What do appraisers look at?

Question

If there are any appraisers out there, or people familiar with how they are done:

What are all the things that are looked at when determining the value of a home?

Troy Forney · Answer

David Ramirez provided a great description. I will expand on common mistakes I have seen in my over 20 years of appraising and over 10,000 properties. When someone is attempting to do a sales comparison, often we see someone trying to compare a two story with a bi-level or vice versa. They are not comparable. Appraisal guidelines state, if any portion is below grade, that level is basement and not GLA.  Bi-levels only have one story above grade. The other is finished basement and is valued at a different rate than the GLA (or above grade square footage). Another big mistake is taking the assessors word or sales agent/brokers for the finished square footage or GLA. For expample, the assessor loves to take the square footage of a 1.5 story and double the main floor. So if you have a cape cod that is 1000 sf on the main level they take 100% of the main floor sf for the upper. The sales agent/broker follows suit and says it’s a 2000 sf foot home. No is using common sense. If you look at a cape cod do you see two squares on top each other? No you see a square with a triangle on top! So now the appraiser goes out and measures, our guidelines state we must measure an angled roof line from 7 feet high and no lower than 5 feet. I usually go 6 feet and straight across. Now a novice comped this home at 2000 sf, really it’s only 1500 sf. Makes a big difference. When we do our comparisons we then change any comps that are calculated wrong. So general rule of thumb depending on the angle of the roof, upper of a cape cod with no dormers is 50% of the main. With two small dormers in front 55%. Full back dormer, front has two small ones 75% of main.  The other big mistake is I see people not comparing condition properly. They will flip a house and leave the outside alone with the old siding and windows, soffit, fascia gutters, etc… They only remodeled the interior. That is fine, just make sure you are not basing your ARV on comps that are 100% rehabs, inside and out. You need to comp it to sales of homes with the interior rehab only. Also you have to compare quality of finish correctly. If some used wood and tile flooring with quartz or granite tops, your not going to say your flip with LVP and laminate tops is the same. Ok, hope this helps.

David Ramirez · Answer

Hey @William Luke Laity

Real estate appraisers consider a range of factors to determine the value of a property, including its location, size, age, condition, and recent sales of comparable properties in the area. They may also consider the income potential of the property for commercial or investment purposes. They provide an unbiased and independent opinion of the property's value, taking a comprehensive approach to evaluating its worth.

Brad S. · Answer

Troy has a good detailed description of some common value/comparison issues. I'll hit briefly on some of the main factors we observe and compare when formulating our value opinion. Keep in mind we are searching for recent sales with similar attributes.

Subject Property* Location - is it on a busy street, private gated community, end of a culdesac, backing high traffic street or freeway, airport noise, across main neighborhood boundary where the market appeal changes, in highly rated school district, etc.

* Site (Lot) Size - typical size for the area or atypically large or small and how does that affect potential buyer appeal, or strange shape lot (pie shape, etc) which decreases its' utility (use).

* Design/style - certain neighborhoods may show preferences for specific home styles/designs, I have some markets near me where Craftsman (arts and crafts) style houses are highly desirable and command a premium, I also have seen many relatively recent new builds and rehabs which are modern style and are getting premiums based on that. This depends on the neighborhood and what buyers appear to be showing desire for.

* Quality - Is the house modernized with current materials and finishes, are they higher end upgrades, materials and finishing (solid surface countertops-Quartz, etc, custom solid wood cabinets with soft-close drawers/doors, built-in SubZero refrigerator/freezer, 48 in Wolf range, wine/beverage fridge, large center island with prep sink, solid wood or good quality engineered wood flooring, etc) or does it have outdated or minimal upgraded finishes (Formica countertops and cabinets, tile vanities, vinyl roll flooring, basic carpeting, no major upgrading, etc).

