Appraisal came low after the home improvements are done

[Madhu Kumar]

Hi,

This was my first question in BP community. Googled a lot but did not find an answer. And here I am trying my luck.

I bought my first rental SFR property for 35k, put in another 15k of rehab work into it. The place was mess when I bought and was renting around $600. Added new flooring/carpets, paint, kitchen cabinets, appliances and many more. A retired couple loved the home and rented for $1100.

Applied for refinance within 4 months of buying the home with PenFed bank and opted for full appraisal . The appraised value of the home came to 35k. I checked the report and the comps used were all around 35k and am sure those are distressed properties like when I bought mine. I do not see anything mentioned about home improvements in the appraisal report.

My questions are

1. Where in the Appraisal report can i check for, if the appraiser considered home improvements to get its value?

2. Or, the appraisal is nothing to do with the home improvements and they just look at the sq ft, # of bed rooms and bath, fireplace, porch etc

2. Any suggestions on my situation?

[Jon Holdman]

Appraisals should account for property condition.  Did you provide the appraiser and/or lender a list of what you did and what you spent?  Have you looked at the comps the appraiser used?  Perhaps they are fixed up, too.  Appraisers don't specifically say "oh, you did $15K of work, that's a $15K increase in value."  Rather, for the subject and comps there should be a "property condition" line with entries like "good", "excellent", "fair", "poor" or some such.  If they give yours an excellent rating and a comp is fair, there should be an adjustment.

Do you have a copy of the appraisal?  Get one if you don't.  It will show exactly how the appraiser determined the value vs. the comps.

Have you researched comps in the area?  If every similar house in the neighborhood is worth $35K there's nothing you can do to get much above that value.  The issue in that case is that you paid too much for the property.  When doing a deal like this, you have to have a look at all possible comps.  The appraiser is going to pick just three or four, but you need to look at all of them.

Four months between purchase and refi may also be an issue.  Lenders often want at least six months before they will use a new appraisal.  Before then, the original purchase price is considered the value.