Is it okay to share a previous appraisal with the appraiser?

I was asked a great question recently. Is it okay to share a previous appraisal with the appraiser? I would say YES and NO. Here are a few thoughts. Anything to add?

Sacramento Appraisal Blog- sharing a previous appraisal

1) Data: It can be valuable at times for an appraiser to see what a previous appraiser did, especially if the property is complex. After looking at a colleague’s work, an appraiser might pick up on some insight or glean ideas for how to approach valuing the property. This happened to me a few years ago as I found out about an important easement and an illegal structure after an attorney gave me a copy of a previous appraisal. I still had to make sure the appraiser was correct, but it was nice to get a heads-up by someone who did a great job a couple of years prior.

2) The only appraisal that matters: We have to realize the only appraisal that really matters is the one the current client is going to rely on. A previous appraisal might not cut the mustard so to speak, so sharing something that isn’t any good doesn’t mean much for the current appraiser. For example, I was asked to appraise something for a private loan and the owner shared a previous appraisal with me at $1.2M. Yet this appraisal done during a conventional refinance was definitely inflated by a good 20% unfortunately. Keep in mind a previous appraiser might have included a detached structure’s square footage within the square footage of the main house, but just because it played out that way before does not mean it should happen now (I have a blog post on that here). Also, just because it appraised at a certain level before does not mean a new appraiser is going to think that is anywhere near acceptable. 

3) Sharing a specific number: I was recently hired to appraise a property for a cash buyer and there was an appraisal done already from a prior buyer’s loan. The Listing Agent told me, “We had an appraisal done at $425,000 two weeks ago”, though I was not provided the appraisal. This to me seemed like more than anything the agent was trying to influence my value. I’m not saying the agent was slimy or unethical at all. I’m just saying had the agent said, “We had a previous appraisal done. You are welcome to see it if you want,” it would have felt much more like the agent was making data available rather than subtly suggesting the contract price was a reachable target for value. This might sound like I’m playing semantics or being anal about words, but the words we choose matter, and how we say things can be interpreted as influencing an appraiser or not.

4) Difference among appraisers: Some appraisers will not accept a previous appraisal because they feel like it might impact their objectivity, but others will. I don’t think there is a right or wrong answer here as everyone needs to walk out their own sense of morality. Personally I tend to accept previous appraisals in most cases because I like to see how a colleague handled a valuation and I like to double-check my sketch measurements. Moreover, sometimes it helps me prepare my report because the client might be expecting a wildly different value than what is able to be supported. Yet if an appraisal was presented to me in such a way as to influence my value or pressure me to “hit the number”, I would definitely decline and simply say “No thanks. I don’t want to see it.”

Recommendation: In short, in my opinion it’s okay to share a previous appraisal with an appraiser, but it really matters how it is done. If you have a previous appraisal, I might suggest you use my Appraiser Info Sheet to share information appraisers tend to ask about, and then say nothing more than, “I have a previous appraisal if you want to see it.” If the appraiser doesn’t want it, that’s fine. If the appraiser does, that’s fine too.

Questions: What is #5? Which point stands out to you most? Did I miss anything? I’d love to hear your take.

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5 things to remember about the value of landscaping

How much value does landscaping really add? Nothing. A minor amount. A huge total. I’ve heard it all when it comes to what people think landscaping is worth. Today let’s kick around some ideas from an appraisal standpoint. Anything to add?

landscaping in appraisals - sacramento appraisal blog

5 things to remember about the value of landscaping

1) The myth of no value: I’ve heard the sentiment from some real estate professionals that landscaping does not count toward the value. My take? Landscaping is often very important to buyers – especially when it is extensive or highly expected in certain neighborhoods.

2) Front vs back: My sense is front yard landscaping does not sway buyers like the backyard does. I’m not saying it’s not important or curb appeal doesn’t matter (it does). I’m only saying the rear yard tends to make a much more significant impact on value since people spend more time there.

3) One size doesn’t fit all: The value of landscaping will vary significantly depending on the price range and neighborhood. For instance, a few years back during the height of home flipping activity, it was common to see flippers at the lower end of the market do very basic cosmetic landscaping in the front yard while doing almost nothing with the backyard (seriously, rear yards were at times just dirt or bordering on unkempt). In contrast, higher priced homes were getting full-service attention in both the front and backyard. Why? Because the market had different expectations by price range and the investors’ sense was spending the money was worth it in some neighborhoods and not others.

