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