Low Appraisal for BRRRR Refi - Tips to Challenge

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Low Appraisal for BRRRR Refi - Tips to Challenge

Joe LivseyPro Member
Investor · Denver, CO · Member since 2019 · 19 posts · 3 votes

Hi All - I just finished a rehab in the Buffalo, NY Market and received an appraisal back this morning for $145,000. Bought it with cash and used a personal loan to rehab so there is no debt on the property today.

My estimates projected a 165-170k ARV based on comps in the area that have sold in the last 0-12 months.

Question I have for the forums is what’s the best way to “challenge” the appraisal. Has anyone had success in getting an appraisal improved?

Any thoughts would be appreciated!

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Chris ClothierBusiness Member
Rental Property Investor · memphis, TN · Member since 2009 · 2k+ posts · 3k+ votes
5y
Originally posted by @Joe Livsey:

Hi All - I just finished a rehab in the Buffalo, NY Market and received an appraisal back this morning for $145,000. Bought it with cash and used a personal loan to rehab so there is no debt on the property today.

My estimates projected a 165-170k ARV based on comps in the area that have sold in the last 0-12 months.

Question I have for the forums is what’s the best way to “challenge” the appraisal. Has anyone had success in getting an appraisal improved?

Any thoughts would be appreciated!

There are couple of ways to go about this, but you may be in a pickle on one of them.  You’ve already received a great suggestion on providing the renovation costs in your challenge.  It is not very often that an appraiser is going to find 3 to 6 properties that are exactly the same to serve as comparable sales so simply providing more comps usually does not work.  The appraisal is subjective and most often the appraiser is making adjustments due to different sized properties, different features like br and bath and even adjustments based on renovations.  This is the area that we see as the most advantageous for challenges.  Provide the appraiser with details of your renovation and invoices for those improvements.  Material changes like sq.footage is sometimes missed so that can really help.  They can also consider the life expectancy of a new roof vs. a worn roof on a comparable sale or updated plumbing, electrical and systems - especially on older properties.  I don’t want to discount showing additional comps especially if they are renovated like yours because it helps to focus an appraiser on viewing comps that are updated and not just close or recent or more similar in size.  The updates you provide matter.

The other option is to scrap your financing and start over so you get a new appraiser.  In no way am I speaking poorly of appraisers.  They have a job to do and just about every one I have met is professional, but occasionally I’ve run across some that are not.  I recently had an appraiser tell me that he gets so much desktop business that he hardly ever leaves to look at houses anymore even when he is hired to provide a more in-depth appraisal.  In this conversation, that does not mean much as it’s hearsay, but we see these examples on a monthly basis.  Not a month goes by in the year where we don’t have an appraisal come in drastically below sales price.  A challenge would never help.  Instead we start the process over and invariably another appraiser is hired and the differences in value are staggering.  We have had $40,000 swings on $150,000 properties where the only difference is the person doing the appraisal and roughly 30 days apart.  Sometimes properties appraise extremely low and another appraiser goes over contract.  We don’t always see full contract pricing on that second appraisal either.  I want to be clear, sometimes our opinion is simply higher than an appraisers even after hiring a second, but we’ve never had two different appraisers both bring properties in as such extremely low values. Theyre always being hired by the bank and we don’t mess with giving renovation files on the front end.  Just let then do their job, but we have seen extreme swings in valuations from two different appraisers.

Those are the two best options for you as I see them.  If you feel strongly that your property has the value and your numbers are correct, then I would fight for it.  The cost of a second appraisal is always worth in when you are talking about these types of dollar differences.  best of luck. 

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  • Timothy Smith
    Investor · Buffalo, NY · Member since 2019 · 163 posts · 113 votes
    5y

    Joe,

    About to start this process here in Buffalo myself. Where is your property and what kind of property is it? We can take this convo offline, if you'd prefer. Thanks.

    Tim

    0Reply
  • Manuel Koschnieder
    Rental Property Investor · Buffalo, NY · Member since 2020 · 18 posts · 2 votes
    5y

    @Joe Livsey

    Hi,

    What did you buy it for and how much did you put into it ?

    Usually include a full list of repairs/ updates done showing $values for material and labor (even when you did the work yourself) and show that in combination with the comps.

    Cheers

    Manuel

    0Reply
  • Jonathan McGee
    Rental Property Investor · Memphis, TN · Member since 2017 · 155 posts · 151 votes
    5y

    Hey @Joe Livsey glad to hear you made it to the appraisal process on a BRRRR investment! Although landing 15-20k is not entirely too bad, I definitely can understand needing to get that number boosted a bit. I've had success with one client who was able to talk to the lender and request an appraisal dispute. Our projected appraisal amount was at least $85k hopefully $90k (Memphis) but the appraiser gave us a whopping $50k, stating the property had not been updated. The client spent $25k on the remodel which included turning a carport into a 4th bedroom so basically we turned in the remodel invoice(s), before and after photos and some very similar recent comps we found more in the $90-100k range.

    The appraiser gave us the $25k for the remodel and the client settled at $75k instead of continuing to fight it. We could've went with another lender but that would've extended the process.

