Property Appraisal Question - obscure situation

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grkmec
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Property Appraisal Question - obscure situation

Post by grkmec »

I own a multi-family investment property in the downtown area of an affluent town. About a month ago, I decided to do a refi cash out with Lender ABC, but the appraisal came back miserably low. To give you an idea, I paid "X" for this property 5 years ago and I have increased the rent roll by 15% during this time. The appraisal came back at 80% of X. I mean if you know anything about this particular market, such an appraisal is an insult to common sense. The appraiser used comps from outside the downtown area. Given the strength of the market, and in my own way to get back at this bone-headed appraiser, I listed the property for sale at 122% of X. Within 1 week I got an offer for 116% of X. The buyer's offer included a pre-approval from Lender ABC. Perhaps you see the question I have....

If I am able to come to terms with this buyer somewhere between 116-122% of X, and they proceed with the loan via Lender ABC, is there any chance Lender ABC will connect the dots and use my flawed appraisal on file, vs. ordering a new for the buyer?
Last edited by grkmec on Sat Apr 17, 2021 6:46 pm, edited 1 time in total.
lazynovice
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Re: Property Appraisal Question - obscure situation

Post by lazynovice »

They should order a new appraisal. They may order it from the same appraiser who will need to use more recent comps. If nothing new has sold in your area, you may end up with the same appraised value.
Lexx
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Re: Property Appraisal Question - obscure situation

Post by Lexx »

Appraisals should use 3 different approaches:
1) Price based on CAP rate based on the comparable properties in the area
2) Comparable properties
3) Replacement cost

I would take great issue with any lowball appraisal that used comps from the wrong area. I would speak directly with the loan officer and if they don't budge, I would refuse to do business with them. There are plenty of appraisers out there who are qualified. I would also ask for a refund of the money from the appraiser since he obviously botched his report by not following industry practices.
grkmec wrote: Sat Apr 17, 2021 6:33 pm I own a multi-family investment property in the downtown area of an affluent town. About a month ago, I decided to do a refi cash out with Lender ABC, but the appraisal came back miserably low. To give you an idea, I paid "X" for this property 5 years ago and I have increased the rent roll by 15% during this time. The appraisal came back at 80% of X. I mean if you know anything about this particular market, such an appraisal is an insult to common sense. The appraiser used comps from outside the downtown area. Given the strength of the market, and in my own way to get back at this bone-headed appraiser, I listed the property for sale at 122% of X. Within 1 week I got an offer for 116% of X. The buyer's offer included a pre-approval from Lender ABC. Perhaps you see the question I have....

If I am able to come to terms with this buyer somewhere between 116-122% of X, and they proceed with the loan via Lender ABC, is there any chance Lender ABC will connect the dots and use my flawed appraisal on file, vs. ordering a new for the buyer?
Topic Author
grkmec
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Re: Property Appraisal Question - obscure situation

Post by grkmec »

Lexx wrote: Sat Apr 17, 2021 7:03 pm Appraisals should use 3 different approaches:
1) Price based on CAP rate based on the comparable properties in the area
2) Comparable properties
3) Replacement cost

I would take great issue with any lowball appraisal that used comps from the wrong area. I would speak directly with the loan officer and if they don't budge, I would refuse to do business with them. There are plenty of appraisers out there who are qualified. I would also ask for a refund of the money from the appraiser since he obviously botched his report by not following industry practices.
Sadly this isn't the first time I have dealt with a bad appraisal. I have found appraisers to be more stubborn than retarded mules. I spent the last two weeks sending emails back and forth to the appraiser, and the loan officer's boss. Appraiser wont even acknowledge I exist. I could write you book and sell it on amazon. One time it worked in my favor. I was buying a NNN Sherwin Williams, and the appraiser comped the CAP rate to a generic tenant that was not a national credit tenant. It appraised way below what it was worth and used that to my advantage to negotiate a better price... but I knew the appraisal wasn't worth the paper it was written on.

