I am in the process of selling a rental house to its residents. The lender hired an appraiser who appraised the house at $225,000. Since the sales price is $255,000, based on recent comparable sales of neighborhood homes, the appraiser was asked to do his job over again. The same appraiser’s second appraisal of the same house was for $240,000. But that would not give the buyers the mortgage loan they need. The lender then hired a second appraiser who appraised the home at $250,000, which is sufficient for the buyers to get the mortgage they need.
How can two licensed appraisers be $25,000 apart appraising the same house in a tract neighborhood where the houses are very similar? Experience? Information? Ability? Training? Attitude? Incompetence? All these factors enter into the outcome of a home appraisal.
What is a home appraisal?
It is an estimated sales price at which a seller will sell and a buyer will buy a property, neither being under pressure to buy or sell. In other words, it is the most probable sales price. An appraisal is an opinion of a home’s market value. Since home appraisal is an art, not a science, the result depends on the appraiser’s skill. He or she might appraise a property at exactly its sales price. Or, as shown by the example above, an appraisal can be far off the actual market value as shown by a property sale.
Most home appraisals use comparable sales prices. Appraisers can use several methods to appraise real estate property. They are the comparable sales approach, replacement cost approach, and rental income approach. For most residences, the comparable sales approach is used because homes usually sell for similar prices of nearby comparable houses. This means the appraiser needs access to up-to-date recent home sales prices.
Although appraisers must be licensed to do appraisals on homes over $230,000, a license is no guarantee of competence. Typical home appraisals cost between $200 and $500, although prices have been dropping due to an oversupply of how appraisers and an undersupply of the need for appraisals.
Some lenders are converting to computerized home appraisals, virtually eliminating the need for appraisers. A few lenders even use unlicensed appraisers for houses below $250,000. As a result, appraisers are an endangered species.
How to get a fair home appraisal. As shown by example above, obtaining a fair appraisal is not easy. Here is the best procedure to get a fair appraisal of your residence:
1. Get your home into tip top condition before the appraiser arrives. Although an appraiser is supposed to only view the physical condition of a residence, he or she cannot help being influenced by the home’s appearance. Cleaning, repairing and painting can present a home in its best condition. A home and yard in immaculate condition will make a positive influence on the appraised value.
2. Accompany the appraiser and obtain identification. Either you or your real estate agent should accompany the appraiser. Insist on receiving identification, such as the appraiser’s business card and license number. Be wary of unlicensed appraisers. Unfortunately, some mortgage lenders cut expenses by hiring unlicensed appraisers for home sales below $200,000, Also, some licensed appraisers send out unlicensed assistants to do the “dirty work” of measuring the house and taking photos. The appraiser who signs the home appraisal report might never inspect the house.
3. Hand the appraiser details about the house. But the primary reason for obtaining the appraiser’s name and identification is to hand him or her written details on the home being appraised. Explain the purpose of the appraisal and your opinion of the home’s market value. Since the appraiser may inspect five to 10 homes per day, it is not easy to remember the details of each. In other words, if you want to be sure of a fair home appraisal you must do some of the appraiser’s work to improve the chances of a correct appraisal. Tell the appraiser what you think the property is worth and justify with facts, not opinions. The appraiser may hate you for doing so, but he or she then knows you mean business and won’t be satisfied with anything less than a fair, accurate appraisal
4. Provide the appraiser with details of recent nearby sales prices. Also, you should hand the appraiser recent information on recent comparable neighborhood home sales with which the appraiser may not be familiar. Some appraisers resent this information, but the best appraisers welcome it because they may not have the latest sales details. However, don’t try to mislead an appraiser. They have their own sources of recent comparable sales prices, including public records, the local multiple listing service, and local real estate brokers. Although you are doing part of the appraiser’s work by providing comparable sales price information, if you want a fair appraisal this is required work.
5. Ask the lender to give a copy of your appraisal. If your mortgage lender ordered the appraisal, although you are paying for it, the appraiser considers the lender the client. Be sure the lender and the appraiser agree to promptly give you a copy of the home appraisal. This is very important If you are not going to receive a copy of the appraisal, you have no way to correct any errors. After you receive a copy, if the appraiser refuses to correct any factual errors, be sure to report the matter to your state real estate appraiser license officials.