Appraisal question - square footage not accounted for properly?

Question

My appraisal came in significantly lower than I expected (only a 5% increase from the value the property was appraised at 4 years ago, in spite of values generally increasing 40-50%). Looking at the report, the appraiser chose two comps that are 1000 sq ft (my property is 1300 sq ft). To compensate for the lower square footage, the appraiser has added about $3000 to the sale price of those comps. This is killing my valuation since $3k is barely anything to compensate for the difference in size. If I do a simple price per square foot value of the extra 300 sq ft my property has, the additional value that should be added to the comp is about $37k. My question is- how can an appraiser be justified in thinking an additional $3k added to the sale price of the 1000 sq ft comp compensates for the smaller size? What am I missing here?  Thanks

Patrick Britton · Answer

Someone said the following:  "For the rebuttal:

1. bring comps that are within the last 90 days - do they exist?  dont you think if they existed the appraiser would use them?

2. bring comps that are within about 250sf living space as yours...it's not all about square feet unless this is your first deal or you're a real estate agent and dont know any better..

3. see what they gave on price for them and see if they discounted or increased the value on that those...that made no sense :)

4. add anything that you have permitted, get permits from the city to add or any other supporting documents.  that wont matter.

For rebuttal and prior to the inspection by the appraiser:

1. bring the Apprasier "your" comps, this guy/girl maybe from an hour outside the city and no idea what parts of the area would fit best.  Appraisers toss that junk in the trash.  dont waste your time you're proviing to the appraiser you, the agent, dont know how to bracket.

2. bring a list (spreadsheet) of all the upgrades and anything else that was done to the house with a dollar figure, they attach that to their report to justify price.  Spending $1000 on something is not necessarily going to get you $1000 back.  It also sets you up for significant disappointment.  Definitely the "best" advice here but not worth what you think

3. add documents for permits as mention.  dont bother.  waste of time.

Bob Willis · Answer

@Mahinda Horapakse - If you approach the appraiser about reviewing and changing his opinion I would be respectful and bring facts supporting your point. Being confrontational (I am not implying you will be) will not help your cause. An investor, who was also an appraiser, was interviewed by Brandon Turner and David Greene on the Bigger Pockets pod cast and they discussed this specific topic. Sorry I don't know which exact episode. Good luck.

Brad S. · Answer

Longtime Appraiser here. An Appraisal is an opinion based on the most relevant market data/facts available. Unfortunately, in many markets, available data (comparable sales, etc) is not always prevalent or relevant and then the appraisal becomes more art than science. Also many appraisers don't use the best modern statistical techniques or tools available. Many are just trying to be as quick as possible, while navigating the regulatory and supplemental requirements, in order to keep their license. But, many times, this leads to subpar work. So, while I don't disagree (at least in part) with what @Bruce Woodruff stated, it isn't that simple.

It is almost impossible to alter an appraisers opinion, unless you provide new, relevant data for them to consider. Maybe it was data they missed or didn't know, or couldn't know in their normal scope of work, etc. It may be additional relevant sales (more recently closed and similar in gla, condition, and/or quality), or maybe you can get additional information directly from the Agents of the comps. You can call the Agents of a comp sale and ask them info about the property, maybe it sold below market value, due to some unusual seller motivation or terrible condition or issue.

Per your post: I am assuming the Appraiser used the 1,000sf comps due to those being some of the better data available in the area. It isn't as simple as dividing your value by the sf to get a $/sf #. When you do that, you are including everything else within your estimate (lot size difference, quality, condition, age, location, views, etc. In other words, you can't simply state that two 1,000sf houses located next door to each other should have the same price/sf value. Yours may be a brand new, high-end, fully upgraded, highly sought after style, with a huge lot and the other one could be a dilapidated 100yr old, needing to be rebuilt, on a tiny lot. Price/sf is usually only relevant on a larger scale (i.e. analyzing a market with enough datapoints) or as a check AFTER all the other differences (lot size, quality, condition, location, etc) are accounted/adjusted for.

