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final reconciliation of value

How do appraisers choose the final value?

February 27, 2014 By Ryan Lundquist 6 Comments

A decision has to be made at some point. Appraisers eventually need to narrow down their research and commit to a final number for what a property is worth. But how does the appraiser decide on a value if all the comps adjust out to a different price? Is it a guessing game or is there a methodology?

final appraised value - image purchased by Sacramento Appraisal Blog from 123rt dot com

Take a look at the example below. A home owner shared this appraisal with me (and gave me permission to post here). It’s a bit of a wonder why the value was reconciled to $488,000 when comps adjust out to $498,697, $482,800 and $460,800. There was no explanation in the report, so the seller in this case was scratching his head why the value was seemingly a random number at $488,000.

comps and sale

A few thoughts on picking the final number:

  1. Randomness: As shown in the example above, sometimes there is no explanation why a certain value was chosen. An appraiser seems to pick a number that really doesn’t make sense. Or maybe it does make perfect sense, but the reader doesn’t understand because the appraiser didn’t explain well enough. Appraisers should make clear why a value was selected, and this explanation should be found in the “Final Reconciliation” section of the report. Unfortunately many times there is a canned statement containing the same jargon that goes into every single one of the appraiser’s reports (as opposed to treating each appraisal differently and offering an explanation for why value was reconciled to a certain level).
  2. The Most Weight: Appraisers can give one comp the most weight in a report due to similarity and say other comps are given supportive or less weight. For instance, an appraiser might say that Comp 1 is most similar to the subject property in condition, location and layout, so the most weight was given to this property in the final opinion of value. Moreover, the appraiser can also explain why Comps 2-3 in this case were given less weight. It is okay if not all comps in the appraisal adjust out to $488,000 too, but obviously value does need to be supported.
  3. Different Strokes: Appraisers can consider different approaches to value in the appraisal report. For instance, in the case above the appraiser could have given weight to The Income Approach or The Cost Approach instead of the comps (Sales Comparison Approach). Of course the appraiser in this instance didn’t complete any of the other approaches, so that is not what happened. But theoretically an appraiser can use other approaches to value in the appraisal report and then decide which approach should be given the most weight in the final value.
  4. Weighted Approach: Some appraisers do a weighted approach to value, which means they might give the most comparable sale 50% of the weight in the final value, the second most similar comp would get 33% of the weight and the least similar sale might get 17% of the value. Personally I don’t use this approach.
  5. No Average: Appraisers don’t take an average of comps together. It is generally not a good practice when dealing with only three or so sales because such a small sample can really lead to a huge swing in value.
  6. Other: There are surely many ways appraisers can reconcile the value. Any appraisers reading are welcome to pitch in thoughts in the comments. Whatever is done, it should be explained and make reasonable sense.

Some Advice? I recommend looking at the comparable sales and reading through the report to see if there is an explanation why value was reconciled the way it was. This can help you understand the rationale of the appraiser (or lack thereof) and also assist you challenge the value if necessary.

I hope this was helpful.

Questions: Any thoughts, insight or questions?

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Filed Under: Appraisal Stuff, Resources Tagged With: appraisal methodology, challenge low appraisal, final reconciliation of value, final value, Home Appraiser, House Appraiser, how appraisers choose value, reviewing an appraisal report, reviewing appraisal report, value of a property

Why did the appraiser ignore my custom switch plates?

May 2, 2012 By Ryan Lundquist 6 Comments

Why didn’t the appraiser take into consideration your custom switch plates, new baseboards, door knobs or fresh flowers in the garden? Sometimes I hear from home owners, real estate agents and loan officers about things like this.

Let me first say that there are three options to consider: 1) The appraiser missed the items in the final value; 2) The appraiser didn’t really think the items made a difference for the final value; 3) The appraiser considered the items in the final opinion of value, but didn’t make an adjustment for each item in the appraisal itself.

An example of switch plate covers: Do switch plate covers make a difference in value? Let’s look at two different switch plates from Lowes below. The nylon plate on the left costs $0.39 and the satin nickel plate on the right costs $6.54. If a house has 20 spaces for switch plates, the cheap nylon plates would cost $7.80 total, whereas the more expensive satin nickel plates would cost $130.80. The difference between the two types of plates is $123.00.

switch plates image from Sacramento Appraisal Blog - original images from Lowes.com

Does this mean your property is worth $123.00 more? Theoretically, if the market shows that a buyer is willing to pay $123.00 more for your house with satin nickel plates instead of a house with nylon plates, then the appraiser should consider the value impact. But realistically, appraisers aren’t going to focus on that type of nitty-gritty data (it would be nearly impossible to track down anyway), but the appraiser will often consider small ticket items like this in the final reconciliation of value. This means if your house is fairly similar to the comparable sales used in the report, but you do have quite a few extra features like more expensive switch plates, upgraded hardware, new baseboards, updated ceiling fans, new light fixtures, etc… the appraiser can take all these things into consideration during the final reconciliation of value and potentially reconcile your value to a higher end of the range instead of the lowest end of the range (if that’s what your many small improvements warrant of course). If you think that sounds crazy, let me ask you this. Have you ever made an offer on a house for $123.00 more because of switch plates?

tipsGive the Appraiser a List of Updates: It’s helpful to the appraiser when the owner or agent writes out an itemized list of all recent improvements – whether big or small. Include costs too if you have them so the appraiser knows your bathroom remodel was $15,000 instead of $2,000. Basically, let the appraiser know about any way you’ve put money into your house – even switch plates.

What if the appraiser really did miss things that impact value? If you do feel the appraiser missed value in your report and you plan to challenge the low appraised value, then it’s time to pick apart the appraisal and send in some thoughts to ask the appraiser to take a second look and reconsider your points. But don’t bring up small things like switch plates and baseboards when you do this. Focus on the big-ticket items that are really going to sway value. Focus on the following:

Discuss any more relevant comps that the appraiser did not use.
– This is one of the strongest points you can make to help the appraiser reconsider the market.

Focus on comp selection, adjustments and items that impact value: 
– Did the appraiser use sales similar to the subject in condition?
target– Is there a difference in the level of upgrades between the subject and comps?
– Are the neighborhood boundaries correct?
– Is there any big difference between the reported square footage or bed/bath count in the appraisal report in comparison to what you know to be accurate about the subject property?
– Is there a value difference between distressed and traditional sales in the neighborhood?
– Are there any major location differences unaddressed? Busy street? Next to gas station?
– Are current listings similar in price level to recent sales? Listings can often show us the direction of the market (up or down).

I hope this was helpful. Please let me know if you have any questions, insight or stories to share. I always welcome comments below as well as emails.

Do you have custom switch plates?

If you have any questions or Sacramento area real estate appraisal or property tax appeal needs, contact me by phone 916-595-3735, email, Twitter, subscribe to posts by email or “like” my page on Facebook

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Filed Under: Appraisal Stuff, Resources Tagged With: appraiser in Sacramento, contributory value in appraisal report, custom switch plates, disagree with appraised value, final reconciliation of value, Home Appraiser, how to ask appraiser to reconsider value, low appraisal, methodology of appraiser, tips for dealing with low appraisal, tips for preparing for appraisal, what makes a difference in appraised value

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