The process of Appraising would be appreciated :)

[William David Kelly]

Hi Bigger Pockets community,

I'm a newbie real estate investor with only 1 deal under my belt. I'm getting a clearer understanding every day and appreciate everyone from the Bigger Pocket communities help. Any information, advice, or feedback would be very very much appreciated. The details are as follows:

My father is planning on selling his San Diego Property and buying another property somewhere else by doing a 1031 exchange. So this new property will be 100% purchased by cash from the 1031 exchange since the values of both properties are spot on. The San Diego property when all said and done will amount to $450,000 and the negotiated purchase price of the new property will be $450,000. I have a few questions:

1. Is there a difference in financing this house since we're doing the reversed process of how a house is usually mortgaged? Most people get the mortgage and then buy the house. We're buying the house in cash then financing. Do you we just go to a bank after putting an extra $100,000 in renovation expenses into the house and tell the bank we want to finance the house for $550,000 since we purchased the house for $450,000?

2. This house is not the traditional 3 bedroom 2 bath single family home. The property before renovation is listed as 7 Bedroom and 7 Bathrooms. There is a separate house that's unfinished on the property. Once we acquire this house, we plan to renovate and finish the unfinished separate house. At the end of renovation, there will be a total of 12 Bedrooms and 12 Bathrooms. As of right now, the separate house with plans have been approved as a single family but will that change once the second house is finished? Will this property be considered a multi family since the second house will have 3 bedrooms and 3 baths? It won't have a kitchen or living room. It will have a Motor home garage.

3. How will an appraiser find comps for a home like this? I looked on the MLS and there isn't anything that is quite like this near the properties town. From research on google, the most I could come up with is that the appraiser will take the closest comparable neighborhoods with comparable properties that have sold within the last 6 months.

4. Will the house appraiser just add all the expenses of our renovation to our purchase price and call it a day? Someone told me that most appraisers will come in at what your trying to finance the house for. As an example, if we want to cash out finance (is that the correct term for "cash out finance"?) the house at $550,000 ($450,000 purchase price + $100,000 Renovation Expenses = $550,000), would they just verify that it's actually worth that and stop near that number.

Thank you for taking the time to read this and for providing critical feedback,

Will

[Brian Vaughan]

Hey William,

I don't spend a lot of time posting here, but I noticed your post about appraising (and I really liked your haircut!) I probably did about 6000 to 7000 appraisals in San Diego County alone many years ago and know it well. In residential appraising, there are three common approaches to value, but most any residential lender is going to want to see the “market approach” used for most every house. The appraiser is going to have to find comps, regardless of how few are available. In your item #4 you asked if "the house appraiser will just add all the expenses of the renovation to the purchase price, and call it a day?"   Absolutely not!   Appraisers don't work that way (at least not an appraiser worth anything). It's going to be a matter of finding recently sold sales (comps) as close to the subject property as possible. You also mentioned that someone told you that "appraisers come in at what you're trying to finance the house for."   I can't believe someone would actually tell you that. Actually - yes I can.    But it's simply not true. Again, market value is going to be estimated using comps, adjusted for differences in a grid, and reconciled. Good luck with your real estate endeavors (and your hair !!).    -Brian