Appraiser Hated my house. Did I handle it well?

Question

Hey BP,

So in May I bought a property that was a 5-bed, 3 bath Single Fam House when I bought it, but has now been converted into a 4-3 with an in-law suite built in. I am going for a refi now.....We ordered the appraisal and the guy came out to take pictures and see the house. He goes in the larger piece of the house and takes pictures. Then when he sees the in-law suite he literally says out loud "OH NO", stares at the in-law suite for about a minute and proceeds to tell me that if he knew that the house was non-conforming like this he would not have taken the assignment to appraise this house. While I understand this might not be an easy appraisal for him, what I am hearing him say is "All of my appraisals are really easy to do, and now that I have one that is a little harder I'm not happy about it."

He literally asked me as he was leaving what I expected the home to appraise for, and I explained my process of my rehab and how I would value the particular property. My numbers were very reasonable. The exact model house with no upgrades whatsoever are selling for $270k. When I told him I am expecting it to appraise around $290k, he seemed relieved.

Am I wrong to think that this appraiser needs to suck it up and do his job? Did I handle this situation well in explaining my evaluation, or should I have requested a new appraisal? I'd really like some insight from some more experienced investors than me.
Thanks in advance,

Matt Nico

Christian Manhard · Answer

Hey @Matt Nico!

What we have done in the past is created a binder that is filled with everything they need to the T. We put in everything we have done to the house with before and after photos. If it’s electrical or plumbing we create a detailed list of what was done because a lot of the time you can’t see that stuff. We also provide comps and explain why our property is worth more or less compared to each comp and so on. This will make their work a lot easier and usually results in the price you are looking to have your property appraise out for. Our last appraiser just copied and pasted from what we had gave him (and gave us exactly what we wanted for a price) Anything you can do to make their life easier will help you in the long run. Around here appraisers look at about 8 properties a day so unless you help them out it’s unrealistic for them to see the value you have created. I hope this helps!

Arlen Chou · Answer

@Matt Nico the issue is not necessarily with the appraiser. Is the property truly "non-conforming"? Does your in-law suit not have a bathroom? Basically, did you convert the house into a legal duplex or did you go rogue on it and how rogue did you go? It kind of sounds like you did this without permits and you are asking the guy to overlook that fact. What @Russell Brazil is alluding too is that you might want to consider converting it back to a 5/3 to get your loan and if you really want to walk the hairy edge or what may or may not be legal, convert it back to your 4/3+ configuration later. Keep in mind, I am not an attorney nor a contractor so this is not in anyway legal or professional advice. Just because you can do something does not mean you should. Your bank may frown on this practice if they were to discover this. Keep in mind that you did create yourself a digital "foot print" by posting this question...

I kind of think the appraiser did you a favor. He did not call you out by creating a low appraisal based upon the non-permitted work he found and he gave you your money back. If he had completed an appraisal, it might have stopped your refi dead in its tracks. He could have really screwed you.

Alan Lacey · Answer

@Matt Nico I would almost guarantee the issue is appraiser received order from appraisal management company as a single family confirmed it by checking record. The got to site and realized goi g to take substantially more time to comp etc. Typically they go back to lender with a complexity fee to account for extra time. Weird that they wouldn’t.

Matt Nico · Answer

No worries Arlen, all good :)

Apparently the appraiser was told before he came that the house had an in-law suite in it. Maybe he was told this via email and he didnt read it or something. I'm not really sure. But yeah, hopefully it gets sorted out.

-Matt

Steve Morris · Answer

Maybe you should wait and see what the appraisal is.  I've seen appraisal with comp sales adjusted, but haven't seen "owner thinks it's worth $x" as a justification.

I know it's different, but as a broker, I try to feel out what people think their property is worth, so think it's a fair question.  If the appraiser said what do you think it's worth and why, you may be able to mention something that wasn't readily apparent.

Matt Nico · Answer

Alan what you said above is along the lines of thinking that I saw it as. Does that make this appraiser lazy or incompetent though? I feel like just because something might be a little difficult doesn't mean you should just bail out on it and throw it to someone else you know? I know it sounds bad to say it like I did but its just my real-estate-mindset of going after things because they are hard I guess.

-Matt

Arlen Chou · Answer

@Matt Nico sorry if I misunderstood your initial post incorrectly. It sounded like the appraiser was not aware that the property was converted to a duplex and that is why he said it was non-conforming. I would assume that appraiser would verify that the property they are reviewing matches the legal definition of that property and count the rooms etc. If the documents show a duplex with a 4/3 and an in-law unit then he should have completed the appraisal. I am sure this will all get sorted out. Good luck to you.

Matt Nico · Answer

Hey Arlen,

I'm sorry but your assumption of me not permitting it is very much wrong. The home is actually fully permitted and I went through all of the legal procedures to turn the house into what it is. There are other homes in the area that have in-law suites in them so for the general area its conforming, but for the immediate development that its in I would consider it unique. Its really not like a super rare thing in Florida to have an in-law suite. The appraiser himself just made an assumption of a duplex.

When I talked to the lender he told me they are getting a new appraiser and hopefully it isnt much of an issue.

Russell Brazil · Answer

If your comps are $270k...its probably going to appraise for $270k.

It also might not meet underwriting guidelines with the in law suite. Did you remove the 2nd stove if you had one? Is there interior access between the 2 units?

Christian Manhard · Answer

@Matt Nico We provided both when he showed up we gave him an actual binder then we emailed him the electronic version when he was leaving. I believe in total it was about 78 pages (including photos) I know that sounds like a lot but better to be to thorough in my opinion. You can also google the appraisers packet that they use for your area and use that as a template and basically fill it out for them which is what we did as well. It might seem like your doing to much but our appraiser actually loved it!

Appraiser Hated my house. Did I handle it well?

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