All Forum Posts by: Mark Vejnar

@Nicholas Jones

Wow. The level of ignorance in this thread concerning appraisals and appraisers is astounding. Appraiser are not agents, though some also carry a sales license. Appraisers practice practical economics and develop deep knowledge of your local economy - which is why a bank will buy properties site-unseen based on the appraisers signature (banks care little for comments from sales agents). Appraisers constantly build their knowledge base through experience, forums, symposiums, field work, and resources like the MAI - the comment about 1970's calculations demonstrates an ignorance of fundamentals - not the least of which is the economic law of diminishing returns. 

So it's good you are considering an appraisal. A bank will not fund a purchase without an appraisal so why should you? I think it's great you're thinking big. I have MAI contacts who are sometimes paid more than $25,000 for appraisals - the big boys don't balk at the fee for an appraisal because: 1. its fundamental to deal analysis; 2. It's a dirt cheap fail safe. Even the big boys can let their emotions and excitement cloud their judgement. An appraisal mitigates the influence of emotions. 

The Appraisal Institue maintains a database of experienced experts in your area. You could try searching their site for someone with who you can build a relationship. They will guide you on what type of approach to value is most relevant, and you can tap them for feasibility studies, highest and best use opinions, aspects of cost (which is also relevant when considering depreciation on your taxes - ask your real estate focused CPA), and you can even ask them to do the appraisal subject to the repairs/renovations you're considering. 

@Caitlyn J.

Don't let a Realtor go digging for comps to enable you to overpay for a property. The Realtor is always working with a conflict of interest as lowering the price also lowers commissions. They are constantly trying to inflate values, and jump at the chance to stuff overpriced comps into the hands of appraisers. 

Congratulations on working through your first deal. There are many more out there if you have to walk away from this one. Mr. Market is manic right now so it's good you're proceeding with caution.  

@Dan Gengler

Refi appraisals tend to be more conservative as they are purely hypothetical - as @Damir Kamber previously commented.  However, you can help the appraiser from the standpoint of the cost approach, and the income approach.  Do you have a copy of the purchase appraisal? Do you have financial records detailing each cost incurred during the rehab? Do you have before and after photos? Sometimes showing these data to the appraiser can give him/her a better view of where the property was, and where it is now. (Incidentally, always ask them to review their data while smiling and acting super friendly and overjoyed to be having the discussion.)

As it sits, the appraiser has essentially determined that your property lost value due to the rehab. While the law of diminishing returns certainly applies, it's also true that people tend to like shiny objects. Your property will probably command higher rents due to its condition and amenities, and you will have less maintenance expenses moving forward because of what's been performed. This impacts NOI. Thus the expenses you incurred should drive up your value from both the income and cost approaches to value. It also extends the economic life of the property - which only helps from a cost approach standpoint. Talk with your CPA to get good numbers on how your updates and upgrades affect depreciation, and then discuss this with your appraiser.

The bank will do whatever they want, but it can't hurt to try. While many appraisals give the sales comparison approach the most weight, there are plenty of times when the sales comparison approach to value is not applicable. This is why the appraiser is supposed to reconcile all three approaches - even in an apples to apples arms-length SFR appraisal.

@Joe T.

Perhaps you should talk to a lawyer. From this discussion it appears you may have been damaged by negligence. Maybe you can sue for actual losses plus attorney fees. Who knows - sometimes you hear about large institutions settling to avoid litigation costs.  I wonder if they would settle if you can show them they were negligent.

Have you spoken with an attorney? What did they say?

@Charles Fletcher

I don't know your area, but typically you won't see an improvement like that immediately reflected in appraised value - especially if your improvement is atypical. Your location may be different so a local opinion is necessary. 

Often the return on an improvement like central air is received over the long term. Sort of like capex. If experts in your area are sticking with window units then you may best serve your tenants by keeping window units. If the neighborhood begins to shift toward central air, then adapt and adopt. 

