I have a multifamily property (3 units) which I am considering refinancing. In the past, I have not refinanced because there were no good comps in my area to show the value of my property. Recently, two houses on my street went up for sale and are now under contract. Should I wait until these other two properties close completely before going for my appraisal? Or can I tell the appraiser that there are these two possible comps now?
House 1: 5 units (10 bed, 5 bath) listed for 700,000
House 2: 3 units (8 bed 4 bath) listed for 640,000
My property: 3 units (9 bed, 3 bath).
Any and all advice or feedback would be helpful here. I'd like to appraise soon, but want to make sure that comps like these are able to be used since they will help appraise my homes value at a higher level.
@Joseph Matarazzo properties become a comp after the sale is completed. This happens mainly because the Contract Price may not become the Sales Price. Once the Buyer reviews the Inspection Report or Rent Rolls or other processes during the Due Diligence Period, the Price can (and often does) go through another round of negotiations.
For properties with 4 or fewer units, comparable sales are used to determine the value of a property. For properties with 5+ the Cap Rate is used. For this reason, House 2 will be a comp for you, whereas House 1 will have a value derived from different criteria, and will therefore not be a comp.
Here is an article I read on BiggerPockets a year or so ago. It was very helpful - it lays out the benefits and how the value of 5+ multi-family is determined https://www.biggerpockets.com/...
Yes, I was unsure if the 5 family would be a comp, it would have been nice. My property is very comparable in size, year, and quality to the House 2. I guess I just need to wait until the transaction is completed and the final sale price is available to compare to. Its been under contract for 3 weeks already, so hopefully this will be completed soon.
@Joseph Matarazzo here in my neck of the woods the appraised value(s) have not caught up to the Sales Price(s). For this reason I am waiting a few months to refinance some of my properties.
My advice is to reach out to touch base with an agent you have worked with, or another investor to see if the appraised values are matching the Sales Prices...this should give you some insight into whether or not you should wait a little longer.
Great advice! That is what I have been keeping tabs on as well. The appraised values have been lagging behind the sale values. Until now, or within a few weeks, I should have much better comps. There are other houses in the area which have spiked higher as well.