The amazing this about appraisers, is there seems to be no consequences for when they truly screw up. I mean they just said my building was worth 0.8X and I will likely sell it for 1.18x... I mean being off by nearly 50%? I can't wait to spike the football in their face. But other that my own personal satisfaction, will the appraiser have to refund the money I paid for the appraisal? Will the bank hire this appraiser again? If I were to monumentally screw up in my day job like this I would be fired.
lazynovice
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Re: Property Appraisal Question - obscure situation

Post by lazynovice »

grkmec wrote: Sat Apr 17, 2021 9:07 pm
Lexx wrote: Sat Apr 17, 2021 7:03 pm Appraisals should use 3 different approaches:
1) Price based on CAP rate based on the comparable properties in the area
2) Comparable properties
3) Replacement cost

I would take great issue with any lowball appraisal that used comps from the wrong area. I would speak directly with the loan officer and if they don't budge, I would refuse to do business with them. There are plenty of appraisers out there who are qualified. I would also ask for a refund of the money from the appraiser since he obviously botched his report by not following industry practices.
Sadly this isn't the first time I have dealt with a bad appraisal. I have found appraisers to be more stubborn than retarded mules. I spent the last two weeks sending emails back and forth to the appraiser, and the loan officer's boss. Appraiser wont even acknowledge I exist. I could write you book and sell it on amazon. One time it worked in my favor. I was buying a NNN Sherwin Williams, and the appraiser comped the CAP rate to a generic tenant that was not a national credit tenant. It appraised way below what it was worth and used that to my advantage to negotiate a better price... but I knew the appraisal wasn't worth the paper it was written on.

The amazing this about appraisers, is there seems to be no consequences for when they truly screw up. I mean they just said my building was worth 0.8X and I will likely sell it for 1.18x... I mean being off by nearly 50%? I can't wait to spike the football in their face. But other that my own personal satisfaction, will the appraiser have to refund the money I paid for the appraisal? Will the bank hire this appraiser again? If I were to monumentally screw up in my day job like this I would be fired.
Is there an appraisal contingency in your contract? Can your buyer walk away if the appraisal comes in lower than the sales price?
Last edited by lazynovice on Sat Apr 17, 2021 9:30 pm, edited 1 time in total.
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ResearchMed
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Re: Property Appraisal Question - obscure situation

Post by ResearchMed »

grkmec wrote: Sat Apr 17, 2021 6:33 pm I own a multi-family investment property in the downtown area of an affluent town. About a month ago, I decided to do a refi cash out with Lender ABC, but the appraisal came back miserably low. To give you an idea, I paid "X" for this property 5 years ago and I have increased the rent roll by 15% during this time. The appraisal came back at 80% of X. I mean if you know anything about this particular market, such an appraisal is an insult to common sense. The appraiser used comps from outside the downtown area. Given the strength of the market, and in my own way to get back at this bone-headed appraiser, I listed the property for sale at 122% of X. Within 1 week I got an offer for 116% of X. The buyer's offer included a pre-approval from Lender ABC. Perhaps you see the question I have....

If I am able to come to terms with this buyer somewhere between 116-122% of X, and they proceed with the loan via Lender ABC, is there any chance Lender ABC will connect the dots and use my flawed appraisal on file, vs. ordering a new for the buyer?
I understand your basic question, but isn't a "pre-approval" based upon the resources/credit-worthiness of the buyer, and not about any particular purchase target?
That's how it is with residential property, anyway.
A pre-approval of a prospective buyer simply states that the lender is likely willing to lend up to that amount to that buyer, BEFORE considering the value of the property to be purchased.

Taken to an extreme, a buyer pre-approved for $1million isn't going to be lent $1million to purchase that little shack down the street that is listed for (and appraised for approximately) $50k...

