When buying a home or vacation cabin, one of the most crucial steps in the process if you’re working with a lender is the appraisal. Appraising the value of a property can be one of the most challenging, and probably the most stressful, aspects of the process for buyers. This can be especially true in a market where appraisal values don’t reflect where the market is at in terms of purchase value. As I discussed in last month’s article, this is mostly because lender appraisers are looking at the value of the property in a different way than everyone else, and with a different purpose. The purpose of a lender appraisal is to determine how much the lender can sell the property for in the event of a foreclosure. So even though the buyer is paying for the appraisal, the appraiser making the determination is actually working for the lender.
In our market, as we continue to work with a low number of properties for sale, the sales price of cabins has continued to rapidly increase over the last 12 months. We’ve seen a slower pace on our local residential market, but home values are also increasing. If you as a buyer have an appraisal that comes in under the offer price, that doesn’t mean you won’t be able to buy the home. You and your agent have a few different options to help you work out a solution with the seller.
Ways to address the appraisal
The first thing I tell my buyers when the appraisal comes in lower than the purchase price is, “Don’t panic.” We look over the appraisal report and re-evaluate our own comparable group of sold listings to see if we’ve missed something about the property. An appraiser can go back as far as 12 months, and is required to first use anything that’s sold within the same subdivision or resort community. The appraiser is limited on what he or she can do to review those sold properties. They rely heavily on MLS and tax records, so when those documents aren’t completely up to date, it can skew the data in a way that might hurt your appraisal.
Once we are certain our offer was appropriate for the market, if we’re comfortable with it we will ask the seller to agree to reduce the price to match the appraisal value. Remember, the lender won’t borrow on more than what the home is determined by the appraiser to be worth, so if the seller won’t lower the price then the next choice will be to see if we can split the difference with the seller or simply agree to pay more out of pocket. So for example, if the purchase price is $200,000 but the appraiser determines the value of the property to be $190,000, then you would have to either get the seller to agree to reduce the price by up to $10,000 or work out how to pay that amount out of your own pocket.
As a last resort, we can try to work with the lender to resolve it, but the truth is it is very hard to get an appraisal value overturned once it has been determined. We absolutely cannot pressure appraisers to price the appraisal value of the property at the amount a buyer offers a seller.
Next month, I’ll share some ways I help sellers to price their property correctly so that the appraisal value meets the expectations correctly. In the meantime, if you have questions about appraisals or anything else regarding the local real estate market, I and my staff are always available!
If you love the mountains, you will absolutely adore the gorgeous, up in the clouds Smoky Mountain View from this top Sherwood Forest rental income producing cabin.
If you’d like to schedule a visit or have other questions about how to make rental income with this property, call me at 865-765-6157 or 865-654-2111.
You’ll be “Steppin’ on the Clouds” in this gorgeous eight bedroom rental cabin in Wears Valley. This is a fantastic income-building investment, on track to pass $170,000 in gross rental income this year!
With its absolutely magnificent panoramic 180-degree views of the Great Smoky Mountains, you and your guests will love relaxing in front of one of the best views of the National Park any rental cabin here has to offer. Enjoy the cabin’s large fire pit or hot tub, or make your way over to the nearby resort at “The Preserve” to go swimming in the pool. Best of all, this cabin is just minutes from the National Park!
You’ll find plenty of activities inside this eight bedroom rental as well, ranging from the cabin’s fully outfitted gaming room with air hockey, foosball, and a pool table (not to mention an arcade game system). The cabin also houses a fantastic huge theater room. The cabin’s design includes handsome tongue-and-groove, gleaming large wood beams, walls of glass, and a stone fireplace centerpiece. It’s the perfect place for a relaxing vacation getaway, and can sleep up to 28 guests.
To learn more about this eight bedroom rental cabin, click here.
If you’d like to schedule a visit to see this eight bedroom rental cabin, contact me at 865-765-6157 or my support line at 865-654-2111.
Due to our low number of properties on the market, we have seen prices continually climb on what’s available over the last nine months.
