Home Appraisals Method in HSV

15 Replies | Huntsville, Alabama

Looking for advice here from experienced investors in our local Huntsville or North Alabama market. My current strategy for my first properties are BRRRR methods of SFH's. I am having a difficult time nailing down what I believe the properties I am looking at will appraise for after Rehab. This is because certain neighborhoods right now the comps appear to be all over the place even in the last 3 months. If I look at any of the automated valuator(s) online (Zillow, Realtor.com, EZ Value) then it's estimate is much lower than if I look at some of the higher comps in the same neighborhood. Does an appraiser typically look for the 3-5 properties that have sold at the highest value and create an adjusted average from those? Or will they use the lowest? How much thought do they appear to be putting into quality of details such as countertops, flooring, bathroom updates? Or is it more square footage driven? If 2 houses with the same square footage but one is listed at 4 bedrooms, but the other at 3, which the former actually appraise for much more?

I know there are a lot of questions there. But this is one of the topics about this whole process I'm still not completely sure about.

Hi @Brandon Hardiman , an appraiser will NOT use 1 comp in an appraisal unless it is an extreme rare rural property.  Even then there are few appraisers that would put their lucrative license on the line to do something that shoddy.  More likely they would find a few other less-than-ideal comparable for the analysis.

They are looking at the total package of the house and when appraising one property the appraiser will adjust the indicated value using the subject properties at market-verfiied rates.  So, in your example, if two homes are identical in every way except the subject home is 3 bedrooms and the other is 4, so long as a 4 bedroom home is viable in that particular market then you would expect to see a slightly higher value out of the 4 bedroom than the 3.  

@Brandon Hardiman In my experience, It is not SQFT driven, but more so renovations and upgrades. Having wood flooring rather than carpet is a big one. An example being : If two homes in the same neighborhood are going up for sale, and the appraiser will be appraising both properties, here's the deal- They are identical in every way, fenced in yard, wood flooring, etc- except one has a Garage. In our local market we can safely say that a garage is "worth" up to $10,000 on the purchase price. So the end result of that appraisal, you would see the one without a garage be 10k less, but ultimately, it's up to the sellers and agent who listing the property. They make the prices, they control the listings and market imo

@Brandon Hardiman Were you asking from the buyers perspective, preemptively seeing if the potential pre qualified buyer makes an offer and the appraisal does not match the offer? Or are you curious for the total amount? Please Pm me if you'd like any help! I am very curious now (:

@Cheyenne Nafe and @Will Fraser thank you for your input. To clarify, this is an appraisal for a refinance cash-out. So it is not for the purchase of sale of a property. I know typically in those instances, an appraiser can magically find comps to appraise around the value the property is being sold for as long as it is reasonable. But in the case of a cash-out refinance, there isn't a target sales price an appraiser is given so it is completely blind in that case. And since it will be the banks appraiser are they usually extremely conservative and use the lower comps?

@Brandon Hardiman we have performed a cash out refinance recently in the Huntsville area and the appraisal was actually higher than we expected. The comps pulled were within about one mile of the property. It is also my understanding listening to one of the BP podcast that you can dispute an appraisal with additional comps to have it possibly adjusted. This may require a second appraisal but don’t hold me to that since I have slept since listening to the podcast. LOL. Hope this helps.

@Jeff Henderson I’ve actually appealed an appraisal and with better mls comps for a heloc recently and at least based on that experience, it seems that the banks are not as amenable to changing their original position. Luckily, I did end up getting it from another bank who did appraise it appropriately.

My best advice is to do your ARV estimate on the conservative side so even if it doesn't come out as high as you thought, you gave yourself some cushion. Good luck!

@Brandon Hardiman   

As a licensed appraiser in the state of Michigan, here are some thoughts:

AVMs and Zestimates mean absolutely nothing to the lender charged with your refinance.  

You asked, “doesn't appraiser typically look for three to five properties that have sold at the highest value and create an adjusted average from those? Or will they use the lowest? And how much thought do they put into quality, condition, etc?”

No, an appraiser will absolutely NOT look for the properties that have sold for the most. They will also not automatically go to the lowest.

The appraiser will use his or her judgment and experience while keeping the Fannie Mae selling guidelines in mind to arrive at an opinion of value. All while maintaining USPAP ethical standards. In short, the appraiser will conduct an inspection of the subject property, drive by the comps and make adjustments customary to the marketplace. So the difference between a 4-bedroom house and a 3-bedroom house, unless it is a super-adequacy and comes at the expense of square feet per bedroom, will require a paired comparison analysis to properly determine any adjustments.

