During periods of economic growth, when home values are typically just going up, most homeowners do not question appraisals much. In times of turmoil when property values are declining, home sellers and even listing agents quite often question and pick apart appraisals.
Appraisal Myths / Questions:
“I just put $15K into the property, why isn’t the appraised value higher? “
Not all improvements to a property are equal in producing added value. A local real estate investment club used to tout buying a run-down, roach-infested property cheap, and after de-bugging and adding a fresh coat of paint and carpet – *presto* – the house would appraise like the new homes up the street.
Even with cosmetic repairs, the property may still be much more comparable to the foreclosure next door than the new home a block away. Look first to the “guts” of the property, the electrical, heating, etc.. If they are updated, then the number of beds/baths and square footage are the next biggest weight, followed by a genuine updating of cosmetic improvements.
“But my home really compares to some of the properties in the neighborhood across the way…”
For example, if a homeowner preparing a house to sell adds $150,000 in upgrades to the kitchen, built-in cabinets and flooring, it may help the property show better in an open house and in magazine advertisements. The home now looks like some of those homes in another nearby neighborhood where they are selling for $750,000.
Keep in mind that appraisers will always use homes from the actual neighborhood to establish value versus going down the street or across a highway.
If homes in the immediate neighborhood are selling for around $450,000, those are the homes the appraiser will lean on for value. In this situation, the seller simply over-improved their home for their specific neighborhood.
“This appraiser included foreclosures as comps – that’s not fair”
It isn’t fair, especially if your home is well-kept and in great condition compared to the run-down foreclosures in the neighborhood.
Unfortunately, if every recent sale, or nearly all sales, are foreclosures at reduced prices, then the appraiser is forced to use the recent sales and trends as comparable values. High foreclosure rates generally depress values and show a trend of lowering prices.
And abnormally high foreclosure rates generally depress values and show a trend of constantly lowering value.
“But I just put in a $50K pool, doesn’t that count for anything?”
Pools and professional landscaping rarely see a dollar for dollar value add on a property. The value is going to mainly be based on comparable sales in a neighborhood.
“How can similar homes in the same neighborhood appraiser for such different values?”
This is a typical question for older neighborhoods where similar models may have drastic price differences. Additional rooms and square footage can be the main reason for one property appraising higher than another.
Keep in mind, just because the market trend in a particular neighborhood is improving over time, the individual properties need to meet the same conditional improvements as the others in order rise with the tide.
Things that the appraiser “looks” at?
An appraiser is looking at several things when determining the value of a property: improvements, size and square footage of the living area, neighborhood amenities, location and the market trends around the area.