The appraisal process is an important step when looking to buy a new investment property. Unless you’re paying for the property with cash, in most cases, a lender will order an appraisal to ensure that the property is worth what you pay. An incorrect appraisal can result in a real estate investor paying too much for a property or not being able to get a mortgage at all.
If you are thinking of investing in real estate (like rental properties of fix-and-flip projects), it is essential to research and understand the appraisal process. So, what goes into a real estate property appraisal? Here is a look at the process, why it matters, and why you need an appraiser in your team for your next real estate investment.
Inside the Appraisal Process
After scouring through listings and finding the perfect property for your portfolio, you finally find the ideal property for your project! However, seasoned property investors recommend that you to ensure that you get a good deal on the property before you close. This is where an appraisal comes in.
While investors can order an independent appraisal, many appraisals begin when asking for a loan to finance a property. At this stage, you will need to provide the lender with information about the property, such as the address, square footage, and the number of bedrooms and bathrooms. Your lender will then order an appraisal from a licensed appraiser.
Next, the appraiser will visit the property to assess its value. After gathering the necessary information, they write up a report that includes their findings.
This report is then sent to your and your lender to compare to your requested loan amount and make adjustments if necessary. If the appraised value is less than the purchase price, you may need to renegotiate your contract with the seller.
Although it’s one of our best expert tips for real estate investing, it's important to remember that an appraisal is just one person's opinion of value, albeit a professional one. Ultimately, it is up to you to decide how much you are willing to pay for investment properties.
Why Appraisals Matter
While investors can skip the appraisal process if they’re not seeking financing, it’s not recommended by most real estate experts. It’s essential to be informed about the market and the appraisal process.
Real estate appraisals are important for investors because they can help you avoid overpaying for a property. The appraisal process considers many factors, such as the condition of the property, recent sales of comparable properties, and the current market conditions. By understanding what goes into an appraisal, you can be sure that you pay a fair price for your investment.
Who Can Conduct an Appraisal
Once you know where to start investing in real estate, to get the most accurate appraisal, you will need to hire a licensed appraiser. Appraisers must have a certain amount of experience and education before becoming licensed. When looking for an appraiser, ask about their qualifications and experience.
By working with a qualified appraiser, you can ensure that you get an accurate assessment of your investment. In the case of rental property, knowing exactly how much a rental unit is worth gives you a better grasp of the rental income it will produce—directly influencing your investment's cash flow.
How to Improve a Home's Valuation When Selling
Can you improve an appraiser’s report or valuation for a property? If you are planning on making improvements to a fix-and-flip property or other investment before selling it, there are a few things that you can do to increase its value.
Make necessary repairs. This includes anything from fixing a leaky faucet to repairing any damage to the roof or foundation.
Consider renovating any outdated areas of the property. This could include anything from updating the kitchen to adding a fresh coat of paint.
Choose features that appeal to buyers. Adding energy-efficient appliances or installing a security system are excellent updates!
Tidy the yard and landscaping if applicable. This is one of the first things that potential buyers will see, so you want to make sure it looks its best.
Clean the inside of the home from top to bottom. This includes dusting, vacuuming, and scrubbing all of the surfaces.
While an appraisal is an important part of the property buying process, it's not the only factor you should consider. Always review the report carefully to ensure the valuation hits the sweet spot—not too high and not too low.
Use Privy to Find the Best Places Where to Start Investing in Real Estate
When the next best real estate investment comes through Privy, it's great to have an appraiser readily available! Adding a reliable appraiser to your real estate investing team means you have an expert ready to review real estate investments to avoid missing a deal.
If you're ready to start investing in real estate but don't know where to start, Privy can help! Our online tool finds, analyzes, and tracks the activity of the best real estate investors in the country in real-time. Reach out soon to learn more!
Download our "Assemble Your Real Estate Investing Team: A Worksheet" to get tips on finding and vetting the real estate professionals you need.