Appraisals

[Hutchym]

Hello! Could some one please help me out with understanding the steps to having a home appraised. The reason I would like to know this is that I was thinking of purchasing a undervalued townhome using a LOC for the downpayment. This purchase price is 71,000. I was going to see about an offer of around $64000 as most sellers in the area are ex investors that probably want out because of bad experiences or that want to retire. I would Finance this home at an open variable mortgage temporarily.

The plan was then to update the townhome extensively therefore adding up to 30,000 in value. At that point I would want to take out a loan of up to 80% value. I woulld hope to at this point have the value at 90-100000. Then I could pay off as much of the downpayment and renovation credit lines. With the extra renovations in the home I could also receive another $100-125 a month in rent therefore paying for any remaining line of credit payments.

Anyway, this idea is all great and everything. However, if I could not get the appraisal value up then this plan would not work as amazingly as the numbers make it look now! So any help on home appraisals and how one would go about them would be much appreciated.

Mike Hutchinson

 

[Thomas Beyer]

QUOTE (Hutchym @ Dec 10 2010, 07:56 AM) .. So any help on home appraisals and how one would go about them would be much appreciated.
yes, that "buy ugly, cheap .. then upgrade and re-fi" is a good plan. It assumes that you have done your due diligence and you KNOW that with your planned upgrades any reasonable appraiser would appraise the house around 100K. That may not be the case, due to location and comparables in the area ! Thus, be sure that there are other similarly sized and upgraded houses in the area that compare well to the 100K mark. Otherwise, yes, you might be out of luck.

It may help to get an appraisal done BEFORE you buy the house .. one "as is" .. and one "as if complete" by the same appraiser i.e. you tell the appraiser your planned improvements (new kitchen, new windows, new paint, new bathrooms, new flooring, etc. .. i.e. a very detailed list) .. then you have 2 appraisals before the work is done. Then you get him in a 2nd time a few months later when the work has actually been done.

Also, be mindful to not over-upgrade as some areas of town attract a certain tenant (or later, buyer) profile and they may not show up if your house is "too pretty" for the area. Your strategy works well only in average or above average areas of town .. but not in below average areas, both from a rental and a resale point-of-view !

 

[invst4profit]

You need to be very mindful of the fact that the monthly rental income will directly reflect in the assessed/resale value of a income property.
If a increase in value of $30,000 is only going to increase your rents by $100-$125 future investors may be reluctant to invest at your assumed value.
Your value must be reflected in the income.

 

[Thomas Beyer]

QUOTE (invst4profit @ Dec 10 2010, 01:25 PM) .. Your value must be reflected in the income.
not if you sell to a home owner eventually !

 

[Hutchym]

Thank you for the help!! Much appreciated. Another question though is how then would I go about getting the home appraised in Ontario? I understand the Idea of getting the same appraiser to do the pre-renovation and post reno. However, do private appraisers have the respect of banks? Basically I`m confused at whether the Bank will take my own appraisers word for the properties worth?

Thanks.

 

[Thomas Beyer]

QUOTE (Hutchym @ Dec 13 2010, 07:23 AM) Thank you for the help!! Much appreciated. Another question though is how then would I go about getting the home appraised in Ontario? I understand the Idea of getting the same appraiser to do the pre-renovation and post reno. However, do private appraisers have the respect of banks? Basically I`m confused at whether the Bank will take my own appraisers word for the properties worth?

Thanks.
you need an appraiser on the bank`s approved list !

 

[dplummer]

There seems to be some flexibility at the Appraisers discrection. If the bank tells them our client is looking to borrow X amount of dollars I`m told the the Appraiser will try to accomadate. This does not sound like an exact science to me.

Doug

 

[Thomas Beyer]

QUOTE (dplummer @ Dec 13 2010, 10:41 AM) .. This does not sound like an exact science to me.
indeed .. because appraisals aren`t ..

 

[bizaro86]

QUOTE (dplummer @ Dec 13 2010, 10:41 AM) This does not sound like an exact science to me.

Real estate appraisal is a craft, it is certainly not a science.

Regards,

Michael

 

[dplummer]

A craft...um that`s a interesting way to describe it. I just assuumed that there would be a little more to it then that. I know it takes a number of years for an apprasier to become licensed & thought there was a "science" behind their calculations. I was obviously wrong. :>)

Doug

 

[bizaro86]

QUOTE (dplummer @ Dec 13 2010, 12:43 PM) A craft...um that`s a interesting way to describe it. I just assuumed that there would be a little more to it then that. I know it takes a number of years for an apprasier to become licensed & thought there was a "science" behind their calculations. I was obviously wrong. :>)

Doug

There are numbers involved, and they aren`t making things up. But for something to be a science, it should be repeatable by another scientist giving the same result given the same conditions.

Two real estate appraisers will NOT typically arrive at the same number, but they should be in the same range. That`s why I liken it to a craft.

Take the production of high end violins by hand. Each one is a little different, and has a unique sound, but they are all very similar to one another.

Regards,

Michael