Appraisal issue, refinancing

[Robert Szigeti]

Hello everybody,

I am currently in the refinancing process with an investment property?/BRRR/. I had an appraisal to decide to rent or flip the property. My prediction for the ARV was 350k. It came back at 338k. The appraiser suggested to put the nicely finished Florida room under HVAC, it would increase the value approximately 10-15k.(the Florida room 300 sqf.) Which I did, they have installed a split ac unit. The lender now sent out the Appraisal a different one, they have told me that they will not add the additional square footage to the house does not matter under AC or not. I emailed back the appraiser which I had done earlier and He said they are wrong because they are not following the guidelines. He told me to challenge it! Which I tried but my mortgage lender says that there is nothing we can do! Any suggestion?? Should I just leave it?

Thank you

[Brad S.]

OK, CA appraiser here, so I cannot speak to specific FL market nuances, but I have been doing it for decades and have extensive general experience. 

Anyway, the bottom line is the market (sales data) tells you what amenities they value. My assumption (WAG-wild *** guess) is that the 1st appraiser thought the market (Buyers) put a value on a Florida room with AC, more than one without. So, first of all, did he give any value to the Florida room? What he could've done, is is give it a value, "as-if" it had AC and then do a "cost-to-cure" adjustment to the comps, to account for adding AC to the room. So, that would basically add the Florida room as an amenity, on the appraisal (adding between 10-15k to the value of the house - per your appraiser), and on a different line, they might subtract a $2k (WAG) cost-to-cure, to account for adding AC to that room. Or they would simply just add $2k less for the Florida room amenity, as compared to the comps without a similar amenity. The idea being, how much value would a typical buyer put on the Florida room the way it is and/or would they maybe just value it as if they could just add the AC themselves. It seems like having the Florida room there should add a significant value, even without AC, but again, I am not a FL market expert. Except I do own a rental in Cape Coral and I do know that a screened-in patio does add to it's appeal, so, I'd think a full Florida room would add more.

Now, the Lender may've also not wanted a cost-to-cure on there, but the appraiser should've still accounted for any added value they thought should be there. I am not sure what "guidelines" they are talking about, except maybe they are talking about having heating and ventilation in living area. But, living area would be defined by the local building codes, not by the Appraiser. But, that doesn't mean that non-living area wouldn't have value, but it would be accounted for differently than living area. I assume they are referring to the recently adopted measuring standards (ANSI), but again, that doesn't dictate what habitable or finished area is. Example, just because a garage is finished with insulation, drywall, flooring, hvac, and high-end finishes, does not change the fact that it is legally a garage (by building standards). But, it may add a significant value to the house, depending on the market.

Anyway, I think I got to far into "the weeds," but hopefully that made some sense.