Hi BP World,
I am sure I am not the only one that runs into this problem. My whole niche is finding great deals, like most of us on this site. I am running into a problem though when properties are being appraised. They are usually always appraised near the purchase price, but this is not the true value and I think the appraiser and everyone involved knows that. For example, I recently bought a property that is bringing in 4k a month. The purchase price was 245k and it was only appraised for 250k. It was a quad plex in good condition with 11 bedrooms. The comps in the area for 5 bedroom DUPLEXs have been selling for 200-250k. One property most comparable to mine had 9 bedrooms and was a duplex that sold for 330k, just a couple blocks away. Its great I got such a good deal on the property but how can I get a TRUE appraisal so I am able to either take money out. In my opinion the home is worth near 400k. It seems like appraisers just go with the purchase price when doing their valuation as we all know, but is there anyway to get a true appraisal. Does anyone have experience with showing an appriaser why the value is wrong?
I was thinking I hire a private appraiser get my own appraisal done and then show it to the bank who is going to refi. Let me know if anyone has any tricks or tips for this, as like I said, I am sure I am not the only one that deals with this.
In order to justify a new value for a property, you need to do something to justify that new amount, typically improve it. If you are buying a property, then the baseline assumption for any appraiser (and most people) is that the market value is what you paid for it. I mean, think about it, you paid an independent third-party a value that you both agreed on. How is that not market value? (yes, I understand that buying off market and not off the MLS can let you get advantageous deals, but that doesn't really matter for appraisers.) I would not waste my time getting a private appraisal since most banks are going to want to use their own.
Have you read the full appraisal, seen the comps used, and looked at what assets and attributes adjustments of those comps the appraiser used to arrive at the valuation for your property? Can you find a property that may have been better suited because it was closer and/or more equivalent in size?
I'm making a big assumption here, but did you buy this property within the last 12 months? When you get into tri-quad plexes with odd bedroom layouts it becomes nearly impossible to find similar comps and some times your purchase becomes it's own comp. The comp sale system works great for single families, but has it limitations for more unique multi unit homes.
If you dig into the report with a fine tooth comb and can find reasons flaws in the appraiser's rational for either adjusting a comp they way they did or including it at all, you can submit those to the bank and see what they say. Bear in mind, from the bank's point of view they have a trained professional who does this for a living and has a low degree of incentive to over-inflate the price compared to another person whose expertise they have no way of gauging and who directly benefits from a higher price. Whose option would you trust more?
Unless the appraiser was massively incompetent you have an uphill battle to get the report adjusted. Another option, and I know this isn't what you want to hear, is to wait and let the property season.
Best of luck.
@Bill F. yes that is what i used to come up with how I knew the appraisal was just based soley on the purchase price. The comps listed in the report made little to no sense. For example, they had 5 bed room duplexs in the range of 200-250k. The most comparable one was a triplex duplex with 9 bedrooms that came in at 330k.
If this is a unique property and considering it is a 4-plex, would I be able to recommend a bank to go the income approach. This seems like it would be the most logical thing to do as comps seem way off.
@David Flores you can recommend to the bank whatever you want, if they listen is an entirely different story.
If you can convince them to keep the loan in house and not sell it to a GSE, you maybe could swing an income approach valuation, but that all depends on the bank and how much business you do there. If there are going to sell it then comp sale is the rule of the day.
The question to ask isn't, 'why didn't the appraiser use the nine bedroom?'. The really question is 'why did the appraiser use the five bedroom instead of the nine bedroom?' Is it closer? Is it in similar condition?
If you want to get a higher price, you'll have to know the answer to the later so you can have even the remotest chance of convincing the bank the appraiser was wrong.
I find appraisals say whatever the bank wants them to say. When I bought my primary residence the seller and I did a bunch of back and forth. Somehow, what the appraiser was given as the contract price was the initial offer amount. Guess what the appraisal came in at?
It ended up getting challenged and a whole new report came back magically at the contract price with different comps.
Personally, if you wanted a true appraisal the appraiser shouldn't even be told the contract price. At the end of the day it's a justification of sale price/loan amount as that's what the bank is paying for.