What do I need to submit to my fix and flip lender before ordering an appraisal?

Estimated reading time: 5 minutes.

Post outline

1. When is an appraisal ordered?
2. Variation in documents required
3. Loan application
4. Purchase contract
5. Scope of work
6. Conclusion

When is an appraisal ordered?

An appraisal is a document that gives an indication of the value of the investment property. For a fix and flip project, the appraisal will include the as-is value of the property (the value of the property as it currently sits), and also the after-repair value of the property (the value of the property after the renovation work has been completed).

Appraisers, the people who generate the appraisal report, will typically look for properties that are similar in type, features, and location to determine an accurate valuation.

The appraisal is one of the most important lender documents, and is almost always required. The exception to this would be a lender with extremely specific geographic knowledge, or underwriting guidelines that allow them to forego an appraisal.

The appraisal is typically ordered in the middle of the loan process, or sometime between the preliminary intake/application and the loan closing.

The reason the lender doesn’t want to order an appraisal too early is because an appraisal can be costly to the borrower, and the lender wants to make sure the loan has at least a reasonable shot of closing before ordering one. On the other hand, the lender doesn’t want to order an appraisal too late in the process, because a lot of information will have been processed at that point without having a full understanding of the subject property’s value.

Having said that, the appraisal is generally ordered sometime after initial processing and before final underwriting.

Variation in documents required

There may be some slight variation in documentation required to order an appraisal amongst lenders. For example, at Albeca, we generally just require a purchase contract and a scope of work before ordering an appraisal.

Without a purchase contract, it is difficult to tell if a deal is actually going to happen. Likewise, without a scope of work, it would be impossible for the appraiser to pin down the ARV (after-repair value) of the subject property. 

Some lenders may require that a loan application also be filled out before ordering an appraisal, so you will have to check with your fix and flip lender to get a full understanding of the required documentation. 

We’ll review these potentially required documents in the next section to ensure solid understanding.

Loan application

The exact loan application form for a fix and flip deal will vary by lender, but broadly speaking it incorporates elements that are critical to underwriting your financial situation and your deal. Below is some of the information you can expect to reveal in a full loan application:

1. Personal financial information, e.g. liquidity, FICO score
2. Experience, e.g. similar deals done within a specific timeframe
3. REO or real estate owned
4. Details on the subject property, e.g. as-is value, purchase price, rehab work, ARV

Again, the exact information requested will vary by fix and flip lender, as underwriting guidelines vary by lender.

Purchase contract

The purchase contract is an agreement between the buyer (also the borrower) and the seller of the investment property. 

Purchase contracts also come in different forms, but generally contain the following elements:

1. The subject property address
2. The purchase price
3. The purchase date
4. Financing contingency
5. Signature form

The financing contingency portion is perhaps the only portion of the purchase contract that is not self-explanatory. 

The financing contingency shows whether or not the borrower’s purchase is contingent on obtaining financing.

Scope of Work

The scope of work is a document that shows the line items of rehab work to be completed as well their respective dollar amounts.

Some lenders have a specific scope of work that they want the borrower to fill out, while others will accept a borrower’s own version so long as it has the required information.

As mentioned, there are generally two important bits of information that are included in a scope of work for a fix and flip project:

1. The line item of work
2. The cost ($ amount) of that line item

Simply put, the scope of work tells the lender what work will be done to fix the subject property up and get it to its ARV, and how much that work will cost.

The scope of work is extremely helpful in an appraisal, because a fix and flip appraisal states not only the as-is value of the property, but also the expected ARV or after-repair value of the property. In order to accurately assess the after-repair value of the property, knowing how much work and what kind of work will be done is crucial.

Conclusion

An appraisal for a fix and flip is a document that shows both the as-is and ARV (after-repair) value of an investment property. The appraisal is generally ordered after initial processing and before final underwriting. Before ordering an appraisal, many lenders require that you submit some or all of the following documents:

1. Purchase contract
2. Scope of work
3. Loan application

The forms of each of these documents will vary, but often contain common elements.

Do you need financing for a current or upcoming fix & flip?

If so, you can fill out our preliminary application at this link to get started.