Appraisal Hiccups | Real Estate | REIal Talk | EP. 31

Hey, everybody, Flip Robinson here, one of the co founders and co owners of the Free Real Estate Group family of companies. And I'm joined here with our director of investments.

So it is, yeah.

This Week with Mr. Mark Woodring, and we are here to talk to you. This is podcast number 31, trace UNO. Yeah, Tresuno, as I believe that's right. Ocho Sigma would say it. And so this is podcast number 31. And our podcast is Real Talk, which is real talk for the real estate investor. And today we are going to be talking about appraisal, appraisal hiccups in the real estate world. And like I had said in our vlog, if you didn't get a chance to see that. So this was the Hondros College of Business Ohio Real Estate appraisal book. This is the book that we had to read or at least understand when we got our real estate license here in the state of Ohio and about 15 years ago, the state of Texas, because of course, everything's bigger in Texas. The state of Texas had the real estate appraisal principles and procedures, and these were just for people that were studying to get their Realtor's license. And so the both states wanted you to know how to do appraisals because it is a very important part as a Realtor. Both of Mark and I are licensed here in Ohio as a Realtor is very important for us to understand this because normal realtor business and retail real estate, this is very important as an investor. A lot of times it doesn't really hit your door, you know, or hit your desktop, but now as investors, and we're selling to other investors while these investors are buying properties, using mortgages and using lenders, and the lenders are bringing the appraisals to our door. And so if you want to talk more about how this, how important the appraisal process is to us.

Oh, yeah, absolutely. And I also wanted to piggyback a little bit on what you were saying is it doesn't matter if you've been an agent for three years or 30 years, you know, you're going to have those hiccups. You're never going to price things 100% of the time.

It doesn't happen.

It does not. It doesn't matter if you're the number one agent in the United States, you're going to miss or have a conflict with an appraiser. And so those are the hiccups. But yeah, the appraisal is super important, just like you said, you know, that, you know, as these lenders start looking at, you know, using your property for leverage, they're going to want to take a look at these appraisals. And so our job as real estate agents, of course, is to guess the best that we can, because that's all it is, is an educated guess.

Yep.

You know, like you had mentioned earlier on the vlog series was that, you know, the appraiser is his best opinion of the price based on how long they've been appraising.

Yep.

Versus your opinion of the price as to how long you've been doing it. And so obviously, with more practice, the better you get at it.

And.

And I'd say we're pretty good at it. I'd say we're probably in the high 90% of nailing it.

Absolutely. And some of these that we have examples of, they're just, they're. They're head scratchers.

Absolutely. And thus, that's the hiccups, that's the frustration is because, you know, you can't even see where they're coming from. It's. It's almost.

Yeah, we like to say, you know, because it's a. It's the appraiser's opinion of value based on that time, that day, that week, that month of that year. And so. And in fact, it's even come to, because we've had some properties where we'll get under contract, and for whatever reason, it's taken us a while to even get into the property, rehab it, whatever, and then sell it. And it's like eight, nine months later. And so now we actually have a process where we actually go back and rerun comps to see the value of the property. Because lately, I mean, this is where the end of 20, 21 and the last year or two has been so crazy that even four or five months later, the price on the property has gone up, whether it's 5,000 or 10,000. We've seen some go up 40,000.

Absolutely.

And it's just, it's so. It's so crazy. And, you know, and it's. I think the appraisers got a bad rap. Now. We love all appraisers. There's just some that we don't love as much. But, you know, they got a bad rap. You know, the 2004, 2005 area, where they were basically just. Yep, it's worth this. You know, somebody puts a contract on a property for 500,000. Yep, it's worth 500,000, it says right there. And so which helped going to go into the. The wonderful Big recession.

Yeah, yeah.

Whatever you want, whatever you want to call it. 2008.

Right.

You know, and so it's. So because of that, appraisers have been very stringent and depending on which appraiser you talk to, because you put five appraisers in a room, you're going to have five different answers.

Absolutely.

And so it's in. You know, when we talked about having this as a subject for a podcast, I'm like, oh, that's got to be Mark and I, because, you know, way back in the day when dinosaurs roamed the earth and I was doing the acquisitions, I, you know, it was, I took it personal. You know, when I, when I ran compson of property and I said, this property is worth X, you know, if it came in $100 less than that, I took it personally. I was like, you got to be so mad. But then again, on the, on the flip side, Tiffany hated telling me if, if I said the Property was worth 97,9 and it came appraised at 98, you know, she, she hated telling me that it was, you know, that we missed out on a hundred dollars. We left money on the table.

Yeah.

So. But it's, you know, we've had those hiccups just as recent as. Gosh, yeah, this week. When was the last one for you? It was.