    We actually had to dispute this same appraiser on another property as well. Needless to say, we are now refusing to accept appraisals from this particular company so stay diligent! Especially if the comps are there. Good luck!

    0Reply
  • Amy Davidson
    Investor · Clearwater, FL · Member since 2013 · 69 posts · 38 votes
    5y

    I'm afraid that I recently failed at my BRRRR appraisal rebuttal. My contact at Lending Home said it was the most thorough and well-documented rebuttal he'd ever seen, and it included an appraisal 50K higher done only 3 months earlier, but I just got a no. Unless I wanted to start the whole process over with a new appraisal, and a new appraisal feel, I just had to suck it up -- which I did.

    I tell you all that not to discourage you because it's worth the investment of just one hour, but so that you're prepared with a solid Plan B in case it fails.     Best of luck!

    1Reply
  • Matthew Irish-JonesBusiness Member
    Real Estate Agent · Buffalo, NY · Member since 2017 · 2k+ posts · 2k+ votes
    5y

    @Joe Livsey I have had success in challenging and winning a bad appraisal.  The only way to do it as far as I know is to provide more accurate comps than the appraiser pulled.  Once you challenge if they find your comps are more accurate they will change the appraisal. 

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  • Chris ClothierBusiness Member
    Rental Property Investor · memphis, TN · Member since 2009 · 2k+ posts · 3k+ votes
    5y
    Originally posted by @Joe Livsey:

    Hi All - I just finished a rehab in the Buffalo, NY Market and received an appraisal back this morning for $145,000. Bought it with cash and used a personal loan to rehab so there is no debt on the property today.

    My estimates projected a 165-170k ARV based on comps in the area that have sold in the last 0-12 months.

    Question I have for the forums is what’s the best way to “challenge” the appraisal. Has anyone had success in getting an appraisal improved?

    Any thoughts would be appreciated!

    There are couple of ways to go about this, but you may be in a pickle on one of them.  You’ve already received a great suggestion on providing the renovation costs in your challenge.  It is not very often that an appraiser is going to find 3 to 6 properties that are exactly the same to serve as comparable sales so simply providing more comps usually does not work.  The appraisal is subjective and most often the appraiser is making adjustments due to different sized properties, different features like br and bath and even adjustments based on renovations.  This is the area that we see as the most advantageous for challenges.  Provide the appraiser with details of your renovation and invoices for those improvements.  Material changes like sq.footage is sometimes missed so that can really help.  They can also consider the life expectancy of a new roof vs. a worn roof on a comparable sale or updated plumbing, electrical and systems - especially on older properties.  I don’t want to discount showing additional comps especially if they are renovated like yours because it helps to focus an appraiser on viewing comps that are updated and not just close or recent or more similar in size.  The updates you provide matter.

    The other option is to scrap your financing and start over so you get a new appraiser.  In no way am I speaking poorly of appraisers.  They have a job to do and just about every one I have met is professional, but occasionally I’ve run across some that are not.  I recently had an appraiser tell me that he gets so much desktop business that he hardly ever leaves to look at houses anymore even when he is hired to provide a more in-depth appraisal.  In this conversation, that does not mean much as it’s hearsay, but we see these examples on a monthly basis.  Not a month goes by in the year where we don’t have an appraisal come in drastically below sales price.  A challenge would never help.  Instead we start the process over and invariably another appraiser is hired and the differences in value are staggering.  We have had $40,000 swings on $150,000 properties where the only difference is the person doing the appraisal and roughly 30 days apart.  Sometimes properties appraise extremely low and another appraiser goes over contract.  We don’t always see full contract pricing on that second appraisal either.  I want to be clear, sometimes our opinion is simply higher than an appraisers even after hiring a second, but we’ve never had two different appraisers both bring properties in as such extremely low values. Theyre always being hired by the bank and we don’t mess with giving renovation files on the front end.  Just let then do their job, but we have seen extreme swings in valuations from two different appraisers.

    Those are the two best options for you as I see them.  If you feel strongly that your property has the value and your numbers are correct, then I would fight for it.  The cost of a second appraisal is always worth in when you are talking about these types of dollar differences.  best of luck. 

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    4Reply
  • Joe LivseyPro Member
    OP
    Investor · Denver, CO · Member since 2019 · 19 posts · 3 votes
    5y

    @Manuel Koschnieder

    Thanks for the suggestion. Bought it for 60k and put another 60k into it including holding costs.

    [email protected]347-949-0923
    0Reply
  • Joe LivseyPro Member
    OP
    Investor · Denver, CO · Member since 2019 · 19 posts · 3 votes
    5y

    @Jonathan McGee

    Sounds like your situation in Memphis was a little more involved than one bad appraisal. Really shows the power of having the right team in place! My lender is helping with the appeal and has worked with me through a few properties now. Thanks for your advice!

    [email protected]347-949-0923
    0Reply
  • Joe LivseyPro Member
    OP
    Investor · Denver, CO · Member since 2019 · 19 posts · 3 votes
    5y

    @Matthew Irish-Jones

    Thanks Matt! I have been putting together a package for the challenge including the comps that I feel are more appropriate. The contractor I used on the Reno was actually one of your recommendations so thank you for that as well.

