Real Estate Agents fail Airbnb sellers

27 Replies

According to Airbnb data there are 2.9 million hosts on Airbnb worldwide in 2020. 14,000 new hosts are joining the platform each month in 2020 and some will fail without proper property management that competently handle their short term rental. So, the owners go to sell the property with a real estate friend and way under sell their property unknowingly. Many RE Agents do not know to use the sellers profit & loss, correct appraiser, etc to sell this property as a business to provide their seller with optimal ROI. I experienced this when selling one of my properties in another state until I found the right RE, has anyone else?

So much wrong here I don't know where to start.  RE agents are not permitted to select appraisers. The buyer's bank works with an independent appraisal agency, who then facilitates the assignment of an appraiser.  The process is deliberately and specifically independent so as to avoid the manipulation of appraisal values.  

Most STRs are single family residences, which are valued as such and appraised as such with a typical conventional loan; they are not, fundamentally, businesses, and a buyer's lender is not going to treat them as such.  

There are certain markets where the overnight rental market is strong enough that an appraiser MAY consider income as a consideration in value, but that would also depend on the loan the buyer is obtaining.  

Unless the seller SPECIFICALLY wants to sell as a business, limit their buyer pool to buyers who want to buy a business *and are obtaining financing that will value it as a business* then this is all nonsense. And if the seller is selling because they failed to operate a good STR, why would they want to market it as a desirable business in the first place and cut themselves off from the vast majority of buyers who are not looking for an STR?

Originally posted by @Luke Carl :

@Nadia Daggett

You get to choose your appraiser? What is this voodoo magic you speak of

If you're a cash buyer or not relying on a lender, you can!  I've gotten a few appraisals with a local appraiser I trust.  And the big commercial deals usually get an appraisal before they sell.  

But for the OP, no way.  Dodd-Frank rears its sometimes ugly head!

Edit to add:  Yes, I want that Voodoo for my sales!

 

@Julie McCoy is, of course, spot on.

Pinellas and Tampa Bay are hot markets and there are a lot of investors buying for STR / Short Term Rentals

I'll point out that, since we're in almost the same market, you know that it's almost impossible to undersell a property.  I am under contract with a few out of state investors, and everything I've been involved with has had multiple offers.  I am a few miles from the beach, so you may be seeing something different on that side of the Bay, although from what my colleagues over there are saying, I don't think so.

We are still seeing 50% cash sales, and many houses are selling over appraisal value / List Price.  I am seeing a lot of waived (up to a certain amount) appraisals.  I don't think many people are underselling themselves around here.

Originally posted by @Luke Carl :

@Nadia Daggett

What Julie said. As usual she’s always right.

Good humor this morning on this thread..  it was the same when i was in Timber..  some agents know the value of Timber some dont.

BANKS will not loan on timber value unless its a commercial operation clearly denoted.. ergo the niche for someone like us who knew how to make those deals go.. 

So same advantage to a STR operator they find a SFR they like there is no premium for short term and that is the upside they earn.. Paid for your knowledge and expertise..

See there is always a way I can spin Timber into any of these conversations.. Carry on you STR experts..

 

The issue is most lenders won't appraise a property on STR income therefore if you sell it far above comparable comps in that neighborhood it won't appraise. So yes agents aren't valuing the house on the increased in rental income but to be fair if they did it would never appraise. A double edged sword unless you're dealing with a commercial/cash buyer.

@Julie McCoy Yes this is a great discussion. Yes, I do choose an appraiser to appraise the property prior to listing. Once I have this appraisal from a certified appraiser, we move forward with listing.

Later, when we have a buyer for the property, the buyer is able to take this appraisal and the comps to their agent to share with the appraiser at the time of appraisal.

Further, they do not have to purchase the property as a business. However as a good real estate agent, we should always show our buyer the profit and loss of this business. They can choose to purchase it knowing they will have a higher return on investment and they purchase for higher than appraised value, as my buyer did.

Appraisers also use the income approach for determining the appraiser value. By providing your buyers appraiser not only with comps, but also with income will allow them to use the income approach for a higher appraisal for your seller.

I truly enjoy this discussion and hope we can keep discussing this.

What @John Underwood said.  As usual he's always right.

I ordered 500 2021 calendars of scantily clad women last year.  I have 4 left.  PM me your address if you want some.

Originally posted by @Nadia Daggett :

@Julie McCoy Yes this is a great discussion. Yes, I do choose an appraiser to appraise the property prior to listing. Once I have this appraisal from a certified appraiser, we move forward with listing.

Later, when we have a buyer for the property, the buyer is able to take this appraisal and the comps to their agent to share with the appraiser at the time of appraisal.

Further, they do not have to purchase the property as a business. However as a good real estate agent, we should always show our buyer the profit and loss of this business. They can choose to purchase it knowing they will have a higher return on investment and they purchase for higher than appraised value, as my buyer did.

