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

42 Replies

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

@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.

@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.

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. 

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.

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?  

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.

@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.

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?

@Russell Brazil

The house you purchased, how long ago was it? Was it within 6 months?

@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!