Refi appraisal came in very low

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Refi appraisal came in very low

Christopher Socha
Hamburg, NY · Member since 2016 · 17 posts · 1 vote
I am just on the tail end of my first investment and I am a little disheartened. Purchased a duplex property in very rough shape on the inside and outside. Completely updated both sides including, new furnaces, electrical plumbing, kitchens and baths. Outside got fresh paint, all new windows, soffits and gutters. I purchased the property for 49k. I have about 25k into the project. So my all in number was 75k. I projected my ARV to be at least 100k when I bought it based on the sale if a property 4 houses down that sold for 93k with zero updates inside. Ideally I would have liked the appraisal to come in at 95-110k on the low side and maybe I could get 120k on the high side, maybe. In any case, appraisal came back two days ago at 80k. I am really dumbfounded by this. How can that be. They even used the comp a few houses away. I paid cash for the property and i would like to get my money out to do it again but I am thinking of just walking away from this lender. ThIs Is a cash out refI Any suggestions?
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Chris MasonPro Member
Moderator
Lender · CA · Member since 2015 · 9k+ posts · 10k+ votes
7y
Originally posted by @Christopher Socha:
@Russell Brazil is that just the nature of refi? I would have assumed my unit being fully remodeled should be worth at least the comp, I was expectIng more. Perhaps I was looking at value incorrectly.

 I just had a refi appraisal come in above all but one comp, within 1% of what I was expecting, basically on the money, in the East Bay Area.

You really have to walk the appraiser through every single update and hand him or her a CMA to have the best chance possible. In addition, break out every reason you acquired the property for less than fair market value. In my case I tore into the listing agent and the myriad ways they did a horrible job representing their client's interests.

Spreadsheet template:

TOP HALF OF PAGE:

Addresses of comps - price - date - bed/bath - special feature(s) of house - condition

Properties listed here with data

Median / Mean / Lowest / Highest chart

Commentary

BOTTOM HALF OF PAGE:

Left side, improvements since purchase bullet points.

Right side, details about how/why you got the property for less than fair market value, again bullet points. 

Top half of the page is basically you making it easy for the appraiser to hit a value you want by doing their research for them.

Bottom half is information the appraiser would not otherwise have access to.

Square feet is intentionally left off of the top half since appraisers consider it a garbage data point. You're immediately setting yourself apart from all the real estate agents out there who think they know how to valuate real estate by replacing square feet (and price per square foot) with features of house, which may mean the appraiser takes your analysis more seriously. 

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    7y

    don't know but since I was talking to the guy and your name is a tad unique I just happened to pop on this thread and saw that..  the guy just put an F behind your name to create the account.

    I was a pretty big deal HML in the turn key space in my day.. and all we did was BRRR ..

    Us being the HML we would put you the buyer into title.. but we wanted an approved take out before we did the A and D loan for you.. so we had you all approved with an ARV appraisal that just required a 442 ( reinspect) once appraiser went back and filed the 442 we closed no appraisal after the fact issues.. I got paid off you got the house.. and in those days you usually got 5 to 8 grand back in cash out... now that was too aggressive and when landlords turned the keys back in in 08 to 2012 it was usually those with no TRUE skin in the game..

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  • Dave Skow
    Lender · Seattle, WA · Member since 2014 · 2k+ posts · 899 votes
    7y

    ask  lender if there is a value  reconsideration process that can be done ….if there is - you normally need to  provide factual  information about any  errors on the appraisal and also   sales  comparables you feel that should be used that the appraiser  didn't use or  missed …….also  worth noting - often appraisers  will try to " bracket a propertys value  meaning  trying to locate a  nicer comp /  an inferior comp and a similar comp …...so maybe the  other comps  found / used  created this lower figure ?

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  • Chris MasonPro Member
    Moderator
    Lender · CA · Member since 2015 · 9k+ posts · 10k+ votes
    7y
    Originally posted by @Jay Hinrichs:

    on subject at hand.. what we used to do in the day.. was get preapproved with a ARV appraisal from lender sub too a 442.. but that was pre 08... so we knew the refi appraisal up front. @Chris Mason  do they still underwrite mortgages like that these days.

    but the BRRR can back fire in low value assets land.. Ie 150 and under.. because values are all over the joint.

    25k all in rehab for a duplex with all that work is a job well done.. in todays price points .

     Yes, you can order an appraisal through a lender for a property you do not yet own and do not yet have in contract. All the ops people will "WTF" it, but we've done it before, on rare cases. I want to say it'll be good for 120 days (would have to double check), which if you assume a 30 day mortgage process means you need to be ready to refi in 90 days, or you'd have to spend a few hundred bucks on a 442 (FNMA form #s evidently don't change much over time) to confirm it hasn't dropped in value due to changing market conditions in the interim. 

    That form/framework isn't really there for investors, it's there for new construction when the initial appraisal is done before the framing is even done.

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  • Frank S.
    Specialist · Chicago, IL · Member since 2015 · 870 posts · 345 votes
    7y
    Originally posted by @Christopher Socha:
    I am just on the tail end of my first investment and I am a little disheartened. Purchased a duplex property in very rough shape on the inside and outside. Completely updated both sides including, new furnaces, electrical plumbing, kitchens and baths. Outside got fresh paint, all new windows, soffits and gutters. I purchased the property for 49k. I have about 25k into the project. So my all in number was 75k. I projected my ARV to be at least 100k when I bought it based on the sale if a property 4 houses down that sold for 93k with zero updates inside. Ideally I would have liked the appraisal to come in at 95-110k on the low side and maybe I could get 120k on the high side, maybe. In any case, appraisal came back two days ago at 80k. I am really dumbfounded by this. How can that be. They even used the comp a few houses away. I paid cash for the property and i would like to get my money out to do it again but I am thinking of just walking away from this lender. ThIs Is a cash out refI Any suggestions?

     Was this a big bank? I had a similar story.  However,  the comps were not there, I over did it.  Ask your knowledgeable agent for feedback on comps.

    Contesting the appraiser opinion of value will get you nowhere. You are better off meeting him in person and walking him through the rehab during the walkthrough. Give him pictures of before and after.  Once the report is in,  you are trying to prove him wrong.  Good luck with that. 

    If you are absolutely sure he is wrong. Get a different lender. At 70% LTV, the difference can add up. If you want to try to contest it, give it a shot. It's your right.

    Good luck, 

    Frank

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  • Kevin Dong
    Flipper · Fort Myers, FL · Member since 2017 · 182 posts · 98 votes
    7y
    I have done quite a bit of cash out refi on property. I have noticed that appraiser doesn't care a bit about update. All they care is about the comparable sold. And the subject property will always be less than the comp doesn't matter if yours are so much nice than that comp. more conservative on ARV is less risky for the bank lol.
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