Appraisers also use the income approach for determining the appraiser value. By providing your buyers appraiser not only with comps, but also with income will allow them to use the income approach for a higher appraisal for your seller.

I truly enjoy this discussion and hope we can keep discussing this.

 I too have been paying for an appraisal on my flips from someone I trust and I leave it in the property so that the banks appraiser is helped out to get the highest legitimate price possible with the least amount of work for them.

Commercial appraisals using income approach are typically much more expensve than just a SFR market value appraisal.

Originally posted by @Drew Sygit :

Commercial appraisals using income approach are typically much more expensve than just a SFR market value appraisal.

 I remember doing something like that while studying finance in college.  Valuation was the present value of future cash flows.  The hard part is figuring the discount rate and the appropriate level of risk.

@Paul Sandhu This cost approach was in our licensing course as an agent, but I know it wasn’t discussed a lot. Pretty standard. however, the nice thing is that we really don’t even handle this. I submit the rental income to the appraiser and they take it from there.:)

We work with a great appraiser that handles this for us before we list the property off market or MLS.

@Marc Rice yes We work with an appraiser that handles our pre-listing appraisals. That way we already have the comparable properties and can go off the cost approach. We hand this to the appraiser at the time of appraisal. Usually the appraisers are very appreciative, helps them with their work load. 

Yes definitely, needs to be handled with an appraiser you feel comfortable with. 

@Luke Carl Yes, yes we do. We work with an appraiser that handles are pre-listing appraisals. He completes these for pretty inexpensive and makes sure that we market it correctly. He uses the cost approach for our rental properties and is very fast and efficient. When we meet the appraiser at the property for the lender, we hand them this appraisal. The second appraiser loves this and it helps them with their workload. Maybe there are times this does not work, has this not worked for you in the past?

Personally, I would never use an appraisal provided by a listing agent. I don't think any of my lenders would allow it to be used to begin with and would order their own appraisal.
I do see the value in making sure your price is on target, but not for financing.

A few years back I sold a triplex where two out of three units were used for Airbnb (I'm in Los Angeles and this is before when you could do it).  Through due diligence with Airbnb, you can't actually sell the business because the account is tied to the host and their social security number for tax purposes.

At the time, we did use those numbers to show projected rents as an Airbnb property and ended up getting full price (which was actually $25K than when they listed it before with a discount broker).  So showing the numbers can help in adding value but only to those who care.  There is an assumption made that your buyer is going to be an Airbnb host and that's not for everyone.

My two cents.  I work in a very heavy short term rental market.  Here is the problem with using this data.  Where do you get it.  If you are going to compare the value based on str income you need to some like kind comps.  Lets think condos.  So these are handle primarily thru small rental mgmt companies.  Then there is the Airbnb people or FRBO folks.  No mgmt company will release the data because it is private and they aren't going to the trouble of even asking the owners.  You can't go on line and get historical info for the past 12 months.  So when I have to do a investment property for the bank and they want a rental analysis the only data available in mls is long term rentals and it can be a third of what short term brings easily.  I work in a resort area.  Most local bankers understand this and don't order the appraisal with considering the rental analysis.  And then again a property is only worth what someone will pay you for it.  So the sales comparison approach is the most valid just about always unless there are no sales.  Also be very wary of what you get from a seller or his agent.  You can't verify it generally.  The rental mgmt companies will paint a very rosy picture to get your business.  Then there fees very from 15-30% affecting your net income.  The mgmt companies marketing ability plays a big roll in occupancy and your bottom line.  As well as a FRBO or Airbnb.  What if previous owner just not good at marketing the property.  Or he is exceptionally good and you will need to match that effort for you to get the same return.  There are some many variables in the short term.  Quality of property, size, age, design, amenities, distance to attractions, and reviews all play a part.  I have seen in a older project that units with a old style tv would rent for less than one with flat panel tv.  These are one bedroom one bath condo's in a resort at the beach.  Once again data is your friend.  One last thing for the person that has a appraiser doing a inexpensive cost approach only for value, find a different appraiser.  Cost does not equal value.  Buyers don't shop based on cost unless they are hiring the builder.  

@Nadia Daggett There’s a beautiful duplex that’s been an Airbnb for years in my market that’s been listed based on its income of $55,000 annually for $310,000. If It was just for sale as a LTR duplex it would be listed at $165,000 and have already sold. There are no comps for a duplex priced higher than that around here and the numbers won’t work at $135,000 for a LTR as I ran them. I think the realtor is doing the sellers a disservice with this crazy price for an Airbnb.

There is one local appraiser I won’t work with because he ruined a million dollar deal for me some years ago so if I’m doing a large deal sometimes I put into the contract that his company can’t do the appraisal. Other than that I have no issues.