Turnkey Tools
Those of you buying your own rental properties with Fannie/Freddie loans are aware and probably agree, the appraisal piece of residential real estate investing isn’t a foregone conclusion leading to a successful closing.
Your deal could be shot down but an appraiser can’t seem to understand how a $30k house with $20k of rehab can be worth $70k in a couple of months. Remember the vast majority (over 95%) of appraisers cater to almost exclusively the ‘owner-occupied’ property appraisals.
Very few appraisers are well versed or adept in our non-owner occupied properties, especially when we throw in a distressed sale, rehab/renovation work, etc. As a result, we find ourselves (all of us) on occasion on the other end of a short appraisal that will either kill our deal or significantly reduce our profit margins.
Now I just want to mention so no one takes this as reckless that appraisals do serve some purpose to determining value but more sophisticated investors find appraisals a little annoying.
A little backstory…
Pre-2008 crash appraisers did not really have much control. There was little regulation and they could easily be bought off at the job site with cash or other on-the-job favors. Don’t want to get your imagination going too much but it was a little crazy and one of the many factors that lead to evaluations going up and up to unsustainable levels.
The government got involved and fixed things a bit. They mandated that if you were going to get a government-sponsored Fannie or Freddie loan that you needed to go through an AMC (appraisal management company). This is the third party that the regulatory agencies of residential financing require we use for ordering an appraisal.
In other words, you get to hand pick appraisers that you know. When an appraisal order goes out, it now goes out as a random selection to this preferred panel of appraisers vs the master pool of appraisers within the entire AMC database. We’ve found this greatly reduces the possibility of a short value.
This is why I like investing in real estate or when I know the right people because it’s essentially like inside trading.