All Forum Posts by: Matthew Smith

My husband and I are looking for a new tax accountant to help with our 2020 taxes and going forward. We are looking for someone with experience with real estate and small business in the Minneapolis metro area

Please reach out to us at [email protected]

My husband and I are looking for a new tax accountant to help with our 2020 taxes and going forward. We are looking for someone with experience with real estate and small business in the Minneapolis metro area

Sarah

You are correct in thinking that if you will be getting financing on the property, there will likely be another appraisal. In that case, the lender and/or bank will be the one ordering the appraisal. Even thou the lender/bank may ask you to pay for the appraiser, the appraisal will be for them and they will be the ones to own the rights to the report. 

Let me put my Realtor hat on, as there could be another way for you to look at this which save you some money and make sure that sale goes smoothly. You could work with a Realtor. Now I understand the quick knee-jerk reaction is that you don't need a Realtor in this case, and there is some truth to this. But a Realtor could be used as the facilitator. The Realtor could provide you with a CMA (competitive market analysis) to assist both parties in coming to a sale price. A Realtor will be able to provide professional assists with which disclosures to complete (aka a sellers disclosure form, etc...) and write up the contract. The Realtor acting as a facilitator could do this for a set flat fee, or a small percentage. This way both parties know that they have a strong contract in place.

Hello Sarah

Please feel free to PM me. I've been a Certified Real Estate Appraiser in the Twin Cities for the past 22 years. Tim Swierczek is right on with asking what reason you are looking for an appraiser, and I'd be happy to help you with that. 

Matthew Smith

Certified Appraiser & Realtor

Understandably market are and/or will start to slow as increasing value continue to out pass inflation. Low interest rates have help for the past couple of years keep Buyer in the market as values have been increasing, but this couldn’t last forever. 

Bruce, I fully agree with respect to small multi-family income properties. If you have a small multi-family income property, where you can increase the number of units from say two to three, or any combination of from two up to around six, it makes complete sense to appraise the property at it's highest and best use. Like in your case, viewing two duplexes on a single PID lot as a four-plex. But my point was in regards to single family properties, where the owner now wishes to add an ADU to there property. As Tim Swierczek has pointed out this, this will likely have more issues with traditional lending. I could see some pushback from the City as neighborhood start to complain about the increase in the number of multi-family rental properties popping up. Plus if the City doesn't grant a property to be used as a small multi-family rental property, then you're stuck with a single family property that now has ADU which could be seen as an over-improvement.

Other thing to consider is if there are no truly good comparable sales in the market, is the property you are looking to flip that outlier in the area? Plus if there are no other similar higher price homes selling in the market, this is likely a sign that Buyers in this market/area, are simply not willing to pay more to live in this market/area. I wouldn't put a ton of weight on active listing, short of this data telling you what homes are not selling for. Because anyone can ask anything they want.  Look at the recent comparable closed sales in the market, because that is what the appraiser is going to due. Plus this data will give you a true picture of what is going on in the market.

Sorry I've been out of town... But John & Tim have valid concern with regards to ADU on typical single family property with regards to appraisals. I did an appraisal earlier this year in NE Minneapolis for a sale of a single family home that had a small ADU detached in the backyard. It was the size of a standard one car garage, heated and had a full bathroom along with what one could call a very small kitchenette. There was no market data to show/warrant that this ADU added any market value. Without any market data the Banks underwriter would have cut the appraisal apart. In this case the underwriter would have required that this ADU first show that the city of Minneapolis would grant a rental license too just the ADU. Which I'm not sure if the Buyer was able to acquire. The Seller was simply using the space as a home gym. On small multi family income properties i could see this being less of a issue as this properties would already have rental license.

Just my two cents as a certified appraiser, you should point more weight on the comps in the market. As your wife is a real estate broker she should be able to complete a CMA, plus be able to set up showings of other competing listings in the market so you can see what level of finishing competing property have. I wouldn't recommend being the best home in the market. Unless you get a cash Buyer, the Buyer is more an likely going to get financing. Which means the Bank is going to get an appraisal. If there are not good comps in the market that could support the sale price, it's unlikely the appraisal will come in at the sale price. And even if the appraisal does, if the banks underwriter doesn't like the comps in the report, or they don't feel that the appraiser provided a strong enough case for the value, the underwriter has the power to over ride the appraisal. I've seen this on both sides as the appraiser and as a Realtor.

James Woodrich, Yes I am only speaking with regards to five or less multi-family properties, as anything six and larger falls under commercial leading and I personally do not appraise commercial properties. Sadly my grandfather, which was a long time commercial appraiser is no longer around, as he was a huge source of great information in this area. 

In five and less multi-family properties, more weight is placed on the sales comparison approach, as leaders typically view these properties as residential properties. Therefore the appraisal form, which is set by the Banks/Lenders are different than commercial property's, which typically place more weight on the income approach.

The small residential income property appraisal report, address comparable rental data and breaks things down into items like value per bedrooms, value per gross building area, value per unit and gross rent multiplier, etc. But these numbers don't address items like if the property is cash flow positive and capex. As this is dependent more on the Buyer, than the property. As Pavel Ushakov, pointed out, if the Buyer is putting down 50% or more, this changes these numbers for the Buyer. Typical in small residential income properties the Bank simply wants to make sure that sale price is supported by comparable sales data in the market.