THE APPRAISAL PROCESS
If you have ever bought or sold a home you know the appraisal process is nail biting and in some cases can be the deal breaker. The appraisal is the “opinion of value” from the perspective of the appraiser and the comps he has to work with. I will try to breakdown the home selling process and where the appraisal fits in to the process.
First, a seller decides to sell their home and may interview several agents that focus in the area where the home is located, or know a realtor, or a realtor may be referred by a friend or family member. The realtor will pull the most recent comps in the neighborhood and find the best similar comps. I have extensive knowledge of the appraisal process and when I amÂ doing my research I focus on sales in the last 180 days because I know that is what an appraiser is going to focus on.
While an appraiser will look at and even add an active listing to the appraisal, it does not carry the same weight as a sold comp. Generally speaking, an appraiser is going to look first in the same neighborhood, and if there aren’t any comparable, then he will fan out to within 5 miles or so. When the appraiser is looking for com parables I mean built about the same time-frame or age of the home, plus or minus a few hundred square feet, number of bedrooms and bathrooms, lot size,Â type of lot like corner lot or conservation lot meaning no backyard or if the home has backyard neighbors then he will be looking for homes with backyard neighbors. If the home has a pool then he will be looking for similar pool homes in the area.
In many cases when I go to list a home, people want to show me all the updates and highlights that they think make their home have additional value. It used to be that granite/stone/marble/corian or upgraded counter-tops added value, but today most new homes come with granite or some type of upgraded counter tops so appraisers really don’t add value from an appraisers point of view.
When I say from an appraisers point of view I need to explain the process from the appraisers point of view. The appraiser is sent out by the lender of the buyer and they have expectations from the appraiser. The biggest expectation is the lender does not want to see a lot of exceptions, meaning there are things that you may think add value, butÂ the appraiser may not think so. For instance you add a niceÂ pool to your home at a cost of $50,000. On a resale home a pool will generally be worth 10k-15k. You can imagine putting a pool on, then get transferred a year later and the pool you paid 50k for is now worth 15k. That’s a hard one, but it is reality.
Let’s say this same homeowner had installed a nice 6″ fence in the backyard at a cost of 10k. This will shock some of you, but appraisers give no added value for a fence. Their reasoning is they have no idea if the fence belongs to the home owner (obvious to me most of the time) or if they split the cost with some of their neighbors, so there is no value added to the appraisal for a fence.
Let’s say you spend 20k on some really nice palms to make your home look tropical and beautiful. Again, the appraiser adds no value for landscaping. Let’s say your home is in need of an exterior paint job and you decide to have it painted at a cost of $6000 right before you list the home. You would expect that that would add value. Correct? No, it may help your home to be picked by a buyer over others, but from the perspective of the appraiser it adds no additional value.
There is lots more to say about the appraisal process, but I know most people won’t read more than a paragraph or two, so I will blog shortly with more about the process in future posts. Right now I have my first listing with those solar panels that are installed on your roof that bring your electric bill down to zero and even allow you to sell excess electricity back to the local electric company. The panels are very expensive, but does an appraiser see that as added value? Stay tuned for my next blog on the appraisal process.