Low Appraisal for BRRRR Refi - Tips to Challenge

[Joe Livsey]

Hi All - I just finished a rehab in the Buffalo, NY Market and received an appraisal back this morning for $145,000. Bought it with cash and used a personal loan to rehab so there is no debt on the property today.

My estimates projected a 165-170k ARV based on comps in the area that have sold in the last 0-12 months.

Question I have for the forums is what’s the best way to “challenge” the appraisal. Has anyone had success in getting an appraisal improved?

Any thoughts would be appreciated!

[Chris Clothier]

Originally posted by @Joe Livsey:

Hi All - I just finished a rehab in the Buffalo, NY Market and received an appraisal back this morning for $145,000. Bought it with cash and used a personal loan to rehab so there is no debt on the property today.

My estimates projected a 165-170k ARV based on comps in the area that have sold in the last 0-12 months.

Question I have for the forums is what’s the best way to “challenge” the appraisal. Has anyone had success in getting an appraisal improved?

Any thoughts would be appreciated!

There are couple of ways to go about this, but you may be in a pickle on one of them.  You’ve already received a great suggestion on providing the renovation costs in your challenge.  It is not very often that an appraiser is going to find 3 to 6 properties that are exactly the same to serve as comparable sales so simply providing more comps usually does not work.  The appraisal is subjective and most often the appraiser is making adjustments due to different sized properties, different features like br and bath and even adjustments based on renovations.  This is the area that we see as the most advantageous for challenges.  Provide the appraiser with details of your renovation and invoices for those improvements.  Material changes like sq.footage is sometimes missed so that can really help.  They can also consider the life expectancy of a new roof vs. a worn roof on a comparable sale or updated plumbing, electrical and systems - especially on older properties.  I don’t want to discount showing additional comps especially if they are renovated like yours because it helps to focus an appraiser on viewing comps that are updated and not just close or recent or more similar in size.  The updates you provide matter.

The other option is to scrap your financing and start over so you get a new appraiser.  In no way am I speaking poorly of appraisers.  They have a job to do and just about every one I have met is professional, but occasionally I’ve run across some that are not.  I recently had an appraiser tell me that he gets so much desktop business that he hardly ever leaves to look at houses anymore even when he is hired to provide a more in-depth appraisal.  In this conversation, that does not mean much as it’s hearsay, but we see these examples on a monthly basis.  Not a month goes by in the year where we don’t have an appraisal come in drastically below sales price.  A challenge would never help.  Instead we start the process over and invariably another appraiser is hired and the differences in value are staggering.  We have had $40,000 swings on $150,000 properties where the only difference is the person doing the appraisal and roughly 30 days apart.  Sometimes properties appraise extremely low and another appraiser goes over contract.  We don’t always see full contract pricing on that second appraisal either.  I want to be clear, sometimes our opinion is simply higher than an appraisers even after hiring a second, but we’ve never had two different appraisers both bring properties in as such extremely low values. Theyre always being hired by the bank and we don’t mess with giving renovation files on the front end.  Just let then do their job, but we have seen extreme swings in valuations from two different appraisers.

Those are the two best options for you as I see them.  If you feel strongly that your property has the value and your numbers are correct, then I would fight for it.  The cost of a second appraisal is always worth in when you are talking about these types of dollar differences.  best of luck.