For those of you who don't know, I own a lending business (Fixated Funding) so I have a bit of perspective on the challenges many are having with appraisals this year, and I don't see those challenges changing much any time soon.

Appraisers and BPO agents work for the client they are being hired by, which 99% of the time is the bank. This means that many of these appraisers and BPO agents want to "protect" their clients, which could mean some of them being a bit conservative due to market changes. I have personally seen appraisals come back with explanations that "the sold comps do not reflect current market conditions, and the market is trending down, so we lowered the appraised value due to this." Now explanations like this really upset the investor attempting to get a loan (myself included), the appraiser used THEIR OPINION instead of the data of the actual sold comps and now has potentially destroyed the chances of a cash-out refinance or purchase. These challenges are especially being felt with commercial appraisals, where 'cap rates' are used to help value a property, in which case who is to say what a cap rate is right now in a market? Despite that this is happening all over, and despite that most BPO agents are failed real estate agents (I can be jaded on this subject), there are still things YOU can do to help mitigate a low appraisal.

• Meet the appraiser on site, any time you are able to. Especially for refinances. This is something I have done many times (or had my team do). When we do this, we make sure to bring before pictures printed in a packet, plus a list of all the amazing upgrades we have done to the property since we bought it. This helps justify a large increase in value from what we purchased the property for (mainly for value-added BRRRR’s).

• If you are going for a DSCR loan, rental comps matter a lot, sometimes more than your actual rents. Make sure rental comps meet your expectations before you are surprised by them later. Possibly help the appraiser by bringing rental comps with you, plus your lease on the property (if you have one), to help justify where you are at.

• Challenge appraisals when necessary (especially crappy BPOs), but know that timing is an issue with this...plus ego. Contesting an appraisal takes time, so if you are rushed to close this is going to be an issue. However if you can wait a week or two, you can possibly help get an appraisal changed. Work with your bank on this. Just know that an appraiser has to set their ego aside, and admit they missed something or was wrong, in order to amend their original appraisal...and some are not willing to do this. The most important thing to note, make sure you have great comps to back up your challenge.

• When BUYING a property with hard money, and the lender needs a BPO...MAKE SURE YOU HAVE A GOOD Scope of Work that makes sense. You see the BPO agent and/or appraiser, uses your SOW to help understand what you are doing to the property and determine ARV (after repair value). If you have a super vague SOW, then the BPO/appraiser won't understand what you are trying to do...which oftentimes leads to a low ARV appraisal and will affect your purchase financing. This is a very common issue I see often...that is also easy to fix.

Good luck! It is that sort of market right now...