Appraisal cost of 3-4k on a 450k purchase price. Too much? How to shop around?
Hey folks, Im under contract for a 450k 5 plex and the appraisal cost quotes I’m getting are very high (I think) at 3-4k.  The loan is through a local credit union and they have asked for bids for the appraisal.  Does this cost seem like too much to y’all?  Can I shop around for bids myself or does the credit union have to help pick the appraiser?  Also the property had an appraisal a few months ago, but I don’t think we can use that one correct?  Thanks!
[{"id": "i8yr2z5", "text": "&gt;Also the property had an appraisal a few months ago, but I don\u2019t think we can use that one correct? \n\nThat's up to the credit union. Mine might be willing to waive the appraisal based on being very well qualified otherwise and a significant down payment (which I assume you'll have to have anyway with a commercial loan).", "replies": [{"id": "i8yrzwb", "text": "Nice!  Okay I\u2019ll ask for that.  The city just appraised the property for 500k and they usually appraise at lower than market value so that is working in my favor.", "replies": [{"id": "i8yyjl7", "text": "City \"appraisals\" are meaningless for commercial lending purposes. They are driven by  a number of factors, including politics. \n\nCommercial appraisals are expensive because of a number of factors, including supply and demand. But if you  ever try to do one,  you will find that they require a lot more work than you would expect.  As a retired banker who had to sometimes do them for internal purposes, finding good comps can be tough. That being said (by me), I would say that I five unit $450k residential property should be about the easiest commercial appraisal I can think of.", "replies": [{"id": "i8z4d7n", "text": "&gt;should be about the easiest commercial appraisal I can think of.\n\n \nexactly.", "replies": [], "depth": 4}, {"id": "i8zcr8j", "text": "I don't think you mean city ***appraisals,*** I think you mean city ***assessments***. An appraisal is an evaluation for the purpose of  determining an estimated present market value. This value is used by lender to determine amount willing to loan. An assessment is performed by city/county for the purpose of determining taxable value for a given tax period. \n\nTwo different things, often confused, not the same.", "replies": [], "depth": 4}], "depth": 3}, {"id": "i8z421n", "text": "Assessment, not appraisal.", "replies": [{"id": "i8zceor", "text": "What does that mean?", "replies": [{"id": "i8zfk7w", "text": "Cities/states do assessments for taxes, they don't do appraisals.  An assesment is a made up bullshit politically negotiable  number to get taxed on.\nEDIT: to to do", "replies": [{"id": "i8zn4me", "text": "Got it!  Thanks for sharing.", "replies": [], "depth": 6}], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "i8yrkt3", "text": "That sounds like a reasonable amount in my experience.", "replies": [{"id": "i8ys1lb", "text": "Thanks!", "replies": [], "depth": 2}], "depth": 1}, {"id": "i8ysfv0", "text": "You're not being ripped off. Since you're at 5-units that enters commercial appraisal territory and not residential. Residential is only up to 4 units. \n\n$3K is about the minimum fee for a commercial report. You'll probably get a form report and not a narrative at that price.", "replies": [{"id": "i8z75b4", "text": "great thanks!", "replies": [], "depth": 2}], "depth": 1}, {"id": "i8ysgr8", "text": "I'm a commercial appraiser. I haven't bid lower than $2500 in over a year. You quotes sound reasonable.", "replies": [{"id": "i8z46lf", "text": "Same here.", "replies": [], "depth": 2}, {"id": "i8z73mb", "text": "Thanks!", "replies": [], "depth": 2}], "depth": 1}, {"id": "i8ysos6", "text": "That's really high. I'd expect a 5plex to be $1,500-$2,000 absolute max. Maybe has to do with location. I'm basing my estimate on MA.", "replies": [], "depth": 1}, {"id": "i8yva3a", "text": "That\u2019s normal for a commercial appraisal. \n\nYou\u2019re not allowed (by regulation) to shop the appraisal.\n\nYou might be able to use the existing appraisal if it was engaged by another lender AND that lender is willing to reassign the report to the new lender. If it was engaged by the seller, their broker, etc\u2026 they won\u2019t allow it.", "replies": [{"id": "i8z0ncw", "text": "Its actually against uspap to assign even with permission of the client (the first bank).  