As appraisers with many years of experience between us, we have found that we are asked many of the same questions repeatably. Hopefully, this article will answer some of the residential appraisal questions many REALTORS® have.
FAAQ: An appraiser wants to appraise my listing, what do I do now?
It is important that REALTORS® get as much pertinent information to the appraiser as soon as possible and before the scheduled appraiser's inspection.
Get the appraiser's email and email any comps you used to price the listing. Send the property brochure or a list of recent updates/upgrades made to the property. Make sure the appraiser knows how long the listing was on the market, how many showings, and how many offers.
It is not a good idea to call the appraiser with this info since we are all very busy. We may look at a house on Monday but not be able to work on the file until Friday. An email or packet left at the property assures your info can be placed in the appraiser's work file. Then when we prepare the appraisal report, your important information is easily referenced for the report.
FAAQ: What do appraisers look for during the appraisal inspection? Is it the same for an FHA loan as it is for a conventional loan?
In the most basic terms, a house is made of a foundation, walls, and a roof. An appraiser will pay attention to all of these. When appraising a property for an FHA loan, in addition to determining market value, the appraiser also has to make certain the property meets HUD's minimum standards for health and safety.
A few of the many items appraisers look for when doing an inspection for an FHA loan include peeling paint in properties built before 1979 (interior and exterior); exposed wood on the exterior of properties; exterior grade (level to negative grade needs to be corrected); and heating and cooling systems. An appraisal is not a home inspection — a home inspection by a qualified professional is recommended for every sale.
Conventional appraisals are concerned with the condition of the property and how it affects market value. If an appraiser sees a defect or issue that raises concern, they will note it in their report and make the client aware of the problem.
FAAQ: There are no recent sales in my listings' subdivision — what do I do for comps?
This is becoming a major concern for agents and appraisers. Remember that comps do not have to come from the same subdivision but the same “market area.”
Sales from within the same subdivision are always the best and should be used if available. However, sales from similar subdivisions with same schools, similar access to freeways, shopping and recreational facilities are viable alternatives.
Look for properties that are comparable in size, condition, quality and age. Comparable subdivisions will typically have similar sales prices.
FAAQ: Why don't appraisers include the finished basement in their report?
This is a comment we hear repeatably. Per FNMA, garages and basements, including those that are partially above grade, must not be included in the above grade room count. Fannie Mae considers a level to be below grade if any portion of it is below grade. A walk-out basement with finished living space is not included in the above grade room count.
That doesn't mean that the finished walk-out basement with bedrooms, full bath, media room and wet bar doesn't get any credit or have value. It is just addressed on a different part of the appraisal form.
There are also exceptions to this “rule.” If a property has a kitchen on the lower level (sometimes seen in bi-level or split-level houses), this area is included in the above grade gross living area, as the kitchen is necessary for the house to be functional. Another local exception is the popular five level split. The finished area partially below grade (typically a family room and half bath) is included in room count and gross living area, as this area is typically finished like the above grade living area and is perceived by buyers as part of the above grade living area.
FAAQ: My listing is 200 SF bigger than a similar house that sold for $100 per square foot. Is my listing worth $20,000 more?
REALTORS® must realize that the $100 per square foot includes the entire “bundle” included in the price per square foot are the site, the finished area above grade, and everything else (garage, basement, and exterior amenities such as decks, patios, screen porches, etc.) that contribute to value.
For a square foot adjustment, a good rule of thumb is to use 1/3 of the average price per square foot of the comps in the area. The rationale is that the site makes up 1/3 of the property's value, the finished area above grade is about 1/3 of the value, and everything else contributes 1/3 of the value.
Differences other than square footage are accounted for in separate areas of the appraisal report. So, if all else is similar, the 200 SF difference is worth about $6600.
FAAQ: What happens if the appraisal value comes in lower than the contract price?
Despite what many REALTORS® feel about appraisers, it does not make us happy when an appraised value is less than the contract price. It is our job to provide an opinion of market value and in this high demand/low inventory central Ohio market, this can be quite a challenge.
Appraisers do their best to find the comparable sales that are most similar to the subject property with respect to size, quality, location, condition and utility. Due to the limited sales available in the same neighborhoods, it may be necessary to use older sales or to find sales outside the immediate neighborhood.
If the listing agent has provided the appraiser with the comps used when listing the property, he/she has let the appraiser know about the number of contracts presented on the property, and any other factors about the listing that the appraiser might not be aware of, then there is little to provide for a re-consideration of value.
In these cases, there may be an adjustment to the sales price, or the buyer may have to bring more money to make up the difference.
We hope that this article has answered some of your questions regarding residential appraisals. The appraisal industry, like real estate sales, is always changing and often it can be difficult to keep up with some of the changes. The Appraiser Committee of Columbus REALTORS® does its' best to stay on top of these changes. If you would like to attend a meeting, or join the committee, please contact Columbus REALTORS®.