Well, let's see. So the, the most recent one that we had that I think that. Well, actually, right now we actually have one. But that one's a. Oh, yeah.

And that, that one's even more of a head scratcher because that's a commercial property and they appraised it as if it's like a normal.

Yeah, they appraised it like it was a residential. Yeah, they were doing a dollar per square foot versus an income based approach because, you know, again, you know, traditionally, you know, when you're looking at four or less, you know, so single family home, up to four units, and you're going to be doing that dollar per square foot on other homes of comparable size, shape, that kind of stuff. Whereas, like, for the commercial, I thought, oh, this is just going to be an income based approach, the dollars and cents and a completely head scratcher. So. Yeah, so that's the most recent one. But I know that we've had some, I think, you know, one on Dorothy.

Yeah, actually, that, that was interesting. We've got this one property and you know, they always try to say, you know, try to make it 20% above and below square footage of the property. You know, in Texas, they Actually teach you only 10 years above and below the actual year built. Yeah, that's kind of hard to do here in Ohio. But, you know, they, you know, and within a quarter mile, you know, I've, I was, I was taught, like, you know, in Texas they tell you to stay within the subdivision, you know, because that's the way they built. They build them in Texas, you build them by subdivisions. And, you know, here it's so hard to do that. You know, there's some newer areas where you can do that, but. But that's it. And so this property that Dorothy, it was. There was. We had it listed at 140,000 and there was three, if not more comps that were 145, if not more, same square footage. And these houses in this area, they're cookie cutter. They're all the same within a block.

Or two of each other.

Yeah. And so. And the appraisal came back more than 10,000 below the. The what price we had. And it was just. We're like, what. I mean, there's properties where, when, when we, when the appraiser goes out, we're like, this has no problem appraising. And it does. It always does. But it's the ones where I'm, you know, crossing the fingers, oh, I hope it appraises and then it comes in a hundred hours more.

Yeah.

Or whatever. So it's. That was the most recent one. We had one. And this was actually before Mark joined the team. And this was. We had a duplex. And you know, it was. It was in an area where there weren't very many duplexes, especially of this size. It was, it was small. It was a small. Not, Not a big one. It was a small one.

Yeah.

And we had. The price on the property was 99. 9. It was a duplex. And it had great. Had a great cap rate. And the investor was super happy about it. And so they got the mortgage, they got their lender out there, and the appraiser goes out there and the appraisal came back at $50,000. Wow. Half of our asking price. I mean, it's just. We were just blown away. And you know, you can. What. What is it called when you question. You don't question the appraiser, but what is it?

The reconsideration of value.

Yeah, a reconsideration. Reconsideration of value. And how many times out of 10, how many times do they actually change that number?

One out of 10.

I was gonna say it's not often because again, it's their Opinion. And like I said, I took it personally. Right. I have a feeling they're taking it personally when we're like, your number's wrong, man.

Right.

And so. So it doesn't usually happen. And so on this situation, we said, we don't accept the appraiser or with this appraisal. And we forced the lender to get a new appraisal. And the lender wouldn't, if I remember this correctly, because this was a few years ago, the lender wouldn't. And so the buyer actually got another lender and said that lender came in, got an appraiser. The appraiser went out there. Would you believe he appraised it at 99,900? I just. We just couldn't believe it. And so that one sold, you said that you had.

I had one in the Kettering subdivision, real close to the Dixie Highway. And so it's kind of on the Kettering, almost like West Carrollton, like divide. And this one was under contract. The appraisal came in maybe 10 or $12,000 short on $150,000 property. So it was like, wow, I really missed the mark by that much. And I was like, there's no way. And I. And the reconsideration of value and showed my price point, a dollar per square foot, and some of the enhancements to the house, everything, to plead our case. And now he shot it down, said that he grew up in that neighborhood and that he knew that inside and out and that the comps that I were using were not relevant. And so it fell out of contract, went back into contract a week later, and it appraised, I think, a couple thousand dollars higher than asking. So, yeah, it's a head scratcher every time. It truly is. And it's, you know, obviously can be frustrating.

Yep.

You know, frustrating to the realtor. You know, the appraisers, at the end of the day, you know, they're like judges. They don't like to be second guessed as well.

Yeah, exactly.

So, yeah, it's an odd spot, but.

