Today’s REI Classroom Lesson
As a former appraiser himself, Doug Van Soest shares what to add to an appraiser packet to help you get the best appraisal possible.
REI Classroom Summary
Doug goes over what to include in the appraiser packet, starting with a cover letter and before/after photos. By providing the appraiser with a list of improvements that were made, it can help justify the higher appraisal value.
Listen to this REI Classroom Lesson
Real Estate Investing Classroom Show Transcripts:
Mike: Welcome back to the flipnerd.com REI Classroom, where experts from across the real estate investing industry teach you a quick lessons to take your business to the next level. And now, let’s meet today’s expert host.
Doug: Hello again. My name is Doug Van Soest, and I am host of the REI Classroom today. I’m with Southern California Home Buyers. SoCal Home Buyers out here in Southern California. Today’s topic is the appraiser packet. And it’s how to ensure your appraiser gives you the highest and most accurate value possible.
Mike: This show was sponsored by passiverental.com.
Doug: So, you’ve got a rehab. You’ve got it finished. You’ve got it fixed. You put it on the market and now you have a buyer. You’ve accepted the offer and you’re in escrow. So, everything is good so far. This all looks good. A buyer has given you the price that you want but now it’s all in the hands of that appraiser. I used to be an appraiser so they kind of hold the cards in this situation and you know that and the buyer knows that.
So if the appraiser says your house is not worth what the sales price is it’s going to be difficult to get that to change. So we don’t want that to happen. So what we do in our business and what I recommend people doing is giving the appraiser an appraiser packet. Now, that could be a physical packet, that could be an email with all these information. Doesn’t matter but the important thing is getting this information into the hands of your appraiser.
So what is that and what’s included in that? So here’s what we’d like to do. We like to meet the appraiser at the property if at all possible to let them in. You’re not there to strong arm them or anything, you’re just there to be friendly and the goal of all of this is to help the appraiser. Not to do their job for them, not to disrespect them, not to, try to threaten them in any way or influence them unnecessarily. It’s to be helpful. You’re here to help give the information to the appraiser that they need to make an accurate value.
So here’s what you want to include in that. First of all is a cover letter. This is a cover letter on your letterhead type out very professional. You want to be super friendly. Be very respectful. Don’t demean or act like you know more than the appraiser in your wording or anything like that. You want to just say, “Hey, Mr. Appraiser, we know you have difficult jobs, sometimes you don’t have all the information. Finding buyers on these rehabbed properties can be difficult sometimes. Let me tell you about what we did to the property to kind of help you.” And I’ll also explain about maybe the situations.
Because sometimes like when we buy a house it shows a really low purchase price but maybe that property wasn’t on the MLS if you bought it direct from the owner. There’s no real circumstances surrounding that purchase price. The appraiser can concede that on public records that it’s sold for say $100,000 and now you’re trying to sell it for $200,000 but they don’t really know anything else. So I always explain, hey this purchase was a . . . we bought this property was a distressed sale, it was in disrepair and there was squatters living in the house. Something to show why the purchase price so low and that you can justify the improvements and the things that you did to it to make that property value worth 200,000. So a cover letter.
Next you want to put some before and after pictures of the property. Granted hopefully this is a rehab and before pictures show really nasty stuff or things that are really bad with the property and now you’ve got your finished MLS photos that are beautiful showing this is what it was when we bought it, now sort of looks like. Doesn’t have to be hundreds of these. Just about say 8 or 10 pictures that’s it. Nothing major. Probably like two pages in your packet, if you’re having a physical packet. Before after same room, before and after the front, before and after the back, whatever, kitchen.
The next thing is your repair sheet. You want to kind of breakdown for the appraiser what you did to this house to justify the increase in value. The reason for this is, this will help them a lot because they need to justify this increase in price to the lender and to their client who ordered the appraisal. They need some justification for why this home is now worth 200 when it was purchased three months ago for 100,000.
So you don’t have to get in real detail but get detailed enough where you’re saying we did new flooring, we did new paint, we did new electrical, we did new heating air conditioning, new roof, new windows, the landscaping, all new landscaping, hardscape. Whatever it was break it down in those categories and then give an estimated cost at the end of what you spent. You could explain like, hey, listen we professionals we get a discount on our rehab because this is what we do and we have our own in-house team or whatever. But a client might likely pay 30% more than this to get it rehabbed. Something like that to say, look, we spent 40 but really someone would pay 75 if they’re doing on their own. To show the work you did and justify that increase in value. So repair sheet.
And then the last thing would be comparables. Obviously the appraiser their job is to get comparables. But you should show your own comparables as well, the right comparables. Just if you need to know what that is, see my previous video on finding the right comparables. Put in good comps to justify the number that you’re selling the home for. Don’t skip over comps that are good also. You might include those as well but highlight things that are different and show why your property is better, like say your property has a pool and this comp doesn’t. You can highlight that or your property is rehab fully. This one is just average condition. You can highlight that to show the differences. So show some comps.
And then lastly if you’re in a situation where you have a lot of offers on the property, which is often the case when you have a fully rehabbed house on the market, show the offers that you got. We’d like to do that. Look, we’ve got eight offers on this property. Here’s the offers. Just show one page of each of them showing the offer price. This helps to solidify that this is the value, eight people say this is the value or right around it, you know what I mean. If you don’t have that then don’t but if you have it, it’s extra strength to kind of help justify your number to that appraiser.
So I hope that helps for the appraiser packet. You can check out our website @spousesflippinghouses.com. That’s my wife and I website where we run the podcast on real estate investing as well and I will see you next time on the REI Classroom.
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