RM
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Topic Author
grkmec
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Re: Property Appraisal Question - obscure situation

Post by grkmec »

lazynovice wrote: Sat Apr 17, 2021 9:13 pm
Is there an appraisal contingency in your contract? Can your buyer walk away if the appraisal comes in lower than the sales price?
There is no contract (yet). I just have an offer that contains a mortgage contingency at 75% LTV - which I am not thrilled about. So my counter is likely to include reducing their LTV to 65% to allow for an appraisal below deal value as their lender will lend up to 75% of appraised.
Last edited by grkmec on Sat Apr 17, 2021 10:35 pm, edited 1 time in total.
Topic Author
grkmec
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Re: Property Appraisal Question - obscure situation

Post by grkmec »

ResearchMed wrote: Sat Apr 17, 2021 9:15 pm
I understand your basic question, but isn't a "pre-approval" based upon the resources/credit-worthiness of the buyer, and not about any particular purchase target?
That's how it is with residential property, anyway.
A pre-approval of a prospective buyer simply states that the lender is likely willing to lend up to that amount to that buyer, BEFORE considering the value of the property to be purchased.

Taken to an extreme, a buyer pre-approved for $1million isn't going to be lent $1million to purchase that little shack down the street that is listed for (and appraised for approximately) $50k...

RM
Correct, the pre-approval is generic and only relates to borrower's own credit, assets and income. So the mortgage contingency is related to the appraisal and the banks willingness to lend to the particular property... hence the reason for me creating this thread.
Lexx
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Re: Property Appraisal Question - obscure situation

Post by Lexx »

That's awful. They don't give a heck and there's no consequence. That's a really lousy way to do business. And it's not worth the hassle to pursue it further legally. UGH!!! Maybe at least file a complaint with the appropriate regulatory agency for your own personal satisfaction if you care to take the time.
grkmec wrote: Sat Apr 17, 2021 9:07 pm Sadly this isn't the first time I have dealt with a bad appraisal. I have found appraisers to be more stubborn than retarded mules. I spent the last two weeks sending emails back and forth to the appraiser, and the loan officer's boss. Appraiser wont even acknowledge I exist. I could write you book and sell it on amazon. One time it worked in my favor. I was buying a NNN Sherwin Williams, and the appraiser comped the CAP rate to a generic tenant that was not a national credit tenant. It appraised way below what it was worth and used that to my advantage to negotiate a better price... but I knew the appraisal wasn't worth the paper it was written on.

The amazing this about appraisers, is there seems to be no consequences for when they truly screw up. I mean they just said my building was worth 0.8X and I will likely sell it for 1.18x... I mean being off by nearly 50%? I can't wait to spike the football in their face. But other that my own personal satisfaction, will the appraiser have to refund the money I paid for the appraisal? Will the bank hire this appraiser again? If I were to monumentally screw up in my day job like this I would be fired.
momvesting
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Re: Property Appraisal Question - obscure situation

Post by momvesting »

Call your local commercial firm, like Marcus & Millichap, or whoever is prominent in your market, and ask them for the contact info for a good appraiser. I worked in your industry about ten years ago and saw so many lenders who tried using comps and applying the sales price per unit or per rentable square foot. You need an appraiser who knows how to apply the cap rate of the recent comps to your NOI. That being said, are your recent changes more apparent using recent months annualized?? Often we could sell that way but lenders always look at the trailing 12 months, so using something like a trailing 6 annualized won’t work for a lender but can be powerful for a buyer.
Topic Author
grkmec
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Re: Property Appraisal Question - obscure situation

Post by grkmec »

momvesting wrote: Sat Apr 17, 2021 11:19 pm Call your local commercial firm, like Marcus & Millichap, or whoever is prominent in your market, and ask them for the contact info for a good appraiser. I worked in your industry about ten years ago and saw so many lenders who tried using comps and applying the sales price per unit or per rentable square foot. You need an appraiser who knows how to apply the cap rate of the recent comps to your NOI. That being said, are your recent changes more apparent using recent months annualized?? Often we could sell that way but lenders always look at the trailing 12 months, so using something like a trailing 6 annualized won’t work for a lender but can be powerful for a buyer.
Unfortunately, I can't choose the appraiser.

