Who decides ARV when applying for hard money

Question

I am looking at a potential new project and have been considering hard money as an option. The particular deal consists of a double lot zoned, with two buildings. The main building has a mother-in-law suite. Due to its uniqueness, I have had hard time pulling comps, making it more challenging to determine if hard money is an option (lender typically only covers 75% ARV) so do I need to convince them what the ARV is or would they have an appraiser determine ARV

Greg Scott · Answer

The times that I have used Hard Money, the lender was pretty sophisticated.  He had an appraiser that he used that was also the same appraiser used by the a mortgage broker he partnered with.  The beauty of that arrangement is that if you completed the rehab as agreed with the HML, the second appraisal was almost guaranteed to be the same or better than the ARV appraisal.

I've heard of other people having problems where the second appraisal came in much lower and you are having to come out of pocket to move to conventional.

Michael Kinsella · Answer

Brian,

Oftentimes hard money lenders will use AMCs (Appraisal Management Companies), and then double-check the value against their own internal underwriting.

In a unique situation, the appraiser can take a look at comparable properties (property type, size, proximity, etc.) and then make the appropriate adjustments to the value.

Some hard money lenders put a lot of stock in external appraisals, and others less so.

Oftentimes, if you strongly disagree with the ARV that the lender has arrived at, then you can submit rebuttal comps, and I have seen cases where a lender adjusts the ARV based on the rebuttal comps, although this adjustment is not particularly common.

Hope this helps,

Michael