Machines put the bowling alley pinsetter, the film projectionist and the subway ticket puncher out of a job.
Yet in the golden age of online home value estimators, home appraisers (of the human variety) are still required for the vast majority of mortgages and real estate purchases.
That begs the question, what do home appraisers do to pin down your home’s value? And what do they bring to the table that technology, at least at the moment, can’t?
We researched the latest trends, interviewed a real estate agent who’s been through hundreds of appraisals with her seller clients, and spoke with with an appraiser who’s been in the appraisal business since 2005 to understand the ins and outs of an home appraiser’s job.
Should you ever need to challenge an appraisal on your home (at the time of sale, or during a refinance), you’ll know whether the appraiser had the necessary skills and experience to value your home accurately or if their work was a total crapshoot.
What does an appraiser do? Let’s start with the basics
A home appraiser’s job is to determine your home’s fair market value
First things first, during a typical home sale, the appraiser does not work for the seller.
Rather, the home appraisal is all about managing risk for the lender.
In addition to checking up on a buyer’s income and credit history, the lender wants to know that the property is worth the big pile of cash they’re putting forth to finance it.
“For purchase transactions involving financing, the appraisal serves the lender by providing an opinion of value so that loan decisions can be made,” says appraiser Chris Bourland of JB Real Estate Valuation & Advisory.
“The appraisal is the collateral component of the overall underwriting decision, which is often an important factor in the approval decision and may dictate loan limits.”
The buyer covers the appraiser’s fee, usually between $400 and $600.
Home appraisers compile data, run comps and conduct an on-site visit
A home appraiser is going to gather all of the relevant data on a house from property data sources like the multiple listing service.
After all, how can you value a home if you don’t know the basics about it? A home’s square footage, number of beds and baths, room sizes, lot size, location—all of this will be factored in.
The appraiser will also analyze your property against nearby, recently sold comparable homes to get a baseline for property values in your hyperlocal area.
If the neighbor across the street sold their home of a similar age, size, and condition for $320,000, while another down the block sold for $350,000, the appraiser is going to work within that range and add or subtract value for your home’s unique condition and features.
“For example, if an appraiser is appraising an end-unit townhouse property, which the market considers to be more desirable than an interior unit (with all other features being equal), the appraiser may pull paired sales which will isolate this feature (end versus interior) difference to inform the appraiser of the market supported adjustment,” explains Bourland.
Another big component of an appraiser’s work is the on-site visit. They’ll come into your home for a visual inspection and flip the lights on and off, snap photos and take lots of notes.
On the outside, they’ll evaluate the home’s structure, property site, construction quality, roof and foundation integrity, gutters and siding, parking, exterior condition and your neighborhood.
Once indoors, they’ll take into account the general condition, functional layout, appliance wear and tear, structural integrity, and code compliance for things like your outlets and electrical wiring.
Home appraisers take their findings and put it all together in a appraisal report
Typically, after the lender orders the appraisal, it takes an average of three days before the appraiser’s site visit takes place, then another three days on average for the appraiser to submit the appraisal report to the lender.
Only the buyer and lender will receive a copy of the appraiser’s report. In the event that the appraised value falls short of the contract price, the seller can get a copy of the report upon request.
These reports, according to Bourland, are generally one of two kinds: either a form or a narrative report.
“Form appraisal reports are just that: reports which are form-based and standardized. The forms are useful for giving readers because they can evaluate the quality of property on a standardized basis. [The form for residential property] includes information about the subject property, the subject property’s neighborhood and information about market conditions, as well as quality of construction and condition ratings, which fit into standardized categories.”
Narrative reports, on the other hand, are completed by hand. They’ll generally follow some logical layout or sequence, but otherwise they might vary dramatically.
For example, Bourland says that he has produced narrative reports over 300 pages in length, depending various factors specific to the sale, the property, or the parties involved in the deal.
What does the home appraiser add to the valuation process?
Back in 2015, the then president of the Appraisal Institute, M. Lance Coyle, wrote in a piece for WorkingRE:
“Appraisers used to focus on the collection and verification of data; those who were the best at this were often well rewarded. But today data is widely available, so appraisers must focus on the analysis of that data to bring value to their services.”
