It was 2 separate brokers who know and work with each other. The one who did the cashout on the 2nd is about the only guy in town who has access to non-traditional funding sources to be used in traditional-type deals. A week after we bought our house they dropped their LTV to 85% total so it’s a hit and miss scenario, depending on what money is available at the time.
This was not our initial game plan because we never intended to get a loan in the first place. I’ve said before and still believe the “creative” aspect of creative real estate doesn’t really start until you’ve signed a place up and your exit blows up. We were into the property for a good chunk of money (when we didn’t even own it yet) and found a way to get it out. There had been a murder in the house so moving it was a little tougher than we anticipated. I realize the second paragraph doesn’t address your question, but I figured a little background wouldn’t hurt.
Can someone tell me what makes these guys tick? I just bought a duplex from distressed sellers. They were asking $58K, no bites so they dropped to 55K. I knew that they were dying to sell so I offered 44K + 4K back at closing. Eventually they took it.
Anyway the house was formally appraised at 58K. The people I purchased it from did a number of improvements. My new appraisal came in at 45K!!! I don’t get it. What if I were to put it back on the market and find someone willing to pay 55K; would they them appraise the house for that? Why do banks even bother with these guys?
This has happened on all 4 apt. houses I have purchased.
Thanks for all of the input. I see that several of you are right, I didn’t take an active roll in the appraisal process. Up until this last house I purchased, it was OK. I was buying and holding. However I was thinking of flipping w/owner financing on thia last one, and a nice appraisal would have helped.
For the folks who suggested I learn the market values; I know my market very well. I look at the buying and selling nearly everyday.
Thanks again for everyone’s input. On the next one I’m definately going to get involved with the appraiser.
Steve,
As everyone has already mentioned, you’re going to have to get in the middle. We had a house we bought about 6 months ago where our purchase price was 121k and the appraisal came in at 128k. We were doing a 90% NOO first for the purchase and the plan was to slap a 10% second on it 2 days after close to take us to 90% total LTV based on FMV appraisal. Needless to say, the 128k was not going to work.
I threw a fit in the mortgage broker’s office (with the appraiser there). This guy went off about his 15 years of experience, blah, blah, blah! I told him he was clueless and that no comparable house had sold for anything less than 148k in that neighborhood in the last 2 years. My mortgage broker was siding with his appraiser (surprise, surprise).
Once I got a copy of the comps he had used, I asked him how he was still in business, which, of course, he didn’t appreciate. The next day I provided both the broker and the appraiser with 7 recent comps along with a letter from a realtor who has worked that neighborhood for 20 years. The lowest of those was 148k and we had a new appraisal that day for 148k and lame apologies from the broker and appraiser. Dear Clown, how do you miss by 20k on a 150k house in a hot neighborhood? We were able to pull all our funds plus a little extra back out of the property 2 days later.
It’s just my opinion, but I think we have to educate ourselves in every aspect of this business in order to protect ourselves. In any profession we will find those that are great, good and bad. If we’re not informed and involved, then we operate at the mercy of the competency level of those with which we deal.
While this may or may not be the case, it is definitely something to consider.
Appraisers know how much you are paying for the property. They usually have a copy of the purch. agmt. I have found that in many, many cases the appraisal always seems to come in a thousand or two above the purchase price. This of course, is assuming that the purchase price is within reason. I’m not sure why appraisers do it this way, but I have noticed it dozens & dozens of times.
Assuming that the purchase price is within reason, you can pay 100K for a house & that appraisal may come in at 101 or 102K. Or you could pay 104K for the same identical property at the same identical time & the appraisal will come back at 105 or 106K.
Now VA appraisals would be an exception to this. Those are generally very, very tough - at least they are here. I have a couple horror stories I could tell you about them, but that’s a subject for a different day.
I’ve done well over a hundred transacations, & have noticed this as a recurring theme.
The only reason I can think of, is that an appraiser would prefer to know that they are totally in line, rather than take a chance that they might be a lil high.
Yes, many times different appraisers come up with different opinions of value. Why don’t you take a proactive approach and get involved in the appraisal process. You could meet the appraiser at the property, show him comps that you like (high ones!), show him what work was done to the property and tell him what the new rents will be now that it is in such fine condition. Appraisers can be influenced, especially if you are nice and helpful, not forceful. They are just people like everyone else. I am not talking about bribing or begging, just make the appraiser like you. Honest appraisers want to please their clients as long as they are not being asked to do anything illegal.
By the way, I used to be an appraiser before I joined the ranks of the investors, so I know from where I speak! Appraisals can’t be perfect because the market is not perfect. If you want the high end of the possible range of values for your property, work with the appraiser, don’t just wait and then get mad.
You need to get a better handle on values, and develop a more strategic plan. Was it the seller’s appraisal that you relied on when you offered $44K+4? Did you do anything else to confirm, in your own mind, that it really was worth $58K?
Especially considering that this has happened to you four times, I think you need to consider what part you’ve played in creating the problem, instead of simply blaming appraisers in general. As my dad used to say…Fool me once, shame on you. Fool me twice, shame on ME.
Steve,
When was the appraisal done that came in for 58K? less than a year? within 6 mos? Can you get a copy of the old appraisal? If you can, the comparables might still be good and can be used in the new appraisal.
What type of improvements were done?
Like Tom had said it is an opinion and not always a good one. You might be able to use the old appraisal to your advantage if you can get your hands on it.
Good Luck,
Tammy
Steve,
You have to remember that an appraisal is just someone’s opinion of how much the property is worth. Granted, because of experience and training, which varies widely, an appraiser’s opinion SHOULD be closer to reality than the man on the street. But again the appraisal is only one person’s opinion.
That doesn’t mean much when the bank listens to the appraiser, but it may put it in perspective. I think everyone who has been in real estate for any length of time has had an experience with a bad/unrealistic appraisal.
Great info. TRandle.
May I ask, the 2nd for 10% would be a cash out 2nd, otherwise what is the purpose for it? And if it was a C/O how do you find a lender to do a C/O 2nd if you’ve only owned it 2 days?
Thaks in advance, dew
Very good post Tim. You’re exactly right…and a good example. There’s no substitute for knowing EVERY aspect of your business, and acting on that knowledge.