Recent Low Appraisals

[Tim Kane]

hey HP,

Washington DC, Virginia, Maryland REI here. My fix and flip properties have been appraising consistently low recently. My Renovated properties have been going under contract fast, but when its time for appraisal, every single one recently has appraised 10K plus less than contract price leaving a total mess for me. Is this happening to anyone else in the area on a frequent basis recently? Any advice on this matter? As you can imagine it is super frustrating. Thanks.

[Evan Wiesner]

@Tim Kane that's a really tough situation to be in. Unfortunately, appraisers often become concerned about the value of a market and I've seen large groups of them essentially "hold back" a markets appreciation. Phoenix in 2013 was a really good example of this as we could easily get a buyer in contract, sometimes multiple offers well over list price, but similarly to you we had a very difficult time getting the appraisals. 

The best argument is always a really good set of comparables. You have to counter their values with comps that look and feel like your remodels. Data is usually the only real counter to their views but you have to refute the properties they are using and have replacement arguments you can make.

The second best strategy is to price them lower. That's easier said than done for all of us fix and flip operators. Where we had success was listing them slightly lower and allowing the market to drive the price up. The lenders would allow for a review of the appraisal or a second appraisal when we could successfully prove that we priced it at or near the number their appraiser came up with and then received multiple offers driving the price higher. By allowing the market to speak for us they had less of an argument that the market value was so low.

Neither is obviously guaranteed for success and there's always a risk that your offers are lower with the second method. But there aren't a lot of great strategies to overcome this issue. Typically it's a waiting game for the appraisers to catch up to the buyers willingness to define the value of a home.