Breaking the Appraiser

[Account Closed]

Managing and Challenging the Appraisal Process

Recently, I’ve charted an increasing number of complaints from real estate owners and syndicators with respect to the results of an appraisal.

I’ve seen appraisal grievances on-line at real estate investor forum heavyweights like BiggerPockets and Connected Investors. The mob of valuation protesters are also storming the proverbial on-air gates outside of real estate investor podcast giants like Joe Fairless’ Best Real Estate Investing Advice Ever and Michael Blank’s Apartment Building Investing.

Rest assured, the mob is not fickle. They most certainly are not bemoaning opinions of value that are too high! Quite the obvious opposite. Outside the immediate realm of the poor bank reviewer who has to read appraisals for a living (I’ll eventually write a whole chapter on this miserable existence), the absolute number one complaint about an appraisal is, of course, THE VALUE IS TOO LOW!!!

Gripes from real estate owners/syndicators over appraisal results are nothing new and certainly not surprising. The appraisal process is just one spoke on the overall “deal wheel” (personally, I visualize an “Old West” wagon wheel type). A wheel that successful real estate investors must keep rolling forward.

While considered by many to be mostly a nuisance, the appraisal is nonetheless a required reality for the majority of deals out there. Most investors will give the appraisal/appraisal process a thought or two when considering the grand scheme, but regretfully that is about it. Until of course there is a problem. All the sudden, the wagon wheel grinds to a halt, hackles shoot up and the howling begins.

Appraisal results can, and often do, unhinge a deal. Again, I am not breaking new ground here. There is nothing novel about the appraisal process or its role in the “deal wheel” (I like this analogy! I’m picturing the syndicator/owner as the hub). There is no surprise that deal makers get very upset when the apple cart starts to tip. No, my shock and disbelief arrives when I hear the majority of their responses to the unwelcome news. In short, they roll over! They accept defeat! Are you kidding me?

Time and time again I have been witness to these scenes. The deal maker learns the appraised value is lower than expected and they come out of the gates with “Crap (probably something stronger here), I have to go back to the investors!”. Or, they say something to the tune of “we had to re-run the analysis to see where the new valuation puts us”. And, unfortunately, I have also heard the worst possible response, “The deal is done. It’s over. We can’t move forward”.

These are words no “hub” ever wants to hear or utter. Frankly, they are also ones that I wouldn’t expect from such entrepreneurial people. How can these go-getters I admire so much surrender so quickly? Where did this “I quit” approach come from? How is this possibly consistent with the drive and persistence displayed so far. I mean if the appraisal has been ordered, you are pretty far along in the process and have demonstrated excellent persistence to this point. Why the can’t do attitude now?

Well these questions got me thinking. Clearly my heroes do not realize how exposed to critique an appraiser and their appraisal really are.

I am uniquely qualified to speak to both worlds. First, I am an “MAI” appraiser with 25+ years of appraisal and valuation experience. Second, I turned “deal maker” a number of years into my appraising career and am now a full-time student apartment syndicator/investor. I am both the “Hub” and the “Spoke”.

I can help you manage the appraisal process from the start with just a few easy tips. I can help you avoid unwelcome news in the first place. If past the initial point of the process, do not despair, I can still assist. It is not too late. We can still map out a detailed strategy on how to effectively challenge an appraiser’s opinion of market value. The operative word in this case being opinion.

So don’t call those investors with the bad news quite yet. Do not re-run the numbers just now. And for goodness sake, do not give up on your deal until you absolutely must. There is hope.

I wrote this article to let my brethren in the real estate investment world know that I can and will assist you. For free. This is not an advertisement for anything. It is my way of giving back to the “deal maker” community. So much content has been freely shared by everyone else, it is time for me to reciprocate. I am happy to have finally figured out a path to do so.

Please stay tuned, or better yet, check in with me, for more specific articles and advice on how to “Break the Appraiser”.

Craig A. Schumacher, MAI