All Forum Posts by: Brad S.

My guess is very few,  if any appraisers have come across this situation yet. I haven't (I am an appraiser). If I were to get this type of assignment, I would either turn it down or ask for a high fee, for the extra research and analysis, and potentially additional liability, involved.

There are 2 distinct issues here: 
#1) How the lender will view it and underwrite it.
and
#2) How the appraiser will look at it and approach the valuation problem.
And those viewpoints are not always aligned. In other words, just because a lender tells me how they would like me to view or value a property, doesn't mean I will agree, that I CAN do it that way. A big part of my job is to not create a misleading report.

As an appraiser, we are taught to look at the market, which reflects the value of a property. We look for market evidence to hint at what the value should be. WE don't set the value, the MARKET does. So, the proper question for the appraiser should be: How would the market (typical buyer and seller) view this property?

My guess is they would see it similarly as you, as 5 legally rentable units, or a 5-unit property. If the 5-units on your property are; legally permissible, physically possible, financially feasible, and maximally productive. Then they would most likely reflect the 5-unit use as the property's highest and best use.

It would also seem reasonable to assume that today's buyer/s would look at it as a 5-unit property and be willing to pay for it as such. Therefore, my approach would most likely be to value it as a 5-unit property, against similar 5+ unit properties, utilizing the sales-comparison, the income approach and possibly the cost approach - as a commercial property (5+ units). The Lender can decide to look at it anyway they please, but it won't affect how I approach it.

This group (B4 & AFTER PAGE) - showed up on my feed on an Unnamed social media site I can't stand, but also kinda need. I thought these before and after pics of these houses were interesting and showed what a little imagination and fwd thinking can do to transform a house.

Best way to find out is to find comps with upgraded kitchens and other upgrades/updates similar to how you plan on doing your upgrades/updates and see how much they are selling for as compared to properties not upgraded/updated. Since you are an agent, I assume you can look up the data, and/or you can "walk" the current listings and take notes as to what upgrades are generally done.

That is one benefit I have as an appraiser, when I am doing an appraisal of a pending sale. Especially if the house is a newly rehabbed or built house, I can see what upgrades/features, etc, the sellers think the buyers are looking for and the what the buyers seem to want. The number of offers, days on market, and contract price vs list price, and specific contract terms, all give me a good sense of how that house performed in the market. Sometimes, I also ask the agent/s about the buyer's reaction to certain characteristics of the house, etc.

In some markets, upgraded/updated quality and condition make a big difference and others, not so much. You really can't use general research to determine that for your specific market. 

@Hansel Gunawan

Hey Hansel, the first step, as always, is not to look for specific properties, areas, or anything else, until you look "inside" and get clearer as to your goals and your "whys" of wanting to invest. For example, you may come to the conclusion that "In 10 years I want to have enough passive income to blah, blah, blah." Or "I want to have $10k/mth in net rental income to replace my job in 10 years." Or, " I want to have a net worth of 2 million in 10 years." etc, etc, etc. Then you'd have a reference to help you clarify those goals and that will help lead you to specifics -property types, investment options, areas, etc

But, just "investing in real estate for my future." is not enough. It's a start, but you may want to clarify that more. Then you'd get into other questions: Do you like your job? How secure is it in the longterm? How much income potential is there? What are my current expenses? etc. 

All this info will help guide you to what type of investing and areas to search for, etc.

I am sure there are guides in how to do this, but I am not sure exactly where. I have seen some long posts about clarifying your goals in the past. You may have to search for them. 

Not enough info to properly help, but...

1) Why do you think the $305k appraisal was correct vs the $174k?  Could it be it was previously overvalued and the more current appraisal is more reasonable?

2) What basis did you use to dispute the appraisal?  Better comps? and if so, why were they better? etc.

3) In many areas, a zip code does not equal a market area. In other words, 2 properties in 2 different zip codes does not mean they are in 2 different market areas. They both may be viable alternatives for a buyer in that market area, hence they may both be comps.

So, the appraiser may've used more similar comps in different zip codes, then dissimilar comps from the same zip code, but they may all be in the same market area.

And if you are saying the same subdivision has properties in different zip codes, then it may well be that the comps in the same subdivision are more comparable than the comps in a different subdivision, irrespective of their zip codes.

*************
So, bottom line is more info is needed - just because comps are in different zip codes, is not enough info to understand what the issue is.

First of all CONGRATULATIONS!  It sounds like it is well-deserved and hopefully you are enjoying the results of your effort now.

I'm going to offer an educated and experienced alternative viewpoint to your comments. As I mentioned in a previous response to your other post, I am an appraiser (longtime appraiser), so my opinions come from inside experience.

