I’ve lived in Chicago my whole life, and over the course of my 20-year real estate investing career, I’ve bought and sold dozens of properties. I know the Chicago real estate market like the back of my hand, and through my skills, experience, and the use of cutting-edge software tools, I can easily tell when a home is worth less than its asking price. But for years, I just accepted that appraisals were a necessary evil if I wanted to take out loans for my investments, and I was frustrated by how long that process could take. I started to wonder if there was any way to get around the appraisal requirement. I conducted some independent research and talked to other industry veterans to see if Chicago real estate appraisers are really necessary for local and experienced investors. Here’s what I found.

What Are Real Estate Appraisals?

A real estate appraisal is a professional estimate of a property’s value. If you’re borrowing money to purchase a home, your lender will almost always require an appraisal before they approve the loan. That’s because most lenders use the property as collateral on the loan, so they want to make sure they’re not lending you more money than the home is worth.

As a home buyer, you’re on the hook for the cost of the appraisal, even if it’s been required by your lender. They usually cost between $200 and $600, which isn’t much in the grand scheme of things. The bigger inconvenience is how much time it can take. The best appraisers are often fully-booked weeks in advance, with the average wait time ranging anywhere from two days to two weeks. This may not sound like much time, but this delay could mean someone else snatches up a great investment property while you’re still waiting for your loan to get approved.

There’s also a risk that the appraisal will be lower than the asking price for the home, in which case your lender won’t approve the loan. Then you’ll need to negotiate with the seller to see if they’ll lower their asking price, which they may or may not agree to do. This can be especially frustrating if another interested buyer was able to get an appraisal approved in the meantime and you’re cut out of the deal.

Are Chicago Real Estate Appraisers Necessary for Local Investors?

So that begs the question: are Chicago real estate appraisers necessary? Unfortunately, there’s no single right answer. Different types of loans have different requirements and standards, and often it’s left up to the discretion of the lender whether a real estate appraisal is needed. Let’s look at some of the most common types of real estate loans to compare the appraisal requirements, and then discuss your alternatives.

Conventional Mortgages

A conventional mortgage is the type of home loan most people are familiar with. These loans are not insured by the federal government and are thus not subject to federal regulations regarding appraisals. However, almost every conventional mortgage lender will require a full appraisal (in which a licensed appraiser fully inspects the property) before they approve a loan.

Government-Insured Loans

There are three government agencies that back mortgages: the Federal Housing Administration (FHA loans: for low-income Americans trying to buy a single-family home or condominium), the U.S. Department of Agriculture (USDA loans: for low-income Americans purchasing properties in select rural areas), and the U.S. Department of Veterans Affairs (VA loans: for military veterans). Government-insured loans help Americans with lower incomes and credit scores purchase homes, but they do have stricter appraisal requirements. That’s because properties purchased with a government-backed loan must meet HUD (U.S. Department of Housing and Urban Development) standards for safety and soundness.

Hard Money Loans

Hard money loans are typically short-term financing provided by private investors or firms instead of banks. These are asset-based loans, which means approval is typically dependent on the value of the property being put up as collateral, rather than being based on your credit score or income. Different hard money lenders have different appraisal requirements—some rely on typical appraisers, while others use a real estate broker to get an opinion on the value of the home. A broker may not actually look at the property in person, but will instead use data about the home, the neighborhood, and the current market to determine the property’s value.

An Alternative to Chicago Real Estate Appraisers for Local Investors

One option for well-qualified homebuyers is an appraisal waiver. An appraisal waiver can be issued by your lender if they believe a full appraisal is unnecessary to prove the worth of the property you’re buying, or if they’re confident in your credit score, high income, and well-established history of successfully flipping houses in Chicago.

Remember, the main purpose of an appraisal regardless of your loan type is to ensure your property is worth at least the amount of money you’re borrowing, so your lender can recoup their losses if you fail to make your payments on time. If your lender already knows the property is worth the asking price (because they’re familiar with the local market conditions, or they trust your judgment as an experienced Chicago real estate investor, for instance) then they may not feel an appraisal is worth the time and effort. Additionally, if you have a long history of purchasing homes and making your payments on time, and your income is enough to essentially guarantee you won’t default on payments, your lender may issue an appraisal waiver on those grounds.

One way to prove to lenders that you don’t need an appraisal to establish the value of a home is with a property valuation tool. This is a kind of software that uses data about the property, the local market, and the average cost of necessary repairs to determine the estimated value of a home. You can then take this information to your lender, who will decide whether to trust that estimation or order an additional appraisal. Your chances of getting an appraisal waiver will increase if you use a tool that’s trusted in the industry, such as the ValueChek™ real estate valuation app for HomeVestors® franchisees.

In fact, HomeVestors® provides numerous benefits to franchisees hoping to invest in properties while avoiding Chicago real estate appraisers. For example, they’ve partnered with a wide network of local and national hard money lenders to provide franchisees with a sophisticated lending portal. This platform allows you to compare loan offers from multiple lenders all in one spot, so you know you’re always getting the best terms. Plus, when you’re backed by a nationally known and trusted company like HomeVestors®, you’ll look much more experienced and attractive to lenders, increasing your chances of obtaining an appraisal waiver.

Want to learn more about how to invest in properties while avoiding Chicago real estate appraisers? Reach out to HomeVestors® today!

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