Developer · philadelphia, Pennsylvania (PA) · Member since 2018 · 8 posts · 1 vote
I have brrrr'd two duplexes from full gut renovation to above rental grade finish apartments. We have received unfavorable commercial appraisals on the refinance compared to what similar properties are selling for in the market. Would it make more sense to get residential appraisals on these types of properties so we can be valued by the comparison approach rather than income approach? I have a triplex im getting ready to refinance and dont want to make the same mistake again. Has anyone experienced the same problem?
Cincinnati, OH · Member since 2020 · 4k+ posts · 3k+ votes
4y
@Brian Ashby, in many jurisdictions, it is likely that the form your appraiser completed was the standard residential form. Are you pulling commercial loans on these duplexes? The best bet is to meet the appraiser at the property with comps pulled for them.
Realistically, every single refi I have ever done on my duplexes and my single family rentals and the primaries, my value as ALWAYS, every single time, come in below comps. There is no arms length transaction occurring, and therefore no "target" for the appraiser to hit. I have contested some with the bank, and received small value increases, but overwhelmingly, once the report is back, you are not going to see a big change with that bank.
The advice I follow on all refi's: have a full list of completed renovations/upgrades, have 4-5 comps pulled and notes on how they vary from subject, i.e. comp is larger but lower finish quality, or no garage, etc. Be prepared with both sales comps and GRM calculations. And lastly, have very low expectations. I had my house appraised three times for my refi: first for a mortgage with lender I didn't end up using, second with lender I used, and 3rd for HELOC. I know, conservatively, I could sell my house for $850k and likely have offers north of that in this market, the HELOC appraisal came in at $750k about a month ago, the mortgage I took out a few months prior to HELOC was $685k, and the initial appraisal was $645k.
When I refi'd my duplex several years ago, appraisal was $400k, even though there were comps at $500k, and my GRM actually put me at over $600k.
Investor · Bethlehem, PA · Member since 2016 · 929 posts · 951 votes
4y
@Brian Ashby I completely agree with @Evan Polaski. My best appraisals after rehabbing occurs when I submit as much information to the appraiser as possible. Give the appraiser a clean / easy to follow package of purchase price + rehab cost by category + 4-5 market comps.
It's still not perfect, but this will give you your best chance.