Low Appraisal Advice

10 Replies

Hello,

I'm hoping someone could offer us some advice. We had a 2 unit property completely rehabbed and it is currently fully rented and cash flowing. We are in the process of refinancing the hard money loan we have on it and the appraisal came back at about half of what we estimated. 

Since there are no other fully rehabbed 2 unit properties in the area, we didn't have comps. We used SFRs that were flipped and discounted since ours is an end-unit townhouse and didn't have as many features as the flipped homes. We expected it to come in a around $200K and it ended up appraising for $105K. 

The comps the appraiser used are 2 unit properties that were not rehabbed. The appraiser added in few thousand for cosmetic items but did not add in any value for the new roof, electrical, plumbing or HVAC. 


Is there some way I can fight this appraisal without having to go back to the same person who appraised it? Apparently the lender spoke to him and he is unwilling to increase it at all. 

This amount won't even cover our hard money loan on it, we will have to come to the table with about $25K to pay off the hard money lender, not to mention our own money we have invested.


I would appreciate any advice on this issue.

Thank you,

Senta

You can dispute the appraisal with your lender and get them to order another from a new appraiser.

Make sure you provide them as much information and evidence as possible to try and support your ARV.

This is a challenge for multifamilies in the DMV.  Lack of multis creates lack of comps which leads to appraisal issues.

You might consider cutting a door between the two units, removing 1 stove then having it appraised as a single unit. Then just put the stove back and deadbolt the access foor between units.

Agreed about this being an issue in the DMV with so little comps available. Fortunately it can work the other way around too (much higher appraisal).

Thanks for the responses. Once we did an in-depth review of the report, we found that the appraiser used comps that are not 2 unit properties but said they were in the report. He listed some comps as having 4 bedrooms 2 baths, when they were really 3 bedrooms, 1.5 baths. The square footage of the comps in the report were inflated to more closely match our property. He ignored properties that were rehabbed and only used properties that have not been rehabbed as "comps". This appraisal report is pure fiction.

There are a number of egregious errors, omissions and cherry-picking of comps in the report. What can we do about this? It seems unethical and illegal to make the numbers conform to some predetermined number.

Is there a governing board for appraisers or just the real estate commission that oversees them? Is it worth filing a complaint?

Originally posted by @Senta J. :

Thanks for the responses. Once we did an in-depth review of the report, we found that the appraiser used comps that are not 2 unit properties but said they were in the report. He listed some comps as having 4 bedrooms 2 baths, when they were really 3 bedrooms, 1.5 baths. The square footage of the comps in the report were inflated to more closely match our property. He ignored properties that were rehabbed and only used properties that have not been rehabbed as "comps". This appraisal report is pure fiction.

There are a number of egregious errors, omissions and cherry-picking of comps in the report. What can we do about this? It seems unethical and illegal to make the numbers conform to some predetermined number.

Is there a governing board for appraisers or just the real estate commission that oversees them? Is it worth filing a complaint?

 Most appraisals when you dig into them have tons of errors. I once appealed ome that had 22 errors....nothing came of it.

Your lender can choose to do a new appraisal or they can choose not to.  

Refinance appraisals will always be lower due to not having a contract number to hit and not having an agent who understands how to work with the appraiser. So going in with eyes wide open to this fact is important. 

If your lender is with the appraiser, your best course is trying a new lender who will then use a new appraisal then hoping for the best.

You seem to have made the mistake of not creating an "appraisal package" - a document that gives all of the repairs that were performed and also supplies comps that the appraiser should consider. These are things that help to make the appraiser'so job a bit easier.

And a lender on the refi is almost always only going to use their preferred appraiser. You might not be happy about that I imagine ...

Glad to hear you got out of the situation (it sounds like?)! Just to start from the beginning:

1) I would have gone to your hard money lender as they should of required an ARV appraisal before approving your loan (I assume this depends on state location as that is required in Ohio). If your HML had one then I would be going back to them for what they used.

2) Again, may defer per state, but getting a second appraisal is normal and should be at random after the housing crisis, so you shouldnt get the same appraiser. 

3) Package like you said you had would help with repair costs and before/after pics

4) I would report that appraiser to BBB and comment anywhere clients can leave a review on how far off he was and his unwillingness to use the info you provided to safe any other investors/buyers/sellers from his "services."

Hello Senta,

I am very sorry to hear of your trouble with what sounds like a completely incompetent appraiser.  I am an appraiser myself and have owned my Appraisal Company for approx. 15 years. I would recommend contacting your lender and present them with your findings of errors and omissions within the report, provide them with as much information regarding your research and reasoning for contesting the appraiser's market value opinion.  If they do not order a second appraisal or at least require the original appraiser to provide a rebuttal based on the information provided to them, you should find a different lender.  You also need to contact your state business and regulation dept. that issues your state business licenses and file a complaint, submit the same research and reasoning you submitted to the lender to the state, and they will determine if it warrants an investigation into the Appraiser. It sounds likely that that appraiser will loose his/her license or at least need to hire a lawyer and pay considerable fines based on the information that you have provided in this post.  GL!!