Separately, I just countered the offer I got at 120% of X. Let's see what happens
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grabiner
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Re: Property Appraisal Question - obscure situation

Post by grabiner »

The issue is that banks don't hire appraisers directly; this created conflicts of interest, and contributed to the 2008 real estate crisis. Instead, they contract with third-party appraisal referral services, and may get appraisers of varying quality.

I had a similar issue when I bought my home in 2013. The appraiser wrote, "the comparable properties are all in like areas". He didn't know the city, as this was easy for me to refute. One of the comps was two miles away, in a different part of the same city. I found other pairs of condo sales in that neighborhood and mine, with that neighborhood selling for 20% less. There were also clear quality issues in the appraisal: the appraiser got the number of floors in my apartment building wrong, and estimated the size of my condo complex as six times the actual size.

The lender refused to get a more competent appraisal, which was penny-wise and pound-foolish. I eventually closed the deal by putting more down, but the lender got two Realtors angry at them for all the problems.
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BestCoast123
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Re: Property Appraisal Question - obscure situation

Post by BestCoast123 »

grkmec wrote: Sat Apr 17, 2021 6:33 pm I own a multi-family investment property in the downtown area of an affluent town. About a month ago, I decided to do a refi cash out with Lender ABC, but the appraisal came back miserably low. To give you an idea, I paid "X" for this property 5 years ago and I have increased the rent roll by 15% during this time. The appraisal came back at 80% of X. I mean if you know anything about this particular market, such an appraisal is an insult to common sense. The appraiser used comps from outside the downtown area. Given the strength of the market, and in my own way to get back at this bone-headed appraiser, I listed the property for sale at 122% of X. Within 1 week I got an offer for 116% of X. The buyer's offer included a pre-approval from Lender ABC. Perhaps you see the question I have....

If I am able to come to terms with this buyer somewhere between 116-122% of X, and they proceed with the loan via Lender ABC, is there any chance Lender ABC will connect the dots and use my flawed appraisal on file, vs. ordering a new for the buyer?
I wouldn't worry about it. Buyer's new lender will engage a new appraisal. The Appraisal will magically come in at the agreed upon purchase price.

Was this widely marketed or an off-market sale? Does the buyer know what they're doing?
Topic Author
grkmec
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Re: Property Appraisal Question - obscure situation

Post by grkmec »

BestCoast123 wrote: Sun Apr 18, 2021 3:48 pm
Was this widely marketed or an off-market sale? Does the buyer know what they're doing?
Widely marketed - its on the MLS, Zillow, etc.
Topic Author
grkmec
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Re: Property Appraisal Question - obscure situation

Post by grkmec »

To close the loop on this:
Original purchase price = $1,600,000 (“X”) in July 2015
Appraised value by licensed appraiser = $1,275,000 in March 2021
Appraiser scuttled my refi cash out
Listed for sale at $1,950,00 in April 2021
Sold $1,865,000 in October 2021

Post Dodd Frank it’s nearly impossible to challenge an appraiser unless they commit gross negligence. And the banks are nearly powerless to throw away a 3rd party appraisal even when the owner can prove the Appraiser’s work is garbage. In my situation, all the data and analysis in the world could do nothing to change the flawed appraisal.
bsteiner
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Re: Property Appraisal Question - obscure situation

Post by bsteiner »

Banks may get low cost appraisals but might not always use the better appraisers.

Lawyers who do estate tax returns are more likely to know who the better appraisers are. We can ask around to get referrals for appraisers in different locations.

In this case, depending on the particular property and where it’s located, the value may have increased between March 2021 and October 2021. House prices increased, and as a result rents increased.
oldmotos
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Re: Property Appraisal Question - obscure situation

Post by oldmotos »

Appraisals can be tough at times. There was a farm that just sold in my area to settle an estate. It appraised at x and the guy who farmed it for many years could have bought it for 10% less as per the terms of the will. He and many others thought it was appraised too high because it was split up and hard to farm along with other problems. After he and several others that he could have assigned the right to buy at the discount declined, it sold at auction for nearly 2.5 times what he could have bought it for. This was an unusual case and most thought the buyer made the mistake and not the appraiser. Time will tell.
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