4) On par after huge money spent: Sometimes owners will spend good money to redo an unkempt yard only to expect a huge price premium. The problem is post-landscaping the owner is now basically on par with other homes in the neighborhood rather than in a position to command a premium. This is not easy to swallow, but it’s important to recognize in order to avoid overpricing. 

5) Dollar for dollar: While we like to get a “dollar for dollar” return on our improvement projects (at the least), that’s not always possible in real estate. So when an owner says, “I spent $125,000 in my backyard” and otherwise similar homes are selling for $700,000, can we really expect this property to be worth $825,000? That’s probably not realistic, right? Most of all though, let’s find comps with incredible landscaping and let those properties tell the story of value. That way we are letting actual market data speak to us to set the tone for what buyers have been willing to pay for similar landscaping. Isn’t that better than shooting from the hip about what landscaping may or may not be worth?

Case-in-point for an incredible backyard: While appraising in the Natomas area of Sacramento I came across a house with an incredible backyard. I ended up NOT using it as a “comp” because this property sold about 10% higher than others because of the built-in pool, custom covered patio, built-in BBQ, outdoor fireplace, and everything else in the yard. I’m not calling all of these things landscaping of course, but at the same time let’s be realistic to think buyers may lump some of these items in the same category. Anyway, at times it’s tempting to give a token $10,000 upward value adjustment when we see a nice rear yard because that’s what a mentor taught us to do, but sometimes the market is willing to pay more like 10%. In this case otherwise similar homes seemed to come in around $450,000 and the subject sold for $495,000 (there were 7 offers). There was one other sale at $485,000 and it also had a sweet backyard. As you can see on the graph, the incredible backyard seemed to really matter.

incredible landscaping - sacramento appraisal blog

Here is what the rear yard looked like. I could live with that. You?

house with amazing rear yard - sacramento appraiser

Remember, let’s find a few examples of extensive rear landscaping (or an amazing backyard) if possible so we don’t base our perception of value on only one sale. After all, what is that one sale sold too high or too low?

The Washington Post: Two weeks ago I wrote a post about the ugly side of appraisal fees, and as a result Ken Harney of The Washington Post interviewed a handful of appraisers (including me) for a piece that went live today. Ken is a nationally syndicated columnist, so the conversation that took place here is going to be moving to a much bigger level. Thank you everyone. Here is Ken’s article.

Questions: What stands out to you most about what I mentioned above? What is #6? Did I miss something?

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When value is higher on one street than another

The cookie cutter tract homes are the easy ones, but sometimes value can change dramatically from one street to another – especially in older eclectic areas. Maybe you’ve seen this before after pulling comps and finding a huge disparity in prices. Today let’s look at an example of this happening to me recently. Any thoughts? I’d love to hear your take.

value higher on one street - sacramento appraisal blog

Values are sometimes all over the place, and that’s exactly what I saw when appraising a house in Carmichael. Take a look below at the graph. How do you think the subject street fits into the market?

Subject street in Carmichael - Sacramento Appraisal Blog

Value Conclusion: When we look at the graph with over 17 years of neighborhood sales, it’s clear properties on the subject street tend to compete toward the mid-to-higher end of the market range (even when they aren’t all that updated). Keep in mind every sale on the graph is between 1600-2100 sq ft, so we are looking at a tight range over a long period of time. You can also see there is a range where most properties have been selling between $350,000 to $500,000 lately.

Some tips for seeing the market in eclectic neighborhoods:

1) Pay close attention to subject street sales: There were 7 available sales for me to look at on the subject street over the past two decades. This might seem limiting, but it’s much better than zero, and ultimately it means I have seven data points that might help me see the context for how the subject street fits into the market. Of course we always have to use good professional judgment and not get caught up in giving too much weight to very little data. 

2) Look through years of data: In an eclectic area where values seem to be all over the place it’s a good idea to study the market by looking at years of sales. The goal is to know how value works and be able to see which streets or types of properties are fetching price premiums. When looking at areas like Fair Oaks, Carmichael, and East Sacramento, this is very key. In this case I appraised the subject property around $450,000, but there were sales within blocks that were coming in between $350,000 to $375,000 with seemingly superior upgrades too (probably why Zillow had this one at $378,000). After studying the market and carefully comparing previous sales on the subject street it was clear the subject street sales were competing at a higher price tier compared to other streets. It would have been a shame if I hastily pulled up three “comps” and brought this one in at $350,000 when the market was clearly willing to pay more.

