Appraising the Appraiser

Appraisals are a judgement call. They're an informed opinion about the market value of your house. And they're the only opinion about market value that a lender will accept to support a loan on that property.

As Chicago Tribune reporter Mary Ellen Podmolik clearly outlined in a recent story, appraisals often complicate home sales. She tells what happened when one Chicago condo owner went to refinance and successive appraisals pegged the value of his home lower and lower still.
He's appealing the decision. Here are three strategies for handling this kind of scenario (with more appraisal advice at ForSaleByOwner.com's Education section):

• Track home values in your neighborhood on an ongoing basis. Make a note to review recent sales in your zip code every month, via local property records. You will soon have a comprehensive list of what has sold in an eight-block radius, and for how much. This will be a more comprehensive list than what a realty agent pulls from the local MLS. Your list will more closely mirror what an appraiser sees.
• Validate the market value of improvements. First, remember that maintenance is not the same as improvements. Put on a new roof? Maintenance. Remodel the kitchen? Improvement. Do not count on adding value through maintenance, though you will be removing barriers to a sale. Go to open houses and pull online listings for nearby houses to estimate the value added by improvements. Put this on a spreadsheet and attach the relevant listings, so you can give a copy of this evidence to the appraiser.
• Know your rights. You, the homeowner, pay for the appraisal, which is done for the benefit of the lender. But you do have the right to request an appraiser who is familiar with your neighborhood and always ask for a copy of the completed appraisal so you can review its accuracy.

Finally, Green Counts

It's about time: energy efficient upgrades now count in home appraisals.

As reported in the Hartford Courant, (which, like ForSaleByOwner.com, is owned by Tribune Co.), there has been quite a disconnect over green improvements: Federal tax incentives encouraged homeowners to add insulation, replace doors and windows, and buy appliances and fixtures that used energy and water more judiciously. Yet, at the same time, appraisers were at a loss as to how to put a price tag on the value added to a home by these projects.

As in all such disputes, the appraisers won. That left some home sellers dismayed that they did not recoup even the after-tax value of improvements they had thought would improve the market value of their homes.

Now, just in time for cold-weather sales, the Appraisal Institute has released an addendum that appraisers can use to evaluate green features. Consumers can get a copy through the Institute. 

• If you are selling, get a copy well in advance so you can rustle up the receipts and other documentation that validates the market value of your improvements.
• Have an extra copy of the green addendum on hand for the appraiser, just in case he doesn't have one. 
• Format your list of green improvements on the listing sheet to mirror the Institute's addendum so it is easy for appraisers to review and check off green features.

Image courtesy of Morguefile contributor ijy.

Pricing the Unique Property

Mark Killian doesn’t see many log homes. Not in Delaware, where he is a real estate appraiser.

And it’s certainly fair to say that of the log home homes he does appraise, few have eight bedrooms. And an in-law suite. And sit on 16 acres. And on and on.

But that is what he faced when he arrived at the Townsend place in early August. Matt Townsend was one of four winners in ForSaleByOwner.com’s “Is Your House Priced Right?” contest, which invited homeowners around the country to submit short essays explaining what they thought their houses were worth, and why. Townsend cited the size and versatility of his compound to justify a value of $550,000. And, two years ago he had rejected an offer of $540,000: surely that set a reasonable benchmark for today’s value?

Not so fast, said Killian. Unusual properties like the Townsends’ are very difficult to appraise. Unlike cookie-cutter suburban houses or high-rise condo units, there are no easy comparisons for properties that fall well outside the average. Killian estimated the property’s value by first finding other recently sold properties of similar size. From that baseline, he added value (for the Townsends’ improvements and the generous acreage) and deducted value (bedrooms 5, 6, 7 and 8 add little market value, and one bathroom has yet to be upgraded). Townsend had hoped for a value around $550,000. But Killian’s estimate was $505,000.

It’s all academic to Townsend. He and his large brood are settled in for the long term. After all, they turned down that offer two years ago because they quickly discovered that they could not find another house like theirs (they had hoped to move closer to where Townsend works). If nothing else, the abandoned sale proved what they had suspected: their place really is unique.

Estimating home value is one of the trickiest topics for homeowners today. In fact, low appraisals are forcing as many as 13% of home sale contracts to be renegotiated – down, of course, as reported this week by the Sun-Sentinel, a Florida paper owned by ForSaleByOwner.com’s parent company. Another 9% of deals were delayed while appraisal complications were ironed out. That’s 22% of all deals put in jeopardy because of mismatched value perceptions.

ForSaleByOwner.com equips homeowners, sellers and buyers with a constellation of tools, information and guides to track the value of their biggest investment. Tune in next week for the tale of a Florida bungalow built during the Roaring Twenties.

Appraisers Kick Some Assets

Appraisers are annoyed that real estate agents blame them for the downward spiral in home values.

It’s true that it's appraisers's jobs to reflect the current market value of a property, not what the buyer or seller wishes it was. But as the spring selling season heats up, appraisers are getting a fresh dose of insult.

Exhibit A: this week’s story in  USA Today, which outlines the mounting friction between realty agents and appraisers. Recent research conducted by the National Association of Realtors found that low appraisals killed 10% of pending house sales in 2010 – and forced an after-the-fact price reduction for 15% more home sales.  Low appraisals have wiped out as much as 30% of new-home sales, according to homebuilders.

In New York, where real estate is a blood sport, the Brick Underground blog reports  a couple of l strategies for fighting a too-low appraisal: 

• ask the seller to owner-finance the difference between the appraised value and what you are offering, 
• present evidence of a bidding war that supports the hotness of the house

Both of those tactics are probably most successful in New York. Here’s one more that is relevant no matter where you live:  understand the current standards applied by lenders in your area, so you know what your buyer is up against.  

• Ask a lender in advance what kind of documentation successfully supports home prices in pending deals 
• Make sure you have that documentation on hand
• Be there for the appraisal, and make sure that the  appraiser makes the connection between the documentation (of improvements ) and what he sees

Appraisers make mistakes. We’ve seen appraisals that were off by hundreds of square feet; that overlooked entire bathrooms; and that did not count the value of very recent improvements.  Ally with your buyer and review the appraisal together.  You just might find enough omissions to get a do-over…and keep your deal on track. 

Image courtesy of Morguefile contributor Kevin Rossell.