It seems like everyone is flipping houses here, in Philadelphia. Why not? Certain markets continue to be red hot, housing stock is plentiful (if you know what to look for and where to look) and relatively speaking, Philadelphia is still somewhat affordable when compared to other Metro areas like New York, Boston and DC.
But flipping houses is not for the faint of heart or the inexperienced. It takes some chutzpah and serious knowledge to be efficient and profitable when flipping. The foundation of determining the profitability of a flip project is determining an accurate “As Is” value for the property. From there the As Repaired Value (ARV) can be developed. The ARV includes both its purchase price and the value of its renovations. It’s used to by investors and lenders to estimate the future sale price of the property once renovated. It’s important for flip investors to know the ARV of a property because it helps measure whether or not there is enough margin for the flip become profitable.
If the person doing the flip is obtaining funding from a bank, hard money lender or private lender, this is often where an objective Certified Real Estate Appraiser is called in to determine the ARV. Most folks figure that from this point, it’s up to the appraiser and there is little that can be done. Well, that’s not exactly true. There are certain things that you can do proactively to help assure that you get an Accurate ARV Appraisal. Let’s take a look…
- Make sure the appraiser knows the market. If the appraiser is coming from Berks County to appraise a property in Philly, it should raise a red flag. Ask the appraiser if they work in this market often? Do they have the tools necessary to appraise in this market, like access to the MLS, public records, zoning records, etc? If not, insist on using an appraiser that does.
- Make sure the appraiser has experience completing ARV assignments. ARV Appraisals are not like regular appraisals. There are nuances to an ARV assignment that set it apart from standard lending appraisals. Be sure the Appraiser has the experience and necessary skill sets to do this type of work. Not all Appraisers are created equal.
- Make sure Appraiser takes plenty of photos. These help the end-user/investor (whom are often located in other parts of the country with no real understanding of Philly markets) fully understand your project. Don’t leave it up to the Appraiser to explain. Again, some Appraisers just don’t have the proper skills to adequately describe what’s going on at your project. This is where photos come in handy. Remember a picture is worth 1,000 words.
- Make sure the Appraiser understands the level of communication you expect and that they can expect from you. This is a two-way street.
- Bring Comparable Sales with you when you meet the Appraiser. Some Appraisers may not accept them, most will, even if they don’t use them. Just be honest with yourself and the Appraiser when providing Comps. Make sure they are recent, within 6 to 12 months. Use settled sales rather than listings. Settled sales are facts, listings are “hope to get” prices and may distort your ARV numbers. Make sure they are similar in terms of design/style (avoid bringing Detached homes as Comps if your subject is a Row). Choose Comps with a similar location, preferably from within the neighborhood (if your project is in Philly, you shouldn’t have to go more than a few blocks). Make sure the subject and Comps are similar in age (if your home is a 95-year-old row, maybe that new construction townhouse around the corner isn’t the best comp). Lastly, take into consideration the quality of the improvements and be honest. Are you comparing a project that may have been finished with builder-grade materials to a Comp with all high-end custom finishes? If so, it will skew your ARV numbers and potentially impact your investment.
- The Scope of Work (SOW), Plans & Specifications and Construction Budget are the nuts-and-bolts of your project. They should be as detailed as possible and leave nothing up to guess or assumption. For example, if you’re SOW states only that you’re “installing a new kitchen” that leaves a lot of room for guessing/assumption on the part of the Appraiser. In the Appraiser’s mind a “new kitchen” might be a “Home Depot special” when, in reality, your project calls for a custom kitchen with granite counters, tile floors/backsplashes and high-end appliances. Can you see how the lack of detail could impact your ARV? Be super specific.
Using these points will help you assure that you are getting an accurate ARV Appraisal. If you have any questions or comments, feel free to contact our office. We’ve been appraising and completing ARV Appraisals for over 18 years and look forward to assisting you with your future projects.
The Coyle Group’s team of Philadelphia Real Estate Appraisers are a leading provider of appraisals for ARV (for Investors, Hard Money Lenders & Private Lenders), Estate/Probate, Divorce, Bankruptcy, Tax Appeal and Pre-Listing. We also provide “footprint” sketches for determining a more accurate square footage of a property. If you need a guest speaker at your next sales meeting, please give us a call. We would welcome to opportunity to speak to your group and field any appraisal related questions you may have. For more information please visit our website at www.TheCoyleGroupLLC.com You can also contact The Coyle Group at 215-836-5500 or appraisals@coyleappraisals.com
Mark Wade
Dan Caparo
Matt Donnelly
Frank DeFazio
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