How do "after completed" appraisals work? Are there formulas that determine the value? Do lenders consider multiple appraisals?

Asked by Dave Kaplan, Chicago, IL Sat Dec 8, 2012

I'm working on a renovation, the architectural plans are nearly complete. I have contractor that I like and he/we are putting together costs. I already have a mortgage on the house and I'm going to be looking to secure a loan to cover the renovation costs. I imagine that loan would then roll with the current mortgage into some kind of final loan. A home equity loan won't cover cost, it's a big full gut, tear half the house down project.

From what I understand, after talking with a banker I met at Grand Jury Duty (she is awesome and so helpful), that the loan amount will be based on the after completed appraised value of the house. So, as I plan the project with the team I'm aware that I need to be very cost conscious. I can't plan something I can't afford obviously, but how does the appraised value play into the loan with the bank? Can appraisers come back with big differences in value based on what I plan to put into the house?

Any advice or insight would be appreciated, thanks

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Maria Cipoll…, Agent, Coral Springs, FL
Mon Dec 17, 2012
You can certainly order another appraisal if you think that the first does not refect the right price of the property in question. I do not think that will be a huge difference, but i see so many cases where the second appraisal comes back 15 to 25 thousands more.

All the best,

Maria Cipollone

Century 21 Tenace
0 votes
Joanna Weiss, , Chicago, IL
Thu Dec 13, 2012
Your lender will order an appraisal for you based on the market comparables and the construction plans. This will give you a better idea of what the home will appraise for after it is completed.
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John Potter, , Cook County, IL
Sun Dec 9, 2012
The answer to renovate or not is within Highest and Best Use along with other alternatives. Such as to maybe demolish or build new. Not so sure a bank residential appraiser would be able to solve this adequately yet some AMC will attempt to engage an appraiser that just may need a little more education. If you can stay away from these AMC residential appraisers and work with a bank that will engage an appraiser that could write a narrative report instead of some form I think you may find better results.
0 votes
Thanks John, I started reading about HBU on wikipedia, it's over my head, but I think I follow what you're saying. A narrative report vs a standard form sounds better and better results are what I'm aiming for.
Flag Sun Dec 9, 2012
Sohail Salah…, Agent, Chicago, IL
Sun Dec 9, 2012

I would recommend contacting an appraiser now. Doing so will give you a very good idea of the future value. Also, this appraiser can provide you with comparables, facts, formulas to arrive at the figure and you can use these stats when the bank sends there appraiser

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0 votes
JIM Michaels, Agent, Chicago, IL
Sun Dec 9, 2012
Give him a call on this one Wieslaw (Wesley) Jura Vice President. NMLS ID 225274. Direct: 773-304-3412. Fax: 773-283-2788. Cell: 312-405-2404.
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Manuel Brown, Agent, Chicago, IL
Sat Dec 8, 2012

You are getting some great advice on here. You should determine the total dollars you are going to spending. I just recently had this conversation with a friend of mine in California. My friend bough a single family home, got the architectural plans for changes, renovated the entire house. When it came time to refinance into one loan he had to pay out of his pocket an additional 15k. The Realtor he was working with did not do a good market analysis of his area as far as I was concern.

A good market analysis of the neighborhood should get you close to the number you need.

Best of Luck,

Manuel Brown, Broker
iMove Chicago
0 votes
Thanks Manuel! I'm going to find a good agent to help with that market analysis. Knowing the language is very helpful. This has been a great education. Thanks again!!
Flag Sat Dec 8, 2012
Paul Thompson, Agent, Chicago, IL
Sat Dec 8, 2012

If what you are asking is about a construction loan, there are non-FHA construction loans. They are not your typical mortgage. The construction loan will pay off your existing mortgage. The bank usually arranges for payouts as the work is completed. It very important you find the right place to get your loan. Base on my experience, you will need a substantial portion of the total cost in upfront out-of-your-pocket money.

As for the appraisal, Bradley and Bill are right, one appraiser will establish a present market value and a future market value basis on your plans and neighborhood. A good Realtor should be able to give you a good idea of both.

It is a lot of work, headaches and even heartache to do this kind of renovation. But if everything works out you will have your dream house. Good luck.

