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With us or Patrick investigators are offering no new details in their search for a University of Iowa student who vanished more than 2 weeks ago Chief state investigator Kevin winker says he doesn't know if there's foul play in the disappearance of 20 year old Molly Tippett So we're treating this as a missing persons investigation and we are trying to find Molly and that continues to be our focus is to find Molly he says he can't say whether this is a criminal case and we continue to look at all possibilities I'm not in a position right now to say we have suspects we don't have suspects or persons of interest or anything else the 20 year old student went missing from her small hometown of Brooklyn Iowa on July 18th also Deseret News dot com says it is ready to impose tariffs on $60000000000.00 worth of U.S. Imports including. Coffee honey and industrial chemicals if Washington makes good on its latest trade threat China's finance minister is accusing the troubled minister as you have damaging the global economy after the U.S. Proposed increasing duties on 200000000000 dollars of Chinese goods in the 2nd round of a dispute over technology correspondent Dennis Crowley Chinese government officials say retaliatory duties of between 5 and 25 percent could be imposed over $5200.00 products or problems for Amazon's facial recognition tools just a week after one program incorrectly identified 28 members of Congress as criminals a 2nd program tested by Buzz Feed mistakenly identified a number of people on the F.B.I.'s most wanted list as celebrities that included a photo of a black male who was incorrectly identified as former Secretary of State Connally sorites members of the Congressional Black Caucus have raised concerns that the tools could have an undue negative impact on communities of color of course by Walliams reporting. 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But hey there I'm a glue stick so I have one job I glue kid stuff so sorry for being jealous of GEICO who doesn't turn more like give you 247 access to thousands of licensed agents and Geico has been around for over 75 years and has a 97 percent customer satisfaction rating while I've just got mediocre and he's of scales Geico also has an award winning mobile app. That's a pastime you know even the good stick this lady Geico expect great savings and a whole lot more free get a welcome to Jimmy John's freak out well she's going to slice down on that lettuce she's a fresh lettuce freak slices it fresh every day at exactly 330 seconds of an inch streak now wait now she's giving me forget she's also a meat freaks like these are all natural meats by hand they very freaky got to be kidding me also a bread freak bake bread fresh in store every 4 hours 3 Wow is the best part we're all lettuce meat bread freaks here that means better sandwiches for all double freak while you guys are freakin my freak freaky Brach freaky fast jimmy johns freak Yeah the following is sponsored by the real estate guy who's radio network on AM 1220. Welcome to the real estate guys radio program I'm your host Robert Helms they say that beauty is in the eye of the holder one of the values when it comes to what your real estate we're going to talk today about real estate valuation and appraisal on the real estate guys radio program. Hey this is Brad some rock and I'm sure you've heard me before on the real estate guys radio show in today I'm just really excited she would now for the 1st time ever our apartment investor national conference I want to put together some of the best speakers on the planet I want to put together brokers service providers investors that are buying a multifamily properties in making money in today's market right now all over the country so Russ and Robert with the real estate guys radio show we're going to be there speaking in teaching we actually have Grant Cardone. Mr Tenet's him self. And many of you may not know that he owns thousands of apartment units we have Tom will write he's going to talk about how you can save a lot of money with your apartment investments as a result of the new tax laws and so it we just have an amazing lineup of apartment investors that have made over a $1000000.00 investing in apartments this event is going to be Aug 15th and Dallas Texas and I'll look forward to seeing you there join Tom will write Riccardo and the real estate guys with brand some rock the financial apartment conference Saturday August 18th in Dallas Texas for details send an e-mail to Brad conference real estate guys Radio dot com That's Brad conference at real estate guys Radio dot com. Welcome to the real estate guys radio show when your home spun accounts with me as usual and my internal data just googled muscle pray to Robert you know it's interesting we did all those shows and profitable niches and then we had an answer the guy showing last week we talked kind of head in the clouds a little bit but people are wondering you know the economy is so good and yet there's all these marketing's of what could be in trouble and so forth and I know people's brains are spinning and it's time to bring us back down into the weeds a little bit and UK reality and a subject that is pretty near and dear to my heart for a longer story than we have time with his real estate appraisal understanding valuation I want to praise will is a 3rd party opinion of value and it is a critical compound and for real estate investors to understand you know it's really interesting because obviously had background mortgage company in appraisals were very important because we had to have documentation we had to have a professional opinion of value to prove to the lender that the collateral was actually good right but before we go there you know when you were teaching appraisal I would come in and do some guest teaching for you which is always fun it was really interesting to me how many people were in the appraisal class that weren't in the appraisal class because he wanted to be appraisers many of them weren't even in the real estate business as a professional like a real. Estate agent or a mortgage broker a lot of them got into the class because they wanted to be or were active real estate investor that was the number one reason the 1st day of class and I thought real estate appraisal commercial preys on residents present for 4 or 5 years and the 1st day pass it always ask you know who's here because they want to be an appraiser and I have a class of 70 or 80 people and they'd be one or 2 right and then well who's a real estate broker or real estate agent looking to get some of your required classes and then hands went up at the vast majority of people were there for personal interest I'm interested in this and it's a profession that certainly merits consideration there's