Quality and condition matter SIGNIFICANTLY but are also highly subjective. I suggest checking out this to get a rough idea of what each category means: https://selling-guide.fanniemae.com/Selling-Guide/Origination-thru-Closing/Subpart-B4-Underwriting-Property/Chapter-B4-1-Appraisal-Requirements/Section-B4-1-3-Appraisal-Report-Assessment/1032992471/B4-1-3-06-Property-Condition-and-Quality-of-Construction-of-the-Improvements-04-15-2014.htm#Property.20Condition

Considering you're looking to do a cash out refinance, be aware that you should expect an opinion of value from an appraiser that lean towards the lesser value.  I know that borrowers pay for the appraisal but it is actually the lender who is the appraiser's client. Appraisers and lenders are on the same side and that side may not be yours as well.  The appraiser's job is not to manipulate numbers to reach a certain opinion of value.

Thanks to a couple of things, the number of value disputes has exploded to the point where a lot of lenders are automatically disregarding any request for reconsideration of value.  Sure, you could request a reconsideration of value with different comps, but appraisers are fighting back hard against this by simply not responding to lenders.  

My advice as an appraiser and as a former realtor and owner of a dozen rentals, four of which utilized the BRRR method, is to hire an appraiser BEFORE going through the refinance process (ideally before buying any property). The value that that appraiser will give you will be irrelevant to the lender conducting the refinance but it is an opportunity for you to learn how appraisers are required to arrive at their opinions. Because it is very different from how Realtors and investors value properties.

The appraisal will be between $400 and $700 so use every nanosecond you can to learn from that appraiser because frankly, that will give you more than information any realtor or any lender or any other real estate investor out there.

@Jeff Henderson @Sonia N.

Thanks for the input. I think I will follow the advice of sticking conservatively and just continue to be picky.

The hard part is with the market so hot and competitive, it makes it even more difficult to find a good deal if you are being too conservative. I've noticed the comps I get from wholesalers that send me properties definitely are the highest ones in the zip code, which obviously makes sense why they would choose those. Issue is the wide variation of comps. Especially in transforming neighborhoods. 

And also in these neighborhoods that are heavy with investor buying and with so many properties going off market due to it being hot, there is little info to be found about the comps as in what the actual condition or inside of the properties look like. So it's hard to do a true apples to apples comparison. I mean how do appraisers get accurate info on comps when they can't see the inside?

@Patrick Britton

This is gold information and love to be hearing it from an actual appraisers point of view. In all the books I have read on real estate, it seems to be the one thing that is not delved down into much is accurately determining ARV and getting into the frame of mind of the appraiser. And yes with a cash-out refinance, I figured the appraiser was even more in-line with the banks best interests but I wasn't sure if that was definitely the case. I have a good relationship with my current lender so I would think they would be open to me disputing a comp. But knowing this info, I will have that conversation with them up front.

Also thanks for the link detailing out quality and condition. I have seen these on appraisal reports but wasn't exactly sure how they correlated.

@Brandon Hardiman I spoke with an appraiser a couple months ago in the area and he said he can usually justify 1% appreciation a month. So if you find an exact comp that sold 3 months ago, he could justify an appraisal price 3% higher than that. Another appraiser said that prices are increasing so rapidly that he only needs 1 recent comp to justify the appraisal. I hope this helps a bit.

I am in the middle of a cash-out refi on a Huntsville property and the appraisal came in low.  It was done based on properties less than a half-mile over the course of 9+ months.  I didn't know there was an option to submit a rebuttal until the broker recommended I do one.  I felt guilty doing it, as I'm certain the appraiser knows more about it than I do, but there was no cost, so I had nothing to lose.  I stayed within the half-mile radius but used more recent and higher priced sales and made the argument that because of the current appreciating market these were more appropriate comps.  I also talked about a very large open space behind me that was unfairly limiting the comps to chose from in my radius.  He responded with a large percentage (small dollars) increase and we are moving ahead with the refi. 

@Jeff Henderson who did you use for your refi?

@Brandon Hardiman

I don't know if I qualify as experienced with only 2 HSV properties under my belt, but i am happy to share my experiences and possibly even let you look at my appraisals.

The first was a turnkey property in NW Huntsville. Purchased for $119,000. Appraisal came in at $120k. Comps in the area varied between $35k and $175k depending on repairs and location.

Next was a home purchased for $219k it appraised $5k higher. Comps varied from $135k to $450k

I just looked at two auction properties. One sold for $76k (almost rent ready) with comps $50k higher and lower. The other sold for $45k with some nearby comps as high as $135k.

HSV seems to be gentrifying rapidly. Whole neighborhoods are being improved. But there are still pockets of old, run-down houses.

I just looked at a house on Governors Dr with an asking price of $75k while houses very close have sold for about $500k.