That said, a $10/sf adjustment does seem low, but I am in a market where a $100/sf adjustment is low. Also, there is less of an appeal difference as the sizes get closer (example- It is difficult to prove that two houses, with similar bed/bath counts, but a 50sf gla difference, have a different appeal due to the gla difference alone). So, you are not trying to assess the value of 300sf of the house, you are trying to analyze how much the additional 300sf would be worth to the typical buyer in that market, if any.

A $3k gla adjustment does sound low, but unless they mistakenly used the wrong adjustment factor ($10/sf vs $30/sf), you are not likely to change their mind, unless you have better data to provide them.

Also, you want to read the report and see on which comp/s they put the most weight. My guess is the appraiser put most weight on a comp more similar to your gla size and used the other comps as support.

Peter Mckernan · Answer

Appraisers do have their own criteria that they look through and make sure they are good under their guidelines. This is something that they have to do to keep their license incase they get audited by someone/business thinking they were not accurate. The best thing to do is if the report was already generated would be to have a rebuttal done. When you have that rebuttal done you can give the 3 comps that you feel best depict the price and like kind property. The appraiser does not have to change it just a heads up, but it gives you the ability to at least see if he will while adding your thoughts on the price.

For the rebuttal:

1. bring comps that are within the last 90 days

2. bring comps that are within about 250sf living space as yours

3. see what they gave on price for them and see if they discounted or increased the value on that those

4. add anything that you have permitted, get permits from the city to add or any other supporting documents.

For rebuttal and prior to the inspection by the appraiser:

1. bring the Apprasier "your" comps, this guy/girl maybe from an hour outside the city and no idea what parts of the area would fit best

2. bring a list (spreadsheet) of all the upgrades and anything else that was done to the house with a dollar figure, they attach that to their report to justify price

3. add documents for permits as mentioned

4. if the house was listed and there were multiple offers bring a list of the offers and what price they were to show the appraiser that this is what the house will sell for even if he does not appraise it property because so many other people have offered more than what they valued it at

Chris Seveney · Answer

What did you expect it to come in at?

Why did you expect it to come in higher? Were there comps of similar homes in the area that sold for a lot more? If it is a very rural area and not a lot of sales, as mentioned - SF may not really matter.

To answer the question - that is what they feel the SF variance is worth based on the data they have.

Bruce Woodruff · Answer

I stated that the appraisers are typically doing a CYA number for the bank, we call banks the lender around here. Reading comprehension an issue for you?

Also, I've always found when someone gets so angry that there must be some truth in the statement.

Just my opinion anyway, so relax.....

Patrick Britton · Answer

So here's someone with 5k in post and 5k in votes and he doesnt know that the appraiser WORKS FOR THE LENDER.

I guess there must have been a righteous sale at the stupid store yesterday

Bruce Woodruff · Answer

Appraisals are generally a joke. They are not a real valuation of property, but more a number to CYA for the bank, and the appraiser.....

I would confront the appraiser with your numbers and facts and see if they will adjust. Or request a second appraisal.

Good luck.....

Mahinda Horapakse · Answer

@Peter Mckernanok sounds good. Thanks again!

Peter Mckernan · Answer

It may, you can try it; however, the more relevant info is the last 90 days, and if there is nothing there then the last 120 or 180 days that have sold in that area. If they have to go back farther to date it they can. The appraiser will look and use the most current stuff due to the market that always changes. For instance, the person that sold in 2006 cannot use that appraisal for 2009 or 2010 due to values. At some point those values are just too irrelevant.

For instance, you could not take a job offer that you got in 2017 to an employer today and say hey they are going to pay me $100K back in 2017; and now I want $150K. The employer has the same basis, this is too far from what that productivity level was then for you, you may have increased or decreased that production for work. Same with the appraiser, some much changes over the course of 4 years they may just not take or look at that at all.

Appraisal question - square footage not accounted for properly?

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