Getting a "Pre-Appraisal"

Pro-Tip: If you're selling, refinancing, or applying for a commercial construction loan, invest in an 'MAI' appraisal before the bank's appraisal.

"The MAI designation demonstrates that appraisers have invested considerable time in improving their valuation and analytic skills. While many professionals know how to appraise a property, only MAI-designated appraisers adhere to the higher standards set forth by the Appraisal Institute."

Hire an appraiser from a well-known firm (JLL, CBRE, Colliers, etc.)

Choose an appraiser you trust to be logical and receptive to the market data you provide.

Then, present the appraisal that you obtained to the bank's appraiser. (This is NOT something you present to the bank).

It's there to provide information to your appraiser and alert them that if their numbers deviate significantly, they will have to justify their numbers against another recent appraisal.

We used to provide just comps (comparable sales), but it doesn’t work as well as a full appraisal.

We tell the bank's appraiser that our investor wanted their own appraisal for internal purposes when we hand over the full appraisal when he makes contact for access to the property. We let him know, "Clearly, you don't have to use this, but this might be useful when doing your own appraisal; our capital partners just made us get this."

Often, bank appraisers doing the actual work lack the 'MAI' designation themselves (although they'll be part of a team and have an MAI appraiser sign off on their appraisal).

If their evaluation significantly deviates from our internal appraisal, they will need to justify why their estimate differs so much from a recent appraisal by someone with higher credentials.

Invest the extra money—it's worth it.

This strategy applies equally to single-family residential flips or custom homes you are selling. I would get a "pre-appraisal" appraisal if I was flipping/selling custom homes.

To be clear: this appraisal is NOT being sent to the bank. It's being provided for the appraiser doing the bank appraisal for the bank.

Psychologically, he'll know there's another appraiser with a different opinion, and if the value is too far off, he'll have to defend it. It's BETTER than providing just comps.

This comes from experience; we've had to switch banks a few times because the bank's appraiser was WAY off. This reduces the chance of that happening. We had one guy appraise 1-bedroom rent at $1,700 using comps next door from old rent-controlled buildings vs our brand new construction. We underwrote $1,900 and delivered and got $2,200. Clearly, the appraiser's forecast was way off.

In the end, please understand that an appraisal is just one person's opinion of value at that time. It's something that helps banks justify the money they lend.

It's one man's opinion of value, and he can be completely off. The best and the brightest go into real estate private equity, not appraising (no offense to appraisers reading this, it's a generality).

We've had an appraiser appraise our building for $11m for a loan extension, and two months later, with the same rents and the same cap rates, it sold for $13m.

We brought it up to him and he said "market changed".

"Sure"; it changed in 2 months; there is no possible way in his mind he could have been off by $2m in value.

The best way to argue with an appraiser is with another appraisal, and the best way not to argue is to provide all the work needed for them.