas Jones
I second the emotion of everyone who replied before me. Hiring an appraiser would be an overly expensive means to an end. A good real estate agent should do a CMA for you for free to earn your business. Both agents and appraisers will be making an educated guess, so either way it's important to find a professional who knows your market to ensure the educated part.
Another thing to consider, I've had appraisers who drastically undervalued unique properties because of their guidelines. A dramatic example is a unique hillside house we had listed in a Pacific Palisades neighborhood. The house was built into a steep downslope lot which meant high engineering/Geo costs, but it was worth it for the sweeping, head on ocean views. The infinity pool and deck cost over $1mm to build due to the immense caissons needed to support it, and code changes meant it couldn't be recreated or duplicated. We had an accepted offer around $4.7mm from a buyer obtaining financing, and the appraisal came back in the $3mm range. The appraiser reasoned that there were very few recent comps in the neighborhood, most of which didn't have pools, and their guidelines would only let them award our house about $100k (<10% of cost) for the pool! Needless to say, this caused a big stink that we had to work around.
Best of luck!
The problem with appraisers is that they use outdated metrics to value a home. They use policies developed in the 60s and 70s where people did not do home improvements.
So they focus on things like the neighborhood, the square footage, the age, and days on the market. That all makes sense in an environment where nobody improves their house.
Now though, you can have a house that looks totally updated, has a fantastic new kitchen with granite, has a brand-new bathroom, has new hardwood floors and high grade trim, and the buyers will jump all over it
Then along comes the so-called experts, with their 1972 pocket protectors and arrogant egos, and tell you that none of that has anything to do with value. They will compare it to the house down the street that has been on the market for a year with paneling and green carpet, and say yours is actually worth less than that
They are totally oblivious to the fact that it is they who stand in the way of the free market, and it is the market that assigns value most efficiently.
The entire profession needs an economic lesson. But whenever you get a profession like appraisers or building inspectors who have a great deal of authority with very little oversight, you get certain personalities that gravitate to that profession namely people who like to be in charge and do not like to be contradicted
Thanks so much for the feedback! This was actually my first post and I wasn't expecting anyone to reply so the response from the community is amazing.
It sounds like an appraisal isn't necessary so I will stick with the agent's comps and valuation. Just to be clear, I was considering hiring an appraiser after the house was under contract but before the deal closed. Let me know if y'all think this changes anything.
Each state is different, but for the most part an appraiser is just a real estate agent that has taken a few classes and passed a test. Not taking anything away from the people that have done that to be certified appraisers, but an experienced real estate agent can give you a very strong, accurate number of value with a good CMA.
I have to disagree with everyone saying not to hire an appraiser, esp for a flip. Disclaimer: I flip homes, I have been a Broker in Charge. I am NOT an appraiser. Agents find your "value" off SF, comps, and recently sold. Fair enough. This does give you a value. This may or may not give your buyer confidence. A "certifiedappraiser" can give you a "certified appraisal" that a potential buyer can:
1- take to the bank, or mortgage company.
2- This is an excellent sales tool when it comes to a buyer signing on the bottom line, and unless your buyer is paying cash, it needs to be done anyways.
3- Is a solid and certified validation with regards to your asking price.
4- Lets you know for sure how much money is too much money on the project /
A CMA is subject to the RE agent choosing comps within a given area, and thus subject to that agents "opinion" of which properties work best on a comparative level. Agents are not appraisers, and a lender will not lend on a CMA. Each individual property has it's own attributes. Depending on how deep you are going into your rehab, (ie. new elec, HVAC, and so on) adds a value beyond what comps can see.
So is it necessary? No it is not. Is it wise? Well, you can decide when showing your shinny new property to a potential buyer, and give them a copy of a "certified appraisal" to take home, and the bank. If nothing else, it will tell them you are on your A game. It further lets you know, an agent isn't blowing sunshine up your *** to potentially gain the listing when the property is complete. For me personally, $400 - in the scope of a rehab, is money in the bank, money well spent.
Just a few weeks ago I had an appraiser look at a fourplex I'm buying and he went approximately 35% above the market rate. Even if you could be certain your appraiser is accurate it still probably wouldn't be worth the cost, but since you can't even be sure of that it's really not worth it.
If you get the house appraised there is a statement included that the appraisal is only good for the purpose it was ordered for and can not be used for other purposes.
I have to agree with @Mike Dittman ... i am not an appraiser... i have bought, renovated and sold a large number of houses over the last 8 years ... I know the Charlotte, NC market as well as any appraiser and in 100% of cases i always got appraisals when i purchased property for my own peace of mind. For goodness sake it is $300 ... If paying that $300 was the difference between me being wrong about a property or value it was worth it... in some cases when i have sold the property and person i was selling to was obtaining financing and their appraisal came in low i had my appraisal to submit as a rebuttal. If you are looking to get an idea of value a CMA is good. If you want what an appraiser is going to think when you go to sell the property getting a "subject to" appraisal upfront is ideal. *("Subject To" an appraisal of a property subject to you completing the described repairs, this is not an AS IS appraisal)
Lastly if the appraiser comes back and tells you the property is going to be worth less then you thought it would be after rehab that doesnt mean you cant still list it for that price... the appraisal is merely a guide post.