@Scott Graf

Separate named search for each well defined subdivisions (use mapping tool); subdivisions newer than 1978; 3 bedroom/2 Bath minimums.

Where neighborhoods are predominately tenement buildings use mapping tool to set boundaries; filter by desired characteristics (Age; 3/2; 2/1, etc.). 

All expireds to be delivered daily - separate search

All withdrawn t be delivered daily - separate search

For comps: 1 mile radius; nearly identical to subject in terms of location, design, age, condition, layout, fenestration, etc. 

Separate searches by neighborhood with help you develop farms. This criteria is distinct from direct mail which will use different filters.  This criteria will also help you master neighborhoods.  

I have seen realtors create these investor searches for neighborhoods of any age. It really depends on your target property characteristics.  The advantage of 1978 and newer neighborhoods is the absence of asbestos and lead paint.  Poly pipes will still be an issue, but experienced general contractors are more than equipped to deal with those. 

Happy hunting!

@Martin Chavez

Wow it's encouraging to see your marketing strategy working well for you. Thank you for sharing!

The comment by @Russell Brazil is unfortunately true; some agents will work hard to influence value and roll the dice as to whether or not they'll be held accountable. Sadly, there are non-Jedi appraisers who may succumb to such tactics. Have your lawyer standing by if this is the case. If your Realtor provides this service please encourage him or her to keep it in their pants.

Some clarifying questions are probably fine - such as confirming arms-length, lack of duress, presence of duress, or unusual circumstances. The appraiser will document these conversations in the work file. A better approach to protect all parties is to put everything in writing and communicate via fax or email. 

@Gloria Mirza the contract is vital as it proves the price and terms to which both the buyer and seller have agreed to transfer ownership. It's pretty black and white. The appraiser doesn't have to guess - it's right there on the first page. At that point it's just a matter of support. 

@Tori Manuel

You're probably looking for a what is referred to by many as a desktop appraisal. The appraiser does not visit or photograph the subject - the whole thing is done while sitting behind a desk. It's not nearly as involved as a drive-by, or full appraisal, but it could work for you. 

There will be a fee.  

No appraiser will do this for free as it is still an opinion of value, and thus considered an appraisal. You may find an appraiser who will pull comps for you for free, but many are too busy to do this. The appraiser is accountable for any opinion of value. If he or she gives you a verbal appraisal over the phone and you lose your shirt, the appraiser could be held liable. They're very cautious about this kind of stuff, which means you will typically receive your opinion in writing regardless of the type of appraisal you request. 

Visit the Appraisal Institute website and search for an SRA or an MAI in your area. This is the best way to find a reliable expert. 

@Daniel Chang

The appraisal for a refinance vs a purchase are two different things, even if the homes are identical. 

An appraisal for a purchase transaction is more straightforward because a buyer and seller have agreed on price.  It is the appraiser's job to determine if the price is congruent with other arms-length transactions of competing sold properties in subject's neighborhood within a specified time frame. An appraisal for a refinance is completely different. 

A value for a refinance is purely speculative. The refinanced property is not exposed to the market. Buyers are not negotiating with the refinancing owner. Agent's are not actively trying to sell the home and provide feedback on how to make it more competitive. It would be reckless and irresponsible to assign a value on a refi that is consistent with the highest priced sales in the neighborhood.  An appraiser typically "low-balls" an appraisal when the sales comparable , income, and cost approaches substantially support a conservative opinion. 

It's a common misconception that the appraiser is protecting the bank's interest. Many experienced and skilled Realtors, agents, and loan officers propagate this misinformation unwittingly revealing their ignorance of the appraisal process. Appraisers are completely isolated from most lenders. Lenders are required to order appraisals from an appraisal management company (AMC) and are prohibited from using any means to influence the appraiser's opinion of value. Appraiser's are prohibited from accepting any work that is contingent on opinions. Appraiser's are not permitted to advocate.

On the plus side - maybe you can take that appraisal and appeal your friend's taxes.