reasons to like the praise or but I would always taught the class by saying who has a vested interest in the value of a property Well obviously the owner and a potential buyer and the neighbors the neighbors are concerned with the value the property and the lender yet the lenders concerned with the buy the property and the tenants will have their concert everybody concerned with the value of the property except for the appraiser the appraisers a neutral person who does know vested interests in the property and what they're giving you and you use this terminology as Port understand as a professional opinion they're professionals they're licensed they've been owned a ton of study and practice but at the same time it's just an opinion of value nothing makes an appraisal correct and appraisals an opinion I went into the mortgage business not because I wanted to be in the mortgage business I wanted to understand the mortgage business I wanted to understand getting funding for real estate because of wanting to invest my point is we've got a real estate show here all about investing in our audiences investors and you may think how they're going to talk about appraisal and what do I care about appraisal I'm not an appraiser I'm not a real estate broker and I'm just I'm hoping that you're getting a point this is a show worth listening to because understanding appraisal just like understanding debt I mean basically there's 2 things there's paying the right price and in fine. And sing it properly and if you do those 2 things you have the chance a good chance of having a good profitable investment if you get those 2 things wrong or either one of those 2 things wrong you could have a problem so learning to understand what an appraisal is how an appraisal works and we'll talk about tactical stuff just in the transactional side of stuff but just understanding how properties are valued and there's different ways you know we just think oh it's the house next door sold for X. Therefore that's the value that's one way to do it but when it comes to investment properties or other ways to do it when you have a property that is unlike any other property and there is no commit there's a whole different way to do it and so we're going to talk about all that stuff today it's going to be a great show so just make sure you tune in and take good notes so the big picture is an appraisal is typically required when you have a loan because the lender wants a 3rd party opinion of value but that's not the only time you should consider getting an appraisal done the SO who does appraisals and why and how well that's across the board depending on where you're listening listeners are more than 190 countries but many of the countries and we've been on the receiving end of appraisals in more than a half a dozen countries so this works very similar There's something called the uniform standards of professional appraisal practice used pap and every year it's just happened again used pap gets updated and all the board members get together and say hey based on what's happened in the last year in the present industry what are we changing but the mentality of it is that there is a universal format and methodology for appraisal and one that's important is stepping back the reason you want an appraisal is to understand value I can look at a property as an income investor and say well it gets X. Amount of rent so I'm willing to pay this for it and that's an opinion of value your opinion as as any investor but there's a lot of property for which you're not yet at the point where it functions like an investment property like in land acquisition real estate development really have a member we bought a property in the big. Area that was for sale and our intent was to knock down the house and the sub divide the land and to create 3 lots and build new houses a very different use than many of the other bidding buyers at the time and so your use of the property is going to affect its value appraisers have the ability to appraise a property we say as the is where is meaning its current condition but appraisers also have the ability to give you an opinion of value if you were to do certain things Mr Peyser I want to knock this down and build a brand new house what would that brand new house be worth they can tell you that and so an appraisal isn't just done for the purposes of the lender it's not just the thing to put in the file it's the thing to understand and when I 1st started teaching appraisal I didn't know much about it in fact I was invited to teach the class and I thought I don't know that much about appraisal and the guy that recruited me said I have to do is stay one chapter ahead of the students will be fine but you're a great student and you have tons of practical a real life context so when you're reading a textbook it's not just like emigre detailing what I've read but you know you're a storyteller you always have stories to tell about how these things fit you know one thing just like the story you're telling about the the property where you're going to scrape it you know and this is the point you don't just get an appraisal when you're doing a transaction you might do it when you're planning a project so that you can kind of figure out and I didn't want that point to get lost as you're kind of moving on right going into Professor mode because there's there's a way even you might even be willing to pay more if the praiser came is yeah that property is on it's not very good shape blah blah blah you what do you care you describe it anyway in the lender would say well we're not going to lend what it's going to be we're going to lend on what it is so the appraisal would be bad in terms of if you were trying to go to a lender and finance your project so that's a different story but for the purposes of understanding what is a property worth now so that you pay the right price for what it's worth now. And you wouldn't go Oh but I wouldn't do this project because it what it's worth doesn't make it worth it because what that's actually good but you can pay low and then you're going to go change the use and then you're going to come back so I just want there's a big assumption there when you say what's it worth and that's the whole beauty is in the ad the books that are what's it worth to who and so sometimes we're odds with the appraiser because they don't see the value sometimes. About but their job is very important so you know I spent a lot of time getting my mind around it but we used to do basically in real estate transactions like seen a ton of appraisals I'd look through appraisals back in the day we could influence the appraiser today it doesn't quite work like that but we could go and help them show them some confluence isn't bribe or influence is just help them you know because a lot of times as an