Real Estate Agent · Hollywood, FL · Member since 2016 · 27 posts · 18 votes
Have any of you guys worked with an appraiser to determine the value of the property "As-Is", evaluate repairs to be done and add-value of those repairs to estimate an after repair value of the property in different rehab scenarios ––luxury vs average vs basic? Do appraisers offer this kind of service to investors?
- An appraiser isn't going to assess the as-is value of a single family property from the perspective of an investment. He's going to use comps, and as an investor, the comp value of a pre-rehab property is typically unimportant. Is there a reason why you'd want to know that number?
- An appraiser isn't going to be able to evaluate repairs or repair costs for you. Hire an inspector to help you create a scope of work and bring in a contractor to turn that SOW into a budget.
- An appraiser isn't the best person to tell you the ARV of a property. A great real estate agent who knows the area is by far the best way to determine the ARV in various situations.
Long story short, an appraiser is rarely your best option for any pre-purchase information you might be looking to glean...
- An appraiser isn't going to assess the as-is value of a single family property from the perspective of an investment. He's going to use comps, and as an investor, the comp value of a pre-rehab property is typically unimportant. Is there a reason why you'd want to know that number?
- An appraiser isn't going to be able to evaluate repairs or repair costs for you. Hire an inspector to help you create a scope of work and bring in a contractor to turn that SOW into a budget.
- An appraiser isn't the best person to tell you the ARV of a property. A great real estate agent who knows the area is by far the best way to determine the ARV in various situations.
Long story short, an appraiser is rarely your best option for any pre-purchase information you might be looking to glean...
Thanks for responding J. I'm not a seasoned investor, still on track to buy my first fix & flip. So sorry if this sounds like a basic question.
I don't need to know the "As-Is" value of the property, and yes, I already hired an inspector and will get a budget from my contractor.
I would agree that a great real estate agent who knows the area could give me an ARV. But then, why is it that so many times properties don't appraise? I was looking at a fix & flip here in Hollywood, FL, where the investor listed the house for $320k and ended up selling it for $270k... The investor got it wrong... the agent got it wrong... I don't know... Could an appraiser help them avoid this kind of mistake? By the way, the investor paid $220k for that property, and only by pictures you can tell he put way more than $50k in the rehab.
So I was wondering if any investor has ever worked with appraisers, not to get a pre purchase value, but as a part of the team –inspector, contractor, agent– to better evaluate every aspect of the project from beginning to end. Could an appraisal help me negotiate the purchase price? Could an appraisal help me decide what kind of rehab would be the best and highest use for a particular property and neighborhood ––basic, average, luxury–– which would give completely different ARVs? Wouldn't it be better to list the property at a price that will most probably appraise to get the best offers possible instead of aiming too high with an unrealistic listing price that will not appraise?
Some thoughts and questions from a newbie willing to learn. I appreciate all the feedback!!
It's not all the time that investors make money, just like any business, you win some you loose some, there are too many factors between the two dates and you'll never know the real story behind the transaction.
Find a strong agent with investment/investor experience in your area. They may offer a variety of services with possibly no up-front costs. Hopefully they are interested in earning your long term business.
An appraiser generally works only from comps - which can be tricky in a rising market because even if the house three doors down sold for $1m two months ago, yours may now be worth $1.2 on the open market - but with no comps to justify it, the appraiser can't say that. And when you buy it, you can only base your ARV on the comps. That's what the buyer's bank will base the mortgage on - not $1.2. Which doesn't necessarily mean you don't list it for $1.2 but you need to be able to make money on the ARV of $1m. (even the lowest priced houses here are more than $1m)
And I think it might be a conflict of interest or something for an appraiser to work with an investor. I'm not sure about that but it sounds a little nefarious.
The thing is, a good agent, but more importantly, a good investor must absolutely be able to calculate their own ARV or you will be ripped off. Simple as that.
But not that simple.
But luckily I can suggest a few things - some of which I learned from J. Scott and D. Manolo above, two of some of the most well-respected contributors on this website (but I didn't put the @ because it would be a bit embarrassing for them to say that). Anyways, 1. buy the books 'The book on flipping houses' and 'The book on estimating costs..' both actually written by J. Scott and available for purchase on this website. 2. then watch the webinairs or read what's written by Brandon Turner - he'll explain how you absolutely need to know the ARV, the rehab estimate, and the minimum amount of profit that you want to make on a rehab - before you even consider making an offer - because THAT is the only way you can arrive at the offer price.
And you need to hit the streets (the open houses would probably be OK too. Lol) and start determining the level of improvement in neighborhoods. If you under or over improve for the neighborhood, you will always lose money - which is probably what the flipper in your example did.
Thanks for responding J. I'm not a seasoned investor, still on track to buy my first fix & flip. So sorry if this sounds like a basic question.
I don't need to know the "As-Is" value of the property, and yes, I already hired an inspector and will get a budget from my contractor.
I would agree that a great real estate agent who knows the area could give me an ARV. But then, why is it that so many times properties don't appraise? I was looking at a fix & flip here in Hollywood, FL, where the investor listed the house for $320k and ended up selling it for $270k... The investor got it wrong... the agent got it wrong... I don't know... Could an appraiser help them avoid this kind of mistake? By the way, the investor paid $220k for that property, and only by pictures you can tell he put way more than $50k in the rehab.
So I was wondering if any investor has ever worked with appraisers, not to get a pre purchase value, but as a part of the team –inspector, contractor, agent– to better evaluate every aspect of the project from beginning to end. Could an appraisal help me negotiate the purchase price? Could an appraisal help me decide what kind of rehab would be the best and highest use for a particular property and neighborhood ––basic, average, luxury–– which would give completely different ARVs? Wouldn't it be better to list the property at a price that will most probably appraise to get the best offers possible instead of aiming too high with an unrealistic listing price that will not appraise?
Some thoughts and questions from a newbie willing to learn. I appreciate all the feedback!!
What a house will appraise for and what it will sell for are two different things. An appraiser can tell you what it will appraise for; a great real estate agent should be able to tell you what it will sell for.
Both numbers are important, as it's the lower of these two numbers that will generally define your ARV. If the sale price is lower, that's what the property is likely to sell for. If the appraisal is lower, that is likely the most the buyer's lender will finance on, meaning most buyers won't be able to afford more.
In this market, appraised value is typically at least as high as the sale price, so sale price is often the more important number. But, you should know them both. A great real estate agent can help you with both numbers; a great appraiser still won't be able to help you with sale price, just appraised value.
@Sebastian Wernicke Go with the comment of @J Scott , network yourself with a Real estate agent. But at the same time, you need to educate yourself by looking at recently sold properties in the area and look at description in Zillow or realtor.com since it will mention if the property has new kitchen, bathroom etc.. so that means it was rehabbed. Don't fully rely on what the real estate agent say, you need to do some homework as well, so you don't be included in those who got burned by what the real estate agent told them. There are still a lot of good real estate agents out there, you just need to make sure you find the correct one (best is referral from another investor).
Based on my experience, Appraiser sometimes get into the picture for Hard Money Lenders, they will hire appraiser to make sure your ARV is correct since you will be using their money and need to make sure ARV is not way off. They typically want 65% LTV. But I think once you get the relationship with HML, you will not need this Appraiser cost/step anymore.