Here we’ll dive into that “analysis” piece of what home appraisers do today to get a better understanding of their work in the home sale process.
1. Home appraisers account for factors that you can’t always pull from data records
Online home value estimators pull their data sources from a number of available sources, such as public records and the multiple listing service, then use that to produce their valuations.
However, they may fail to account for under-the-radar variables that impact a home’s desirability to buyers in a big way, such as:
- Low-flying planes overhead
- Positioning on a corner that used to be quiet, but is now heavily trafficked
- Proximity to power lines
- Location on a steep hill
- Creek in the backyard
- Noise levels
- Safety threats (toxic waste facility, shooting range, registered offenders, fracking, etc.)
- Undesirable school district
- Negative billboards or storefronts
Part of what a home appraiser does is look at all these nuances and incorporate them into their price opinion.
2. Home appraisers use an on-site visit to assess a home’s condition
Another key piece of a valuing a home is its condition—overgrown landscaping, stained carpet, peeling paint on the outside can all detract from a property’s value and may or may not be reflected in an algorithm.
On the flip side, a homeowner that’s kept up with their home’s maintenance needs for three decades will be rewarded with a higher appraisal.
Buyers love to see a home that’s decluttered, clean, and in great shape—from the waterproofed wood planks on the back deck, to the perfectly intact siding, to the drywall with no chips or dents as far as the eye can see.
An experienced appraiser will also take note of how well the home is constructed. If the quality of the materials and the workmanship are high, these factors will bump up your home’s value.
3. Home appraisers account for recent upgrades
If you’ve made recent improvements to the home, such as expansions and renovations, the appraiser will factor this work into the overall property value.
It would be difficult for anyone to account for your upgraded kitchen countertops or brand new roof you installed a month before selling without an onsite visit right before closing—which is exactly what a home appraiser does.
4. Home appraisers value unique properties in the absence of comps
Some homes are easier to appraise than others, such as a cookie-cutter new development houses with dozens of other surrounding similar properties.
Trish O’Connell, a Santa Rosa, California, real estate agent with 17 years of experience, explains how critical comparables are to form a reasonable range of sales values.
To provide an accurate value range, she says, the comparable sales generally must have taken place within a one-mile radius, within the last 6 months.
However, that can change radically for what O’Connell terms unique properties.
A large horse ranch with a value that will most likely exceed $1,000,000 probably doesn’t have any available comparable sales that meet those one-mile radius and six-month terms. In that case, the appraiser will have to expand the radius, the time frame or both.
Home appraisers are trained to know “specific techniques that can be used to address problems such as the scarcity of comparable sales, the analysis of cost data, the possibility of rezoning and alternative uses, and the need to consider specially defined markets and values,” according to the Appraisal Institute.
That’s better than throwing a dart a map, which is likely all you could do with public records data alone.
What you should expect from the appraiser of your home
Given the importance of the appraiser’s work and its impact on whether your sale closes, make sure the professional doing the appraisal is properly qualified and licensed to do the work.
Licensing rules will vary state by state. However, those rules must be at least as strict as the qualification criteria established by the Appraiser Qualifications Board certification.
Currently those criteria include from 150 to 200 hours of professional training and education, depending on the level of licensing attained. (These standards reflect recent changes that became effective in May 2018 but that may not have yet been adopted or enacted by your state.)
Appraisers must also take and pass the National Uniform Licensing and Certification Examination.
Bourland explains how “appraisers are required to have geographic competency as well as competency in appraising a particular property type.”
So, your appraiser should not only be licensed with the proper training but also have experience appraising dozens of homes in your neighborhood.
If the appraisal on your house comes in low, you’ll want to check for:
- Did the appraiser account for recent home upgrades?
- Are special features such as your screened-in porch and pool noted in the report?
- Does the appraiser have local expertise, to take your proximity to nearby attractions into consideration?
- Did the appraiser take photos of your house during the on-site visit?
- Did they spend time evaluating both the inside and outside of your home?
- Did the appraiser pool together the home values of similar, nearby properties in their analysis?
A home appraiser’s biggest asset is their ability to do thorough work factoring in all of the nuances that could impact your home’s value, then putting the pieces of the puzzle together—even the one hidden behind the box.
Make sure you’re working with one who meets these standards and can price your home better than a computer.
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