You can update the appraisal and list the second bank as the intended user but it needs to be a new report.\n\nActually had this exact thing come up like a month ago and that's the compliant way to do it.  Op if both banks are cool with this it should be a greatly reduced fee, like 1k or so", "replies": [{"id": "i8z7gn7", "text": "Awesome!!  This is really good info.  I'll try to figure that out.", "replies": [], "depth": 3}, {"id": "i8zxnhr", "text": "Correct. \u201cReassign\u201d wasn\u2019t the proper word choice. If the new lender wants their name on it, there\u2019s going to be a fee, but it\u2019s certainly more cost effective. \n\nI was referring to a lender using a report engaged by another lender without changing the client name (for those that don\u2019t know, the client is the lender, not the borrower). \n\nFIRREA allows lenders to use reports engaged by another \u201cregulated institution\u201d or something to that effect, I forget the exact wording. \n\nBut some lenders aren\u2019t comfortable with this approach because they want the liability protection that comes from having their name on the report.\n\nIME, lenders that are okay with this approach will require the report be sent to them directly from someone at the lender that engaged the report. Sounds easy until you run into a lender who won\u2019t share the report with any third party aside from the borrower\u2026", "replies": [{"id": "i90pc3r", "text": "Thanks for expanding on that and replying.  I am looking at this from the appraisal side, its always intetesting to hear from the banking side", "replies": [], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "i8yw2vt", "text": "Commercial appraisers are in high demand and short supply and add in COVID and the even higher demand they have seen, appraisals have increased quite a bit since before COVID. I\u2019m my area you would see quotes in the $1,200-$1,600 range for a 5-unit in that price range but now, we\u2019d be seeing $1,800-2,300 so being up in the $3k isn\u2019t unheard of depending on your market. Plus the CU isn\u2019t going to keep any of the costs themselves so they aren\u2019t cooking the numbers.", "replies": [{"id": "i8z7bwg", "text": "Thanks!  I was surprised because I am used to residential values.  But if 3k is in-line then that is what I'll pay.", "replies": [{"id": "i8za5er", "text": "Yea, it\u2019s an entirely different world going from residential to commercial. You\u2019ll most likely always be 2-4x more expensive for a commercial vs residential.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "i8yx5cb", "text": "Depends on the market. $2500 for that in my market but $5500 in another market we work in. Banks may also add an appraisal review fee on top of the appraisal fee.", "replies": [], "depth": 1}, {"id": "i8yygsk", "text": "Seems normal. Something most people don\u2019t know is that to low of a number and appraisers will refuse to actually appraise your property or won\u2019t do it causing your loan to take longer ruining potentially your rate and contract.", "replies": [], "depth": 1}, {"id": "i8z0cfn", "text": "It all depends on the required timing, location, and how much of a PITA the credit union is as a client for the appraiser. We don\u2019t really take property size into consideration when we\u2019re bidding unless it is atypical of the market. Personally, every appraiser I know in my market is busier than we\u2019ve ever been, so our fees have been significantly elevated as a result. \n\nIf the CU is a PITA client for the appraiser, that could also drive up fees. We have certain clients that we put an extra $1,000 on top of our normal fees due to the amount of handholding and questions on the back end.", "replies": [], "depth": 1}, {"id": "i8z3ydo", "text": "Wow never knew it was so expensive on such a cheap purchase.", "replies": [], "depth": 1}, {"id": "i8z51sj", "text": "$600 per unit is legit", "replies": [], "depth": 1}, {"id": "i8zbcne", "text": "About right.", "replies": [], "depth": 1}, {"id": "i8zdmmy", "text": "Banker/Lender here. The difference between a commercial appraisal and a residential one is considerable. A residential appraisal would only use comparables and adjust them accordingly. \n\nCommercial