It's one of the most crucial aspects of securing a loan for an investment property
The following article was written by Nate Zielinski (pictured), senior partnerships coordinator at RCN Capital.
One of the most crucial aspects of securing a loan for an investment property is the appraisal of the property itself. An appraisal is the process of developing an opinion of value for a property, typically performed by a professional that works for an appraisal management company (AMC).
Lenders will typically require an appraisal from investors in order to move the loan into processing and eventually close the deal. Once there is a precedent for what the property is truly worth, a lender can make a more informed decision about the leverage they can offer a borrower. More importantly, a borrower has a clearer picture of what the property is actually worth and if they are making a sound investment.
Investors are always looking for more information regarding the appraisal process and look to get as much information as possible about them before submitting deals to lenders. Appraisals can be tricky, case-by-case scenarios, so getting exact answers isn’t always easy for real estate investors. Kevin Pettaway, chief development officer at Appraisal Nation, lent his expertise on this topic to give investors some of the answers they may be looking for.
Appraisal timeline
When it comes to closing loans as quickly and efficiently as possible, the appraisal is a crucial part of that process. If an investor can secure an appraisal before they enter into the loan process, they are setting themselves up for a quick closing. Typically, lenders have a window of anywhere from a couple weeks to a couple months where they can accept an appraisal that an investor provides for them. It’s worth noting that all lenders are different, and investors should be asking whether the lender will accept external appraisals. This step is important to include on an investor’s checklist when vetting lenders and their processes pertaining to appraisals.
However, if this is not the case, Kevin Pettaway offers insight into when it should be ordered, “The best time to order the appraisal is as soon as the lender received signed disclosures back from the client. Since the collateral is one of them main comments in making the deal work, they want to make sure the value of the property is there.”
Time is of the essence when closing these loans, so being proactive and ensuring the appraisal is ordered as soon as possible is a key part of the process.
How to choose an appraisal management company
There are countless appraisal management companies to choose from for an investor. It is their job, along with their realtor or broker, to do some research in a few key areas to determine the right AMC for the property.
“The key factors in assigning an appraiser are proximity to the property, looking at how well an appraiser has performed in the past, look at their revision rate, do they deliver appraisals on time, responsiveness, and quality,” said Kevin Pettaway.
The revision rate of an appraiser is the most telling statistic for an investor. If the appraisal comes back fast, but there are errors and changes that inevitably need to be made, then this can deter progress and even negatively affect the closing date of the loan.
Time and money
As with most things in the real estate investment space, questions about how much time something will take and how much money it will cost are always at the top of the list and appraisals are no different.
From a time perspective, 5-7 business days should be the expectation for real estate investors. A standard dollar amount for an appraisal is $500-$600. There are certainly a few areas that have an impact on the timeline and cost.
The top three that may inflate the cost would be the location of the property and whether or not it is rural, the complexity of the property in terms of design or unique additions and lastly the size of the property is key. A duplex and a 20-unit apartment building are vastly different properties so investors should factor in a few extra days and be patient with the appraisal process.
Consistency is key
The best thing an investor can do is maintain a consistent line of communication with the appraiser and AMC they work with. Sending them numerous appraisal orders helps establish a strong relationship with the AMC, leading to better quality and service. An investor sending appraisals to an AMC can keep an appraiser busy, sharp, and tapped into the local area to quickly become an expert. An appraiser can perform efficient, accurate appraisals and help a real estate investor grow their business at a substantial pace. An investor will offer patience to the AMC, and in turn they will receive excellent service due to the working relationship they have built.
One last piece of advice that Kevin Pettaway of Appraisal Nation offered is that it may be in the best interest of the investor to have a loan officer, realtor or broker be the main point of contact on behalf of the investor.
“Appraisers don’t typically interact with the borrower because they can have a skewed opinion on what the property is worth. Appraisers provide valuations on facts and research not on emotion or bias,” said Pettaway.
If brokers or loan officers are involved in the process rather than investors, then emotion is taken out of the equation and the deal can move forward more easily.
Final thoughts
Having a plan in place when it comes to appraisals for investment properties is a must for any investor. There are timelines to consider, research to perform, money to spend and save, and relationships to build. All these factors heavily into taking the headaches out of the appraisal process and making it as smooth as possible when trying to close out a loan for an investment property.
If there’s any information you are still searching for or questions you need answered, don’t hesitate to reach out to RCN Capital or Appraisal Nation for guidance!