Yeah, we had one. And again, this is also another one before you got here. And we comped out the property and we stayed that 20% above a little square footage. We stayed within a quarter a mile from this house, you know, and because all the houses in that area were all built right around that same time. And so we had the appraisal at 119. 9. That's what the. That's what the contract was for. And this was one of those that I'm like, oh, you know, this, we have no problem. This one's going to appraise. And the appraisal came in a lot lower. It came in at 88, 88,000. So we're almost just a little over $40,000 below now there's being off like a couple thousand or 10,000, but 40. And so the appraiser didn't recognize one of the bedrooms as being a bedroom, so we only called it a three bedroom. And so we had to show him that there was a closet in that room with a window, so it was actually a bedroom. So then he made it a four bedroom and he came back with his reconsideration of value at 89. And we just, we're dumbfounded. And so we again, we questioned him and even though our comps were within that quarter a mile of the subject property, the guy said, the appraisal said, the appraiser said that property is inside of a neighborhood and it's the biggest house in the neighborhood. And so unfortunately he has to appraise it to that neighborhood. He's the only appraiser that we've ever heard say that. Now in Texas, we used to do it by subdivisions and there was a good reason why. It's because some subdivisions were 400,000, some were 200,000. So you couldn't go, you know, even though it's less than a quarter mile. But all of these houses were built in the same time. They're all the same quality. This is 1950s built. So it's not like it's brand new built. And just nothing we could say that could convince this guy to do anything about it. It's so amazing how much, how much effect that these appraisers have on our business. And even though we're following everything that's in these books on how to get our, our opinion of value to compare our OP Union Valley to theirs is it just blows us away. And, and again we, we do a lot of properties. So we're naming off four or five properties here, but we've done hundreds of properties. So it's, it's a very small percentage of this that this actually happens. But boy, when it does. Woo.

Well, there are, I mean I know that there's times where, like during those hot seasons too because you know, the appraisals and as much as we don't want to admit it, sometimes our, you know, life cycle of the year because like so say for imagine, you know, you list a property for say $100,000 for argument's sake and it's in a neighborhood and they want to get into the school district and that's the list price. You know, I mean, and the appraiser, you know, he appraises it and says it's worth, you know, 100 or whatever. But there were multiple offers and that went for 110. Yeah. I mean, so all of a sudden now that house value went up, the neighborhood's going up, the things like that, even though the appraiser didn't like move the market up more cash, did you know, somebody that was willing to pay more? So then now the summer's over and you go into the fall or the winter and that house now is only worth $100,000. And so sometimes that realtor that pulled that 110 comp, you know, really wasn't the appraiser that did that. So I mean, I know it's a tough job for them and it's a tougher realtors. And so sometimes like you said, we have to rerun those comps because the life cycle of that or the, you know, the value of that has to be really relevant.

Yeah. In fact, one of the things that they say, you know, when you do those comps, you know, which is exactly what a pretty appraisers should do is, is only go back 180 days for sold properties only. And we get some appraisers that go back while we had one that went back three years, like that was whoosh. But you know that they go back six months or a full year. And, and one of the properties was a property that was pending. I've never seen that before. When I saw that, I was blown away because that's, that's like a. No, no, you don't, until it's sold, you don't ever do a pending property. You know, and we had one property, it was in a neighborhood where, you know, our company had done already three or four properties like right down the street and they are all the same size. They were all two story houses built in the early 1900s.

Yep.

And, and so we're like, well, I know this one's, you know, it's 97 9. That's what the other four were. So that's what we're going to do this one at. And that appraiser came in at what was it, 72.

Oh yeah, it was way low. 20 grand.

Yeah. And, and so we're, and so we did the reconsideration of value and we even gave him the comps and said here, look at these are our properties. You know, and we know these sold because they're ours. And. And they came back because this was back before we were actually putting all of our properties on the mls and we were just selling them, you know, and so they were public record, which some appraisers will use. Public record. This one decided that he did not want to do so. Yeah, MLS only. And so he refused to look at our properties that had sold in that neighborhood for that price. And so we had to skirt around that one just to get that one sold. But now we put everything on the mls, and so everything, you know, they can see everything that we do because we're. We're doing everything like everyone else. We were just bypassing the MLS because we didn't need to. They were selling our own properties. But now we found out, well, hey, this is actually going to help us by putting them on the MLS to support the value, not only for us, but we actually get phone calls from realtors and other appraisers going, hey, I saw that you sold this property over here. Can you tell me a little bit about it? Because I have. I'm appraising another property right now.

If I get those calls.

Yep.

Yeah, I even get them from appraisers.

Yep.

You know, that all that'll call and just say, hey, just. I wanted to know, like, what was the value of that house? Because here's what it is in the county, you know, so sometimes even the recording is inaccurate. So they want to. They want to see, like, what something sold on the MLS versus what were recorded at the county.

Yep.

Which reminded me of this story when you were talking about going outside the. The bubble of the quarter mile. We recently sold one for one of our investors on Amherst. And this one was unique because all the homes that are built up near University Row, it's a historic part of Dayton, were built in the early 1900s, then maybe late 1800s. But this. This property was built on a parcel of land. So the house itself was built like in the 1970s. And so all the homes around it you really couldn't use as a comp.

