Wednesday, December 23, 2009
Know your appraised values!
This next tip is one of the most critical in real estate success- be sure you get a good and accurate appraisal!Now, the best investors take classes on appraising, so that they do not have to accept blindly whatever an appraiser says, but there are multiple variables that are assessed and weighed. Like we have encouraged in other tips, don't trust any numbers tossed at you without your own verification of the facts. Educate yourself on some appraisal basics, and apply them diligently to the property in question.There are some basic things you should be sure to know. First of all, don't expect that the appraisal will remain the same or rise over time. It well may not. Appraisals can change dramatically based on the economy, new development near a property, and fluctuations in consumer needs and wants. Whenever an appraisal is bumped up against comparable property, be sure those comps are recent. Also be sure that the appraised property is similar to live in conditions, compared to the comps. Find out how many days a property has been on the market, and what is the average period property in that area is on the market? Be sure to analyze what adjustments were made on the appraisal, both gross and net. It is preferable if very few adjustments, either negative or positive are made. An adjustment is made when comparing features with comp homes, for example number of bathrooms. The property with one less bathroom will have a negative adjustment. Also, be sure the property being appraised is bracketed- that is compared with a house both larger and smaller. It should be bracketed by properties within 3 miles and ideally, in the same neighborhood. You do not want the worst house in the neighborhood, even at a steal. While developers love to keep appraisal values high, if you find your target home is appraised the same as homes you would rather live in, you are likely looking at an inflated appraisal, and you will not be likely to reclaim the full value, and of course, risk foreclosure if you are investing on a slim reserve margin. Go over every detail on the appraisal with a fine toothed comb. Notice things such as other foreclosures in the area. This is a red flag. Be sure you find out why those properties are being foreclosed. If there are foreclosures in the area and the appraiser did not list them, ask him why. If he can explain satisfactorily, it may not be an issue. The important lesson in all this is to be vigilant, educate yourself, ask questions, and analyze carefully why a property is assessed as it is. Be an active consumer of information, and you decrease your margin of error.