    [email protected]347-949-0923
    0Reply
  • Rigo V.
    Investor · Morris Plains, NJ · Member since 2017 · 294 posts · 47 votes
    5y

    This happened to me in PA last year. Had an appraisal from another company for 200k that was done a few months prior and when I went to do the refi they appraised it at 138k. She used terrible comps that were not in the area and she herself was not local. I ended up Disputing that appraisal and the appraiser refused to budge. The lender also took her side and did not allow me to pay for a second appraisal.  I ended up canceling the deal with that lender and refi’d with another lender. That appraisal came back at 203k. 

    1Reply
  • Mick Hofmann
    Real Estate Agent · Scottsdale, AZ · Member since 2018 · 46 posts · 22 votes
    5y

    As @Chris Clothier put it, appraisals can change from person to person. So might be worth starting over with someone new. I have also heard of guys meeting the appraiser at the house and asking to walk through the property with them and point out why it should appraise for x amount.  Best of luck @Joe Livsey!

    0Reply
  • Michael Noto
    Real Estate Agent · Southington, CT · Member since 2008 · 5k+ posts · 3k+ votes
    5y

    You have gotten some good info on how to challenge the appraisal so far. Keep in mind that the appraiser will have to be the one to make the call on changing the opinion of value. 

    If he stands by his appraisal, the bank will also. In that case you can either request the same bank send out a different appraiser or you can switch lenders entirely as others have suggested. In the end, although based on comparable sales data largely, appraisals are someone's opinion of value. 

    Having done several BRRRR's here in CT I can tell you that in the long run this will be a blip, but in the moment I completely get why it stinks because you don't feel you are getting the benefits of rehabbing the property as nice as you did. It is frustrating as heck.

    1Reply
  • Whitney HuttenPro Member
    Investor · Boulder, CO · Member since 2016 · 1k+ posts · 1k+ votes
    5y

    @Joe Livsey Here is a guide to help work through the challenges of a refi and alternatives. In short, you can challenge, but go in well prepared as others have pointed out to document the before and after condition. I've seen appraisals be pretty sticky right now. Also, you can switch lending to commercial or another conventional lender if you really need to get the added value.  

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  • Nick C.
    Investor · Tampa, FL · Member since 2011 · 2k+ posts · 3k+ votes
    5y

    Ugh. Appraisers have cost us more money in the past 5 years than any deadbeat tenant or blown rehab budgets. The biggest issue is to challenge an appraisal the appraiser that did the appraisal has to admit they were wrong. There is exactly 0 incentive for them to do so. They are judge, jury, and executioner of an antiquated system and their egos kill many buyer's chances of purchasing their dream homes. 

    When flipping and selling to a retail buyer it's hopeless. But if you're refinancing and if you have a good relationship with the lender, and can show them why it's wrong, they may order a new appraisal. 

    2Reply
  • Alexander Szikla
    Real Estate Agent · New York City · Member since 2020 · 819 posts · 641 votes
    5y

    Feeding the appraiser with information before hand primes them to reach a similar conclusion. I typically provide comps, outline renovation budget in detail while talking about improvements with pride and provide a cap rate analysis to show how the desired ARV is beyond reasonable.

    Basically, I am setting up the scene to make any other figure feel unreasonable or simply not as robust. 

    Happy to discuss further and help you prepare materials for your next refi. 

    3Reply
  • Sean Tagge
    Investor · Lehi, UT · Member since 2015 · 435 posts · 300 votes
    5y

    You can challenge an appraisal it rarely changes their opinion. You can cancel the loan and go with a different lender and restart there. 

    0Reply
  • Tyler Tapley
    Real Estate Agent · Memphis, TN. · Member since 2018 · 175 posts · 101 votes
    5y

    Hey all,

    I've actually seen this happen a number of times in the past few weeks. We've challenged a few bad appraisals our clients have had. We've won a few of them and lost a few of them. In terms of the challenge itself, appropriate comps, good arguments for why to use your new comps and good arguments as for why the previously used comps should be disqualified are of course pertinent. Especially the later. If you can prove they used erroneous comps, they sort of how no option but to go back to square one.

    Ultimately though the best goal to have is to put yourself in a position where you're not encountering bad appraisals. My best advice on this would be to use a local lender. One who actually operates in your target market, hopefully a lot. These lenders are going to know who the good appraisers are (the one's who actually do a thorough job) and they're going to know who to avoid because they do sub-par work. A lender from out of town is just going to call the cheapest person on their list most of the time... and you get what you pay for.

    Hope this helps,

    0Reply
  • Dan Turkel
    Real Estate Agent · Central New Jersey · Member since 2017 · 135 posts · 37 votes
    5y

    @Alexander Szikla

    This is great - do you have an example of the type of packet you out together for the appraiser that you'd be willing to share with me? I have an appraisal coming up in a couple days for a BRRRR and would like to be as well prepared as possible for it

    0Reply
  • Alexander Szikla
    Real Estate Agent · New York City · Member since 2020 · 819 posts · 641 votes
    5y

    Sure - PM me

    0Reply
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