Almost Lost $24,000 on BRRRR, Instead Made $8,000

87 Replies

My numbers showed a conservative ARV of 3/1 rancher in Richmond, VA at $135,000. All-in costs including repairs, title, legal, lender fees, etc. was $108,000. I developed a relationship with a new bank with great portfolio products and was excited to work with them.

Renovation was completed 2 weeks after closing. Refi was underway with the appraisal 1 week later. Appraisal came back at $105,000!!! The bank sent a note saying they would only refinance 80% of $105,000. I was slated to lose $24,000 on an expected breakeven BRRRR.

After a small heart attack, I reached out to a few RE professionals in the area and the general response was "That sucks!" when hoping for a solution.  I remembered a few situations on BP podcasts where guests spoke about respectfully understanding the appraiser's methods, communicating your misunderstanding, and presenting appropriate data to support a revaluation.  Solely because of that podcast or two, I did just that.

Appraiser was willing to revaluate and came back a week later with an appraised value of $145,000.  The closing date is set, and I'll be paid $8,000 after paying off the private money and all other costs and have 20% equity in the home.  Mortgage will be ~$800/month and rent is $1250 with a two year term already in place.  

I write this because I would have taken a huge loss if I didn't know any better. There was no "option" to contest the appraisal. I might have left the bank completely, which had a great product and people. Luckily, the numbers were there and things worked out alright with an increase of net worth of around $35,000 in about a month with $0 of my own money invested on one SFH. Thanks BP!

Hi @Stephen Glover , that is a great example of being persistent and not just putting your hands in the air and giving up. 

I too recall a previous episode or two stating that if your respectful and understanding of the appraiser that sometimes they will re-appraise/revalue the property due to something they may have missed. 

I'm glad everything worked out for you in the end. 

Good story, thanks for sharing! 

I too would be interested in knowing which bank you use as well as what you presented to the appraiser to change the value so dramatically. Please let me know either with a PM or add to your post! Thanks

@Alexander Lang that podcast saved me a lot of time and effort, for sure!  Being confident in your numbers and being persistent were very important- and understanding the appraiser's point of view.  Thanks for reading.

@Joe M. Thank you.  Didn't change anything, just offered more information.

-A very detailed CMA from the MLS

-Comparable units on Zillow

-The home's current listing on Zillow to show improvements (I had it listed for rent)

-Every capital expense line item and cost (value) associated with each

-Shared history of the home and neighborhood

It was a national appraisal company, (which I also wouldn't have understood without BP) so they knew little about the area I was investing in and did their best.  Very professional company, just missed the mark.

@Will C. @William Lee  Welcome to DM me if interested.  For the record, this post isn't intended to reflect negatively on the bank whatsoever.  I refer investors there often and work with them for my own investments. It's moreso to emphasize the shock of a low appraisal and that it's possible to overcome it.

Is there anything I can say or do to make sure the appraisal is within the margins for a deal to work? Currently I am in a situation where we did a 203K loan ($230,000 for the house and $50K to fix it and additional $40K in credit cards... so a total of $320,000 that we owe). We are just about done with the house. It is my understanding that after 6 months I can order a new appraisal and refinance it based on that new appraisal. Based on comparable houses our house should be worth about $410-$430K... And since we bought it as a primary property (we plan on living on it for now) we can refinance 85% so we should be able to pull out  about $350K..... HOW DO I MAKE SURE THIS HAPPENS???

@Ellen McKinley I wish I remembered which Podcast it was in particular so I can note them... I think it might have been a female guest and she spoke about contesting multiple appraisals and how she did it... and another one with a male or two that discussed it as well.  Within the last 6 months?  Not sure.  I'm sure there are a ton of blog posts on it like you mentioned, too!

@Oscar Navarro By the time you get to the bank for a refi, you should be absolutely confident in the number the home should appraise for based on your analysis (or a professional's).  If it's off, either the analysis is wrong or your accurate analysis should be able to get you a second chance (if it's anything like my experience).  I've only had to contest an appraisal this one time.

@Stephen Glover I am very confident my numbers are correct, but in the event the appraiser doesn't feel the same way, what were the steps you took? I mean, I've gotten appraisals for the 3 other properties I've purchase, but I have never had to contest any of them. I am concern because of the $40K in credit card debt that I aquire in order to finish this house.

@Alexander Lang Thank you!  Local in Richmond for now.  Have a large network here, lots of connections with great people, and I'm a partner in a local boutique property management company.  Almost all of the opportunities I see go to our investors (clients) first, but some come to me through family or friends outside of my company and I'll take advantage of those.

@Stephen Glover Great example of gathering your resources and congrats on a successful brrrr! i work for an appraisal company and almost every home owner, investor, etc are not well informed that they can request a reconsideration of value by providing suitable comps to the appraiser. youre not supposed to speak about the appraisal to the appraiser directly so this is also a solid reason to find a good loan officer!

Appraisers make mistakes....it happens

When my Aunt passed away, we had her house appraised...it came back lower than expected, so I looked deeper....well all his comps had "pools"....... in a retirement community....... yeah a community pool, not a pool at each house.......but my Aunt's house didn't have a pool according to his specs.....so it was valued a lot less....HELLO McFly........ its a retirement community and there are only like 5 different models.....and NONE of them have their own pool.....so its not that hard to compare the comps since they are all so alike..... pointed that out and gee, the appraisal went way up.... imagine that.....

@Suny Capezzuto great information. I wouldn't have had a clue it was an option.  I believe I went through the bank first to request the revaluation, but I did CC the appraiser. If it happens again I'll just contact the bank.

@Ned J. Yessir this appraiser made an honest mistake.  Comps weren't near accurate, obviously, with a $40K swing on a $145,000 house.  Glad you got it straight!

@John Elias first one I've had to deal with this issue, but I'm sure there will be more.  Have great resources in Richmond and happy to help as needed.

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