The appraiser came out to my rental the other weekend and spent a total of 3 minutes assessing the place before he said, “See ya! I got everything I need!”
Oh really? I thought to myself as I saw him run to his double parked BMW X5 in the tow-away bus zone. Why do real estate agents and appraisers always drive fancy cars anyway?
I got the appraisal report today, which came in lower than expected, but high enough to refinance. The cost? $635. $635 bucks for 3 minutes of work and maybe 30 minutes spent typing up the report in a template. That’s $1,200 an hour and $3 million for 50 weeks of work at 50 hours a week. That’s NUTS!
If anybody is out of work looking to make a little extra money, sign up to be a real estate appraiser. Besides the amount you make per hour, you’ll probably be tempted with bribes from mortgage officials, homeowners, and homesellers who are depending on your “expert” appraisal assessment to see whether a loan can be made, and a transaction can be closed.
There’s perhaps no easier way to make a lot of money doing so little.
ERRORS & OMISSIONS IN REAL ESTATE
In the report he wrote, “There has been no updates in the past 15 years.” Is he kidding me? If he just checked out one of the bedrooms, he would have noticed a brand new master bathroom! That’s a nice $15,000 expenditure missed.
Digging deeper into the appraisal report, he writes, “The income approach is not completed due to lack of rental data.” Utter crap since I specifically highlighted my Gross Rental Income, and Net Operating Income in an e-mail the day he came by for 3 minutes and he confirmed receipt. If he used a normal cap rate of 4% on the NOI, which is 2% higher than the 10-year treasury risk-free rate of 2%, he would get a true value 20% higher than what he came up with.
If the appraiser had spent a normal 30 minutes going through everything and asked questions, I wouldn’t have minded as much because his appraisal doesn’t impact my ability to refinance. I’m a busy guy too, but 3 minutes is just ludicrously short to do a thorough job. I know what the property is worth based on its income stream and purchase offers already.
In fact, the unit right next door to my rental which has the same features but no updated bathroom just came on the market for 25% more than the appraisal amount. Let’s see where it sells, but it will likely still be at least 20% more than this appraiser’s assessment.
This is a no cost refinance, but ultimately, all the costs are baked into the price, which means I’m paying for the $635 appraisal fee. Where is consumer protection when you need it?
THE DIFFERENCE MAKER
You know the times when you wait 30 minutes beyond your appointment to see the doctor and all he does is spend a couple minutes checking you out before prescribing medicine and moving on? Those are the doctors that get sued according to author Malcolm Gladwell. The doctors that don’t get sued are the ones who put in the time and effort to hear you out. They make you feel like you’ve got your money’s worth. They make you feel like they care.
Nothing much has changed in the real estate industry as everybody still wants to make as much money off you as possible. Buyers and sellers beware. If you are a consumer, pay nothing more than you have to. Give an inch and the real estate industry will take everything from you.
Explore real estate crowdsourcing opportunities: If you don’t have the downpayment to buy a property, don’t want to deal with the hassle of managing real estate, or don’t want to tie up your liquidity in physical real estate, take a look at Fundrise, one of the largest real estate crowdsourcing companies today.
Real estate is a key component of a diversified portfolio. Real estate crowdsourcing allows you to be more flexible in your real estate investments by investing beyond just where you live for the best returns possible. For example, cap rates are around 3% in San Francisco and New York City, but over 10% in the Midwest if you’re looking for strictly investing income returns. Sign up and take a look at all the residential and commercial investment opportunities around the country Fundrise has to offer. It’s free to look.
Shop around for a mortgage: Check the latest mortgage rates online through LendingTree. They’ve got one of the largest networks of lenders that compete for your business. Your goal should be to get as many written offers as possible and then use the offers as leverage to get the lowest interest rate possible. This is exactly what I did to lock in a 2.375% 5/1 ARM for my latest refinance. For those looking to purchase property, the same thing is in order. If you’ve found a good deal, can afford the payments, and plan to own the property for 10+ years, I’d get neutral inflation and take advantage of the low rates.
Updated for 2019 and beyond.