All Forum Posts by: Bill Hinshaw

@Russell Brazil The appraiser didn't specify a cost/sq ft. I'm doing that. I would assume all appraisals have some adjustment for size differences in the comps, right? 

The appraiser basically said comp A is 170 sq ft smaller, so I'm going to adjust the price by $7000 to reflect the additional sq ft of the subject house. That math works out to $41/sq ft. That is an extremely low value, and it was consistent across all 3 comps (the range was $38 - $41). Where does that come from? Is that common knowledge?

My wife provided comps for houses in the immediate area that had been renovated, that matched the quality of materials in our house, and were of similar age. He only used 1 of them. Still, the comps used aren't really the issue. They should have worked if he had valued the additional sq ft of our house at an appropriate value.  

@Russell Brazil We've been doing this for 5 years. This is our first lower end house and our first time selling to an FHA buyer. Is it common knowledge among agents that FHA appraisals only value additional sq ft at less than half of build cost? Have you seen this before?

If it is common knowledge, I would assume it would be a common practice for agents to make sure and provide comps that are mostly larger in size for FHA appraisals, so that the adjustment for size works in the seller's favor. Is this what happens?

Or did our appraiser just happen to use a ridiculously low number, and this isn't a common practice?

Thanks guys. Really appreciate all the feedback. A few more details to add…

We have had major execution problems on this house. Where we stand now is this: we either sell the property for a very small profit, get back to cash and move on to bigger/better projects, or we keep the house as a rental. The appraisal issues aren’t so much about us wanting a better offer and more profit, it’s just another nudge pushing us towards keeping the house.

Also, I’ve learned the buyer cannot close without help at closing. So while the delta from appraisal is only 2k under normal circumstances, it will actually work out to be more than that. I had agreed to do some repairs after the buyer’s inspection, and now I’ve got additional repairs required by the lender. We will have to re-negotiate repairs to make this work.

My wife is our agent, and she did prepare a comparable sales packet for the appraiser.

I’ve learned some interesting things from reviewing the appraisal. The major issue is that the 3 comps the appraiser used to determine the value are all smaller than ours. When he added an adjustment to account for the size differences, he only valued the additional square footage at $40/sq ft. Comparable homes are selling at $150/ sq ft. Build cost at a minimum is $95/sq ft. Even if the appraiser had just used build cost at $95/sq ft, our property would have appraised at > 250k. There is already a separate adjustment for age of the house, so I don’t think this is a depreciation issue. I don’t know how the $40/sq ft is justified.

My wife and I prepared a packet over the weekend to challenge the low adjustment for additional sq ft. We also provided another comp that would work more in our favor, and is justifiable (better reflection of age and size of our house compared to one of the other comps). We’re trying to give the appraiser some “options to consider,” as well as being very careful with how we word our critique of his work. We’ll see where it goes.

I listed a flip at 250k, and accepted an offer at 250k with 5k to buyer at closing with additional repairs that were requested post inspection. The appraisal came in at 243k and includes required repairs. I have not seen the report yet to know the extent of repairs, and I do not have the appraisal report. I should have both shortly. This is an FHA loan.

I guess I could amend the contract to 243k with no money to buyer at closing, and only do the required repairs for appraisal. Or just cancel the contract. Do I have any other options? Can I request a second appraisal at my expense? We have comps to support our price.

Congrats on a very successful flip! You made 10k on a 27k investment. IF you can scale that, it's a great business model. How long did it take from close to close? Can you do enough of these in a year to build a business?

@J Scott Nevermind - found it on pg 17

Final Budget

@J Scott - First thanks for posting this diary! I was trying to find a link to your final budget, which appears to have been removed in your "FINAL ANALYSIS" post. Do you mind providing that link? Thanks again!

We started with cash for learning purposes. We did a > 150k renovation on our first property. Took us forever and we learned a lot. Not having a monthly mortgage was beneficial. Ours was a flip, not a BRRRR.

You are right about the ability to scale faster with leverage, just make sure you are scaling profits and not losses! We are using leverage more and more now, but starting with cash was a good decision for us.

For BRRRR, is it easier to "refinance" the property if it was initially purchased and renovated with cash?

My decision would depend on days on market in the area as well as the layout of my home. If days on market is > 30 days or my layout is substantially different than other houses in the area, I would have to consider using a good realtor. If days on market is < 30 days and my home is of similar size, layout, and finish to the other homes, I'd sell without a realtor.

Also, do you really mean fsbo, or are you talking about a low cost broker? You can pay a low cost broker $500 in my area and get some of the benefits of a listing agent, including the primary benefit, which is being listed on the MLS. That is a must.

Also keep in mind, many agents are ready and willing to hold an open house at your home for the benefit of networking with potential buyers. Get your house on the MLS, and let a relatively new agent hold the open house - that should get you some decent exposure without having to list with an agent.

@Manuel DelaLlata My last 3 houses ranged between $35-$50. We do large scale renovations on older properties with ARV > 500k. These are pretty high end finishes, new electrical, layout modifications that will typically include moving plumbing fixtures, etc.

That said, as I think you already know, I'm not sure you can generalize rehab costs by sq ft. Way too many variables.