Appraisers and real estate agents have a love-hate relationship. We certainly love them when the home is valued at or above our client’s sales price, and not so much when it isn’t.

Am I right?

Or am I right?

For some agents, as well as homeowners, appraisals are a bit of a mystery. How exactly did the appraiser get that number?

More on this week Passage™we talk to an appraiser who dispels some of the myths about how appraisers estimate a home’s value and reveals exactly what he’s looking for when he arrives at that magic number.

Jamie Owen of Aspen Appraisals in Cleveland, Ohio has been a licensed appraiser for over 20 years and has completed over 8,000 residential appraisals. He shares six things you should know about the appraisal process.

1. Market value is not “black and white”

In fact, Owen says, “Market value is not just what two people are willing to buy and sell a home for. It’s much more difficult.”

Often, especially in today’s market, people have been willing to spend more than the actual value of the home. Owen says his job is to back up his value judgment based solely on facts and market data. And sometimes that means a higher price, but a lower price.

2. Evaluators make time adjustments

Lenders always prefer to see the most recent comparable home sales. However, Fannie Mae and Freddie Mac will accept refunds as far back as a year for the first three homes on the appraisal report. If there’s a really great composition, Owen says he’ll even go back a couple of years to make a time adjustment, but in the last couple of years the adjustments have been so big that banks have sometimes questioned the values.

“We have to be able to support our work because if I hadn’t made those adjustments, my value judgment would have been lower than the market actually was at the time. But this requires a lot of explanation. I think the banks are used to it now after two years of this rapid rate hike,” says Owen.

3. Evaluators want to talk to you

Owen says that not only does he enjoy hearing from real estate agents, but he also occasionally calls listing agents to learn more about a sale. Offering non-MLS information can help appraisers learn more about a property and its sale price. For example, if a neighboring property was sold quickly and for less money due to a divorce, appraisers will take that into account when determining the value of the property they are appraising.

4. Accounting for quality and condition

Amenities like countertops, floors and new kitchen cabinets are important, but Owen says their quality and condition are even more important.

“What floor and in what condition is it all? I’ve seen some houses with new kitchens, but they were just poorly done, and that can make a difference. It’s just the quality of work that can make a difference, so we take all of that into account.”

Appraisers use UAD (Uniform Appraisal Dataset) codes to assess a home’s condition. This is a standard set of definitions and answers that evaluators use in their reports.

5. Certain aspects of the home do not add value

The foundation and roof are items that must be functional. Owen says if you just spent thousands of dollars on a roof replacement, don’t expect to get that money back. The same goes for the foundation of a house.

“The foundation is even worse than the roof,” says Owen, “because if you have a foundation that has to be torn up and replaced, there’s really little, if any, value because buyers expect the house to have a foundation, which works. So you can lose $30,000, $40,000 or more doing a basement wall and not get a return.”

6. Assessments are subjective

Owen points out that even with a rating system, each rater may see things differently than the next. One person’s idea of ​​an updated kitchen may be freshly painted kitchen cabinets with granite countertops, while another may find granite countertops outdated based on market trends where quartz countertops are more popular.

Location is another area where subjectivity comes into play, Owen says.

“There’s an area outside of Cleveland, and it’s a very densely populated area, and a lot of appraisers — actually, myself for a long time — I called it ‘suburb,’ thinking, ‘Well, it’s a suburb for Cleveland.’ But the truth is in the city. In terms of density, it’s a city. You drive one mile to what everyone calls this area urban, and it is urban. But we think it’s a suburb because it’s a suburban part of Cleveland. But actually, if you look at the density, it’s urban. So things like that can be a bit subjective.”

In conclusion, Owen says to keep in mind that sales alone do not constitute market value. Comparable sales are the biggest factors appraisers use to support their conclusions, and even those aren’t set in stone. But being proactive as an agent by providing as much information as possible up front will help avoid disputes later, and in the long run, make the process much smoother for all parties involved.

Listen to Jamie Owen’s performance on The Walkthrough™ below.

Header image source: (Annie Spratt/Unsplash)

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