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House Appraisal and Reno question

23994

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Hi,

I recently got a house appraisal from my bank to apply home line of credit, what comes back is the appraisal is quite low than the current market price, what should I do?

Options are:

1. accept it now and do I have opportunity to ask the re-appraisal after a few years? does the appraisal increase along the market value increases yearly?

2. argue with bank or find another appraisal by myself? will bank agree with it?

what are your experiences with your appraisal?

My 2nd question is about Renovation -- should I use hard wood floor for living room or laminate? this is for Rental property, also should I change the 2nd floor carpet with either hard wood floor /laminate?

Thanks,

Sue
 

alaas1977

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Hi Sue

This is a tough one, I had the same issue last year, the appraisal was poorly done and the appraiser was in a rush, suffice to say it came in $90,000 less than market. The bank agreed to send another appraiser one week later and low and behold it came in at market, however the bank changed its mind and wouldn't use the new appraisal as they said that the lower price reflected the market the week prior, in essence I made $90,000 in one week, lol. Banks will only use their own appraisers. In the end I went to another bank, the appraisal was at market and I refinanced with that bank instead.

Regarding flooring for a rental, I would put laminate or vinyl planks for the durability and looks as tenants are hard on properties and Hardwood would not in my opinion be a great ROI for rentals due to the costs. However if high end rentals are your market, that may be a different story.

Lisa
 

Matt Crowley

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^ Great answer above on appraisals. I have nothing to add. A conversation with your banker/broker is a great place to start.

Flooring: I agree that hardwood generally has a poor ROI and I would stay away from laminate flooring. After installing it in a few of my places, I would not use it again because often renters damage pieces in the middle of the floor and it is really hard to make a repair. I think a much better option is LVT (luxury vinyl tile). These can be manufactured to look like hardwood or ceramic. It is much more resistant to water damage because it is basically just a rubber membrane. (Other information: http://www.flooring-professionals.com/what-exactly-is-luxury-vinyl-tile/) What I like about this product is that it is more resilient against wear and tear and simulates ceramic tile or hardwood quite well. Pieces in the middle of the floor can be removed if damaged.

The current trend in Edmonton for purpose-built rentals is no carpet. It smells healthier and is easier to keep clean. If it is the main floor above a basement suite, I would suggest installing carpet anyway. It is drastically warmer than vinyl and dampens sound more than any other implement I know of.
 

Thomas Beyer

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re LOC: go to another bank if you feel the appraisal is really low but bank orders appraisal and often appraiser is more loyal to repeat business than to you, the home owner.

re hardwood: unless high end rental I'd use vinyl in kitchen and bathroom area & stairs, and carpet in LR/DR and BR area
 
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Sherilynn

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When refinancing, including applying for LOC's, banks are notoriously conservative in their appraisals. The appraisers are expected to determine a value for which the property could be sold in a very short time - 2 months, for instance. It is rare for a refinance appraisal to reflect full market value.
 

23994

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Thanks all for your tips and comments, really helpful...
 
E

elliejensen1001

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hmm. This information my help in my home appraisal or renovation.
 

LifeLens

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Hello Sue,

the Appraisal is set in stone due to them working for the bank and not for you being %80 of what they will give based on the home and its comps but yet you can try other banks to insure this Amount so that you are comfortable with no mistakes made but you will find your answer being the same. If you are going to do further renos i would suggest you proceed into doing that with nice laminate floors for now installed the right way tho! since it can last a good length of time knowing this with my experience in Renovations of course and it can always be changed. This will save you on costs until the money is working for you in your investment and to finally get the hardwood floors you are looking for and then i would say call your bank and then do the appraisal again as this would up the value of your home.

Hope Everything Works Out For You!

Best of Luck :)

Joe,
 

Matt Crowley

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^ Hardwood floors are going to make very little difference on the home appraisal. Maybe a thousand or two dollars. You will not get the retail value back out of the investment, especially once you consider the $500 re-appraisal. To get your cash our of the hardwood investment, the math looks like this:

Cash out > [(Retail cost of hardwood installation)+500)] / 0.8

Above strategy does not work.

A final note when it comes to take out financing and leverage is that you have enough cash flow to absorb potential vacancies or repairs. Often, a simple reserve fund study will reveal that you should not max out the LTV.

Another intuitive way of thinking about LTV is to find the debt number and not worry about the LTV:
- You know what the revenue will look like after you renovate (if not, conduct more research!)
- You know the operating expenses and repairs
- Revenue - expenses = NOI
- subtract out your initial mortgage loan
= how much cash flow is left? $700? And how much monthly cash flow do you need to be comfortable and sleep at night? $400?

Calculate the debt required:
That means you can take on up to $300 of new debt. Use one of REIN's mortgage calculators for this smaller loan after renovation. Add the new debt amount to the initial mortgage amount. There is your total debt after the take out loan.

Now imagine different appraisal valuations (low, medium, high) after the renovation. What is the LTV? If your low valuation puts the LTV at less than 80%, (and you are confident in your expenses), you can be very confident about achieving the take out financing you are looking for.

Ultimately, we have cash-driven operations so I ensure that my cash needs are met and don't over leverage on debt. Rarely do I seek maximum LTV. The LTV is really a secondary concern. I look at the debt I can afford based on the revenue I can achieve and expenses I know are required to continue operations.
 
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