I am in the process of making an offer on a 2 family home. It is going for 300k cash quick close. It clearly needs 150k in work to get it up to rentable condition. I am unsure what it will appraise for because it is in a very desirable downtown area in a suburb that has very little inventory as of late. If there is inventory the homes are going for less because they are very old without any updates. My questions are:
1. How can I be sure that I will achieve an appraisal for the 450k that I put into it.
** Keep in mind multiple agents have told me that upon completion it can sell for 500k but I don't know what a bank will do without good comps.
2. Is there anything I can do during the renovation process to achieve a higher appraisal?
** I am also looking for the bets way to approach the appraiser so he or she realizes how much work was done on this home.
Thank you in advance for your thoughts.
Is a 500k home on the high side for your market or is this an "average" home? You should be finishing your house out with amenities that are comparable to the neighborhood (houses have granite countertops then you install granite countertops, etc.). The appraiser will pull comps and will enlarge their search area until they find something comparable. Get a head start on this by working with a good realtor to determine if there are good comps in your area. Remember that the appraiser may not be from your area so having backup comps from an agent that knows your area is a good idea. I would suggest creating a small packet for the appraiser that includes comps, a list of renovations, and a break down of your expenses. This isn't made to tell the appraiser how to do their job, but it provides further evidence in support of your desired appraisal price.
Hi @John Flanagan , welcome to the Bigger Pockets forums!
1. In short, you cannot be sure of anything with the appriasal process, but you can be reasonably confident IF there are comparable sales in the recent past (especially the past 6-12 months) in that location that support a higher appraisal value. The play I prefer in situations where I am somewhat confident of a value, but want to know what an appraiser would think of it, is to purchase the home using a construction loan. For this the bank will order an "As Completed Appraisal" and the appraiser will walk through with my Scope of Work in hand and appraise what the home WILL be like once that work has been completed. This takes a lot of the guesswork out the process before I've done a think to the property.
Even then though there is no guarantee that when the appraiser for the refinance loan comes to do their appraisal they'll come up with the same value. However, you'll have another educated data-point suggesting the value.
2. There are many things you can do to achieve a higher appraisal, but this is going to be somewhat market specific and I'll move to my next point to serve you well:
You'll be well served by an excellent agent in this process. I regularly walk clients through this process in my market and help them plan their renovations with these questions in mind. If you are currently using an agent who doesn't understand these concepts then it's time for an upgrade!
J Scott's book on Flipping Houses will be a valuable resource for you here.
I'm here for followup dialogue if this spawns any. Have a great day, John!
Ben, Super helpful. I will definitely act on that. I will try to position this packet at the right time to assist the appraiser and also make my point without rubbing him or her the wrong way. Thank you.
Will, Thank you for the response. Very helpful.
@John Flanagan you have an appraiser appraise it “subject to” all the improvements you would do to it. Then you make those improvements and refinance.
Note it’s likely only community banks will do this sort of thing
Caleb, I will connect with my community bank about that. Thank you.