Over the last few months, I’ve had friends, family & colleagues coming to me asking about appraisals. Usually, it’s to say that they just got one and the appraiser “clearly must have been smoking something”… A lot of folks are looking to take advantage of the low interest rates that are teasing them. If you haven’t refinanced your house in the last year (or even last 6 months), it might be time to check your current interest rate against market interest rates because they’ve dropped substantially over the last year. I personally have refinanced my home twice this year.
Even though in the Phoenix/Scottsdale Metro area values are rising- up anywhere between 22-30% since the start of 2012, because values are still fluctuating area to area based on a number of variables, there are definitely instances where appraisers struggle to properly assess market value. Your ability to get an appraisal right the first time can be the difference between lowering your interest rate or not, being able to purchase the home for which you are under contract or even having to shell out more money for a 2nd appraisal. Regardless of what it means to you, I’m sure you’d rather have it just appraise for the value you expect (or more!) in the first place.
About a week ago, after a recommendation to a client to finance his primary home, he contacted me to let me know that an appraisal was scheduled for a few days later in the week. I immediately went into “list agent” mode, ready to defend my listing from the throws of an overly conservative bank looking to thwart my sales price. The only difference is that I don’t have that home listed. However, approaching an appraisal particularly in a market that is accelerating often should be treated the same way. Here’s the advice I gave him, that can be summed up into 5 items.
1. Make a List of ALL Improvements to the home
While many appraisers are trained and astute to assess the features of homes, many improvements are lost on them because 1. they do not have product knowledge or 2. because the improvements are just not visible (literally) to them. Every homeowner should take the time to stop and detail all of the things they’ve done to their home.
Most appraisers should actually ask you whether you have made any improvements and having a list handy makes it much easier for you to transfer that info to them that they can have as they are completing the report. You having to rattle off every little detail puts the homeowner on the spot and tests his/her memory as well as tests the appraiser’s short hand ability. You don’t want to rely on either. A typed (or legible) sheet is ideal, but a hand-written list will do, as long as it is easy to read.
Make sure to include things behind the walls like added insulation, 2×6 construction, cat-6 or HDMI wiring, smart home systems or components, enhanced security features, hot water heaters, heating & cooling systems roof items or improvements in places that the appraiser will not be able to see without a ladder or some other construction equipment to verify it. Name dates and prices, if you can, for these improvements. You may go and spend a sizable amount of money on a feature that your appraiser may not recognize the quality and ultimately give you full value for.
2. Have your REALTOR run “comps” on your home
When I say have a REALTOR run comps, I’m not saying run to Zillow.com and look to see what the house down the street sold for. Zillow is no substitution for careful thought and calculation when analyzing market data. Your local MLS will have specific information like whether or not there were concession in the sale (contributions from seller to buyer to complete the purchase), what kind of financing (or cash) was used, pictures of the interior and usually a pretty good representation of the condidion of the home. If there’s any question about the condition, your REALTOR can pick up the phone and call either the seller’s or buyer’s agent for verification of details. Zillow (or Trulia or any other website) can’t do that for you.
“Good” comps will usually not vary more than a few hundred square feet from the size of your home, the condition should be comparable across the board (as much as possible), the lot sizes should be the same and the best comps are usually no more than 3-4 months old. There are always exceptions. Homes with very few comparables, like homes with intangible features like views, high-end or custom features, or homes that are the oddball (a 900SF home in a neighborhood where the average is 1700+SF- It’s happened to me!) are treated differently and the ranges may be wider in these instances, but it’s up to the professional doing the work to use good judgment to extrapolate.
Your agent will also be able to point out where certain boundaries lie that drastically affect the value of the home. For instance, on the border of Phoenix, Scottsdale & Paradise Valley, near the intersection of Tatum & Shea, going north of Shea from 40th St to about Scottsdale Rd, may result in a value of $25K-50K, just for the change from the Cherokee Elementary school district to the Sequoya Elementary school district, though both areas fall within Scottsdale Unified.
