Has anyone else noticed lenders getting much more conservative on appraisals lately?

Question

I was reviewing a deal recently where the borrower and property both looked solid, but the appraisal came in quite a bit lower than expected.

A few years ago it feels like the value would have been supported without much debate.

Are others seeing more conservative appraisals lately, or is this market-specific?

Chris Seveney · Answer

Lenders don't control appraisals/appraisors and their values. most lenders will go through a AMC as well.

Stacy Raskin · Answer

Lenders generally will go through an appraisal management company (AMC) who will assign an appraiser. I have seen values come in higher and lower compared to what the investor was expecting and that is across the country.

What I have seen be helpful with appraisers, is giving any useful information to the appraiser such as recent rehab work and costs which the appraiser can use in the valuation process. Giving comps can be helpful but there's no guarantee the appraiser will use them. The comps appraisers are using are supposed to be as similar and as geographically close to the subject property (the property getting the loan) as possible.

I have seen appraisals come in thousands of dollars apart on the same property when the appraisal is done by a different appraiser so there is variation between appraisers. When an investor gives useful data that can be helpful for the process but it's not a guarantee it will result in a higher appraised value.

Miguel Perez · Answer

Might be reflective of local/regional market sentiments. I'm in commercial RE in South Florida and the deals that we do here from the panhandle all the way down aren't really showing this kind of dynamic. We do work nationwide, however, so variables shift from deal to deal.

How conservative are the appraisals that you're seeing, and what are you comparing them to?

Cheers.

Brittney McIntire · Answer

I have not seen too much of this myself. The lenders we work with have their same guidelines as always. Depending on what the appraisers mark in the report is what determines whether the value will be accepted. The only difference I have seen recently is some lenders decided to pause loans in Baltimore due to the recent controversy but even this is softening up now. Unfortunately when it comes to appraisals it is an opinion of value. I had 3 appraisals done on my investment property all of which came back with different values (one coming in $10,000 less than the others). Value itself is very much market dependent/appraiser's opinion but can be disputed if the client is able to provide reasonable comparables that support an increase in value.

Erik Estrada · Answer

I am seeing lenders emphasize CDAs, Field Reports, and Secondary appraisals on transferred appraisals, BRRRR deals, and rehab deals in general. I think it may be due to the appraisal schemes in Baltimore and OH.

Values seem to be still holding steady in general in desirable markets such as CA, SC, NC, and etc.. I think it boils down to the market and the scenario really.

Brook Janis · Answer

We're seeing that more often lately in the Metro-Detroit area. As a broker working with multiple lenders, I've noticed appraisers are generally being more conservative, especially on investment properties. I am also a traditional real estate agent in this area as well, definitely seeing this more on Investment properties. Deals that may have easily hit value a few years ago are now getting more scrutiny on comps, condition, and market trends. It's definitely creating more appraisal-related challenges, but having access to different lending options can help structure around those situations when they come up.

Stephen Delahoussaye · Answer

Seeing the same thing in Nashville, Frankie. Appraisals have been coming in tighter especially on rental properties where the comps are all over the place because of how fast the market moved the last few years.

One thing I have noticed from the property management side is that owners who have solid rent rolls and documented maintenance history tend to get better results when the appraiser is evaluating income approach. If your borrower can show the property is professionally managed with stable tenants and market rate rents, that gives the appraiser more confidence in the income numbers.

The days of just throwing a number at a property and having it stick are definitely over. But that is not necessarily a bad thing for disciplined investors who actually underwrite their deals properly.

Has anyone else noticed lenders getting much more conservative on appraisals lately?

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