How important is the Appraisal value?

Question

I was curious to find out from the rest of the BP community, how much weight do you give to a subject to appraisal you received before rehab when it is time to list your property and sell at retail value? Thanks for all your feedback!

Jared Anderson · Answer

@Jeremy Dyer you have a lot of good advice here already. I will throw my two appraisal cents in with everybody else: 1) I would use the "Subject To" appraisal as a benchmark and research the market myself to really understand what's going on, markets can change immensely in 3-6 months; especially if it's a seasonal market. 2) Appraisals rely primarily on HISTORICAL data. Make sure you take an inventory before and after rehab of what is currently Active and Under Contract in addition to the solds. You really need to know what you are competing against and don't want to over-improve your property.

Jeremy Dyer · Answer

Thank you everyone for all of your replies. This is why I love BP, you can get great advice from past experiences of savvy people.

Patrick T. · Answer

Hey@Jeremy Dyer it sounds like your original question was about an appraisal that existed before the rehab. And I agree with those here who said that: 1. Rehabbers don't have time to get appraisals done when purchasing a property, and; 2. More weight should be given to reliable post rehab valuations, whether through your own research, a realtor or an appraiser. However (even as recently mentioned in a thread here on BP) you can have headaches if your buyer's lender sees discrepancies or very large differences between previous value (which they have access to) and current valuations. They can require two appraisals, for example, and expect you to pay for the second one. They can also require copies of construction/contracting documents. Usually at the last minute, dragging out or stalling your closing. That can be costly to you. A lot of rehabbers here on BP who are doing a consistently high volume of flips have good relationships with a realtor and a lender. Just like you can do here on BP, you can benefit from their experience and first hand knowledge. Good luck!

Jeff S. · Answer

I know of no rehabber that obtains appraisals, and certainly not when they buy a property, @Jeremy Dyer. I'd also say it's unusual for any rehab seller to provide an appraisal -- almost unheard of. Be it a bank or private seller, they just want out. Considering you could look at 100 homes or more to buy one, you want a faster, more cost effective way to value your deals and formulate your offers. Plus, it can take half a year to complete a flip. Any current appraisal will be woefully out of date by then. When you sell, you'll want to use the most recent comps available, not anything six months old or more. You're better off learning to pull your own comps when you both buy and sell, even if it's just through Redfin, Trulia, or the like. Let your end buyer pay for his or her own appraisal and do with it as they wish. Jeff

Patrick T. · Answer

Hey @Jeremy Dyer , You might have touched on something important. When a buyer goes to his lender to finance the purchase of your rehab, the lender can determine that the house has been sold recently (to you) and can assume that it is a flip. FHA and conventional lenders can be picky about this because they want to be certain that the value is really there and that no construction leins could be brought against the property by unpaid subs or suppliers. So they could very well ask for lots of documentation including scope of work done, receipts, waivers of lein. As a rehabber, you should have a trusted lender on your team. At a minimum, they can give you all of the information about those requirements. At a mximum, you might want to condition your purchase contract on the buyer using your lender (or at least one that is investor friendly).

John Moore · Answer

The appraisal is very important it indicates how much money the bank will loan on the property. If it's a FHA loan the appraisal stays with the property so if you decide to switch lenders you still have the same appraisal if you go FHA. As @Eric mentioned it is important you price your properly. Do your own comps, have a realtor assist you on what similiar homes sold for in the last 90 days. If you sell for "Cash" then there is no appraisal involved and your home free.

Eric Hegwer · Answer

The appraisal can be very important when reselling. Why? It's the max amount a bank will lend a buyer. So if for instance, you have your house listed at $200K, and a buyer comes along and makes a full price offer, but is financing through a bank (or credit union or whatever), they will send an appraiser out to make sure the house is worth it. If the appraisal comes back at or higher than 200K, you are OK. But if it is lower, you will have problems. That's why it is so important to price a house correctly when selling.

Account Closed · Answer

The market is ever changing. Appraisals are good to have in that you want the end buyer to get approved for financing, but what properties are actually closing for.. CLOSED not listed and active, those speak volumes.

David Abed · Answer

Sorry Jeremy. We put very little emphasis on the appraisal and more emphasis on what the end buyer will actually pay for the property.

Jeremy Dyer · Answer

@David Abed Thanks for replying but I meant how much do you consider the appraisal when listing the property to resell after the rehab is completed?