BTW, was Grand Jury duty interesting or really boring?

Paul Thompson
0 votes
Thanks Paul. I think a construction loan is going to be the route for me. I plan to have 20% of the total loan in cash. You are so right about the head and heartaches that's for sure!! This is a nearly a decade long project. My wife and I originally closed on the house in September of 2001, lived there for a few years and then moved out when I started to renovate. This is a the dream house, which will also be my office. If I'm living in Chicago this is the house I'm staying in.

For Grand Jury, the only boring time is when you're waiting on cases. It's very interesting and we heard some pretty messed up stuff that makes you think about humanity. I recommend anyone that gets called as a potential jury to embrace it. If you can do it, you should. I was actually on the Special Grand Jury, which is primarily drug cases in the am and suburban cases in the afternoon for the most part. The Special Grand Jury is 4 days a week (M-TH for 5 or 6 weeks can't remember excactly)
Flag Sat Dec 8, 2012
John Potter, , Cook County, IL
Sat Dec 8, 2012
Work with the assigned appraiser. Give them all of the costs statements sent to the bank, and any and all sales data you want. Give this to the appraiser before the report is finished.

there is nothing wrong with discussing with the appraiser what is intended costs and so forth.

However, please refrain from projecting what you think is the market value. That causes big problems.
I would look for an appraisal that contains at least a sales and cost approach unless this is an income producing building for residential that could have as few as two units.

Although single family could use an income approach depending upon area and available data.

to answer your question about can appraisers bring in values way different from your plans for renovating the answer is yes. Since the market may not support your improvements that could be over improvements or this market may not be ready for development at this time.

The appraiser could be your best friend in avoiding an investment that will not produce. Since the key would be what is the risk of this not generating what is needed for the market to support. And that means the market not an individual value in use that is considered, yet is not the overall factor.
0 votes
Thanks so much the useful advice John.
Flag Sat Dec 8, 2012
Bradley Egge…, Mortgage Broker Or Lender, Palatine, IL
Sat Dec 8, 2012

What kind of mortgage are you using to secure the renovation funds? There are only 2 options available that are first mortgages that include funds to renovate: the FHA 203k and Fannie Mae HomeStyle. The most common is the FHA 203k. In either case, the lender hires the appraiser and there is only one appraisal done. The appraiser establishes an 'as-is' value and an after-completed value based on a detailed plan of all you plan on doing. (With the FHA 203k, you must hire an independent FHA plan consultant.)

You can visit my website for more information on the FHA 203k:

I encourage you to be sure your lender is very familiar with either loan program.

Bradley Eggers
Senior Loan Originator
One Mortgage, Inc.
NMLS #: 222407
0 votes
I haven't heard about the Fannie Mae HomeStyle. I'm going to check that out. Thanks so much!
Flag Sat Dec 8, 2012
Thanks Bradley, I've looked into the FHA 203k. I've even talked in depth with a consultant. I believe the amount I'm going to need is over the limit, so I would have to 'fill in the gap'. Not 'over designing' for my neighborhood is going to be the balance I need to strike.
Flag Sat Dec 8, 2012
Bill J Delig…, Agent, Naperville, IL
Sat Dec 8, 2012
Just because you spend $X does not mean that you will realize that in the appraised value.

After the home is completed your lender will send the Appraiser out to appraise the value. You will be able to borrow money up to a certain Loan to Value ratio based on this appraised value.

Have your Realtor (do you have one?) provide a Market Analysis of what Updated Homes (like the one you are building) are worth.

If for example values in your neighborhood for higher end homes are $500k but you need an appraised value of $700k in order to cover your financing, then you may have some problems.
0 votes
Greetings Dave,

Are you looking to self finance the construction project and then get one big loan after the home is completed?


Are you looking at getting financing for the rehab and then at the conclusion of the project combine both loans?

If you can self finance it, that would be easier and then AFTER the home is completed you will go to the bank and obtain 1 loan for 80% (or possibly higher) of your appraised value.
Flag Sat Dec 8, 2012
Thanks Bill! I completely understand what you're saying about not "over designing" or "(wanting to) spending" When you say "home is completed" do you mean plans? I thought the appraisal was based on the proposed plans.
Flag Sat Dec 8, 2012
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