Here’s the next podcast in the Smart Real Estate Investing series!
Marica and I talk about appraising property value for multi-family unit properties.
René Nelson, Eugene commercial real estate broker
Marcia Edwards, Eugene residential real estate broker
Smart Real Estate Investing – Part 5
Marcia Edwards: Hey, René, let’s talk a little bit about appraisals. I know in residential, with this competing market where sellers are running it, buyers are having to pay the difference in the appraised value to the sales price to keep the deal together. Now, tell me about what the elements of success and failure are in the appraisal process in the commercial investment.
René Nelson: When an appraiser is going to walk through on behalf of the lender, but they’re also the eyes for the buyer, now, the buyer is going to do their own due diligence, but the appraiser is going to walk through. And if they start to see deferred maintenance, so that may be… What’s obvious when you typically see deferred maintenance is torn carpet, dry rot in the bathroom, around the floors, a lot of caulking around the tubs where it’s black and icky, and just you can tell that there’s deferred maintenance in the units.
Marcia Edwards: And gutters and roofs, you can see a lot of water evidence, if that doesn’t seem dry rot.
René Nelson: Yeah, that’s a good point. The appraiser will typically stand at the curb of the property and just take a quick look at it, and they’re just absorbing all that information aesthetically, like what does it look like? And if they see dry rot in the fascia boards or like you’re saying, leaking gutters, then what they’re going to recommend… What they’re going to ask of the buyer is do you have any inspections yet? And the buyer will say, “Well, we’re doing our inspections.” And then the appraiser is going to want to see like if the roof is at the end of its life because the appraiser is going to adjust and take that roof off right off the top of the price.
Marcia Edwards: So that’s significant for sellers to hear because they need to know that they’re going to take the hit, either way, so to be forthright, you can keep the transaction together. I would also say that the appraiser is looking on the behalf of considering this collateral for a significant loan. And when it’s collateral, they want this collateral to last. So anything that’s long-term problems, especially structural, they’re going to grab it and go hard with that, I think.
René Nelson: Absolutely. Now, the appraiser is not there to be your inspector. They’re there to, just like you said, look at the collateral, look at the life of it, and see if anything is near the end of its life, or deferred maintenance. They will point out deferred maintenance because the bank or the lender is not able to walk through the property. They’re the eyes for the lender, so they’re going to point out there is deferred maintenance and they’re probably going to list it, and then they’re going to make an adjustment in the value.
Marcia Edwards: There’s the scoop on financing successfully for the seller side of the transaction as well.
René is available to answer your real estate investment questions. If you’re considering investing in a property or want to know how the pandemic may affect your investments, schedule a 15-minute discovery call today.
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