How Your House Measures Up: Understanding Real Estate Appraisals
The Following article was written by Kristine Bertrand, a real estate agent with Berkshire Hathaway and a licensed appraiser in the state of Ohio. As an appraiser, she offers affordable, accurate, and prompt appraisals for residential properties throughout Ohio. This differs from the opinion of value given by a real estate agent. Banks often order appraisals to determine the current market value of a home. If you are interested in getting an appraisal, and you live in Ohio, feel free to reach out to Kristine directly at onerealvalue@gmail.com
I started in the real estate industry as an agent over 6 years ago and quickly found there was a need to educate individuals on the process of buying or selling their home. I decided to expand into representing investors in an effort to become knowledgeable about all things real estate. I learned everything I could about the process; from identifying investment properties, rehab breakdowns, to obtaining after repair values. I quickly found that one of the most important aspects was accurately determining a property’s value. So, to achieve my broader goal of educating buyers, sellers, and investors, I realized I would need to push my career toward appraising. I now try to bridge the gaps between appraiser and real estate agent while also educating the public on this complicated business.
Buying or selling a home can be a scary process but knowing more regarding appraisals may put your mind at ease. You may have had the experience of waiting for an appraisal to come back. It can certainly be nerve-racking – like when you were a child on Christmas Eve, excited and hopeful. My hope is to share some helpful tips to speed up the process, improve the value of your home, avoid things that may not increase the value, and explain what to do once you receive your appraisal.
Appraisals themselves can be used in various scenarios; if you wish to list your home, purchase a property in cash, or simply want to know the value of your property, you can contact an appraiser directly. The most common reasons appraisals are ordered are:
- For a purchase that is being financed
- For a home equity loan or line of credit
- If you are refinancing your current mortgage
Once you have reached the point in the transaction that an appraisal is needed, the bank will be the one to order and obtain the appraisal. The bank will contact the appraiser and at this point, the bank becomes that appraiser’s client. Once they have been contacted by the bank, they will reach out to the party indicated by the bank and set the inspection to observe the property.
If you are anything like me then the moment you know someone will be entering your home you want to clean, organize, make it look brand new. However, as appraisers, we are not here to appraiser the cleanliness of your home. If you are in a rush to receive your appraisal in a timely manner, set the inspection appointment as quickly as possible, do not worry about pushing the appointment out to clean. Something you can do to help your appraiser make a speedy turnaround time is to provide the appraiser with a list of remodeled and updated features. (Mechanicals, roofs, bathroom, and kitchen remodel, etc.) Be sure to include the scope of work that has been done along with a timeframe of when it was updated. It is best to have this list ready upon arrival vs. unloading all of the information on the appraiser when they arrive. This gives the appraiser something to reference and ensure nothing was left out or misunderstood.
Scheduling the inspection is the number one key to providing a prompt delivery of the completed appraisal. As appraisers, we are hired by our clients with a specific due date along with requirements for making first contact within 24 hours (for most clients). In order to meet our due date, we need to inspect the property within a specific time frame. Be sure you are 100% ready prior to ordering the appraisal, if you are in the middle of rehab do not order the appraisal and push the inspection date out two weeks. Wait until the work is done then schedule.
The inspection itself should take less than 30 minutes (sometimes as little as 15 minutes). The appraiser should measure the house (typically the exterior) to get an accurate square foot count and will take photos of the property on the interior and exterior. During the inspection, try and give the appraiser some room to work. The final report cannot contain photos that include people in them, so standing in a different room will ensure that the appraiser does not have to make a second trip out to the property just to snap a quick photo because they got a glimpse of you in the mirror.
You may think 15-30 minutes is not a lot of time to fully digest the properties unique features and get an accurate feel of the properties worth, but I assure you, the appraisal itself goes far beyond the inspection. The appraiser has to consider every angle imaginable, from the condition of the property to external factors, hypothetical conditions, or extraordinary assumption. They have to determine the highest and best use of the subject in coordinating with zoning, functional issues of the property then take everything you have gathered and find similar sold properties to compare to your subject. One thing that most people do not realize when picking comparable properties is that an appraiser is not able to put much weight on active listings, even if they are pending. We can include an active listing to support a particular value, but active listings that have not closed are too uncertain, We simply don’t know if they will close and at what price they will actually sell for. We also need to ensure we have a secondary source for the sales data in order for the comparable to be considered a reliable sale. This means that if the MLS states this property has sold for $120,000 on a specific date, we have to check this against the county auditor. If the county auditor does not have the sale recorded, then we have to call the real estate agents to obtain confirmation of the sale price, date, and any other aspects of the transaction. If this cannot be verified, then we are unable to use the property as a comparable.
Once we have determined the best comparable properties, we then place them into the grid and adjust each comparable for any differences. The amount of adjustments per differencing factor should be obtained from the market. For example, let’s say your property has 3 bedrooms but there is a similar property nearby with 4 bedrooms. We look at the market and all of the properties with 3 bedroom sold at $120,000 but the properties with 4 bedrooms sold at $130,000. Now we can estimate the adjust for the missing bedroom at around $10,000. Unfortunately, it is rarely that simple. Much more common is that one of the 4 bedroom properties has 2 fireplaces and a 3 car garage whereas your property has only a 2 car garage and 1 fireplace. Each of the items that differentiate from your property have to be adjusted to find the true adjustment for the 1 bedroom difference. To increase the difficulty, there are also items that are considered to be an over-improvement. This is anything that costs more to add to your property than what the market will bear in value. Features like these also require adjustments when comparing them to other properties. Beware of items that most appraisers consider personal property. Namely, items that can be moved. Features like sheds and above ground pools are not permanently affixed to the property so we do not consider it as an added value. Other aspects that may surprise you as not holding much value are things that are simply expected to be in the home. Carpet, paint, trim, appliances, gutters, all these items need to be there anyway so they don’t have a huge impact on overall value. Of course, if you replace all the flooring in the house and apply new paint that will certainly help the condition of the property. Then we can find properties that are similar in condition from which to draw our comparisons. Even someone who remodeled their entire house will not see a line item for the work that was done. The appraiser will obtain comparable properties that had the same quality of updates that your property did.
Upon receiving your appraisal, realize that not everything is final. If the original appraisal was ordered by a bank as part of the lending process, you can reach out to your lender or your real estate agent for clarification. If you believe that the opinion of value is incorrect, you have the right to file an appeal. Here you can list the items of concern on the appeal and the appraiser will address the issues in a revised report. Thankfully, at Real Estate Evaluations, with our training, experience, and knowledge of the market, we provide the most accurate value of your home from the start.
You might be feeling a tad overwhelmed by everything at this point, which is completely understandable. At Real Estate Evaluations we are here to help you feel more comfortable, and knowledgeable in understanding the ins and outs of appraising. We pride ourselves in providing affordable, accurate, and prompt appraisals. We are always available for questions about appraisals that were preformed or just general questions you may have in trying to find the right appraiser. We have done extensive research on our competitors and most charge anywhere from $375-$450 and can up to 2 weeks to complete the report. I am here to tell you, you do not have to break the bank to get an accurate appraisal. Real Estate Evaluations offers appraisal starting at $250-$300 with a 2 day turnaround time upon inspection. If you are located in Ohio, feel free to reach out anytime with questions or to request an appraisal at onerealvalue@gmail.com.