Understanding Home Appraisals

If you have not made a lot of improvements to your house and it is in a community with easy, fair comparable homes, then getting an appraisal can speed the sales process by telling you what the value of your home is in today's market, compared to what you may have extrapolated from better markets years ago. Giving you tangible proof that the house is worth your asking price, which may discourage lowball offers from prospective buyers.
(A comparable is a term for a house of similar size and lot in or near your home that has sold recently and thus can be used as a price reference.)

Appraisals are based on many things. including comparables. You must understand what comparables are. These are houses in your immediate neighborhood that have a comparable number of bathrooms, bedrooms, and kitchen appliances, similar heating, air conditioning and landscaping, etc.

Appraisals look at the most recent sale prices of three such homes to establish the current value of your house. Comparable homes are key elements in their figuring. It's never easy to price your own house because of your skewed opinion about its individuality.

However, if you have made a lot of improvements in the past two years, getting comparables in this market may not do the home's possible value justice. Just another little curveball in the decision-making process facing today's homeowner. 

Have you ever asked to look at the appraisal on your house? Why not? You can ask for a copy of your home's appraisal from your mortgage company and, according to law the company must comply.

What can you learn from the appraisal? A lot. Don't you have any curiosity about the perceived value of the most expensive purchase you've probably ever made? This is exactly the type of material that would be available about your neighborhood.

•    The location: urban, suburban or rural?
•    How built up: over 75 percent, 25-75 percent, under 25 percent?
•    Growth rate: rapid, stable, slow?
•    Property values: increasing, stable, declining?
•    Demand/supply: shortage, in balance, oversupply?
•    Marketing time: under three months, three to six months, over six months?
•    Present land use: single family, two-to-four family, multi-family, commercial, industrial, vacant?
•    Land use change: not likely, likely, in process?
•    Predominant occupancy: owner, tenant, vacant (0-5 percent), vacant (over 5 percent)?
•    Single-family house price range: low, high,predominant?
•    Here are some other nuggets of information about the neighborhood that will be judged on an appraisal report: Good, Average, Fair or Poor.
•    Employment stability.
•    Convenience to employment.
•    Convenience to shopping.
•    Convenience to schools.
•    Adequacy of public transportation.
•    Recreation facilities.
•    Adequacy of utilities.
•    Property compatibility.
•    Protection from detrimental condition.
•    Police and fire protection.
•    General appearance of properties.
•    Appeal to market.

What about your neighborhood? Check it out. Get it in black and white. By reading your appraisal, you can find out what components of your house are valuable and, in fact, quantify their value. How much does the second bath add to the value of the house? How much does the lack of central air conditioning detract from the value of the house? Etc.

So you called your mortgage company and asked for a copy of your house appraisal and the lender sent it to you. You pore over it--and discover a mistake. Then you can call up your appraiser and point out what you think is a mistake.

The appraiser should have no qualms in giving you an adjustment. Let's say the appraisal says your house has two bedrooms when in fact you have three. An adjustment would be in order. Many homeowners disagree with the comparables used. Maybe there is a house more like yours and closer in proximity than the comparables that were used. You can point that out to the appraiser.

Often the most recent --and telltale--neighborhood home sales have not shown up in the appraiser's database at the time of the appraisal because those homesales have not gone to settlement and legally been completed. But, because you know your neighborhood well, you know the sale has occurred and how much the property has brought. You could bring that new sale to the attention of the appraiser, and the appraiser could wait for settlement and plug the new numbers in then.

But all of this discussion is moot, of course, if your house appraisal was above the sales price on the table. Any adjustment would just add value to something that doesn't need it in order to qualify for the loan. (Would you bring to the attention of the appraiser a mistake that reduces the value of your house and causes you not to qualify for the loan?)
In fact, the only time an appraisal with a mistake on it would make any difference would be if the appraisal came in low--below the sales price, that is. Then a corrected mistake might put it over the top. When you go to buy a home and qualify for a loan, ask for a copy of the appraisal the minute it is finished. That's when it can make a difference.

You should also know that if your appraisal comes in low, chances are the appraiser will have already contacted your lender directly to alert the bank. In that scenario, the bank would then tell you the appraisal came in low and you should ask immediately to see a copy.

That's when it becomes important to know the neighborhood well enough to point out a new house that has sold that upholds the value you have placed on the house.Appraising homes is not a science, and an appraisal is not the final word on your home's value.