investor or even an active agent in a marketplace a lot of times you know the inventory you know the comps you know the lay of the land better than the appraiser almost always Yeah appraisers don't work in neighborhoods appraisers work in counties appraisers work in big areas in you know realtors real city agents that work in the specific area know the market way better than an appraiser and most appraisers recognize that and the way they find their information some of it's public some of it's not that depends on jurisdiction too so rather than get too much into the weeds about the the how we're much more about the why why would you need to understand valuation and there's a whole host of reasons the 1st obvious one is well if you're going to get a loan you have the valuation but a bigger picture than that is just for your own portfolio and appraisal is a relatively inexpensive check and balance I might get all caught up in hey I could do this and I could do that back to a couple weeks ago we had asked the guys and you might remember the guy who said when I had this house in Detroit night I made it beautiful and my tenant wants to buy it for $38000.00 the problem is it only appraised at 20 and you know what it was probably only ever going to appraise at $29.00 are suggesting to that per. Sin was you know maybe it might have made sense before you spent all the money to rehab the house to have an appraiser take a look or not even an appraiser in the practice in the U.S. We have what we call a B P O which is a broker price opinion and this is going to a real estate broker and asking them to give you an opinion of value and I'm thinking about listing my house and agents going to come over and give me their best estimate of price but B.P. Owes more than that it's not quite an appraisal stunt done by a licensed appraiser but it's done by someone who knows a lot about the marketplace and that could be a starting point I'm going to guess that this particular listener had gone to a few brokers in the area they all would have said oh you're not going to $38000.00 for that house no matter how nice you make it I mean you could put travertine in it and and beautiful light fixtures and big screen T.V.'s and you're still not going to get the value because of the underlying valuation of the neighborhood in that particular example I always say probably better off going to an appraiser only because brokers are going to do this for you typically for free sometimes you can pay them but most intend to going to do it for free in the hopes that they're going to get the listing but you're talking about a $20000.00 property or $38000.00 property so you know you might get actually a little bit better work if you pay the appraiser go ahead and pay or offer to pay the broker Don't don't try to do it on the cheap you want a good estimate of value if you're going to go put capital at risk if you're going to go do it investment full time and work to rehab a property and you've got somebody just threw a dart at a wall you know to you know do a Goodwill act for you how give you an opinion you just want to make she have a really good valuation when you're actually using it is the basis for which to make further investment Well sure and you know we're big proponents of always hiring the right people and paying full price for it and all of that and appraisers are unsung heroes in a lot of ways because the foundation of valuation is on their shoulders but you want to use that to your advantage as well you're going to have a feeling about what the value of a property is it's the single family house you want to have the rental. Ready you're going to have a feeling of it because you know the neighborhood you've been looking and so forth but what an appraisal can do is it can be verification or it can bring up other issues that you may not understand and there's a lot of nuances about it but I think the value of the property and what it's worth means more to us the potential buyer than anybody here's one of the challenges that comes up in a rising market and we've been having pretty good markets in a lot of places and that is that when an appraiser looks they look in the rearview mirror and if the trend line is up the price they think it's worth based on the past is going to be lower than probably what it's worth in the real market the problem is that the lender is going to go with the appraisal and not necessarily with the market and so sometimes you just have to be aware that's that's where you would get at odds with the appraisers because they they have to look backwards the brokers are going to look forward and we you as an investor and you especially if you're a doing in ev-L. You add are going to be looking forward so don't be shocked in a rising market if sometimes that appraisal doesn't actually come in where you when you wanted to doesn't mean that the house isn't worth what you say it is it just means that the comps that are in the past aren't worth the same because you're on an upward trend line a lot of jargon there will uncover some of that we come back we're talking about valuation of real estate specifically how do we use you in future full Billy's. Hi This is Karen Harding author of the compound effect you're listening to the real thing guys welcome back to the real estate guys radio program thanks for tuning into the show hey check it out the New Orleans investment conference a. Around the corner 1st week of November we're going to be there are a lot of our good friends will be there it's an amazing event the longest running investment conference in the United States you can get all the details on our website it will stay guys Radio dot com under of bents we're talking about valuation of real estate what is a property worth that really depends on which going to do with it but one of the ways that we ascertain value is through appraisals Let's talk about some of the basics of appraisal I mentioned the uniform professional standards of appraisal and that really culminates in a form that we often see when we look at the results of an appraisal so we don't want to praise the report and it's not the appraisal it is the documentation of what the appraiser found and so we're not going to go through the report or any of that but I want to understand the 3 different ways that valuation happens and you alluded to this for us to put in the type of property that the job of the appraiser is to solve a problem and that's how it's worded the problem is what is highest and best use would love that terminology it's brought right from appraisal but I like in terms of personal development but it also works in real estate if I have a piece of the property what's the highest and best use for this that's the challenge or problem the appraisers trying to solve and then how do I you know quote unquote what