BAD APPRAISAL ON MULTI-FAMILY

[Stephan Haas]

Is it standered for an appraiser to not include a unit on the appraisal because the door was boarded over? What to do after the fact that I paid for an incomplete appraisal came back with replacement cost $120k....value...$15k?

[Roy N.]

A property of four units or less is technically a residential property.  Unfortunately, this usually translates into a valuation based upon market price (of comparable properties sold in the area); where a multi-unit would be primarily valued on cash-flow it produces.

If you have one or more units which are not habitable, the appraiser may disallow (or severely discount) that space .... in the commercial world, if they are not producing cash-flow, they would have little-to-no value. 

Note that this is always a bad thing. We are looking at a small REO at the moment where on 1/6 of the units are presently let and a full 1/3 are not rent-ready. When preparing our offer, we allow no value for those units not producing revenue ... in-fact they are a liability at the moment. In this situation, you have to look at the deal from the angle of both a flip and a buy-and-hold.