My appraisal came in 43K under expected Value. what should I do

BRRRR - Buy, Rehab, Rent, Refinance, Repeat

My appraisal came in 43K under expected Value. what should I do

Flipper/Rehabber · Detroit, MI · Member since 2018 · 33 posts · 17 votes

I bought a house in Detroit for 31K I rehab the home for 25k looking to do the BRRRR Method I had a hard money lender that I deal with set up but their minimum is 75K. When I went to refinance the home the appraisal came back at 32K. What can I do and how do I prevent this from happening agin in the future? please help

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Travis Biziorek

Investor · Arroyo Grande, CA · Member since 2014 · 1k+ posts · 1k+ votes

OK, so lots to unpack here.

First, you can't choose your own appraiser. This is (partly) what cause the housing bubble. If I can choose my appraiser, why not hire my buddy, cousin, sister, etc. and have them juice the appraised value for me? I believe there are laws against this, and the lender has to follow a process.

You should have received the appraisal report showing you exactly what comps they used. And here's the thing, if there are no comps pointing to the value you expected it won't matter how much money you dumped into this house. So "preventing" this from happening again in the future is as easy as making sure you have the comps to support the investment. If you don't (and often you do not in Detroit), it shouldn't at all be a surprise why this didn't appraise for where you expected.

Lastly, it doesn't matter what you paid for a house. Maybe this house truly is worth $32k fixed up and you just made a bad purchase. I don't know because I don't know the address, the actual condition of the property now, etc. I'm happy to take a look and provide my opinion, but it's just that. My opinion doesn't do you any good in terms of changing the appraised value. But it might help you refine your strategy for future purchases.

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Theresa HarrisPro Member
Member since 2019 · 15k+ posts · 11k+ votes
6y
@Jermyn Brown Ask how they arrived at that number and what comps they used. you can also request a second appraisal.
2 Reply
Jermyn Brown
OP
Flipper/Rehabber · Detroit, MI · Member since 2018 · 33 posts · 17 votes
6y
@Theresa Harris thank you reply. yes I’ve tried that & had them explain to me how they got that number & was told that there so no homes fully renovated like mines to compare.
0 Reply
Account Closed
Member since 2018 · 127 posts · 106 votes
6y
@Jermyn Brown, that sounds like a weak answer. At the least, the home should be worth what you paid for it plus the material you put in to it (kitchen cabinets, tile, bathroom vanity, etc.). It could be argued what you paid for labor should not be considered, but the material cost itself should be added to the cost you paid for it.
2 Reply
Jermyn Brown
OP
Flipper/Rehabber · Detroit, MI · Member since 2018 · 33 posts · 17 votes
6y
@Brian Spies yeah I also feel the same way but I believe my first mistake is letting the hard money lender pick the Appraiser that we used but I didn’t know any to pick myself so I went with there’s.
0 Reply
Sarah Brown
Real Estate Agent · Nampa, ID · Member since 2017 · 439 posts · 361 votes
6y
Was it appraised when you bought it? Agree, that it shouldn't appraise for what you bought it for. If you have an agent, have them run their own comps and see if you can petition to get the appraisal up. You can also request a second appraisal.
1 Reply
Theresa HarrisPro Member
Member since 2019 · 15k+ posts · 11k+ votes
6y
Originally posted by @Jermyn Brown:
@Theresa Harris thank you reply. yes I’ve tried that & had them explain to me how they got that number & was told that there so no homes fully renovated like mines to compare.

That's not a proper response from a professional. They should be able to determine fair market value.
0 Reply
Jermyn Brown
OP
Flipper/Rehabber · Detroit, MI · Member since 2018 · 33 posts · 17 votes
6y
@Sarah Brown I never had the house appraised I bought it cash but I sold a home 2 streets over for 100k 30 days prior to me purchasing this one
0 Reply
Paul S.
Member since 2019 · 248 posts · 248 votes
6y
Originally posted by @Jermyn Brown:
I bought a house in Detroit for 31K I rehab the home for 25k looking to do the BRRRR Method I had a hard money lender that I deal with set up but their minimum is 75K. When I went to refinance the home the appraisal came back at 32K. What can I do and how do I prevent this from happening agin in the future? please help

Did you pull comps in the area before you bought the house?
0 Reply
Travis Biziorek
Investor · Arroyo Grande, CA · Member since 2014 · 1k+ posts · 1k+ votes
6y
OK, so lots to unpack here.
First, you can't choose your own appraiser. This is (partly) what cause the housing bubble. If I can choose my appraiser, why not hire my buddy, cousin, sister, etc. and have them juice the appraised value for me? I believe there are laws against this, and the lender has to follow a process.
You should have received the appraisal report showing you exactly what comps they used. And here's the thing, if there are no comps pointing to the value you expected it won't matter how much money you dumped into this house. So "preventing" this from happening again in the future is as easy as making sure you have the comps to support the investment. If you don't (and often you do not in Detroit), it shouldn't at all be a surprise why this didn't appraise for where you expected.
Lastly, it doesn't matter what you paid for a house. Maybe this house truly is worth $32k fixed up and you just made a bad purchase. I don't know because I don't know the address, the actual condition of the property now, etc. I'm happy to take a look and provide my opinion, but it's just that. My opinion doesn't do you any good in terms of changing the appraised value. But it might help you refine your strategy for future purchases.
11 Reply
Travis Biziorek
Investor · Arroyo Grande, CA · Member since 2014 · 1k+ posts · 1k+ votes
6y
Originally posted by @Jermyn Brown:
@Sarah Brown I never had the house appraised I bought it cash but I sold a home 2 streets over for 100k 30 days prior to me purchasing this one