So there you go ... the democracy of the BP community. agree to disagree :)
Thanks so much for the feedback! This was actually my first post and I wasn't expecting anyone to reply so the response from the community is amazing.
It sounds like an appraisal isn't necessary so I will stick with the agent's comps and valuation. Just to be clear, I was considering hiring an appraiser after the house was under contract but before the deal closed. Let me know if y'all think this changes anything.
Cheers!
Nope. Doesn't change anything, and that's what I understood from your OP. The only time I might consider hiring one is if the property was particularly unusual, and even then, they are still just looking at the same data as the rest of us, so I'm still not sure that I would see the value.
If you need an appraisers opinion of value before you buy the "flip" then you shouldn't be buying the flip. You should know the market and the comps before even looking at the property. If you feel confident there is money to be made move forward without the appraisers opinion.
Wow. The level of ignorance in this thread concerning appraisals and appraisers is astounding. Appraiser are not agents, though some also carry a sales license. Appraisers practice practical economics and develop deep knowledge of your local economy - which is why a bank will buy properties site-unseen based on the appraisers signature (banks care little for comments from sales agents). Appraisers constantly build their knowledge base through experience, forums, symposiums, field work, and resources like the MAI - the comment about 1970's calculations demonstrates an ignorance of fundamentals - not the least of which is the economic law of diminishing returns.
So it's good you are considering an appraisal. A bank will not fund a purchase without an appraisal so why should you? I think it's great you're thinking big. I have MAI contacts who are sometimes paid more than $25,000 for appraisals - the big boys don't balk at the fee for an appraisal because: 1. its fundamental to deal analysis; 2. It's a dirt cheap fail safe. Even the big boys can let their emotions and excitement cloud their judgement. An appraisal mitigates the influence of emotions.
The Appraisal Institue maintains a database of experienced experts in your area. You could try searching their site for someone with who you can build a relationship. They will guide you on what type of approach to value is most relevant, and you can tap them for feasibility studies, highest and best use opinions, aspects of cost (which is also relevant when considering depreciation on your taxes - ask your real estate focused CPA), and you can even ask them to do the appraisal subject to the repairs/renovations you're considering.
I agree. An appraisal saved me $33,500 off the contract purchase pric of my primary residence which I bought with no financing contingency, but with an appraisal contingency.
The house was in a nice neighborhood where few homes go on the market. After the contact wears executed and during the due diligence period, the appraisal came in at $33,500 less than he contract price. I threatened to walk away from the deal if the price was not lowered to the appraised value. Eventually, the seller agreed.
Has it not been for the appraisal, I would have overpaid for my dream home.
That's interesting. I'm surprised it came back $33,500 below contract price as a contract is typically proof of arms length negotiation. Did the appraisal state why the value was that much lower?
Or are we talking a $MM property where $33,500 is negligible?
Th original contact price was $937,500 and the appraisal came in at $904,000. The appraisal was thorough and based upon the comps and basically said the comps did not support the $937,500 price.
This past week, we had our first Charlotte rehab appraised by our buyers bank, which came in $20k under our contract price. We've extended our DD period and ordered our own appraisal to hopefully use as a rebuttal. Has anyone had luck with the rebuttal process and getting a second opinion on value?
Just as an FYI, we had 8 solid offers in the first week on market...
We have had 3 different appraisals on the same property in a 30 day period of time and the values were all over the place. You can help the appraiser by providing them some comps you have, and I have had success and also been stonewalled ............ wish I had a more solid answer ........ but value is an opinion and what people will pay determines how prices increase. When I have gotten appraisals bumped up, I've had info to give the appraiser or we have gotten a new one where the appraiser is from the area. Sometimes appraisers coming in from other cities can be a problem.
@Craig Lessler Sure, but you had an appraisal contingency. If they buyer is paying cash with no financing contingency and he doesn't add in an appraisal contingency, then it doesn't really make much sense to have an appraisal done.
@Greg Mucha Ohhh...that's a bummer. I've only had an appraisal come in low once in my career, and the appraiser totally stonewalled us. I would definitely try to appeal it. I would also send the appraiser the other offers so they know how many you had and how much other people were willing to pay after only a week on the market.
Are any of the other offers close to this one? Is the current buyer getting an FHA loan? If not, then I might just go to the next best buyer instead of reducing the price $20k. What's the purchase price of the home?
Not much to add to @Dawn Brenengen and @Bonnie Laslo comments. Sorry that you're going through that. It's all about the data. Appeal and bring your a-game. Bulletproof comps, records of improvements, rental data - attack all three approaches. Order an appraisal review from an MAI or SRA. Go through it line by line with the help of an experienced appraiser you trust.
The other offers consisted of FHA, conventional and VA all within 10k of our $205k asking price. We went with the conventional from a strong set of buyers, who even agreed to use our preferred lender! We may just have to relist or contact one of the other bidders...