Every day I talk to clients across the country confused on how appraisals work, and the ultimate value of their home. I am not an appraiser, just someone with experience reading hundreds of appraisals and understanding in broad terms how appraisers come to report the value of a home.
Today I spent twenty minutes on the phone with a pleasant woman, who is convinced that her home is worth at least $210,000. We spent much of the call going through every detail of her home, which sounds well-maintained and in great condition. I know the color of the carpets and walls in every room, the materials used in the updated kitchen, and the time that went into the landscaping.
This twenty minute tour of her home didn’t change the fact that two homes of similar square footage have sold on her street recently for under $150,000. The hard truth of the current market, full of foreclosures, and short-sales came crashing down on her Reverse Mortgage dreams. With so few retail sales recently, distress sales make up the bulk of the comparable sales and are exerting unprecedented influence on appraised values.
I am not writing this to tell horror stories about appraisals (although I have some that come to mind), only in the hope that we can all be a little more realistic about today’s real estate market. Appraisals can not take into consideration the beautifully decorated kitchen, except to perhaps slightly increase the value due to the homes great condition. Appraisers look at square footage, lot size, and overall condition of the property, number of bedrooms, number of bathrooms, and features, among many other factors. They look at comparable sales within the area within a certain time period. Unfortunately, that means that if a home down the street is the same model on the same lot as yours in similar condition it will reflect heavily on your value, even if they did not put the same amount of work into the landscaping or the interior of the home.
The appraiser’s job is not to assess the value of the upgrades made to the home, but only to compare your property’s overall condition to the overall condition of other sales in the area. Homes currently on the market have no bearing on the value until they have sold, providing a current comparable sale. Until then, the home on the market only increases property inventory which can actually reduce the value of your home.
Even experienced professionals in the real estate industry are often surprised lately by low appraisals. Please, heed my advice and research other sales in your area as well as similar properties that are pending sales to be sure you have an informed opinion of the value of your home to save much heartache and frustration, and in some cases money if the appraisal comes back lower than what is acceptable.
Bill Tennant is the Vice President of Access Reverse Mortgage in St. Petersburg, FL. He is a guest contributor to the site.