You have an appraisal in your hands, but did the appraiser do a decent job or not? What should you look for to measure quality? Here are some of the bigger factors to consider as you read over the appraisal report, whether you’re a home owner, Realtor or loan officer.
Neighborhood Boundaries: Are the neighborhood boundaries listed in the appraisal correct? It can make a big difference if the wrong comps are used from inferior or superior neighborhoods.- Comp Selection: Are sales in the appraisal report competitive to the subject property? Are they a good representation of properties a buyer might consider purchasing instead of the subject property? That’s what a “comp” is after all. Using the wrong comps is a good recipe for value issues.
- Adjustments: Are dollar adjustments in the appraisal report reasonable and based on the way buyers see the market? Or do adjustments seem off-base? For example, sometimes I see a $10,000 adjustment for condition to account for the total difference between a bank-owned fixer and a renovated arms-length sale. That’s suspect in my book (because it’s so low).
Square Footage: Is square footage in the appraisal report relatively similar to official records or to what you know to be true of the property? There are many reasons why it could be different, but assuming Tax Records has the correct gross living area, it’s important to double-check in case the appraiser mismeasured the house. This happened to an investor client recently and the appraiser had to re-measure the house (which added $5,000 to the value).- Missing Items: Is there something the appraiser left out that might contribute to value? I’m not talking about the appraiser not mentioning your custom switch plates or the new light fixture in the kitchen, but something more notable that really carries some weight (barn, outbuilding, bathroom, bedroom, pool, etc…).
- Location: Pay close attention to the location of comparable sales in the appraisal report. Are any comps located on busy streets, near commercial properties or other adverse locations? Were adverse locations of comparables noted in the appraisal report? A neighbor recently showed me an appraisal on her house and I pointed out a few instances where the appraiser didn’t note comps backing to a main street with heavy traffic flow. Ignoring adverse locations can essentially produce inaccurate appraisals.
- Distressed Sales: Were only distressed sales used in the appraisal report? Did these sales appear to sell at a discount? If these foreclosure sales (or short sales) did sell at a lower tier of the market, did the appraiser account for the discount? There is often a price difference between distressed sales and traditional sales.
- Trends: Are market trends in the appraisal report accurate? For example, if the market has been going up, but the appraiser says the market is going down, that could present some issues with the final value. If the appraiser does not understand what is unfolding in the market, that could lead to bogus adjustments in the appraisal report.
Upgrades: Were all improvements listed in the appraisal report and accounted for in the final value? The appraiser won’t make a dollar adjustment in the report for every single update, but the final value should consider improvements. Keep in mind of course that not all improvements contribute to value. For example, a 10-ft Yoda statue in the backyard probably won’t be a huge plus (even though you think it’s awesome).- Making Sense: Does the final value make sense in light of the comps in the report, adjustments, the neighborhood real estate market and the entirety of the appraisal presentation? The appraiser should have presented a case for value and explained why the value was reconciled to a certain level in the report too. If it’s not clear, it would be good to seek an explanation.
Should you challenge the appraised value? A trained eye used to seeing appraisal reports can quickly unpack these items, but this list might seem overwhelming to a home owner not used to reading appraisals. Ultimately, after looking through the report, and you feel there are red flags that watered down your value, you ought to consider challenging the appraisal (use this format in case it helps). However, you should only put together a “reconsideration of value” if you feel the value in the appraisal report is truly off-base. Remember to focus on big-ticket items too – not just spelling errors.
What issues have you discovered when looking at appraisal reports? Any stories, insight or scenarios to share?
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
My refi appraisal report just came back. It erroneously shows our house in flood zone AE (we are actually in zone X) and didn’t take into account the 12×32 barn we added to the property.
Hi Laura. Thank you for the comment. I am not sure what area you are located in, but sometimes there is a disparity between flood zone information as indicated in Tax Records compared to an actual flood certification. I find most lender clients do not actually provide a flood cert to the appraiser, so an appraiser may simply use information from Tax Records. Appraisers can also use fema.gov, but it’s not always easy to read their website. Whatever the case, this should be a quick fix. Your lender will simply have to provide a flood certification to the appraiser so the appraiser can change the report to reflect the current zoning. I know in my area in Sacramento, flood zone information is VERY much outdated in Tax Records.
Regarding the barn, how do you know the value was not added? Did the appraiser mention the barn anywhere? If not mentioned on the sales comparison grid (where the comps are inserted in the report), the appraiser could also consider the value in the overall final reconciliation of value. However, I would think the barn would be mentioned on the grid itself. If you are concerned, maybe you can ask the lender for clarification. Maybe a question like this would work for the appraiser (from the lender): Was the barn considered in the final opinion of value? If so, why was it not included on the sales comparison grid? If not, why not?
Ugh, the CAPTCHA got me again after I typed out a lengthy reply. Happened the first time I commented, too.
I’m in an unincorporated township in Ohio. Our online tax records don’t include flood zone information, but we bought the house in 2006 and refi’d in 2009 without any indication of being in a flood zone. We don’t participate in the flood insurance program. The appraiser cited a 2005 FEMA map, but I checked the FEMA website (2011 map) and it shows us as zone X. A few miles down the road there is a small area of zone AE. I’m glad it’s easy to fix, I asked the lender about it two days ago and haven’t heard anything back.
The barn isn’t mentioned in the description of the property, and I think it should have been marked “Other-barn” under amenities. The comp grid doesn’t mention outbuildings for any of the houses, so there is no adjustment made in the comp values. The three comps don’t have any barns or other outbuildings.
Thank you for your blog and for your diligence in following up with comments left. I was able to find answers to many of my questions thanks to your blog posts. I feel confident writing an inquiry to our lender now that I have a better understanding.
I have one other question that I hope you can help me with. The adjusted values for the comps were:
Comp #1: $167,500, sold 6/13
Comp #2: $163,900, sold 11/14
Comp #3: $179,100, sold 5/14
Our appraisal came in at $164,000.
To me it would be logical to average the adjusted values since the comps provide a range. What might be the rationale for valuing a property at the bottom end of the range of adjusted values?
Thank you again.
Hmm. I’m so sorry about the CAPTCHA issue. I really appreciate you still leaving a comment. It’s always interesting to hear about appraisals too.
It’s hard to say why value was reconciled to Comp 2, though maybe the appraiser chose to reconcile the value to $164,000 (rounded up from $163,900) since that comparable is the most similar. Or maybe your home has less upgrades compared to the other two sales, so a value consistent with Comp 2 makes sense. Hopefully the appraiser explained why the value was reconciled to the bottom end of the range, though it sounds like that didn’t happen. This post actually might be helpful to quickly read to get a sense for how appraisers might theoretically choose the final value when there is a variance in the adjusted range. https://sacramentoappraisalblog.com/2014/02/27/how-do-appraisers-choose-the-final-value/
Thanks again. Best wishes.
Thank you for the final reply. I appreciate it, and as a result I found a supplemental addendum where the appraiser offered a detailed statement about the comps. He went into detail about Comp #2, and stated that most weight was given to Comp #2 and #3, but doesn’t explain why our appraisal was equated to Comp #2.
This is definitely a frustrating, opaque process for the homeowner!
I enjoyed your blog post about final values, as well.
Best,
Laura
I’m glad you found some sort of description in the report. I’m sorry to hear it is still not clear to you. Kudos to you for reading the report though (very few people actually do). 🙂