Many of you who follow our monthly newsletter and keep up with the articles we write each month about buying and selling properties in the Great Smoky Mountains region either currently own, or have owned properties, here in the past. Many of you also are in the market for something else to own, either in addition to what you have now or as an “upgrade” to your current vacation/rental cabin. And you’ve probably been keeping up with our articles about how the market has changed. It’s a sellers’ market – not just here, but in a lot of places around the country. The number of homes for sale is down from where it was a year or two ago. So when something new comes on the market, it really doesn’t stick around that long.
It’s true. Many listings in our market have offers within a matter of days if they are priced correctly (especially when they are priced a little under) current market values. My agents and I have had listings that were “under contract” within as few as three days. We frequently tell clients at showings, “This won’t be on the market next week.” It’s just where our market is right now.
So what can you do? Well, the first thing to keep in mind is that the deals of last year are gone. If you do stumble upon something that’s brand new to the market and it is priced low, the offers that come in are going to be above asking price. The winning buyer won’t be placing any sort of contingencies on the offer, and you can forget about negotiating back and forth through a series of offers and counter offers. While you’re trying to get a discount on the price, someone else is coming in with a full price – or above asking price – offer that’s going to win. It’s a tough place for a lot of buyers to be, especially ones who have bought in our market in the last few years after the downturn, but it’s important to know that going into any offer you want to submit. Those days are over, at least for the time being.
Secondly, as prices are going up on properties, rental rates are rising along with it at many of the rental companies in our area. Large cabins are not as readily available for purchase as they once were, and so smaller cabins have quickly become the focus. We’ve also seen a significant reduction in sales of cabins in our more popular resorts, such as Sherwood Forest and Legacy Mountain. Where once there were about a dozen or so cabins for sale in each those areas at any given time a year or two ago, today there is half or even less than that. But the good news is that there are still strong investment properties to purchase that will cash flow positive every month. We are also building again so new construction may be a really good option for you. This market is not for the timid.
This year, about a third of the properties I’ve listed have sold at or above asking price. We’ve had some where we ended up with multiple offers, even in places that haven’t traditionally been high demand areas in the past.
When national investors have analyzed the entire United States, Sevier County comes up in the top ten places to invest for overnight rentals. It’s also one of the most beautiful and inexpensive places to retire. So be a good student of what is available and don’t be shy about an offer on a good property. If you can accept that, you will have a solid investment for years to come, whether it is your personal residence or an overnight cabin or chalet.
In the meantime, if you’d like to know more about the current market and where we are probably headed – whether you are buying or selling – my staff and I are always here to answer questions.
When buyers contact me about buying a vacation rental cabin that is at least partially for investment purposes, the hottest question on their mind is how well a property will do as a rental! They are focusing right where we need to: finding a property that will perform well on rentals is essential! Sometimes the next thing I hear from them is “I only want to look at cabins that have a great rental history.” I love their spirit! However, as I share at this point in the conversation with them, just because a cabin isn’t currently earning a high dollar amount, doesn’t mean it won’t. As a matter of fact, I usually am most interested in finding them a cabin that someone is making a mistake on because my staff and I are able to analyze the mistake and correct it.
The ability of a cabin to be profitable is based on a variety of criteria. Perhaps the current owners prefer to use the cabin more often than a new owner will. Maybe the cabin doesn’t have the right décor to attract guests. Sometimes it’s not being marketed as competitively as it could be. Once we identify the exact causes of a low rental income report, we can determine whether or not it’s something that can be corrected before we decide if this is the right cabin for you. If you purchase a cabin that is already performing at the top of its potential, you are most likely going to pay the highest price possible. This is not usually how I like my buyers to spend their money. I love to find a cabin that we can purchase, say, for $300,000, then make about $10,000 worth of changes to make it worth $350,000. And where it was doing a gross rental revenue each year of $40,000 before, now with our changes it is going to reach $60,000. That is the win we are looking for to make it a profitable cabin!
Over the years, I have put together a list of resorts based on discussions with past clients, with rental companies we maintain great relationships with, and from reviewing listings based on how they tend to perform on the rental market. From those discussions and reviews, I am able to keep track of how the rental cabin market is doing overall and which ones are producing the highest levels of income overall for their clients. When it comes to resorts, the ones that generally perform the best on the rental market are located in places that are easily accessible, have great mountain views or pristine Smoky Mountain forest views, are close to shopping and/or tourist attractions, or some combination of the above. While this is not always true for every single cabin, it is a great rule of thumb for our area. One to two bedroom cabins on rental with the strongest performing resorts will be routinely earning up to $45,000 in gross rental income, while 3 to 4 bedroom cabins in the same locations will be performing around $60,000 on up. Larger cabins will produce $100,000 and above with the right combination of amenities, marketing, and views of the mountains!
