How to negotiate with an appraiser

Question

My husband and I are trying to accelerate our process in gaining multi-unit properties. We have two properties ( 1- 3 unit and 1-2 unit) in the Chicago area. Within the past year we gain another multi-unit property (2 unit) in the Northwest Suburbs of Chicago. This is our first property in the suburbs. We took out a HELOC to do the construction ( $150,000) and our thought was that this would be a great property that could put us into the BRRR method. However when we had it appraised, the appraisal value came in $ 120,000 under what we anticipated. The appraiser took comps from different suburbs ( about 10 miles away) due to only 1 sale comp in our area that is the most comparable. Additionally, the appraiser used what he " thought' we should get for rent, rather than the actual amount we are getting. the appraiser will not use the gross rent multiplier to appraise us, he will only use his sale comps to do the appraisal. Our lender has reached out and provided the discrepancies within his document as well as provided other comps that best support what we have done, and the appraiser will not budge.

How do we work through this situation to get a fair market value for the property? one option we have is to pay for another appraiser. If this is the best direction, how do I present the most important information to show the value of this property? also what pieces are the most important to show the appraiser?

We want to make sure we keep this process moving as we need to pay back the HELOC asap. We are also hoping to get additional funds so we can use that on our next property.

Thank you in advance for all suggestions and processes that have worked for you.

Thank you,

Eric and Ashley

How do we work through this situation to get a fair market value for the property? one option we have is to pay for another appraiser. If this is the best direction, how do I present the most important information to show the value of this property? also what pieces are the most important to show the appraiser?

We want to make sure we keep this process moving as we need to pay back the HELOC asap. We are also hoping to get additional funds so we can use that on our next property.

Thank you in advance for all suggestions and processes that have worked for you.

Thank you,

Eric and Ashley

Russell Brazil · Answer

If you have a lack of comparable sales, then you should expect the appraisal to come back with a bad number.  Wait until there are some good sales, then have it reappraised. They can only work with the available data. and GRM, thats never going to fly on a residential appraisal.

Eric Palomino · Answer

#Russell Brazil

Thank you for your reply.

Shaun Weekes · Answer

10 miles is a long way but if the current appraiser isn't going to move, I would have your LO or Broker use a different AMC and order a new one.  Now if your comps are based on cost approach then getting another appraisal is pointless because Fannie and Freddie loans only use the sales approach.  Furthermore, for investment properties you must order a rental survey.  The appraiser will gather rents from similar homes and then use their calculations to come up with a monthly rent amount for your property.  The don't just make up the number.

When the new appraiser comes to your property have a list of ALL improvements done to the home and be detailed.  Also, you can have a list of comps that you think would be good.  But be careful that you're not telling the appraiser " use these comps " I would say something like.  " I'm not telling you what to do Sir/Ma’am, but I wanted to offer up some comps that I thought would help make your job easier or something to that effect.

120K is way off so depending on the comps you used prior it could be that your value just isn't there.  But paying for another one won't hurt at all since the HELOC needs to be paid off asap.

I hope this helps and have a good one.

Account Closed · Answer

@Eric Palomino Did you request a reconsideration of value that included comps you felt were a better fit? If so, the appraiser has to explain why he doesnt want to add those comps. This may give you more insight. The appraiser likely wont change the value by $120k so I would just hire a new appraiser. No appraiser at these levels will use the income approach, always the sales comparison approach. The income approach at these levels dont matter and honestly, the rent schedule doesnt really mean anything at all so him using market rent vs what you get doesnt change anything.

When you do get a new appraiser, provide them with the comps you feel are best and a list of improvements. Im not understanding how you have better comps although the appraiser went out 10 miles due to limited data though... like did they not show up in his comp search? if they didnt then be sure that the comps fit within the criteria of appraiser guidelines that they must follow. you can find out what their comp search criteria was by requesting a cma report.

Crystal Smith · Answer

Sorry to hear this. A comment, then a recommendation. Your appraiser won't use Gross Rent Multipliers (GRM) to determine the value because their general rule of thumb is to use the sales comparison approach. He won't break from that rule of thumb. Arguing with him about it is probably futile.

If your lender has reached out and provided other comparables within the area that support the value you need, then I'd have a conversation with the lender about using another appraiser. You seem to have a lender that really wants to get the deal done. I'd also consider having a 3rd party, a realtor, take a look at the lender's comparables and determine if they can provide a Broker's Price Opinion as source data to the new appraiser. It doesn't always work but some appraisers sometimes will combine their data with other data to support the result of an appraisal.

Another tactic, if you can afford to wait, is to see if there are enough pending sales in the area that support your numbers.  You'll have to wait for those properties to close to see what the eventual sale price is. It's a high-risk approach but sometimes necessary.

Good luck.

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Eric Palomino · Answer

#Shaun Weekes. Thank you for your reply. I had put together comp's, details of construction with costs, and before and after photos of construction.Thank you for validating these pieces of information. There is only 1 comp that had improvements. We have limited inventory in this area and all sold comp's need major improvements to the property. So the comps the appriser is using are current conditions.When we challenged the low appraisal based on facts of the comp properties, he did not want to make any adjustments ( i.e. comp's had wrong bedroom count, did not factor in being across from a cemetery, did not take into account master bed/bath, school districts etc. and did not account for any finishes, for example, SS appliances, hardwood floors). I am trying to understand how to account for these items, in a more creative way to the appraiser

How to negotiate with an appraiser

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