What you experienced, was most likely primarily due to the Lender/s not the appraisers. It is the lenders that choose where to go to engage an appraiser, and typically, these days, it is an AMC (Appraisal Management Company). Many times the AMC's are more interested in the cheapest and quickest appraiser as opposed to the most qualified. I personally don't work for those companies, but have colleagues that have and do, and some of these companies pay far below reasonable fees for the appraisal and therefore, get substandard appraisers. And the appraisal fee you paid was most likely a lot more than the fee the appraiser got.

You were largely under the mercy of the Lender and the AMC's or appraisers the lender hired, not just the specific appraisers. And also, the issues you brought up in your previous posts, were not appraisal issues at all, but 100% lender issues. We, the appraisers, are objective 3rd parties reporting and observing what is asked of us. The lender makes the decisions.

1) Why did you pay to fix ANYTHING prior to closing?  You are essentially investing money into someone else's property at that point. While this may happen in very rare and specific circumstances, this is highly unadvisable! If the deal does not go through for some reason, it is an uphill battle getting anything back. Those expenses are usually paid by the seller, and then you can agree to settle the cost in an addendum, etc. But, the house isn't yours to put money in until the transaction is closed. Hopefully, your agent was steering you in the right direction during the process.

2) Unfortunately, that is the nature of the loan business. Sometimes there is a lot of effort for no reward. I appreciate your ethical responsibility to be upfront, but they could've also asked you if you were looking into other options, but they probably knew that was the case anyway, due to your immediate need. They made the choice to try and compete for your business, but you can keep them in mind for future loan needs. But, your first priority was to get the loan and you could've always chosen to compensate them somehow, but that is pretty unusual.  I also used to do loans many moons ago, so I definitely understand.

@Sean Link

1) As an appraiser (I am one), our lender clients typically ask that we notify them of any health and safety concerns. This is typically considered an assignment condition. specific to the lender/client. An example would be smoke and carbon monoxide (co) detectors - in the past we were not asked to note their presence or location, but in the past many years (I can't remember when it started), most lenders added those observations into their assignment conditions. Therefore, for most lender appraisals, we are now required to observe the smoke and co detectors in the house/units. Also, lenders typically want us to observe and report if there are quick release mechanisms on any window/door security bars, this seems similar to your window egress issue.

I assume their concern is in a fire or other emergency, if something happens to the occupants, it puts their investment (loan/money) at risk, since the occupants may not be able to fulfill their loan obligations and/or may open the homeowners to other risk if they get sued by others who were affected. Example - a friend sleeping over who couldn't escape a fire due to limited egress. The family may sue the homeowner due to negligence, which may put their ability to repay the loan at risk, etc.

2) Our job (as an appraiser) IS to assess whether that health and safety concern might affect value or marketability of the subject property. And while typically, missing smoke/co detector won't significantly affect either, a bedroom lacking the "legally required" egress, may point to an unpermitted addition or conversion, etc. This may contribute to an adverse affect on marketability or value, since any future construction on the property may include having to bring this part up to current code and standards. This can add significantly to costs and liability. I'm not saying that was the case in your house, but that may be another motivation for an appraiser to point out the egress sitch. 

Also, that may cause problems for the insurance company if they know or find out about the egress issue after an incident. Maybe they would argue they aren't going to cover a claim since you signed something saying the property is properly up to code, etc. 

Anyway, hopefully that gives you a little insight as to why the egress issue was observed and reported.

Typical procedure would be to ask for an inspection contingency extension, once the specific concerns are found, in order to give you enough time to get the specific specialist inspections completed (i.e. electrician, HVAC, etc). You don't necessarily need to ask for a longer inspection period in the initial contract, since these are unanticipated concerns, and they may have also not been disclosed to you by the seller. Therefore, it is reasonable to ask for more time to complete the additional inspections.

Also, you typically are asked to sign the inspection contingency removal at the time the contingency period is up, you can simply refuse to sign it until you get the other inspections. Now, technically, they can decide to cancel the contract, but that is atypical and unlikely to happen. Especially, since any of those concerns brought up in the inspection/s are now known to the seller and need to be disclosed to any future buyers.

But, all of this should've been explained by your Realtor. Did you use a Realtor?

A STR is a business (or trade), not solely a real estate investment. While there may be some Lenders (portfolio, private, etc) that may underwrite with str rates, if they are loaning strictly on the real estate, certain factors should be accounted for (deducted from) in a proper valuation, like personal property which is usually included (furniture, other going concerns, possible intangible assets, etc).

Put another way, most buyers of a str or buying for the "business" potential, not the sole value of the real estate. And most lenders loan on the real estate exclusively. Therefore, they would rely more on ltr rates, not str rates. While it seems some non-traditional lenders will utilize str rates, that does not appear to be the norm.

In some areas, there are many str's and therefore, some of those non-RE values may be incorporated within many comp's sales prices. That may lead to higher comp prices and therefore, higher values than just the RE. That is not the norm though.