Right.

So he had to go like two or three miles out to find things of similar size, shape, bedroom, square footage, all the things that you do for the appraisal. But, yeah, that one was another challenging one. It short appraised.

Yeah. And it's just. What do you do? You know, that's why one of the things. And I always tell their sales guys now, because when I was doing it, I hated going out of town. I hated Going to rural, especially because I hate saying that word. I can't even say it because it's so hard to run comps out there. Oh, we did one. You know, it just. It was in the middle of nowhere, like Manchester. Yeah.

Remember that one, like, on the corner of Manchester?

Yep. Well, that was half ground. Half.

Yeah. Oh, my gosh. We had to. We had to go out like five miles to find anything of.

Of.

Of like. And so, yeah, there's been rural areas.

I hate it. I hate it. And. But I mean. And even our. My own personal residence, we just did a refinance and we did a test appraisal before doing it to make sure that we wanted to do this. And. And the test appraiser came at appraisal, came back, and we were very happy with it. And I was. I was super excited. And then. So then the lender came in and said, we need to do an appraisal. And I said, okay, well, we already have one if you want that one is. There's no. We've got to do one ourselves. And I'm like, okay, fingers crossed. And it came back in even higher. I'm just like, we like your appraiser, you know.

Right.

And it was. It was interesting that the. Because then I looked at the appraisal to see how they. It. And it just blew my mind because it didn't follow. The only thing I think that they followed that's in these books is that it was 20% above and below square footage. And that was. That was about it, because the locations of the. The three subject properties or the. The three comp. Comparable properties were just. They were all over the place. And I was like, well, hey, you know what? He's. He's the professional. I'll go with him on this one. But thankfully, so, like, every so often, it does go for our favor.

Oh, absolutely.

You know, and. And so. And when it does, we're very, very excited about that. But, you know, and like I said, this is a small percentage that we get these appraisal hiccups, but, boy, when they happen.

Right.

You know, we usually get somebody running down the hallway, we got a problem.

Yeah, exactly. Thank God it's not so often.

Yeah, exactly, exactly. Anything else you wanted to. I'm trying to think if there was any other ones that I wanted to. No, I pretty much covered them all. Yeah. And so it really makes us in. And it makes us think about when we're buying these properties, you know, how good are our comps? Because this goes down the road, you Know, we can't just tell somebody, hey, this Property is worth 120. Take our word on it. You know, there's a. There's a licensed appraiser going to be telling us that they either agree with us or they don't. And so it. And it. And it affects our bottom line, obviously, because that's, that's why we're here, to do business.

Yeah, absolutely.

So anything else you want to add on our appraisal, friends?

Now, all I can say is, yeah, it's a tough job. You know, I mean, I agree it's. It's tough on our end, it's tough on their end. Nobody's perfect. But we definitely try to stay within the, you know, what we all can agree on and see if we can come to a common ground.

Yeah, yeah. In fact, the one appraiser that actually came here to our office, they're appraising one of our properties tomorrow. I think they said their schedule was like, they, they do like something like 60 to 70 appraisers. Appraisals a month or something like that. Or was it more?

Yeah. I thought they were doing like, ye. Like 15 a week or 20 a week, like something.

Yeah, you do the math. That's three or four. And this isn't something where they just walk through the house.

Exactly.

A lot of times they'll measure the rooms and they'll, you know, they've got the little laser measure now they say, oh, so that makes it a lot easier. But it's. It's a very thorough process. And lots of pictures and so I don't know how. I don't know how they do that many in a week. That's just crazy.

Right? Thank God for software engineers. Right?

Right. Well, anything else?

No, I think we covered it. I think. I think that should get a good understanding of, you know, the challenges and the appraisals and why the hiccups.

Yeah. Not everything's sunshine and rainbows over here with, with our process that we do. We do have to go through some arduous situations with appraisers and. And we actually do have a list of appraisers that we don't love as much as the other appraisers because, I.

Mean, you know, when I talk to the investors. Because at the end of the day, we don't want you to pay more for the property.

Right.

You know what I mean? I want you to get financed for the whole thing.

Yep.

So at the end of the day, we are all on the same team trying to, you know, get the best outcome.

Yep, absolutely. Well, awesome. Well, we hope that you enjoyed this podcast called Appraisal Hiccups. That's probably the politest way we can.

We didn't swear to that.

We did not swear. All right, so again, we hope you enjoy this again. Make sure you check us out on YouTube and all of the other various little things like, I think like MySpace and Facebook, and make sure you catch all our other podcasts and vlogs as well. But we hope to see you out there soon again. We always end with Invest Smart, Live Happy. See you later.

Thanks so much.

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