The Appraiser Is Looking Backwards. Your Buyer Isn't.

We Almost Sold It. Then We Got It Appraised.

We have a fourplex in Savannah I was about to put on the market.

I was stressed about that property. I did not think the market there would support it. Ran the numbers on a sale and it came out to roughly break even. Not a loss. Just nothing, after all that work. Original plan was to keep it but the project rehab did not go as we planned, so we were looking for options to recoup funds...

Before we listed it, we decided to get it appraised and see if a refi would actually work or not. Mostly hoping we could find some way to keep it instead.

It appraised for considerably more than I believed it would ever sell for...!

We immediately took the loan and kept it. $65,000 cash out on a property I thought was a break even exit at best.

If we had listed it first, we would have listed way below what it appraised for and if it had not sold...we would be out of pocket a significant chunk of change.

Did we get lucky. YES! Because we have had the exact opposite happen in this market as well with BAD appraisals coming in much lower too...so what to do going forward?

Why That Happened

An appraiser is looking backwards. They pull the last six months of closed comps, because that is the job and that is what the guidelines tell them to do.

A buyer is looking at today. Today is what they will actually pay you.

In a market that is drifting down, those are not always the same number.

If you are sitting on a property right now and you are not sure what to do with it, go get it appraised. This week. If you are in an uncertain market then do it before the houses around you sell and drag your number down with them.

"But Tarl, that sounds like refinancing against a number the house will not support...."

Yeah. It can be. Here is where the line is, because this is the part that gets some people hurt.

I would not build a business on this. If you are out buying properties that only work because a lagging appraisal makes them work, you are buying properties that cannot actually exit and also a poor investment. That is not a strategy. That is a slow problem with a nice spreadsheet sitting on top of it.

This is a tactic for something you already own. The house is already yours, the money is already in it, and the only real question is which number you get to use and for how much longer.

Full disclosure, it cuts the other way too. The same lag that saved me on that fourplex has made appraisals brutally hard on other deals. I have had appraisers pull comps out of a worse neighborhood two blocks over and there is not much you can do about it in the moment. This is not rocket science. The data underneath it either supports you or it does not.

Do Not Drop Your Price Until You Have That Number

This is the one that costs people the most, and I paid for it myself.

Your list price becomes your appraisal. And even if it appraises for more, 99% of lenders will still only take your last list price if it was within the last 90-180 days (depending on the lender).

I walked you through this on the Bentonville house a few weeks ago that I wrote about. Listed at 475, chased it to 465, then 450, and every one of those drops sits on the record permanently.

When you finally give up on the sale and go to refinance it as a rental instead, the appraisal comes in near the last thing the MLS said it was worth (or lender takes the last MLS price if it was yours and recent). So in my case, the property appraised at $450k, and its safe to say it probably would have appraised at $475k before I ever listed it.

Get the appraisal first. Then decide about price. It can save you a lot of heart ache later if it comes down to it.

And if the number comes back lower than you think it should, you are allowed to push. Send your own comps. Most lenders will let you order a second one at your own expense, but at least you get to make the argument instead of just taking it.

Why This Week and Not Next Month

Normally I would not put a clock on something like this.

The 30 year mortgage came in at 6.71% last Thursday, up from 6.66% the week before and 6.50% a year ago. The 10 year Treasury is sitting at 4.79% and touched 4.818%, the highest it has been since November of 2023. The Fed has not cut once all year, and at the July meeting three voting members dissented in favor of a hike.

Warsh is not signaling relief either. The Fed cut its reserve management purchases to zero in mid August, which tells you the direction he wants this going regardless of what the short rate does.

CPI lands Thursday the 10th. The Fed meets the 15th and 16th.

I have no idea what any of that does next. I never do. But there is a real chance rates stay up here, a real chance they go higher, and I do not see much of a case for them coming to save anybody this quarter. Every month that stays true is another month of comps closing lower around whatever you are holding.

The appraisal you can get today is the best one you are going to get for a while (probably). That is the whole point.

What I Would Actually Do This Week

One More Thing, and Tell Me If This Is Dumb

At Limitless I stood on stage and pulled apart four of my own deals in front of a room. The ones that lost money, and the one where nobody did anything wrong and I still only made $3,600. People came up afterwards wanting to talk about their own challenges.

So here is the thought. Once a month I take a handful deals people send me and break it down live the way I would actually look at it if it was my own. Not a critique of you. The options I see, what I would probably do, where I think the risk is hiding. Anonymous if you want it that way, or join me live.

I am not set up for this yet. No form, no schedule, nothing built. I want to know if it would be useful before I go build it.

If you would send a deal to that, reply and say so. If its something you would watch me do live, let me know. That is all I need for now.

Good luck, it's that sort of market right now.

- Tarl Yarber

(Once again, I personally write these...)

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