Help clients understand what to expect during the appraisal process by sharing information on how appraisers reach their property value estimates.
Here are some of the factors that appraisers Joni L. Herndon of Real Property Analysts/Gulf Coast in Tampa, Fla., and John A. Hillas of Hulbert & Associates Inc. in Modesto, Calif., say they consider when determining value.
- Incentives and concessions. Most of today's buyers expect to pay the lowest possible price and still get some extras. Sellers and home builders are offering money toward closing costs, remodeling and decorating, upgrades, and association dues. The price set initially may not be the final price once concessions are factored out. Appraisers care about that final number.
- Closing date. Forget what comparable neighborhood houses sold for a few months back. Appraisers want prices from the most recently closed transactions. If a sale was more than 45 days ago, even 35, the price may be irrelevant, Hillas says.
- Condition and curb appeal. Appraisers typically find several properties with similar interior and exterior features to determine value. When markets are healthy, blemishes matter less, but when markets soften, problems-a dated kitchen or barren lawn-can reduce prices and deter buyers. The difference in value is not just the repair costs but the time and hassle to make them. It's better for sellers to do work in advance, Hillas says.
- Foreclosures. Appraisers technically shouldn't consider neighborhood foreclosures when valuing a home, since foreclosures don't meet the Appraisal Institute's definition of a property reasonably exposed in a competitive market, says Herndon. But when several neighborhood homes are abandoned, it's hard not to caution sellers that this is a troubling trend and may affect home values, she says.
- Changing demographics. If a house is in an up-and-coming area, the value can be expected to rise. A location that's perceived as safe also may help attract the increasing number of single female buyers.
- Economic clouds. If there's an oversupply of comparable homes for sale, or if the local job market is suffering, buyers may be hesitant to invest. Hillas advises setting prices aggressively from the get-go.
- Chemistry. It's hard to account for those times when buyers fall in love with a house, despite a high price, poor condition, or tough economy. Emotional attachment is a factor that can't be predicted, says Herndon. Hillas agrees, It's what makes it harder to appraise homes versus commercial buildings, where buyers care more about the bottom line.