it's worth appraisers use 3 methodology S. And the 1st is the sales comparison method probably the most common when it comes to say single family homes and the idea is you're going to look at similar properties so I'm listing my house for sale I want to know what it's worth we're going to look at similar properties in the neighborhood similar ages similar utility and what they've sold for recently the perfect situation for the appraiser is the house across the street and on either side sold last week then they'd have great information to say well then your house is worth this now not every house is the same so what the appraiser has to do is make adjustments for features or benefits of your property compared to other properties if you have a 3 bedroom and there's a 4 bedroom across the street then they're going to subtract some of the value from the 4 bedroom house to get a. Your value so sales comparison method we're looking at the valuation of similar properties now that makes a ton of sense and again for single family houses it's probably the the methodology that appraisers use the most but according to use tab Here's what the appraiser has to do they have to use all 3 approaches and then they have to reconcile and wait based on the property so feels comparison is the 1st now if I was buying a bowling alley there's really not a likelihood that there's several bowling alleys in the area that have sole reason why he so I can't use that approach I have to use a different approach so the other projects are what we call the capitalization approach or more commonly the income approach as real estate investors this is going to make sense to you I'm going to value the property based on the income it generates because the apartment I'm buying might not be the same number of units or the same size as the one across the street that just sold but I am going to be able to get some great data from that to say these are what the rents are persuaded foot Here's the trends that you talked about and so forth and so the approach of income capitalization is saying hey we're going to look at this is an asset that produces income so I have a question for you because you're the expert and I'm not in this particular form of appraisal and the question is this when the appraiser is doing their work to determine the income are they just going off the pro-forma or are they going off actual financials or are they doing a market study in comparing what the property is really doing similar properties or with a property worth in the market based on 3rd party not from the property or the property owner itself yes a good question so you mentioned the rearview mirror part and that is that for the sales comps when I'm looking for those comparable sales an appraiser can only use sold and closed escrow properties that's the part of the can't look forward as opposed to using listings right if I'm a realist. A broker I'm going to sit down with you and I'm going to show you here's what sold recently but I want to show you here's what's on the market now because that's going to tell us our competition and I'm also going to say here's the ones that were listed in never sold so obviously those prices weren't working because buyers weren't saying yes so I can use more information but the appraisers limited to the rear view mirror now it's different when it comes to the income approach to the income approach Yes perma building across the street that sold recently that's a comp but they also will look at competing product that isn't for sale so in the income capitalization approach a look at apartment building this in for sale but it's very similar in terms of its income and they will do direct and Alice's meaning they have to go and get that information from the owner or manager of the property as opposed to some repository of information this is why commercial appraisals are often more expensive because they're doing more work whereas residential appraisals the appraiser will keep a database for their company will of what sold recently so they have those comps at their fingertips but when we're talking about influence before sometimes you find it for sale by owner or an off market deal and you're able to bring that to the praiser to say hey you might want to consider this property again Mr 6 You can't do that anymore because I'm trying to keep that neutrality but they're looking at the income capitalization report what are people renting right now if I had my 20 unit apartment appraised then the appraiser wants to look around and say OK someone who might be a tenant for your apartment building in this apartment building where else could they go locally and what would that look like and that gives you some trendline So income capitalization makes sense now let's take a single family house in many neighborhoods single family houses sell to people that live in them but also some sell to investors we buy single family houses and they have tenants so you can use both the income capitalization approach and the sales comparison approach a single family house but an apartment building it's harder to use comparable sales we're going to get that they. It is so we can see say cost per door but what's really going to be more important to us is the income side now the 3rd approach is called the summation approach or the cost segregation approach and the cost approach says if I'm trying to figure out the value about bowling alley Well I could maybe look at the income from the bowling alley I'm not going to find a comparative bowling alley that's sold certainly not nearby but what I can do is figure out what it costs to day for the land and for the construction and for the development and then they use what they call the age life method of figuring out the improvement value and that's a lot of words but it's as simple as this hey the bowling alleys 20 years old so I can't just say it would cost X. To build $1.00 today I have to say the cost X. To build one that day but I'm going to take a deduction for the fact that it's 20 years old like depreciation It's exactly like depreciation now when we think of depreciation is real estate investors we think tax depreciation right we're going to take the improvements on a property we're going to depreciate those for our tax purposes our phantom expense but that's not this depreciation this depreciation is actual deterioration the buildings 50 years old it's not in the same shape as it once was but the summation approach is what we use if we were analyzing an airport or a baseball stadium or any kind of one off building now even in single family houses we can do the summation approach here is what a lot would be selling for today in this neighborhood Here's what it cost to build because the house is 18 years old we're going to give a just for that naked as a price so the