Average rental incomes in profitable cabins
The “medium range” resorts tend to do a little more than half what the top-end resorts collect in rental income based on cabin size, number of rooms, and amenities. Meanwhile, 1 to 2 bedroom cabins at the lower end of gross rental amounts will bring in between $18,000 and $30,000 and 3 to 4 bedroom cabins will generally produce between $25,000 and $38,000, on average. With that being said, I do tell prospective buyers not to discount a cabin based on rental history – even if it’s in a lower producing area – until we’ve had a chance to look at why that might be happening. For example, if the cabin is on a high point in the resort and has a great view into the Smokies, it could produce a great deal more than the average for that particular area. Or maybe it’s being used primarily as a vacation destination for the owner during peak season. In that case, the next owner looking at it strictly for investment purposes will do far better with rental income than the current owner has. So it’s an art and not a science, but the performance of cabins can be predicted.
The search for the “perfect” profitable cabin will be an analysis of a group of important characteristics. By the way, we do have a report that just targets those characteristics. It is called “What Makes a Profitable Cabin?”
Our featured “Cabin of the Month” for June is a great investment property in Gatlinburg!
You can learn more about this investment property here.
I am so excited! It’s that time of year when the Smoky Mountains show off that famous “Blue Smoke.”
Many of you are of Cherokee descent like me and it just seems right! The Cherokee called it “Land of the Blue Smoke.” Shaconage was their word for it. You pronounce it “Sha-Kon-O-Hey”! Sounds so good, right?
When thinking about the best real estate investment ever, think about purchasing a cabin with a view of the Blue Smoke. The fact that it changes all day with the weather is superb. Sometimes it disappears and then an hour later, mountains upon mountains appear like from nowhere. It’s part of the joy that visitors have when they come. It is equivalent to buying beachfront property. Of course, you may have to “wait” for the property to come along and sometimes there is a compromise on the fact the drive is a little “crazy”— but weigh it out. The drive can’t be too crazy. Maybe you should load up your grandmother and your two year old and see if any one throws up breakfast. If so, no matter how amazing the view you need to pass. But if you can put it on your list of top wants in a property that would be good.
Just as a side note, where does all that blue smoke come from? Volatile organic compounds, or VOC, is fog from vegetation. The plants take in carbon dioxide and give off oxygen. The VOC’s refract light that results in gorgeous bluish tint. They have a high vapor pressure, which means they can form vapors at room temperature. Millions of trees, bushes, and other plants create a concert of VOC’s and we have Shaconage. This is also shared with the Blue Ridge Mountain range. As I was born on the Blue Ridge Parkway in Galax, Virginia, perhaps it is in my blood. Some of you might know that Galax is an awesome mountain bush but also home of the Fiddler Festival known nationwide for great Bluegrass.
But back to great investments. So what is a view worth in dollars and cents? An appraiser will often not give value for a “view,” but in reality a lot without a mountain view might be worth $40,000. The same size lot on the top of that resort will be sold for $90,000. And rental revenue from a cabin with no view will be $70,000 a year on a typical well outfitted 3-bedroom with a view. Add another $15,000 or more of gross revenue a year. It makes me love Shaconage even more!
However, do not despair if you cannot find the mountain top view of Blue Smoke. I have several alternatives for you that will get you very close to if not on the mountain top itself. I can help you find a cabin on a water amenity, such as a creek or waterfall, or perhaps a place on a small mountain with a lake of its own! Find a cabin with a pristine private view where your guests feel like they are Adam in Eve in the garden of Eden before they had kids! When you find the private setting, place a fire pit or a garden to meditate in, or a walking path to go exploring. And last of all stack your cabin with fantastic amenities such as giant screens with a home theater, crazy arcade games, driving games, shooting games, putt- putt courses, sauna’s, and gourmet kitchens to make our local chefs envious.