Appraisals in Private Lending: What the Valuation Covers, and When to File a Reconsideration of Value
An appraisal on a business-purpose loan is doing two jobs most borrowers only expect one of. On a fix-and-flip file, it’s valuing the property twice — once as it sits today, and once as if the renovation is already finished. On a DSCR rental file, it’s not estimating value in the way you’d think; it’s pricing the unit’s rent against comparable leases, because that number, not an online estimate, is what sets your leverage. Get either number wrong and your loan amount moves. Here’s what the report actually measures, and what it takes to get a number corrected instead of just disputed.
As-Is Value vs. ARV: Two Numbers, One Report
A fix-and-flip appraisal for a fix and flip loan returns two figures: the as-is value — the property today, before any work — and the after-repair value, or ARV, based on comparable sales of already-renovated properties nearby. The loan amount is capped by whichever is more restrictive: a percentage of total project cost (purchase plus rehab), or a percentage of ARV — currently up to 90% of cost for light rehab with an experienced investor (85% with some experience, 80% for a new investor), and 75% of ARV, as indicative figures.
Here’s the arithmetic on why a disappointing ARV costs real money. Say a borrower with some flip experience is buying a property for $200,000 and budgeting $70,000 in rehab — a $270,000 total project cost. At 85% LTC, the cost-based cap is $229,500. The borrower’s own comps suggested an ARV of $320,000, which at 75% ARV would allow $240,000 — above the cost cap, so cost is the binding number and the file prices at $229,500. Then the appraisal comes back with an ARV of $295,000 instead of $320,000. At 75%, that’s a new cap of $221,250 — now below the cost-based number, so ARV becomes the binding constraint. The loan amount drops by $8,250, and the borrower has to bring that difference to closing in cash. Nothing about the deal changed except which comps the appraiser chose.
DSCR: The Rent Schedule Decides Your Ratio, Not a Listing Estimate
On a DSCR rental loan, the appraisal includes a rent schedule — a comparison of the unit against three to five similar rentals that have actually leased nearby, not an algorithmic estimate from a listing site. That number is what gets divided by PITIA to produce the debt service coverage ratio the program is built around.
Run the numbers on a $240,000 purchase at 80% LTV — a $192,000 loan. At a representative, indicative 7.00% rate on a 30-year amortizing structure, principal and interest run roughly $1,277 a month; add taxes, insurance and any HOA dues at a combined $280, and PITIA lands near $1,557. If the borrower’s own online rent estimate was $2,100, the implied DSCR looks like 1.35x. The appraiser’s rent schedule, built on three leases within a mile that actually match the unit’s bed count and condition, comes back at $1,850 instead — and the real DSCR is 1.19x. Still comfortably above the program’s 0.75x floor for 1–4 unit properties, but a $250-a-month gap between what the borrower expected and what the comps support — and it’s the comps that decide pricing and leverage, every time.
| Worth filing | Not worth filing |
|---|---|
| The appraiser used comps outside the defined radius when closer, more similar sales existed | You simply believe the property is worth more |
| A factual error — wrong square footage, missed bedroom, wrong lot size | The market softened after your purchase contract was signed |
| Comparable sales closed after the effective date that the appraiser should have considered | A competing online estimate (Zillow, Redfin) disagrees with the report |
| The rent schedule used units with a materially different unit mix or condition | You found one higher comp a mile outside the defined search area with no other support |
Filing a Reconsideration of Value
A reconsideration of value, or ROV, is a formal request to the appraiser to revisit specific, documented points in the report — it is not a renegotiation and not a second opinion. A credible ROV package includes at minimum three comparable sales or leases the appraiser didn’t use, each with an explanation of why it’s more representative than what’s in the report, or a specific factual error with documentation attached. Most private lenders route the request back through the appraisal management company (AMC) that ordered the report, not directly to the appraiser — a separation that exists because of the Dodd-Frank Appraiser Independence Requirements, which prohibit a loan officer or borrower from pressuring an appraiser’s value directly. Expect five to ten business days for a response, and expect lenders to allow one ROV per file; a second round without new evidence is usually declined outright.
When This Is the Wrong Call
Don’t file an ROV because the number disappointed you — file one because the report has a specific, documented error. If the comps the appraiser selected are defensible (right radius, right condition, right closing dates) and the objection amounts to “I think it’s worth more,” a reconsideration will fail and cost the five to ten days that could have gone toward restructuring the deal instead: bringing more cash to close, adjusting the rehab scope to a number the ARV supports, or walking away before non-refundable earnest money is at risk. If the gap is large and the borrower’s own comps are genuinely strong, a second, independent appraisal is often faster and more productive than fighting the first one — ask what that costs and how long it takes before deciding.
None of this is a borrower’s own analysis replacing the appraisal. It’s the comps, the scope of work and the actual report that drive the number a file closes on. Treat indicative program terms as a starting point for planning, not a quote, and check the FAQ for how documentation requirements vary by program before ordering anything.