appraisers job their mission their problem to solve is to look at the value based on these 3 different methodologies and then to weight accordingly meaning if I'm a single family home residential appraisal I'm going to give the majority of the weight to the cops to the cops or the comparable method I'm going to look at the income of because there's some rentals in this neighborhood and summation just to make sure I'm check and you know from multiple angles. If instead we are doing an appraisal on a $75.00 unit apartment building then I'm probably going to wait mostly to the income approach what you know it's interesting because after the financial crisis we kept going around telling everybody and experiencing in many markets you could purchase properties below replacement cost and so this some nation approach would say this property is worth this but the market is saying no it's not based on the comps well when that's the case it's probably a pretty good idea to ignore the appraisal not to overpay but in terms of whether or not it makes sense to buy Well this is a great point because when you get the appraisal back in this all depends on who the client is if the lender or does it you may or may not see it but usually the buyer's going to get a chance to review the appraisal sometimes with their broker when you read the appraisal you don't take it at face value ever because again it's an opinion of value yes a professional opinion but still with opinion you know what your ultimate uses you know what you can and want to afford So you read to the report and you have to ask yourself Do I agree with the premise do I see the appraisers point of view or not and nothing says you have to and we'll talk about that later in the program what do you do if it prays well doesn't work for you every day and those kinds of things but just understand that you're going to hire somebody or your lender is going to hire someone to come up with their opinion of value keeping in mind they're completely detached so we get all caught up in the value as an investor whether we're the buyer or the seller sellers often have an overinflated idea of what their properties are worth buyers the other way around buyers always want to get a deal the praises job is to be neutral in saying absent duress absent any undue motivation Here's what properties worth Well I think if you're being creative and you're planning to go in and you have a business plan for the particular property it's a value out of some sort or you're going to change the use whether it's is zoning or whether it's. Or plan or you're going to add a room to some type of redevelopment or just whether you're going to rehab it or scrape it like we talked about earlier and build something completely different I think the point is is that the appraisal isn't gospel I think that's the point you're making it's a starting point to have a negotiation 1st with yourself does this deal make sense based on what I'm planning to do and the more creative you are the less likely the appraisal is going to accurately reflect the value of what you're going to do and you may decide hey you know what it's worth it to pay a little bit more now when you go down that path you say yes but I'm not going to be able to get a lender to work with me because they're going to they're going to pivot off the appraisal but just because the appraisal didn't come in doesn't in you don't have to use a conventional lender who's going to require an appraisal you can negotiate private lending you could explain to a private group of syndication partners that hey with this is our business plan and even though the appraisal came in and you have to have that so that you paper your file if you will but you explain yes we're going to overpay based on the appraisal but based on the business plan it's not going to matter because here's the return on our investment because here's what the property is worth when we're done with it and it looks like you know whatever it is we're going to do so the appraisals interesting but really what matters is the business plan and the exit strategy so again don't get too hung up on appraisals being gospel even though they kind of are to lenders especially conventional lenders who are just going to check boxes in either it fits or it doesn't if you are dealing with private lenders and there can be some negotiation and more of that is beginning to open up or if you're privately syndicating either debt where you're writing your own lender raising money to do your own loan or equity where you just have partners it's a point on the curve if you will it's a reference point a starting point but it isn't the end point of what the value of the property has or whether you're paying the right price for it that's exactly right it is $8.00 tools. It is not the end all be all and so part of understanding appraisals understanding what's involved with the we'll talk more about that we come back bust but my real estate trivia Next it'll stay guys radio program I'm your host Robert. Bly nationwide You're listening to the real estate guys from Dallas Morning real estate guys for Hero dot com. 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Of paradigm life Wall Street banks spend billions of dollars per year in advertising with the goal to convince you that they are the solution but take a look around none of their advice is work. If you're listening to this odds are pretty good that you're already a real estate investor or at least becoming one so why do you do it is it to hedge inflation the tax benefits or maybe it's to get your money away from Wall Street it's because of these benefit. It's and so many more that I created the real estate investors guide to the perpetual well strategy when you combine successful real estate investing with the perpetual strategy you have the recipe for what is hope the wealthy to establish their financial wellbeing for decades you can download the real estate investors guide to the perpetual strategy today by clicking the resources tab on the real estate guys radio homepage don't wait go download it now . Take a and 1220 with you where ever you go on their smartphone coming down to San know in what real estate market is the Appraisal Institute and. Lots of places around the world where their members get together and. But where's its headquarters the Appraisal Institute is headquartered somewhere if you know where to send your best guess to trivia at real estate guys Radio dot com Could you name the answer the question and your mailing address because if you're the 1st with the right answer you're going to get a copy of Robert Kiyosaki Awesome Book 2nd chance that's today's release date trivia question we're talking about valuation of real estate that often means that we get a 3rd party to give us some validation and that's