What’s tricky about an appraisal is that you and the homebuyer negotiate the selling price of your finished fix & flip property without knowing what the appraised value will be (although your experience may give you a good estimate). But whatever the agreed selling price, most homebuyers are dependent on the appraisal to secure a mortgage that will make the deal work. 

Is there anything you can do to help influence a favorable appraisal?

My advice is to require the appraiser to contact you first, before you allow them access to the property. This is your chance to speak with them and provide them with favorable comps. Most appraisers find this helpful and time-saving, although not every appraiser will appreciate the gesture. This is your best (and probably only) chance of helping the property appraise at your sales price.

Appraisers do not make any effort to help sellers – or buyers, for that matter. Appraisers do not know the negotiated selling price. Although appraisers are paid by the homebuyer, it is the mortgage lender that uses the appraised value to assure them that the property is worth as much or more than the mortgage loan in case the homebuyer defaults.

But in the end, the value the appraiser assigns is the appraiser’s opinion, based on all the information available to them about the property, the comparables and the local neighborhood.

If you negotiated a $120,000 sale price with your homebuyer, and the homebuyer wants to put down 10% or $12,000 with a mortgage loan for the rest, you and the homebuyer need an appraised value of at least as much as the agreed sale price to make the deal work. In this example the lender has a typical requirement of at least a 90% loan-to-value ratio, meaning they will not offer a mortgage for more than the needed $108,000 if the appraised value equals the $120,000 selling price.

But what if the appraised value comes in at only $110,000? The lender will still only lend 90%, or $99,000 – so now the buyer will have to provide a total down payment of $21,000 to close at your negotiated price of $120,000! If they don’t have it – or are unwilling to buy for more than the appraised value – you could lose the deal! Or negotiate a lower sales price – or put it back on the market and hope for better next time.

Closing the sale almost always means you need an appraised value at or above your selling price. An appraisal that comes in higher than your selling price is ideal, giving both the bank and the homebuyer a great feeling of buying into equity. Do what you can to help the appraiser by providing comparables, and understand the importance of this process to the sale of your rehab investment property.

How have you helped secure an appraisal at or above your selling price?

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