3) The feel of the street: On paper it might look like we are pulling good “comps”, but then after driving by other streets we might see a lower quality of construction, or unkempt homes, or maybe a negative influence from commercial property.

4) Real estate community: It’s helpful to talk with other real estate professionals who know the neighborhood. I find most real estate agents and appraisers are actually pretty helpful when you call to say, “Hey, I have a question. May I bend your ear for a minute?” I realize not everyone is receptive to talking (lame), but that doesn’t take away the importance of building good relationships in the real estate community so we can exchange information. My advice? When people call you, be the type of person you wish everyone else was. Bottom line. All things considered, it is worth noting we still have to be careful not to impose someone’s perception of the market on our value. So let’s seek insight from others, but let’s also not forget to look at actual data and support the value we say exists.

5) Learn to graph so you can see the market: The graph above was part of my research and it helped me visualize the market. I know, here I am mentioning graphing again, but I only do that because it’s revolutionized the way I see the market. Anyway, here is a tutorial I made for learning to make a basic scatter graph in Excel. If you didn’t know, there are a couple of programs you can use to quickly export neighborhood data from MLS to make graphs. I might suggest looking at Don’s 1004MC program (for locals and some other states (right now his site is down)) and Trendsheet (covers many states). These programs are built for appraisers, but I tell Realtor friends all the time to consider using them and just skip the appraiser stuff. 

UPDATE: I was asked by several people in the comments and by email how to make a graph like the one above, so I made a video tutorial. Check it out here or below.

I hope that was useful or interesting.

Questions: What is #6? Did I miss anything? How do you figure out if there is a value premium for a certain street? How do you avoid choosing the wrong comps? I’d love to hear your take.

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How much value does a huge backyard shop add?

A friend asked me a great question this week. How much value does that huge shop in the backyard add? He wasn’t sure how to pull comps, so I scratched out a few thoughts. Anything to add?

large workshop or garage value - sacramento appraisal blog

1) The market: Can buyers use whatever the structure is? Will they pay for it? These are good questions to ask. At times home owners build things that are so specific to their own needs that the market really might not even want it (or maybe buyers will simply use it for something else). I think of Michael Jackson’s Ferris Wheel at Neverland Ranch or a $125,000 recording studio in the backyard of an area of Sacramento where values are about $225,000. There might be one buyer out there willing to pay a premium, but does that one buyer really represent the market? Remember, lenders are going to lend based on the market.

2) Find something similar: The best way to uncover value for a large workshop is to find a few examples that have sold. Keep in mind we might not find something exactly the same, but we have to do our best to find something we might think of as competitive. In a rural market there are likely many examples, but in a residential market we might have to pour through years worth of sales to find a large workshop, detached garage, or some other competitive structure. We can then compare these sales to others in the neighborhood at the time. How much of a price premium was there if any? For example, I did a search in the Tahoe Park neighborhood and found some large detached structures by looking in MLS under Garage (I selected 3 and 4 detached), # of Garage Spaces (I selected more than 3 spaces to see what structures I could find), and Other Structures (you can select things like “Workshop Building” or “Outbuilding” under this category). It can be tedious to search in MLS, but sometimes it’s surprising how quickly something will come up.

Tahoe Park search

3) Cost: Let’s consider the cost of the structure so we are in tune with quality. This doesn’t mean the market is going to pay more just because it was expensive, but the market will likely recognize quality and pay more for something that is nice (and usable). Home owners often want the market to pay the full cost of whatever was built, but there’s a fat chance of that happening because when people buy something used they tend to expect a discount.

4) Make Something Up: I’m kidding on this one, but I will say at times in real estate we have to use professional judgement when data is extremely limited. This sounds so wishy washy, but there is something to knowing a market and coming up with a range for what we think a group of buyers might realistically pay. In this case we might not give a specific value adjustment for the structure, but we can always consider the value of it in our final number. What I mean is we might see a range of value in a neighborhood for similar properties and end up reconciling the final appraised value for the subject property toward the higher end of the range because the subject has more assets. Be careful on this point though (and don’t spend two minutes on research and simply go straight to #4).

Questions: What is #5? Did I miss anything? How would you figure out the value? I’d love to hear your take.

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