Likewise, in Arcadia proper, homes on the north side of the street from Indian School north to Camelback Rd. will have higher values due to the awesome views of Camelback Mountain. If you’re west of Camelback Mountain and in Paradise Valley, the “right side” of the street may be the east side of the street to again capture those awesome red rock views at sunset. By the way, this is a complementary service I offer to all of my clients.
3. Pre-interview the Appraiser
When your loan officer asks for your credit card or other payment arrangement to order your appraisal, that’s a pretty good time for you to ask about the appraiser being used to make sure that this person isn’t some newbie, fresh out of appraisal apprentice-ship that may not be able to discern your custom kitchen with the birdseye maple woodwork or the appraiser coming from Queen Creek to appraise your home in N. Scottsdale.
Ideally, your appraiser should have some knowledge and applicable experience working in the area immediately surrounding your home. If your loan officer says, “I don’t really know too much about this appraiser” or “he’s new to our approved list”, ask for someone else. You don’t really want any wild cards when you’re paying your hard-earned money to purchase or refinance your home. Appraisals in Phoenix/Scottsdale typically run anywhere from about $350-500, unless your home is large or has many custom features, in which case, that amount could increase.
You might even go a step further and try to run the name of your appraiser by your REALTOR to see if they have any experience working with the selected appraiser. While the Phoenix/Scottsdale Metro area is big, appraisers typically work certain areas and if your agent specializes in that area, it’s possible he or she may have come across this individual and have feedback (good or bad) to share.
4. Stage your home!
Just like when you have your home listed for sale, you want to put your best foot forward with an appraiser. Put on all your lights, tidy up inside and out, go ahead and get to that deferred maintenance that makes your home look just a little rough around the edges. Your goal is to feature the improvements that add value to your home so that the appraiser won’t have to go searching high and low to find them.
Be on hand to answer questions and even take the time to point out features that you think set your home apart. The appraiser may or may not agree with what you think adds value, but if you point out something that he or she would have missed otherwise, you’ve done your job.
5. Interview the Appraiser when he/she arrives
This is where everything ties together. By the time your appraiser shows up to do the interior inspection, you should have your home looking great, a list of comps and another list of improvements for your home ready to hand to him or her. It doesn’t hurt to be courteous to the appraiser and ask if he or she would like some water. Let them in, spend some time with them and then let them do their job.
This is when you might ask them how long they’ve worked in the area or whether they are familiar with where the school boundaries for your school district are. If he or she isn’t familiar with the district boundaries, make sure to point them out and keep asking questions. Then make a note of what they did or didn’t know.
If you get an appraisal where the value is far off from the comps that your agent provides you and what you estimated in your own mind, you may have grounds to fight the appraisal. Just be prepared to document all of the short comings of the appraiser who did the work. You might also want to have on hand previous appraisals (if they were recent) to provide the appraiser so he or she has some more insight as to what should be “comparable” to your home.
After the appraisal comes back…
You should receive a copy of the appraisal once the report is available to your loan officer. Take a look at homes the appraiser used in the report and note how its features compared to yours. Look at the details noted for your home and see how they compare to your home. Note the size of the home in comparison to any approved plans you have or previous appraisals or tax records to make sure that value wasn’t excluded where it should have been included.
If the appraisal is in the ballpark, pat yourself on the back for doing a good job. If the value is low, start looking back to the turn of events to see where data may have been missed or to your own notes about the competency of the appraiser to see whether maybe he or she was not the best person for the job. Then call your loan officer to raise your concerns.
Sometimes they will work with you, but be advised, it’s rare that appraisers will admit wrong-doing. I’ve had maybe 2-3 appraisals overturned in my career. However, I’ve had more appraisers ignore me, tell me and/or the loan officers to go scratch or outright blame me or anyone else involved for whatever went wrong. It all depends on the appraiser and or his/her manager. But I can say one thing, the likelihood of this scenario occurring is much slimmer when the legwork is done prior to the appraisal. There are just fewer surprises.
Good luck to you!