Real Estate Appraisal Questions & Answers

How do you determine your opinion of value of a property in an appraisal report?

There are three (3) approaches to value that can be used in an appraisal report.

Sales Comparison Approach: This method compares the property being appraised (subject property) to similar properties in the area that have recently sold (typically the previous 3 months). This value reflects what buyers are willing to pay for a home like yours. In this approach adjustments are made to the comparable properties for any differences, such as size, condition, pool, etc. compared to the subject property. These adjustments are determined by analyzing the market to determine how much a buyer is willing to pay for various features, sizes, views, etc.

Cost Approach: This method calculates the cost of a property's improvements, less depreciation. To estimate costs we use information collected from local builders. We also include the estimated site value in the cost approach which is determined by recent vacant lot sales in the area or if there are no vacant lot sales we use the extraction technique from improved sales to estimate the subject's site value. This is done by using the estimated value from the sales comparaison approach minus the cost of improvements. The difference is the estimated site value.

Income Approach: This method analyzes the income produced by comparable properties that have recently sold to determine a Gross Rent Multiplier (GRM). For example a comparable property that recently sold for $100,000 that receives rent of $500 per month would have a GRM of 200. If there were three recent sales and the GRM was 200, 207 and 209 the GRM may be estimated at 205. If the market rent for the subject property is $550 per month the estimated value would be $112,000 ($550 x 205). The income approach is not typically used for single family homes unless the property is located in a neighborhood of homes that are rentals. The income approach is typically used for multiple family income producing properties.

Typically the most reliable indicator of value for a residential property is the sales comparison approach. The cost approach is included in the report if the subject property is new or newer. The income approach is rarely used in residential appraisal reports with the exception of mulitiple family income producing properties.

Why did my house appraise lower than what I think it is worth?

This is common as most homeowners believe their home is worth more than it actually is. Further, they don't understand that the appraiser's opinion of value is the most probable price a property should sell for. Appraisals are not perfect, however estimating the value of a home based on what similar homes have sold for is the best method to determine a home's value.

What do I do if I believe the appraised value of my home is low?

If you believe your home appraisal is low and you want the appraiser to reconsider their opinion of value you will need to provide the appraiser with better comparable sales than the comparables used in the report. Typically when a client or homeowner contacts me about an appraisal they believe is low I tell them to provide me with three comparable sales that are located in the subject's neighborhood that are more recent sales and more similar than the comparables I utilized in my report. 99.9% of the time the client or homeowner cannot provide better comparables than I utilized in the report and their belief that the value of their home is more is based on their love for their home and nothing else. The other 00.1% of the time the client or homeowner provides me with sales they are not comparable and cannot be utilized. Typically the sales that I am provided by the client or homeowner are located in a superior neighborhood or are newer or larger homes. So if you are going to challenge the appraiser's opinion of value of your property make sure you have better comparables than the appraiser.

Where does the information used in an appraisal come from?

The appraiser gets their information from various sources including, county property appraisers office, public records, tax assessors maps, multiple listing service (MLS), real estate agents, interviews with buyers and sellers and inspection of the subject property.

Can I order an appraisal to help me price my property to sell and then give it to the buyer to use for a loan?

No, an appraisal can only be used by the client that hired them and cannot be readdressed or reassigned to another party. However, I do recommend obtaining an appraisal to price your home correctly which will enable you to sell it quickly for top dollar.

Can I use a real estate agent to complete an appraisal?

No, real estate agents cannot provide an appraisal unless they are a certified or licensed appraiser. If you are selling or buying a property you could use a comparative market analysis from a real estate agent, however I don't advise you to do this for a few reasons. (1) Real estate agents are not certified or licensed to perform appraisals, (2) Real estate agents are salespeople, they are not trained to value real estate, (3) Real estate agents have a biased opinion as they are either trying to get an owner to list a property with them or have a buyer purchase a property through them. A potential commission can affect a real estate agent's opinion of value (just look at all the homes for sale that are listed at inflated prices).

A real estate appraiser is trained to value real estate and is an unbiased individual who is paid a flat fee and has no reason to provide an innaccurate opinion of value.

Can I use a computer generated appraisal?

Typically you won't be able to use it for lending purposes, however some lenders do have their own systems that they will use and rely on. If you are selling or buying a property you could use a computer generated analysis from a website such as Zillow to get an overall look at market prices, but this is not reliable. A computer does not know where neighborhoods end and many times they will use sales from surrounding inferior or superior areas which can greatly affect the value. If you need a true opinion of value of a property it is better to obtain a real estate appraisal from an experienced appraiser.

* Please note that Zillow was in the "Home Flipping" business for a short time, however their algorithm was so bad at estimating home value that they lost billions of dollars and have shut down that part of their business.

Is the assessed value of my property equal to the market value?

Not usually, the assessed value of a property is determined by the office of the county property appraiser and is used to determine property taxes. The assessed value is not determined by an actual property appraisal and does not typically reflect the current market value. The homeowner should not rely on the assessed value as an accurate indicator of what their property is worth.

Does an appraisal include a home inspection?

No, the appraiser does view the interior and exterior of the subject property (except drive by appraisals) and does note any visible repairs or potential problems, however an appraiser is not a home inspector and typically does not have the knowledge or background to perform a home inspection. The appraiser will indicate a cost to cure for repairs they note in the appraisal and indicate its impact on value in the appraisal. This is not a home inspection and should not be considered one. It is highly recommended to hire a home inspector to perform a full home inspection if your are purchasing a property.

Are my furnishings and window treatments considered in the appraisal?

No, these are considered personal property and are not included. Above ground pools, hot tubs, removable storage buildings, etc. are all personal property and will not be included in the appraisal report. Only real property is included in the valuation of the subject property.

What helps increase a home's value the most?

In my professional opinion the way to increase your home's value the most when selling is also the cheapest; paint, cleanliness, the removal of clutter and clean cut landscaping. It's as simple as that. Many homeowners spend thousands of dollars on new kitchens, additional rooms, pools, etc. and do not get their money back, however a nice clean property can help you the most and give you the greatest return on your investment.

What is "Market Value"?

The most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller, each acting prudently, knowledgeably and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: (1) buyer and seller are typically motivated: (2) both parties are well informed advised, and each acting in what he considers his own best interest: (3) a reasonable time is allowed for exposure in the open market: (4) payment is made in terms of cash in U. S. dollars or in terms of financial arrangements comparable thereto; and (5) the price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions* by anyone associated with the sale.

What is meant by "Highest & Best Use"?

The most probable use of land or improved property that is legally possible, physically possible, financially feasible (and appropriately supportable) from the market, and which results in maximum profitability.

To order an appraisal call (772) 678-2980.