Appraisal vs. Comps (semi-urgent!) - Posted by Fran

Posted by Cesar on January 04, 1999 at 17:09:10:

Great suggestions, SCook!!

Appraisal vs. Comps (semi-urgent!) - Posted by Fran

Posted by Fran on January 04, 1999 at 10:01:33:

Hey kids…

I’m in a bit of a rush on this one…so…

And, I’m sure you’ve heard this question a billion times, but I don’t remember the answer…

Here’s the deal, I’m working on…3 plex, needs some serious work, its half gutted. All the mechanicals are done, but it needs some major finish work (i.e.: 2 new kitchens, drywall, carpet, paint throughout).

When I ran comps, they came out higher than I expected. Average for the neighborhood was at 85-90K. In fact, there is one just around the corner, 3 unit 3br each (just like mine, but smaller), same above average condition that mine will be in after rehab, that sold for 96K!!

When I put my offer in I put it “subject to appraisal”…The realtor looked at me and said, “Well, what kind of appraisal would be adequate for you?” And I said, “Well, if it comes in at 70K, I’ll be happy, I just want to make sure.” He looked at me and said, “Boy, that’s pretty aggressive.” Huh??

If comps in the area are going for 85-90K…why would the appraisal coming in at 70 be “aggressive”??? When I try to get a 70% LTV loan for purchase and rehab, what number will the lender look at: the appriasal or the FMV??

I’m confused…

Re: Appraisal vs. Comps (semi-urgent!) - Posted by SCook85

Posted by SCook85 on January 04, 1999 at 12:12:46:

You have one good thing going for you, the high comps. The realtor thinks that it is fairly aggresive because your offer is much less. The reality of it all is that when I get appraisals on homes that need a lot of work they get hit not by that much. The appraiser still uses the comps in the neighborhood and makes adjustments as to the condition. Those adjustments generally fall in the 10-20% range. FMV of the property is generally going to be higher than what you pay for the property anyway. I’ve never seen an appraisal come in at 50% of it’s after repair value, no matter how bad of shape it was in.

Also, is sounds like you are dealing with the listing agent, the one representing the seller. Otherwise he shouldn’t care what you want the appraisal to come in at and they shouldn’t question you. If this is your realtor, flat out tell them not to question you, you know what you are doing and if they don’t like it you will find someone else. If they are representing the seller I recommend finding someone else to deal with anyway, someone that has your best interest at heart and not the seller.

Why don’t you do this so that you can eliminate this issue. Make your offer contingent upon financing instead. Ultimately your financing is going to rely upon the appraisal. If the appraisal is not sufficient you won’t be able to get the financing.

Hope this helps!


Appraisals are supposed to represent FMV - Posted by Andrew Smith (Phila)

Posted by Andrew Smith (Phila) on January 04, 1999 at 10:49:25:

The lender will look at the appraisal which will probably only consider the current condition of the property. In that case, the Realtor’s comment would make sense as it would be a fairly aggresive appraisal that would come in $70,000 for a property that in needs two kitchens and other work which will only comp for $95,000 were all that work completed. Good luck with this.

Re: Appraisal vs. Comps (semi-urgent!) - Posted by Sandy FL

Posted by Sandy FL on January 04, 1999 at 10:17:33:

Fran, he probably commented that 70k was aggressive in its “as-is” condition. Is that also what you meant, or are you talking about 70k after rehab?

I think traditional lenders will tend to look more at appraisal as-is… its present state. If you want a lender where they look more at the project itself and what it will be worth when it is done being rehabbed (comps), then you are talking about asset based lenders. (hard money) Or maybe via a privaate lender or a partner. What kind of financing are you planning to use?