* Age - similar in age to the surrounding homes or significantly newer or older

* Condition - has the house been fully remodeled recently, partially remodeled, or just basic maintenance and updating as needed

* Bedroom/Bathroom count - # of each and is that typical for the area or is it a 2/1 but most buyers pay more for a 3rd bedroom and/or 2nd bathroom, or does it have a "superadequacy" like 6 bedrooms in an area that typically has 2-3 bedrooms

* GLA (gross living area) - size of living area, again is it typical for properties in the area or under or over built. In some areas, buyers want larger houses to accommodate their growing family and therefore, may have additional appeal for larger homes (1,200sf vs 2,500sf), or they want additional space for a home office or gym, etc.

* Heating/Cooling - central heat and air or wall furnace and no AC, if the house is in a community close to the ocean, AC may not be a big deal, but in hot environments, it may be seen as a necessity and this may be reflected in prices.

* Garage/Carports - # of each, some areas have a premium for garages since the weather will affect their utility. Basically, if it snows or rains heavily in your area, you would probably want an enclosed garage and preferably attached to the house with direct access, and buyers may pay more for that.

* Yard amenities, etc - in-ground pool/spa, covered patio, built-in BBQ's, elaborate yard landscaping and upgrades, etc.

Those are many characteristics that we look at when evaluating a home, and then we are looking for recent sales that, hopefully, have many of those attributes, or we piece together different sales which have some of those attributes, to reflect the important characteristics of the Subject Property in the market. It is a combination of art and science.

Troy Forney · Answer

Well Scott its probably a combination of a couple things.  If the listing agent did there job and knows the market well, they listed it at the right price.  In that case the appraisers job is easy and just confirm they were right.  Also many appraisers say, they don't like to stick their neck out any more than they have to.  Meaning they don't want to go over because they think that is more risky.  The other is if the contract price is close and you have comps, its easy to let it ride not cause any waves and move on to the next job.  I typically, say it is what it is.  I let the comps dictate the value.  Nothing else.  About a 50% of the time I am on the contract price.  The other 50% sometimes over and sometimes short.  A very small percentage (1%) of appraisers I know, would get the value if the comps didn't support it.

Troy Forney · Answer

The only thing I would like to add is this….Market Value means 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 and knowledgeably, and assuming the price is not affected by undue stimulus.

If you look up the definition of prudent it states: acting in a careful manor that avoids risk.

When you get shortages of housing and the demand we had from Illinois people moving to Indiana, it was causing and still is to a less degree, bidding wars. At this point I don’t feel buyer and seller are acting prudently.  Then you question the validity of the contract price. Is it still truly market value since they are not acting in a careful manor that avoids risk. That goes out the window and the just want to win.  Bottom line is still let the comps dictate the value.

Brad S. · Answer

All the things Troy mentions and I'll add a little to that. The contract price can be one of the best indicators of market value for the Subject property (assuming typical terms and no major concessions). It is literally a direct reflection of market demand for that property, especially, when you have multiple offers on that property. The first part of the Definition of Market Value we use for lending purposes, is "The most probable price which a property should bring in a competitive market." Many times an actual contract price perfectly fits that part of the definition. But, as Troy says, as long as the comps reasonably support it.

Mark Jones · Answer

The main thing they are looking at are comps that have sold the closest to the subject property and the most recent.  Then they put them on a grid and adjust up and down when comparing the homes that sold vs. the subject property.

Wale Lawal · Answer

@William Luke Laity

A property's appraisal value is influenced by recent sales of similar properties and by current market trends.The home's amenities, including the number of bedrooms and bathrooms, the floor plan's functionality, and the square footage are also key factors.The appraiser must perform a complete visual inspection of the interior and exterior and note any conditions that adversely affect the property's value, such as needed repairs.

All the best!

Scott E. · Answer

As others have stated, appraisers are looking at sales of similar homes that have sold in the area. What makes them similar is lot size, square footage, bedroom count, bathroom count, parking, and other amenities.

But another huge factor that I don't see mentioned, is that it's clear to me appraisers are also putting a lot of weight on the contract price.

I can't explain why, perhaps an appraiser can weigh in here. But nearly every home I have bought and sold over the years where an appraisal was required - The appraisal came in exactly at the contract price. Down to the penny.

Eliott Elias · Answer

Comparables, home condition, bed/bath/square footage.

What do appraisers look at?

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