There is more than one way to skin an appraisal

There is more than one way to skin a cat, right? I’m not sure who came up with that saying, and I know it’s graphic, but the point is there are often many paths to finding a solution to a problem. The same is true with appraisals. If you give me a minute, I’d like to share a few of the different ways to appraise a property. This might help you with a situation you’re dealing with too. By the way, I do have an orange tabby cat, and his name is Rambo.

new construction appraisal - using hypothetical condition - by sacramento appraisal blog

Here are a few options appraisers have available. Some of these will relate well to loan appraisals and others might be more geared toward private appraisals.

AS-IS: This is probably the most common way to appraise a property – just as it is. The appraiser will consider whatever is there and the value will reflect the property in “as is” condition. There will be no repairs made at all.

SUBJECT TO REPAIRS: A property can also be appraised as if repairs were already done. Take the photo below as an example. During the inspection I noted obvious roof damage (there was a leak) and the AC unit was missing. Upon calling my lender client after the inspection, they instructed me to appraise the property “subject to repairs” being made. This means I gave a value to the property as if the roof damage and AC unit were already fixed – even though they were not. Then when the repairs were actually made, my client had me go back out to verify they were completed. In cases like this a lender is probably going to want to see the repairs made before the loan can close.

Before-and-After-Repairs-for-Appraisal

EXTRAORDINARY ASSUMPTION:  This is when an appraiser assumes something to be true about the property for the sake of analysis even though the appraiser does not know for sure that it is true. For instance, if an appraiser is not allowed to inspect a couple bedrooms in a house, the appraiser can make what’s called an extraordinary assumption. This means the appraiser can assume the rooms are in average condition despite not seeing the rooms (sometimes “locked” rooms are being used to grow pot). The appraiser has to believe the rooms are actually in okay shape, and the client should be on the same page for the appraiser to use such an assumption too. An appraiser really does the same thing with a “drive-by” appraisal because the appraiser has not seen the inside of the house, but is assuming it is in decent shape based on partial information from Tax Records, old MLS listings, an inspection from the street or other sources. Keep in mind many times a lender will not be okay with an appraiser using an extraordinary assumption, which means they want the appraiser to see every room. But in the case of private appraisals for Date of Death, divorce or bankruptcy, an extraordinary assumption is more commonplace.

Junologo

RETROSPECTIVE VALUE: This type of value analyzes a date in the past despite inspecting the property today. This is common for IRS appraisals where the appraiser gives a value based on the date when the property owner passed away. It’s also common with divorce appraisals if the appraiser is rendering a value based on the date when papers were filed. For example, I was hired this year to give an owner a value for a date in 1996 for tax purposes. Instead of using time travel to get back to ’96 (when I used to use Juno for email), I simply inspected the property after I was hired, and then used very old data to come up with a value based on what the market was doing in 1996.

roof-with-blue-tarp-photo-by-sacramento-appraiser

HYPOTHETICAL CONDITION:  This is when an appraiser considers something as fact for the sake of analysis even though it is not true. An appraiser does this regularly for a new construction appraisal like in the first photo above. Despite the house not being there yet, the appraiser can observe a builder’s plans and appraise a 3000 sq ft house even though it does not exist. Another example would be a client asking an appraiser to appraise a house without a roof as if it had a roof. Maybe there is some sort of insurance claim, lawsuit or repair loan going on. In a case like this the appraiser would simply use a hypothetical condition, meaning the appraiser would appraise the house as if it already had a roof even though it does not. Whenever appraisers use a hypothetical condition, it should be okay with the client in the first place and then made VERY clear in the report so the client and any readers knows what the appraiser has done.

Question: Any questions, stories or scenarios to share? Which methodologies have you encountered? Comment below.

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What are “date of death” appraisals?

Settling an estate is one of those things that many of us don’t know much about until we actually experience personally. If you are in a situation where a loved one has passed or you recently inherited a property, I hope this information will help give you some insight into the process of estate planning as it pertains to real estate appraisals. 

How it Works: When an estate has a transfer of ownership due to death or inheritance, it is very common for a real estate appraisal to be needed for tax purposes. Typically a family member or heir chooses an appraiser for the job at hand, or an attorney or accountant will order the appraisal.

Estate or probate appraisals are commonly ordered between 2-6 months of the death of a loved one (or inheritance of property). Sometimes the appraisal is ordered right away within two weeks, while other times there is a much more substantial time period.

Retrospective Value: In estate planning situations it is common for the appraiser to perform a ”retrospective appraisal”, meaning that even though the property might be inspected today, it isn’t valued off of today’s date, but instead based upon a previous date (usually the date of death of the owner of the property, hence the term “date of death” appraisal). For example, if an owner of a property passed away on October 12, 2010 and the current date is March 23, 2011, the appraiser would inspect the property today, but the value conclusion would be based on what the market was doing on October 12, 2010. For example, the two estate appraisals on my desk right now were inspected very recently and their respective value dates are 4-6 months ago.  

Other Types of Value: In addition to needing a retrospective value during the estate planning or probate process, sometimes the ordering party will also request a current “as is” market value or value based upon the date the title transferred from the deceased to the heir (if the transfer was after the date of death).  In these cases there are really two appraisals being done since there are two separate values issued. Most of the time only one appraisal is needed though, but every situation is unique and it all depends on the particular needs of the estate. 

The Good News: If you are in a situation like this or expect to be soon, take assurance that the type of value is not something you have to spend time worrying about. There is no cause for alarm or worry at all. A good attorney or accountant can help direct you toward the type of value needed for your estate, and a company like mine already knows what questions to ask you. Your circumstances may be very difficult understandably, so the hope is that at least the professionals around you can help to smooth over some of the details like this so you don’t have to think too much about them. 

If you have any questions about the estate or probate process in the Greater Sacramento Region, feel free to contact me at 916.595.3735, ryan@LundquistCompany.com or visit our appraisal or estate settlement website.