Appraisals coming in much higher than comps for flips

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Appraisals coming in much higher than comps for flips

Aaron Jenin
Philadelphia, PA · Member since 2015 · 3 posts · 1 vote

I'm in the Philadelphia area where the flip market is pretty crazy right now.  I've noticed a lot of newly remodeled homes are selling for way over what the market comps are justifying.  How is this happening?

For example, a property sold for $45,000.00 in November 2016.  It now sold for $189,000.00.  The closest comps in .25 miles are $95,000.00. How are these flips appraising for such a high amount over the current comps? And how are the banks lending so far over the market value of a particular neighborhood?  I always thought an appraiser went off current comps to help get to a price.  I get that high end upgrades and all the best trimmings adds significant value for the retail market, but not that high over market.  What am I missing?

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Russell BrazilBusiness Member
Moderator
Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
9y

It is likely 1 of 2 reasons.  Appraisal is either waived, or all cash.  The other, is comps that are further away from the subject property than you are looking.

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  • Russell BrazilBusiness Member
    Moderator
    Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
    9y

    It is likely 1 of 2 reasons.  Appraisal is either waived, or all cash.  The other, is comps that are further away from the subject property than you are looking.

    [email protected]301-893-4635Podcast Guest on Show #192
    District Invest Group546 Reviews
    WebsiteView Page
    1Reply
  • Matthew Gauld
    Philadelphia, PA · Member since 2017 · 1 post · 0 votes
    9y

    Or there's a bubble....  that being said Philadelphia is where New York, Boston and D.C. money is flowing... so is the culture, restaurants, industries, etc. 

    In my humble opinion, anything near the downtown area has been neglected and presents a lot of opportunity because similar places in the other cities are already out priced. 

    People want to be in proximity to downtown so some price hike is legit  but don't be fooled, there is a mania a foot.

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  • Brian Pulaski
    Flipper/Rehabber · Montgomery, NY · Member since 2016 · 2k+ posts · 1k+ votes
    9y

    Do you have access to all the potential comps? Have you taken the $95k comps and done the adjustments for rooms, size, acreage etc? They could be cash buyers, could be bringing more money to the table (had that happen to my last house which didn't appraise), or it could be there have been some comps you missed that support eh value. No way to know without the report, if one exists.

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  • Aaron Jenin
    OP
    Philadelphia, PA · Member since 2015 · 3 posts · 1 vote
    9y

    Thanks guys! I read that some appraisers do go about .25 miles from the subject property to produce a comp value, but in the particular neighborhoods I'm talking about there are 3 month or less comps on the same block. (same bed, baths, sq footage, etc.) And they're coming in almost 100K over that comp. The newly remodeled houses I'm talking about are done beautifully, way over what the neighborhood norm is, and they're in low income neighborhoods. I understand gentrification, and this may be going on, but from the standpoint of the mortgage loan, I'm just wondering how the bank pulls the trigger on these overly valued row homes with no justifiable comps. Do they really just go by what the appraiser's value is?

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  • Brian Pulaski
    Flipper/Rehabber · Montgomery, NY · Member since 2016 · 2k+ posts · 1k+ votes
    9y

    Sounds like cash buyers or buyers bringing enough to the table that the appraisal doesn't matter. That or there is some way the appraiser is able to justify the much higher price. No real way to know, and I would never bank on an appraisal coming in $100K over the local comps.

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  • Aaron Jenin
    OP
    Philadelphia, PA · Member since 2015 · 3 posts · 1 vote
    9y

    Thanks Brian. These are financed deals, but maybe they are bringing more cash to closing as well. I feel the same way about the inflated appraisals. I'm just wondering why the banks aren't feeling that way. Unless they just go by what the appraiser says. They're really forcing these values up rapidly and there's little to no justification on some of these blocks. It's quite surprising some of them. 

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  • Joseph ODonovanPro Member
    Property Manager · Ridley, PA · Member since 2017 · 427 posts · 449 votes
    9y

    @Aaron Jenin May I ask what exactly what area of the City you are referring to?

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  • Account Closed
    Investor · Philadelphia, PA · Member since 2017 · 97 posts · 30 votes
    9y

    Depends on a lot of factors, was it a new construction? The New will be at a higher price point vs an older built home. What is the neighborhood? Is the area experiencing a lot of changing factors and also how does the supply/demand factor play into it? (Offers vs inventory) 

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