I am interested in everyones thoughts on getting the highest appraisal in tenant occupied properties. I am pulling some equity out to grow my portfolio with a community bank. I think they are flexible and would allow a drive by appraisal.
The properties are C+ type neighborhood and I think my tenants are decent in keeping the properties clean..would say that they are great at it though..
What would you suggest...a full appraisal or drive by?
Condition of the property, not how clean they may keep it, and the numbers will produce the highest value 8/10 times. Appraisers usually don't care about dirty dishes, clothes scattered about or if they just ran the sweeper that day (but they do care about the condition of the carpet of course).
Appraisers tend to be more conservative if they don't see the inside...but if the interior shows leaking roofs, damaged walls, out of date fixtures, incorrect outlets, flooring in disrepair, etc....then a Drive By may be best if your Lender approves it.
Your lender may also have a reduced LTV based on the Appraisal Type, so make sure that they are not only OK with a drive by, but what "hits" will you be taking on the %LTV, Rate, etc. if any.
To answer your questions though, Full Appraisals usually create higher valuations if your property is in good condition than Drive By. In either case, you are going to want to make sure the Appraiser has accurate information regarding the income and expenses of the asset if they are using the Income Approach Method.
If these are SFRs, then usually on a Drive By, comps with "fair-average" condition are used and with a Full Appraisal, comps matching the effective age and present condition are used which could be a good or bad thing..lol/
My bet is that it's not your choice and the lender will appoint the appraiser and collect the fee from you if they don't cover it (some do with HELOCs).
An appraiser won't be giving an opinion of value from a drive by windshield appraisal, they will need to go inside. They generally overlook tenants' stuff, dirty laundry and a full sink, they aren't there for a housekeeping inspection.
I'd say a full appraisal will be better for you. Any BPO drive by will generally be very conservative if the bank even goes there. Lenders are conservative, they are not going to suggest anyone to stretch it to make you a loan.
Just keep your fingers crossed. If you know of some good comps, take them to your loan officer to give to whoever.
I suggest you tell (letter to) the tenants that there will be an appraiser, to allow them in by appointment or that you will let them in and escort them and to please ensure the property can be shown in its best light, neat and clean. :)
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