What’s it Really Worth, Getting Accurate Appraisals

Now once we know how much it will cost to get the home repaired then we must find out what it will be worth after the repairs are made if any are needed. We will be getting what’s called an appraisal based on the “after repaired value” or sometimes called “subject to” the improvements. Now I know there are free online services to give you comps and those are great for your preliminary due diligence but before we buy this property we want to know the true value based on an appraisal I am going to show you in a later chapter how to find just the right appraiser you can work with. You want to find one that is familiar with investment property. You also want to use one that is fairly conservative. You don’t need an appraiser fluffing up the value of your property so you can buy it only to get stuck in the property when your buyer’s lender orders their own appraisal and it comes in much lower than yours when you purchased the property. Then you are stuck with a house you over paid for. I am including a copy of an appraisal form on the following page for you to look at so you can become familiar with what they look like and how to read one.

Brokers Price Opinion

On the next page you will find a copy of a Brokers Price Opinion (BPO). This is the form that the realtors use when contacted by the banks to give them an estimate of the value of the property. By having this you will know what the brokers look for and therefore you will be able to negotiate better deals when you find discrepancies in the information presented to the bank by the realtor.

How to Read an Appraisal Quick and Easy

I want to also share with you a quick and easy method when looking at an appraisal to determine whether or not your lender or underwriter will have a problem with the appraisal. I learned this from an appraisal class. Here is what you do. When you get an appraisal on a property you are trying to buy, I want you to look at all of the pictures in it. Look at the subject property and all of the comps or comparable sales. Then pick out the house you would LEAST want to live in and if there is a noticeable difference and it is YOUR house then the underwriter will definitely have a problem with the appraisal. After all, the definition of a comp is a comparable sale with the least amount of adjustments. Not many people know this and now you will have a jump on your competition. This is also great to use when someone is trying to sell you a property and they already have an appraisal done. Now you can take a quick look at it and determine if it is probably a good appraisal or not. Now remember this is just a quick method and is by no means a definite way to tell if you have a good appraisal. There are many things the underwriters look for such as the gross and net adjustments. Because of this, I have also included in this section a form we use in our mortgage company to check out each appraisal when it comes in. I have placed it on the next page for you. Feel free to make copies and use it on every appraisal when you get it to help you determine if you have a good appraisal or not.

Quality Control Checklist

1. Does the property address match the loan amount?
2. Has the appraiser been approved by the lender?
3. Is the appraisal based on “as is” or “subject to”(circle one).
4. Is the appraisal less than 60 days old? If no, date of

Appraisal____________________________
5. Are there front, back and street scene photos of the subject property?
6. Is the appraisal done on correct form (i.e. forms 1004,2055) was a 216 and 1007 done on subject?
7. Are the property rights appraised “fee simple”?
8. Are property values declining or is marketing time over 6 month?

SUBJECT

9. Are negative comments used in any of the comment sections?
10. Are there any land use changes that are likely to affect marketability?
11. If condo, does the developer/builder control the hoa?
12. Is acreage more than 5 acres, is property rural or is access road private? (circle all that apply)
13. Is the site value greater than 40% of the appraised value?
14. Is the value more than 25% greater or less than predominant value?
15. Is there substantial difference between actual age and effective age of subject?
16. Is there any deferred maintenance?
17. Is this a manufactured home?
18. Is the property in a FEMA flood hazard area?
19. Is zoning classification residential and compliance legal?
20. Is the land –to-value typical for the area?

Comp Analysis

21. Are any of the comp sales over 6 months old?
22. Are the comps within 1 mile of subject property?
23. Are the comps similar to subject in location, design, size, room count and amenities?
24. Does the appraised value fall between the highest and lowest comps sales price?
25. Has the subject sold within the last year?
26. Are the conditions of the comps different to subject property?
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27. Are total net adjustments 15% or more? Are total gross adjustments

25% or more? Comp #1_____%g ____%n /comp #2____%g ____%n /comp#3 ____%g ___%n
28. Are any single line adjustments 10% or more?
29. Does the sq footage of comps vary more than +/- 20%?

COMP#1___________ COMP#2____________COMP#3____________
RECONCILIATION AND ADDENDA
30. Does the appraised value support the sales price?
31. Is the appraisal signed and dated?
32. Is the appraiser‟s certification or license number entered?
33. Is there a street map that identifies the location of subject to comps?
34. Is there a building sketch?
35. Are there exterior photos of sale comps and rent comps?

This appraisal quality control checklist will help you to see what every lender will also be looking at so you will know when you have a good appraisal or not. Don’t worry if you do not understand all of these terms in the checklist. As you become more familiar with the whole process it will come together for you.