How does an appraisal on a house undergoing renovations work?

[barty88]

I know everyone (bankers, mortgage lender people, title guys, etc.) get all worked up and make sure the house is not undergoing any renovations for the appraisal but I am wondering what the consequences are if it is...

Long story short is that I am buying (really just a transfer on paper) rental property from my parents that was ours together all along, I was just never on the title. Anyway... the house is worth easily $600k, maybe even closer to $800k or more when done. I am buying it for $100k so the LTV ratio is not a concern.

I am doing everything right and high end... brand new hardwood flooring, custom showers, tile, new bathrooms, brand new custom kitchens with higher end Kitchenaid appliances, all new electrical and lighting, 100% new paint inside, replaced all exterior entry doors... almost a gut remodel. The issue is that while the kitchen countertops are installed the counters themselves are delayed (thanks COVID!) and wont be in for several more weeks. So the kitchens are incomplete. The counter tops have been bought and paid for (I obviously have the receipt) and the templates are done.

Question is, is the appraisal just a valuation? If so there is no worry as the property value is many many times what the purchase price is... OR... is the appraisal going to say something like 'undergoing major renovations' or 'its unlivable' due to no functioning kitchen, etc.?

 

[BRCJR]

The report can be completed "subject to" the completion of the unfinished portions of the property.

The value is only valid after the property is completed as indicated in the Appraisal Report. The lender may or may not hold funds back until completion. If the LTV is not tight the lender may just fully fund the loan and leave it up to the borrower to have the work completed.

 

[barty88]

Thanks... thats what I am hoping. With a $750k house and a loan for $75k you'd think it would be a layup but none of the things banks do make sense.

 

[glenn walker]

I know everyone (bankers, mortgage lender people, title guys, etc.) get all worked up and make sure the house is not undergoing any renovations for the appraisal but I am wondering what the consequences are if it is...

Long story short is that I am buying (really just a transfer on paper) rental property from my parents that was ours together all along, I was just never on the title. Anyway... the house is worth easily $600k, maybe even closer to $800k or more when done. I am buying it for $100k so the LTV ratio is not a concern.

I am doing everything right and high end... brand new hardwood flooring, custom showers, tile, new bathrooms, brand new custom kitchens with higher end Kitchenaid appliances, all new electrical and lighting, 100% new paint inside, replaced all exterior entry doors... almost a gut remodel. The issue is that while the kitchen countertops are installed the counters themselves are delayed (thanks COVID!) and wont be in for several more weeks. So the kitchens are incomplete. The counter tops have been bought and paid for (I obviously have the receipt) and the templates are done.

Question is, is the appraisal just a valuation? If so there is no worry as the property value is many many times what the purchase price is... OR... is the appraisal going to say something like 'undergoing major renovations' or 'its unlivable' due to no functioning kitchen, etc.?

Thanks... thats what I am hoping. With a $750k house and a loan for $75k you'd think it would be a layup but none of the things banks do make sense.

It doesn't make sense based on value but you have to understand in today's lending almost all loansare sold after bank funds them and they cant sel a loan on a property that is under construction or being--rehabbed So you do not try to get a regular conforming loan at the lower interest rate. You get a Construction - IE Re-Hab loan and after the property is completely done then you apply for a conforming 15 to 30 year loan at a lower rate. We use these and make these on smaller loans on re-habbes. Yes a higher rate but doesn't matter because we are normally done in 120 days with Re-hab and then sell it or refinance it. Now off issue but have you or your parents consulted with a CPA or Accountant because I can't imagine the Capital Gains they will pay based on signing over a $600K to $700K house for $100,000-We never structure transactions like between family members --Just Saying hope mom and pop have a lot of cash in the bank if they get audited by the IRS- In Reality when you give someone a house for a $100 K that may be worth $700K its considered a Gift and not a Sale .. Please see a CPA before doing to much because maybe you can unwind it and change how the transaction is structured .