typically done by an appraiser Now I you and I have had the opportunity to meet appraisers all around the world in fact I remember we were on a field trip and we met an appraiser who was outside of the US but he explained to us that they basically use the same concept as used pap even though they're not members we talked about the praise the institute and trivia the appraisal foundation that sets all of that up in the U.S. I even though they're not they use the same methodology and having had appraisals done in other places we see that they talk about the comparable market approach the income approach in the summation approach and they reconcile those to come up with a value now it is our practice to often get an appraisal when we are doing a change of use of any kind you know you mentioned zoning That's a great example if I'm going in and I have a property I think that could have a higher and better use if I got the zoning changed I may or may not be able to do that but in appraiser can get a conversation with you about well it was it was zoned you know C 3 that it would look different in terms of its valuation because of what you could do with the property and that's the mindset anyway this highest and best use concept that appraisal gives us is a good one if I see a piece of land to make what could I do with that an example I used to use in classes say there's you know 200 locks in a subdivision and 199 of them are single family houses and one is a bare lot so what's highest and best used for that bare lot Well the answer may seem obvious but it's not necessarily highest best use might be. A house because that's what every other lot is but highest and best use could also be a convenience store because they need to service that area and it's not just about what the market demands but it does consider things like zoning what's available what in title and surveil a bill so that to get too complicated but the different types of real estate have different types of appraisal professionals if I'm buying a retail building that I'm going to make sure I lean on a retail appraiser if I'm buying commercial property of any kind there's going to be specialties if I'm buying property for agriculture whole different world you and I went to an agricultural been a few years back and met all these different trades people including a farmer appraiser in this guy's job is to go look at a farm whether it's productive or not and come up with a valuation I'm like Well that's fascinating how how do you know right well because that's his business he S. In all things about the richness of the soil and about how far away crops are and what were the last several crops that were there because of the nutrient depletion in the soil and all kinds of stuff you'd never think about so this is why we always rely on 3rd party professionals you know I think there's something interesting in there this comes of all the time with our syndication mentoring club because you get people who go out there and they're interested in an investment opportunity and they are exploring and sometimes they get introduced to things they're not familiar with and a lot of people who are A students that's the type of people that you often had in your appraisal class that were trying to master the content themselves and I want to encourage you if you listen to the show and you're hearing all this you are getting your hearing Wow prisons are a whole lot more complicated than I thought this isn't about making you an expert or encouraging you to go take an appraisal class or get certified or any of that you don't have to do that to be an investor just like there's many things you don't need to understand to be a good syndicator what you do have to do is be conversant you have to have a nuff knowledge that you know when to hire an expert. And what kind of an expert there is and so the point that you're making Robert which is a good one is that even within the expertise of appraisal there are some expertises the same is true with lawyers you could make the argument the same is true of the countenance we ask people all the time when we sit down with a potential provider Tell me about your current clientele Tell me about the kind of business they're in tell me about the kind of problems that they come to you within that you solve regularly because I want to know that that person is spending the bulk of their time in attention because every human being and these people are just human beings they only have so much time to be experts on any one thing and so you want to make sure that they're putting their time and effort into being expert in the thing that you need them to be expert in which relieves you and this is such a great relief it relieves you of having to be the expert and it allows people like us to dabble in a lot of different things because we only have to know anough to know how to go get the help we need so please don't be overwhelmed with all of this information or feel like oh my gosh I've got to become an appraisal expert you don't you just have to become conversant in the absolute you have to be aware and not to know which questions to ask and what makes sense and I think part of it is that too many people just rely on what the appraisal said they were going to cover that before we're done and also the fact that depending on your use you can just hire a fear appraisal I can of appraisal done on my house or just I want to what it's worth I'm going to have appraisal down the spend a few $100.00 and when you get a good opinion of value that's great that's different than when the lender hires an appraisal so sometimes you don't have any choice and that's a different story but back to specialties so you know I did not know that much about the appraisal profession even though I had seen some appraisals so I was kind of an over zealous professor and I went and met with the state commissioner of appraisal he was speaking at an event and I walked up to the guy is a great guy and I introduced myself and I said I've just started teaching a class on appraisal and I have no idea what I'm doing basically and he was great he gave me a bunch of resource. He gave me some ideas but at this event they were different people in the present profession I met this guy who actually had come and speak as a guest speaker like I had you speak at those classes sometimes because he was a fascinating guy he was an appraiser been the business for more than 30 years he had to specialties so talk about niches check out his 2 specialties one was he appraised airports now that's kind of getting out of property right and he would explain that he had to go to the F.A.A. He had to understand what the approved routes were and where the congestion was and on the I mean the guy knew the thing and the so he was actually there to talk about that specialty