Two streets over in Detroit can be worlds apart.
4 Reply
Jermyn Brown
OP
Flipper/Rehabber · Detroit, MI · Member since 2018 · 33 posts · 17 votes
6y
@Paul S.no unfortunately I didn’t I though the house I sold 30 days prior house to buying this one I thought it would be the same comps
1 Reply
Jermyn Brown
OP
Flipper/Rehabber · Detroit, MI · Member since 2018 · 33 posts · 17 votes
6y
@Travis Biziorek yes please contact me ASAP I can really use your expertise Jbrowngroupllcgmail.com if you can shoot me an email it will
Be greatly appreciate it because I’m at lost here
L
1 Reply
Bryan Beal
Rental Property Investor · Greenville, SC · Member since 2019 · 115 posts · 264 votes
6y
@Jermyn Brown
Did you have an ARV number prior to doing the rehab work? For future reference, if you're going to finance ANY part of a rehab job (down payment and/or rehab costs), ALWAYS get an appraisal. That's how you know the investment in sound and will create the value you need to successfully BRRRR.
1 Reply
Jill F.
Investor · Akron, OH · Member since 2016 · 2k+ posts · 4k+ votes
6y
Try another lender. Maybe one of the "soft money" lenders like lima capital? If you know any real estate agents see if they can pull you comps. There is a good article I read some where on bigger pockets about putting together a packet for an appraiser. If you can't get out now and the loan isn't too onerous, perhaps you could rent it out as a buy and hold for a while?
1 Reply
Emilio Basa
Wholesaler · Sterling Heights, MI · Member since 2014 · 335 posts · 105 votes
6y
@Jermyn Brown - I would try another lender and meet the appraiser at the property with comparables especially one like $100K! Appraisers that don't know Detroit count the messed up homes as fair game. It's jacked up.
0 Reply
Jermyn Brown
OP
Flipper/Rehabber · Detroit, MI · Member since 2018 · 33 posts · 17 votes
6y
@Bryan Beal no I just assumed that since I sold one 2 streets over that I would get the same comps. I rehab all my homes the same way so there shouldn’t have been too much difference
0 Reply
Jermyn Brown
OP
Flipper/Rehabber · Detroit, MI · Member since 2018 · 33 posts · 17 votes
6y
@Jill F. Yeah I have it on the mls right now with a tenants hoping to sell it to an investor it cash flowing really well I’m getting 1100 a month for it
1 Reply
Jermyn Brown
OP
Flipper/Rehabber · Detroit, MI · Member since 2018 · 33 posts · 17 votes
6y
@Emilio Basa yeah im thinking that’s what I’ll do. If you know any appraiser that you can recommend
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Russell BrazilBusiness Member
Moderator
Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
6y
How far apart in time is the sale and appraisal?
[email protected]301-893-4635 Podcast Guest on Show #192
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Jermyn Brown
OP
Flipper/Rehabber · Detroit, MI · Member since 2018 · 33 posts · 17 votes
6y
@Russell Brazil that’s the problem I’m having there saying that the home that I sold 2 streets over is 2 old now to compare to my new home
0 Reply
Russell BrazilBusiness Member
Moderator
Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
6y
@Russell Brazil
The house you purchased, how long ago was it? Was it within 6 months?
[email protected]301-893-4635 Podcast Guest on Show #192
District Invest Group546 Reviews
Website View Page
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Jermyn Brown
OP
Flipper/Rehabber · Detroit, MI · Member since 2018 · 33 posts · 17 votes
6y
@Russell Brazil yes it was I sold the house in may & bought my new 1 my rehab took long then I wanted to buy wasn’t up & ready to be rented until early nov.
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Account Closed
Rental Property Investor · Canton, OH · Member since 2017 · 1k+ posts · 1k+ votes
6y
@Jermyn Brown
This is unfortunately a great reminder of how important an appraiser is. This is why I "try" to only use lenders with appraisers I've worked with before. So many people get tied up in % rates, and points, and other financing costs when an underwriter or appraiser can kill a deal on their own.
As others said, try additional lenders and provide an itemized list of improvements and sLe prices for si ce ilar properties in the area. If you happen to know an appraiser, ask him/her what they think the property is worth (approximately). You can even ask what banks they work with and try and do your cash out there. Anyway, best of luck!
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Jermyn Brown
OP
Flipper/Rehabber · Detroit, MI · Member since 2018 · 33 posts · 17 votes
6y
@CJ M. Thank you I know better now
1 Reply
Timothy MooreBusiness Member
Real Estate Broker · Farmington Hills, MI · Member since 2019 · 44 posts · 16 votes
6y
As Travis said, the main way to avoid this is the due diligence phase of any deal. Think like an appraiser when you're running comps prior to close. There are many parts of Detroit where there are zero flips, at best it's a 'flip to rent' situation. Other areas have many flips and comps that make it easy for an appraiser.
Especially if there aren't many comps, provide the appraiser with information on recent renovations to the property. This can help show the increase in value that is difficult to see in the market comps.
Some areas or property types are more hit or miss. Not only can property values more than double across one street (such as Mack on the East side), but also 2-4 units can be especially hard for an appraiser to comp since most of these are residential and based on sales comps and not income comps. There's often few of these for them to compare in any individual area.
At this point, I'd recommend digging into the comps for your house and get another appraisal.
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