home appraisal issue (philadelphia)

[Mike Parks]

Hello BiggerPockets Pals, I have a little issue that I need some direction on and am hoping someone can shed some light on this. I am an investor in the Philadelphia and surrounding areas. I recently purchased a property in the southwest section of philadelphia and was recently approved for a line of credit increase based on the value of the mentioned property. Now before I bought the property I of course did what I thought was my due diligence to obtain a rough value on the property, I had my realtor pull comps, I had the wholesaler give me their take on the value of the property as well as checking zillow, trulia, etc. Although comps from my realtor were 12-24 months old (as its mainly a rental area) were anywhere from 18k (wholesale) to as high as 95k (retail) I thought wow this would be a good buy expecting and being told that arv would be roughly 75-85k. Now I only paid 18,500 for the house and it needed very minimal work IE: ceiling repairs, paint, flooring, some new lights, heat replacement, roughly 4k worth of work.

Since then the appraiser when out to the property last friday 12-19-14 to do the "appraisal" I was told that his cost would be $575 (which was extremely higher) than I typically pay and that his turnaround time was 10 days. The bank contacted me this past friday and said the appraisal came in and that the cost was $450 (weird) and that the property appraised for 30k. Shocked, I immediately expressed my displeasure with the number and wanted some answers. How could a house that has a tax assessment of over 50k, comps as high as 95k (within blocks away) only appraise for 30k??? This cant be right being as though I have 2 other smaller properties 0.7 miles away in a rougher neighborhood that appraised for 67k less than 6 months ago???? My guess would be that they did a "drive by appraisal" or "over the table" appraisal rather than a walk through appraisal which is what should have been done??

I do not have a copy of the appraisal in my possession yet but can anyone shed some light on this? My numbers are usually damn close and this particular property isnt even in the same zip code let alone same ballpark. They claim that the number was based on rents which range from 700-950 (mine rents for $850) and comps which are mainly wholesale numbers NOT retail numbers. I'm dumfounded so any suggestions or insight from appraisers or bankers would be greatly appreciated.

[Michael Willis]

Hi there. I work as an appraiser in the Bay Area, CA. I don't know your market but I will try to help. First, you said that you had two separate quotes on your appraisal fee. If you went with a conventional lender most likely they use an AMC (Appraisal Management Company). The AMC's act as a middle man between the lender and the appraiser. They provide the firewall but take a hefty fee. So what you pay for the appraisal fee is not necessarily the same as what the appraiser actually makes. I hear some struggling appraisers only make $150 per report. The appraiser, in most cases especially in Ca, is not even allowed to attach an invoice to the appraisal to show what he or she was paid.

Secondly, $450 or $500+ is not a typical exterior drive by fee. An exterior appraisal will normally be done on a 2055 form as opposed to a 1004 form for a full blown report with interior inspection. If it was done as an exterior appraisal you should ask them to upgrade it to the full inspection (they will charge you more for this). Even if it was done as an exterior the appraiser has to verify where his data is coming from. It would normally come from public records, local MLS data, google maps, and the homeowner (you). I always call the homeowner before I do an exterior and ask them to give me detailed information about their property. If they went above and beyond what is typical I always recommend that they upgrade to a full blown appraisal. Were you not there during the inspection? Normally the appraiser will call to set the appointment with the borrower and ask for access.

A couple other things to note. Some lenders will question the appraisers value when they first receive the report. They will sometimes ask appraisers to look at certain comps that may or may not be relevant. If most of the recent comps are in the $30k range then they will want to see that or have an explanation why yours should be valued above it.

0.7 miles can change values a lot. In my area, you can cross into another neighborhood just by crossing a street where home values double and school ratings change dramatically.

If you feel that the appraiser overlooked comps more similar to your property you should compile a list and send it to your lender. You can always challenge the appraisal. Tell the lender why the comps the appraiser chose were wrong and why yours are more relevant. Make sure the lender is using a local appraiser, not somebody who is coming in from another area who doesn't know your market.

Sorry for the long post. Just giving you my perspective. I wish you luck and hope you get things straightened out.