and then he said I have another special B. Never really talked about it so I talked to him at the Vatican what you're the special he goes yeah so I am the foremost expert on appraising haunted properties haunted property wanted properties that was his that's one of the things that he was often called to do he had developed this expertise some out and you know the more haunted a property is the more or less down he quit I'm like Wow So just know that their specialties for almost anything we're talking about real estate valuation how you can figure out what a property is worth and when to hire an appraiser and funds them like that OK the discussion we can back you to the rules the guys radio program and your host Robert Downs real estate investment advice why did your mailbox sign up for the free was can invest in commercial properties for as little as $50000.00 by utilizing experienced syndicators with a track record and experience to locate negotiate that and manage the best products in the best markets will soon investment properties as a national Syndicate are headquartered in Silicon Valley with a long successful track record of investment real estate and commercial syndications the Cincinnati industrial portfolio is an offering with 17 percent projected average annual returns and available while shares last email commercial at real estate guys Radio dot com for more information and private placement memorandum on this investment and for your free white paper on commercial real estate again email commercial and real estate guys Radio dot com. Hi this is Steve Forbes to listen to the real estate guys have fun you'll learn something back to the real estate guy his radio program thanks so much for tuning into the show we appreciate you listening and tell a friend about the real estate guys coming up in September it's the secrets of successful syndication if you want to put together bigger deals to make more money using other people's money coming out to the secrets of successful syndication after the Dallas Texas get all the details on our website a real estate guys Radio dot com under advance we're talking about real estate. Appraisal and understanding valuation in the 1st one of these one make sure people understand is that the appraisal is often the cost but the appraisal can also be a thing that can make you money yeah so I think you're probably talking about using it in your negotiation Absolutely yeah yeah I mean if you think about it really you've got to have a starting point for negotiation and we are going to be using financing most sellers understand that the lender is going to be bringing the bulk of the money and so you've got to satisfy the lender and generally the contract has an appraisal contingency correct So this now gives you the opportunity to kind of have a good cop bad cop positioning using the lender as the heavy who's forcing you to retrain to renegotiate this thing because the what you originally agreed on isn't going to come in right I offer 300000 the prisms of the $280.00 so now you're at this stalemate and here's how that works if the appraiser says to 80 then the lender is going to loan you say 80 percent of the $280.00 or the purchase price right whatever's lower and so the seller wants 300 you've agreed to 300 and now comes it into 80 so most sellers are going to say well you have to put in the other 20 you have to bridge the difference but you going to negotiate and say well you know Mr seller I made you an offer based on what we thought market value was you had a prize site an idea we came together had a meeting of the minds but we're not experts neither one of you are professionals so we had the lender brought up professional in whose opinion is it's not worth 300 so you know what I can't pay 300 I can only pay the 280 and every other buyer that comes in behind me if you say no to my offer and let's see there's nobody standing behind me right now so you know it was it could be and you're going to have to deal with that too you may decide in a hot market you're going to have to come to the table because the guy behind you might depend on how bad you want the property and that happens but just assuming you know that it's the 2 of you then then you know it's like OK so let's let's have a calm. Station about how we can make this thing work and it's a negotiation and it's like what are you Mr Sellers looking to get out of this may be something that is nonfinancial it's how quickly do you want to move in about do you want to have a rent back or is your personal property involved I mean there's all kinds of different things you know depending on the uniqueness of the property the point is the appraisal is the beginning point of a negotiation and then you can sweeten deals with something other than cash now the one thing you do have to be careful of depending on the terms of your loan agreement is having additional debt that is not disclosed to the lender so be careful be careful about that yeah absolutely I mean we bought a house once that was furnished completely and for the seller's convenience he's like you know what I'm not going to use this for nature ever again and I'll just include it right but it had a lot of value in his mind he had outfitted this property he'd only spent about 30 nights in it in 3 years it was virtually a brand new house virtually brand new furniture but the stumbling block was when the appraiser and the lender required him to sign a statement that said it was the worth no more than $500.00 is it well that's not true like well the reason they're saying that is and we actually got the document reworded to say that yes he was admitting it was worth no more than $500.00 on the open market but that he was leaving it for his convenience because the guy spent a lot of money on the furniture and he thought I don't want to sign something as really $500.00 but the reason is the one you've alluded to that the the lender is basing the value of the property so the other way to use an appraisal though an appraisal can be a very useful tool not just in the negotiation on a sale but when it comes time to set a valuation we might decide to buy a property together and we have a clause in our agreement that says hey if 10 years from now one of us wants to buy out the other how do we figure out what it's worth well often you'll see in the contract each will get an appraisal will add up the value of those appraisals and divide by 2 and that'll be the price. So sometimes we need that 3rd party detached opinion of value for other business reasons than just purchasing Yeah and again it's a starting point for a negotiation and that's what you're trying to do I mean you know the most awkward point in negotiation is a starting point like who is going to put the number out 1st you know and so typically in a in a normal