property appraisal would not only do that, it would also calculate the capitalization rate, which includes doing a proforma of the property to have a proper NOI and market cap rate to get to a value. This requires a level of knowledge and understanding of the market that is superior to just finding a handful of comps and adjusting it by the sf. \n\nWe (the bank/lender) choose and hire the appraisal (this is why we usually ask for a deposit with the application). If you are not comfortable, you can choose from a list of our approved appraisers. The reason for this is that there is a good number of sketchy appraisers who will work with the seller or buyer in order to come with a price that is above the market value.", "replies": [{"id": "i8zo50d", "text": "Awesome!  Thanks for sharing that knowledge.   If a property gets appraised for more than the contract purchase price is there space to negotiate the loans?  e.g.  appraisal is for 500k and contract for 450k.  If bank wants 25% down can that 50k in equity apply towards your down payment?", "replies": [{"id": "i8zq32s", "text": "No. Banks and lenders will go with the lower of. They still want you to have skin in the game, since people are less likely to default it. You can refinance it in a year or so.", "replies": [{"id": "i8zrcy2", "text": "Thanks for the knowledge!  Working on my first commercial deal so learning lots!", "replies": [{"id": "i904lzz", "text": "No problem, here to help with any question that you might have.", "replies": [], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "i8zg1gk", "text": "I just paid $2.8 for an appraisal in DFW. Part of my lesson is that smaller deals aren\u2019t worth the DD costs. If you had to terminate and eat the fees, I can\u2019t make it back on another tiny commercial deal.", "replies": [], "depth": 1}, {"id": "i8zjzkj", "text": "It seems like a lot compared to a house but you are not appraising a house. Only appraisers who have special qualifications can appraise multi family properties.", "replies": [], "depth": 1}, {"id": "i8zzgcz", "text": "I\u2019m getting $3-$4k on residential properties with considerably less work than commercial properties. That\u2019s a reasonable fee", "replies": [], "depth": 1}, {"id": "i900uas", "text": "If you can't raise $450K in cash in this market, most appraisers would think there is something off here.   I can't think of anywhere in the country that would even buy you a decent house.", "replies": [{"id": "i90dbam", "text": "Working class neighborhoods in the Texas!", "replies": [{"id": "i9297lr", "text": "Texas is the only state that has been boom and bust non-stop for the past century.  Those workers could easily be ought of a job, and it's not like there is a shortage of workforce housing.  At this stage of the economic cycle, a bank would consider this \"high risk\".  It shouldn't be hard to find equity partners if it was really a safe investment.\n\nThe bank isn't required to perform an appraisal for an asset of that value, so that means they are doing it because they can't internally value it or measure the risk.\n\nHonestly, if can't afford $3,000 to ask the bank to take on all the risk for this \"investment\", I'd question if this is really a game you should be playing.  If you were putting down 50% of the purchase price, you wouldn't be having this problem.  Probably even 65%.  The circumstances tell me it's more like 25% or less.  If you only have $100,000 to invest and $3,000 hurts, it's probably wiser to keep your money as liquid as possible.\n\nWhat if the bank forecloses on this property if Texas crashes and it has at the end of every economic cycle?  You should have 3 years in the bank to cover operating expenses and debt service.  If had that, $3,000 would be chump change.\n\nYou're seriously risking your investment, which it doesn't sound like you can afford to do.  And the bank doesn't think so either.", "replies": [{"id": "i92a632", "text": "I\u2019m sorry, this post has a lot of assumptions.  This property is in Houston TX which has been booming throughout the last recession and even with the recent Covid oil downturn.  The economy here is great and no longer solely dependent oil.  \n\nhttps://www.houstoniamag.com/2021/12/houston-fastest-growing-city-us\n\nHere is a deep dive that I\u2019ve read before.  \n\nhttps://www.bauer.uh.edu/centers/irf/houston-updates.php\n\nIn terms of me, I have the capital to make a much larger investment if I desired to.  But a 5 unit is probably good for my first commercial multi-family.  \n\nI\u2019m simply trying to save ~2k as I was shocked by how expensive the appraisal quotes were.  I can afford it, I\u2019m just frugal.", "replies": [{"id": "i93haub", "text": "Eh, Houston was not booming through 2009. Sorry.\n\nAll that said, the bank is not required by FIRREA or the Dodd-Frank Act or any other regulation to perform an appraisal on an asset of that value (if that is the value).  The de minimis threshold does not absolve federally regulated lenders from performing due diligence however.  The simple fact the bank is requesting an appraisal means they require a third-party professional opinion as there is credit risk here above the norm.  It's either your limited credit-worthiness/assets and/or the property you want to buy potentially not generating sufficient NOI to cover the debt you're asking for.  It's typically a combination of both.\n\nThat aside, expecting an appraisal for $1,000 is just unrealistic, especially today. Appraisers are required by law to take into consideration numerous risk factors when appraising a property, specifically related to supply and demand. Have you done the market research?  What is the total supply of apartment units that your property competes with? What is the current occupancy rate? What are the rental rate trends? Is there new supply expected to come online over the next 5 years? How many competitive units, as a percentage of current supply, were built in the past 5 years? How will your property compete?\n\nIf you haven't done this due-diligence, then maybe that's why you think an appraisal can be done in a few hours.  But as an appraiser, if a small balance deal comes across my desk that is below the de minimis threshold, I'll pass as borrowers in that territory are cheap and there is invariably something wrong with the property and it will be a battle not worth my time.\n\nMore than anything else, that's your problem here.\n\nFrugality is great, but you're asking the bank to take on the majority of the risk here.  You should expect to pay for the due diligence.  If it's a sure bet, then risk your own money.  In Houston, a low risk investment should be a cakewalk at $450K.", "replies": [], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "i90501j", "text": "Time I start doing commercial appraisal...", "replies": [], "depth": 1}, {"id": "i905n9r", "text": "Only the bank can shop for appraisal quotes. Otherwise it will not be accepted by the lender.", "replies": [], "depth": 1}, {"id": "i910c63", "text": "In our sales meeting this morning someone mentioned an appraiser charging $8,000 for an appraisal on an industrial asset, up from closer to $6,000 a year ago and they\u2019re booked 6 weeks out.", "replies": [], "depth": 1}, {"id": "i91614d", "text": "Nah, that's fine.", "replies": [], "depth": 1}, {"id": "i91hlzk", "text": "You mentioned Texas. Texas is a non-disclosure state so it can take a lot more effort to confirm sales comps and other data.  The fee does not seem unusual.  Good luck. I know a guy who made a lot of money with working class rentals in the Ca central valley. He started as a picker at 14 and bought a 4-plex, then 5 more units, then 10 units\u2026 Good luck!", "replies": [], "depth": 1}, {"id": "i91l08y", "text": "commercial appraisals are always expensive", "replies": [], "depth": 1}, {"id": "i91vh62", "text": "Based on your loan amount you should inquire about a commercial eval. They are allowed for lower loan amounts and are cheaper and faster.", "replies": [], "depth": 1}, {"id": "i92354h", "text": "That is definitely a normal price where.o am from.", "replies": [], "depth": 1}, {"id": "i92ctza", "text": "What lender and terms did you get for this deal?", "replies": [], "depth": 1}, {"id": "i92fum9", "text": "That is an absolutely absurd number imo.  Just looked up Set Statement from last few properties I purchased.  Closed on a 25,000 s.f. multi tenant Industrial building December 21 and the appraisal was $2,000.  20,000 multi tenant office building (10 tenants) 1/21 $2,200.  3/20 a 2,700 s.f. office townhome 2 units, $1,700.", "replies": [], "depth": 1}]