A rental property appraisal will tell you exactly how much the property is worth to the average buyer or investor in the current market.
In part one of this article, we talked about why rental property owners need an appraisal, how much an appraisal typically costs, and what the appraiser looks for when they’re on your property.
In part two, we'll talk about how to handle a tenant who won't cooperate with an appraisal (due to coronavirus or some other reason). We'll also drop some helpful hints for landlords who want to get the maximum appraisal value for their property.
Let's get started!
What should you do if the tenant won’t let an appraiser inspect the property?
If the tenant refuses to let an appraiser come in and look at the property, review the lease agreement with them. Typically the lease agreement has a section specifically on what to do about this, but usually you only need to give the tenant 24 hours notice before you send in an appraiser. In that case, all you have to do is send them a “notice of intent to enter” and you’re all good.
Given that there’s currently a pandemic, though, you might not want to force outside contact on an at-risk tenant. You don’t want to create an unsafe scenario for either the tenant or the appraiser, and forcing contact without a lease provision and reasonable notice is begging for legal trouble.
Tell your lender about the scenario, and they’ll work out possible solutions with you. As we’ve mentioned before, there are appraisal options for some loan types that are exterior-only.
And, finally, the section that could possibly help your bottom line the most: How do you get the highest possible appraisal for your property? Is there anything you can say or do that’s actually going to help the value? Or is it all out of your hands?
Here are our four best tips, in order from most-impactful to least-impactful on the value:
This is the biggest one. It’s not immediately clear to the naked eye where and when any improvements have taken place—particularly if the house is a bit of a mess, which we’ll talk about soon—but if the bathroom, kitchen, and roof have all been replaced in the past five years, you can expect that to seriously help your value.
On the other hand, if the appraiser doesn’t have any information on improvements, they might miss a couple, which could lower the quality and condition of your house, forcing the appraiser to pull up comparable sales that don’t reflect the renovations or remodels.
If you’re working with a “well-lived-in” property, make sure that there aren’t any glaring maintenance issues. Again, you can use your common sense here: if you think it would bother a typical buyer, it’s probably something that the appraiser is going to note in the 1004.
The appraiser doesn’t care about whether or not there’s clutter around the house, and they don’t care about interior design. They likely see hundreds, if not thousands, of houses per year, so nothing is really all that surprising. However, if you want the best possible appraisal, you want to create the best possible environment for the appraiser. For the best possible appraisal, pretend you’re staging an open house.
This one should be a no-brainer, but do your best to be kind and respectful to the appraiser. This person, after all, is in charge of determining the value of your property, and oftentimes it can make or break your deal. If the appraiser knows that you need an appraisal completed by Thursday in order for a loan to clear, but you showed up 45 minutes late to the inspection, they might prioritize some other reports before finishing yours. If, on the other hand, you’re professional, helpful, and kind, they’re going to do everything they can to help you out.
In conclusion, let’s summarize all of the topics we listed in the beginning:
You need a rental property appraisal because 1) interest rates are incredibly low and it’s going to help your bottom line, and 2) it’s required by most major lenders, as well as the federal government.
The typical appraisal is going to cost anywhere from $300-500, but a good rule of thumb is about $400.
The floor plan (including overall square footage), building materials and surfaces, and the quality and condition.
Review the lease agreement with your tenant. There’s typically a section about this exact situation. If they’re an at-risk member of the population during the pandemic, then review options with your lender.
Provide the appraiser with a list of improvements in as much detail as possible, fix up anything inside or outside the house that’s in dire need of fixing up, keep the property reasonably clean, and be kind and respectful during the appraisal.
Scott Royal Smith is an asset protection attorney and long-time real estate investor. He's on a mission to help fellow investors free their time, protect their assets, and create lasting wealth.
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