negotiation somebody is going to put a number is really high and somebody is going to put out a number that's really low and then both people are going to be insulted and then you go back and forth and so this can kind of take the edge off a little bit it narrows the range it's like OK here we are this is it but the thing is like when you're short like an owner carry back you know as he will you OK I'll give you your price but you've got to carry it back just before you start getting creative like that make sure you really work with your mortgage professional and stand to pursue terms of the loan that you are targeting because sometimes the lender is not going to allow you to have that kind of a situation going on well that's a good thing to bring up because back in the day right before the big meltdown the appraisal world was different and every year they update used Bappa there was a lot of that happening in 200-2009 when things that came from that is that the lender typically is the person that hires the appraiser owns the appraisal and is the only one they can have any kind of influence over what they're looking for but part of the concept in general for appraisal is that it's very common in fact it's the most common when there's a purchase contract the appraiser knows the price the appraiser is told this house has been sold for $300000.00 and the praiser is job is to quote unquote bring it in their substantiating it so it's not surprising that sometimes the appraisal comes in exactly at purchase price but again their job is to solve the problem of valuation and if a buyer and seller agreed to a price and the appraiser can justify their price often they'll bring in that price well that used to be the moral dilemma for appraisers because they were being chosen by the lens. Or based on favoritism and if you didn't bring the appraisal in you didn't get selected So Dodd Frank clean that up yeah so that you weren't allowed to do that anymore and so the appraiser could really bring in a unbiased opinion of value and you know I don't know I haven't dug deep into the latest Dodd Frank revisions a rollback certain provisions and so I'm not exactly sure what the current state of the art is because that's a fairly recent development but we are trying to ease things up a little bit in some ways we think we already know from a community banking point of view we've covered that in our newsletter that that is probably going to open some things up as far as availability of lending through community banks were coming back to the surprisal issue the idea was to keep the appraiser as neutral as possible and not influenced even by the prospect of losing business now here's the challenge the challenge is is the goes into this lottery system and you just get assigned or in an appraiser and you may not get a very good one but you're stuck with them and there's not much you can do about that and so that that's one of the downsides of it yeah and that really depends on where you go and what kind of reason you have for getting the appraiser but the appraiser member is a neutral party they do not have a vested interest in the value of the property but they are professionals in figuring it out so lots of ways to use valuation even more importantly do they we just want you to know when enough so that when you're involved in a transaction you can read through an appraisal report and say yeah it makes sense I see what they're saying and sometimes it doesn't these are just human beings and so even though they have a professional opinion it's just an opinion I think one thing though I mean if you do take the time to really look at a detailed appraisal I think you can begin to get some ideas about what what it just value and if you understand that especially if you're going to go in to do some type of a value add work you know you may go and say I watch H.D.T.V. And I have ideas what brings in value OK Well reality T.V. Is anything but real but you know you can certainly learn some things but if you get down to really look at the document then you can begin to understand if I. Do this or I do that I can really bring some value and so there is some benefit to really getting to know an appraiser and understanding you know how an appraisal really works and then understanding what you can do in a particular property so it only costs a few $100.00 to get an appraiser to come out and give you an opinion of value and maybe you take them to lunch or pay him a little extra because again you're not trying to influence them in a deal you're just trying to get them to teach you how you might be able to take a particular piece of property and do something to it to create additional value that is just equity and bottom line profits when you sell or refinance you probably can't be even be at the appraisal if it was ordered by the lender but if you hire the appraiser show up and be there and ask questions again the appraisal isn't the report same thing when it comes to inspections you know being there and it's a relationship business and all those kinds of things you learn a ton about and hopefully you've got some better ideas about real estate valuation a registration is now open for the secrets of successful syndication we're going to be in Dallas Texas in the middle of September this is an awesome event if you've ever thought about investing in a bigger deal alongside a seasoned investors part of a real estate syndication or joint venture or if you thought you know what I have run out of my own money in my own ability to qualify and I still want to do deals then maybe a syndication business makes sense for you it's an amazing seminar We'd love to see you there yes a great way to combine the best of both worlds you get to combine the wonderful investment vehicle of real estate with owning your own business so instead of having to work at a job maybe that you don't like to earn money and then invest on the side you can be a full time investor managing other people's money who are busy working at jobs they love but they have money that needs to be put to work so you can spend your life working to earn money and save and investing small or you can work to raise money from wealthy people and invest big full time so that sounds interesting to you Come on out to the secrets of successful syndication we're going to meet some real live people. Started out as students and have gone on to build successful syndication businesses you're here for technical experts we're going to explain to you what syndication is how it works who you need to be what you need to learn and you know you may decide it's not for you but we think this is probably in fact I'm convinced that syndication is the single best business opportunity for the state right now and if you think you might be interested in come on down and join us with him