Getting Re-Appraised - What can I do to Maximize the Appraised Value of My Property?

Question

Hi everyone,

Thus far, my first investment has gone well (fingers crossed).  I've got a wonderful tenant in the other side, a safe, stable place to live, and in a wonderful surprise, prices in the neighborhood have risen dramatically in the six short months that I've lived in and owned my duplex.

Here's my situation:

I bought my duplex in November for $240,000.  As of today, similar properties (less square footage, smaller lots) are selling just a few blocks away for over $300,000.  I've talked to my banker, agent, and other investors, and they all agree that there is a decent shot at a re-appraisal coming in at over $300,000.

Why a re-appraisal helps me:

I currently am financing the property with an FHA loan.  I was entertaining this possibility of rapid appreciation when I first made the purchase and put down just 5% ($12,000), got an adjustable rate mortgage, and pay mortgage insurance.

Refinancing this same property with conventional financing at 20% down will remove my mortgage insurance ($240 per month) from the equation.  This will significantly increase cashflow, and more importantly, free me to use another FHA loan to purchase a second property by the end of the year.  I'll also get a fixed rate mortgage to lock down low interest rates over the next 30 years.

So.  My question for the community is this:  What actions can I take to give myself the best chance to get a very high appraisal value?

Here are some of my options:

1) Landscaping - Putting in a nice fence and replanting the lawn will be great aesthetic touches and I can do them at low cost (less than $3,000 and a few weekends of solid effort).  I plan to do this under almost any circumstance.

2) New roof - The property has a flat roof that's about 15 years old.  I know I need to put on a new roof in the next few years, but think that I can push it out another 2, maybe 3 as things stand.  I'm considering putting a new, sloped roof on the property (~$17,000).  This would have the added advantages of lasting longer, and reducing my insurance payments by about $80 per month.  A new flat roof is ~$12,000 based on recent quotes.

3) Electrical - I haven't really done much with the electrcial, but could potentially increase the power to the property and update all the systems.  This would add longevity to the system, and hopefully increase the appraisal value.  There are also a few issues in my side of the unit that I've ignored (outlets that don't work).  I'd need to get these repaired when I moved out for the next tenants to inhabit the unit.  The basic repairs are likely to be about $500.  Not sure what a full upgrade would be (maybe $5,000??).

Can anyone give me some advice on which of these steps are necessary/likely to pay off in an appraisal?  Is there anything else that I can do to give myself the best possible chance at increasing the appraised value of the property?

A win is getting an appraisal above $300,000.  Anything beyond that is gravy that I may be able to use as purchasing power towards other investment properties.

Thanks!

Mindy Jensen · Answer

@Scott Trench, I recently attended a class called What It's Worth, which was taught by an appraiser/Realtor. He said one of the most important things in getting an accurate appraisal is to have someone who is IN YOUR MARKET do the appraising. The Denver market is different from the Colorado Springs market, which is different from the Boulder market.

When the appraiser calls to schedule a time to come out, make sure they are a local appraiser, and if they aren't you have the right to ask for one who is.

Another tip he gave was to type up a report about the neighborhood including any information that you may know but he would have a hard time finding out. Example: my neighbor wanted to get reappraised. Our street has had 3 recent sales that could be considered comps. One sold for far below market value - the reason was the former owner had died in the home, and went undiscovered for 12 days. Sunshine Cleaners had to come out and everything. Another house had zero interior pictures on the MLS - it was horribly outdated, and the new owner has put in at least $100,000 in upgrades so it, too was underpriced. The third home was an absolute disaster - shoddy work, awful finishes, outdated and just ugly. Again, the new owners have put at least $50,000 into it, and the house that stands today looks nothing like the one they bought a few months ago.

I typed this all out for her, and it helped her appraisal come in right where she needed it to be.

What does the landscaping look like now? I don't think a fence will add much value to the home for an appraisal. Lovely plants and mulch will, though.

Power wash the exterior, if it needs it. You want to be as new and clean-looking as possible.

While you should make sure all outlets work, the appraiser isn't going to make sure they do, so I wouldn't rush to spend that money. Do you have 200 amp service now?

Cities can be very different street to street. Make sure the houses that are going for $300 a few blocks over are comparable to yours. Good luck!

Travis Sperr · Answer

Roof - adds no value, unless in disrepair  - houses are expected to have a functioning roof.

Electrical - adds no value - especially if systems are consistent with the neighborhood/age of property. - might consider upgrading fixtures if it will make the place brighter and a little more appealing.

Curb Appeal - best bank for your buck- sweet equity.

Appraisers are people too, not robots, so a home that feels comfortable, well maintained and clean will affect the value. If your house looks shape from the street - he may use comps that also have better curb appeal- just because the listing typically have the front picture.

Other thoughts might be paint and carpet if you haven't already, to make it fresh.

At the end of the day if comes down to comps - meet the appraiser there - show them improvements you have made, make sure he knows the rental income it produces - provide lease. Provide a package of 4-6 great comps - a couple sold, one or two under contract and one listing. I have found when you do the appraisers homework and do a decent job, they will use your information. You are trying to show a $60k increase in 8 months - show why your purchase was at a discount and where the market is.

This is a duplex - so the appraisal will probably be about $600 - worth the gamble. but don't get carried away making improvements that may increase marketability but not value.

Bill S. · Answer

@Scott Trench follow @Travis Sperr's advise. Curb appeal is great. It makes the photos look nice and gives the lender/underwriter warm fuzzies so they ask for fewer other items.

In addition to current comps, you might add some documentation that your original purchase was below market by some comps there as well. The current market appreciation is in the area of 10% and you are looking at more than twice that. If you purchased 10% below market then you can better demonstrate your appreciation.

Do ALL the work for the appraiser in terms of collecting comps and pointing out the differences between your property and the others sold. Get someone (an appraiser) to review what you do on this and help you.

Richard C. · Answer

Usually not correct, here at least.  A duplex here is appraised strictly on a comparable-sale basis.

Devonair Jackson · Answer

Great advice, thanks!

Matthew Schroeder · Answer

In addition to focusing on the physical aspects of your property, I would also focus on the "process" of the appraisal, which several other people have already mentioned.

Find those sales comps that support the valuation you are looking for and share them with the appraiser.  Make his/her job very easy by giving them the MLS# so that they can look it up easily.  The sales comps are very important for your valuation & if the appraiser chooses some other unsupportive comps, you may not achieve the value you want.

Mark B. · Answer

Shop around for local banks that use local appraisers. They still need to get one at random, but the random group can be a higher quality group selected by the bank. Big banks want cheap so they will be picking from the cheap group that goes all over the place and doesn't know your market.

Travis Sperr · Answer

Also a little known strategy is that rush appraisals that cost a couple hundred more, hit the value more often than not, might be difficult to get your mortgage originator to order  rush on a refi.

Scott Trench · Answer

Excellent advice everyone.  I appreciate it.  I will be saving my money to use towards additional equity in the property, and will be improving the property cosmetically as much as possible based on what I've heard so far.

Oh, and I'll do my homework on local appraisers, and make my case easy for them ;)

Very grateful for the advice!

Getting Re-Appraised - What can I do to Maximize the Appraised Value of My Property?

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