Home Appraisals: Almost Always Uneventful…Until They’re Not

If all the many steps for buying or selling a home were like progressing chapters in a dramatic novel, the appraisal would be among the least engrossing, like a necessary but dull plot development that forwards the tale (transaction). It’s a must to include, even if there’s almost nothing about it that raises eyebrows.

Then again, one never knows where or when a storyline twist (unforeseen real estate circumstance) may pop up. So it’s important for readers (REALTORS®) to stay focused from prologue (first house visit) to epilogue (closing). We’ll let you handle the page-turners and concentrate on detailing the ins and outs of appraisals.

The main reason appraisals lack drama is because they simply serve as a lender’s way to make sure the property they are considering underwriting for a loan is not worth significantly less, in their opinion, than what the applicant is offering to pay for it. Because the house’s value acts as collateral, they do not want to worry about taking a loss in the unlikely event of foreclosure.

Appraisers hired by the lender are normally paid by the prospective homebuyer as part of the mortgage fees. After visiting the property and consulting recent sales, a fair market value will be established for the home. In most cases, the appraisal will be close to the accepted purchase price because the seller will have already determined how much to expect from a sale, and done their own due diligence regarding recent sales and comps.

Two long-established agents, one selling mostly suburban homes and one focused solely in an urban market, offer views on various aspects of the residential property appraisal.

REALTOR® Joni Usdan, with the Bross Chingas Bross team at Coldwell Banker, in Westport, Connecticut, who sells mostly detached single-family homes, points out that various features in a house will likely be valued differently by the appraiser, owner and buyer.

“Appraisers aren’t permitted to assign more than a stated amount for even the most over-the-top amenity, so they have a cap on costly pool and cabana features,” she says. “On the other hand, buyers will get into emotionally charged bidding for ‘sick features’ or labels; name-brand design, decor or lighting. Moreover, even a whisper that a celebrity once owned or rented the place can make values soar. Appraisers can assign little or nothing extra for this information, and I’ve seen a few in the past just scratching their heads over the hype.

“We encounter under-appraised properties most when there aren’t enough sales in an area, or when an appraiser is unfamiliar with some of the best comps or nuances, or when there is more uniqueness, as in a waterfront property. In this last case, sometimes it is widely accepted for an appraiser to go outside of the town or market area bounds to find a comparable waterfront parcel.”

Pam Rosser Thistle, with Berkshire Hathaway HomeServices Fox & Roach, REALTORS® in Philadelphia, works exclusively in Center City, representing condo and co-op buyers and sellers. She stresses that there are major differences when it comes to an appraiser who judges suburban homes and one who often has to compare homes in the same building or on the same block.

“I have respect for an appraisal where the correct comps were selected and adjusted properly,” she says. “In my market, It’s mostly an understanding of the streets and the value of location. Even the side of the street, middle or end of the block can be very different. With local lenders using a local pool of appraisers, appraisals are generally reliable and fair. Often, out-of-area appraisers use comps in the same zipcode that could be two neighborhoods away from the subject property. These are not accurate or reliable.”

Working within a city has its own challenges as well regarding appraisals and the sometimes subtle but powerful forces that come into play.

“Appraisals here have about the same shelf life as fruit,” admits Thistle. “The market changes quickly as a consequence of inventory levels, rates and even political factors like an election. Also, lenders have criteria for how long an appraisal is still good. For a longer closing, like new construction, there may be two appraisals done so that the last one matches the current market.”

Appraisal disputes and issues

Most often, though not always, an appraiser’s valuation is accepted. But sometimes the buyer or seller may have a problem with it.

“I have seen buyers go to the lender and insist they send out another appraiser who is more familiar with the area if the subject property has been, in their opinion, under-appraised, and I  have seen them oblige,” says Usdan. “An agent can help make the case for this.

“There are certain times where two or more appraisers are sent, especially in an increasing or declining market (versus stable), and in some cases, like new construction, where appraisers need to come back at a later date to see completions. 

“Some agents routinely suggest to their sellers that they have the home appraised before putting it on the market so they can more confidently choose a listing price. But these valuations can then be hotly contested for being too high by the buyer or too low by the seller. These values are good for only as long as market conditions stay the same.”

Coming to an agreement when the appraisal causes an issue can be ticklish, but usually all parties want a sale completed, so professionalism is paramount. What was agreed to initially between the buyer and seller can be renegotiated.

“This will depend on how the contract was written,” says Thistle. “Is there an appraisal contingency? Can the loan be adjusted? First, the agents, lender, buyer and seller determine it based on the loan and the buyer’s finances. Then the question is, do we want to make this happen? If so, we negotiate as we would an offer. 

“Often, we need to appeal the appraisal. Sometimes the lender will have the opportunity to send another appraiser to the property. Or, maybe the value really is lower than the contract price and the seller has to understand that and come down to value. This can happen when a property was listed in a slow market and it took some time to receive an offer.”

Sometimes the appraisal is low because the owner did not realize that some part or parts of the residence could not be taken under consideration.

“Most often, a beautifully finished basement does not have proper egress, which means that square footage cannot be counted,” she informs. “This is why many new construction homes have window wells with ladders to the street in the basements. Then the square footage can be counted. Also, roof decks and lot size are not given the value I think they deserve.”

City dwellings have certain pluses and minuses that rural residences do not, and can play a major part on the appraisal and price.

“Among them are the view, what floor the condo/co-op is on, parking and type of parking (assigned, licensed, deeded), amenities, tax abatement and general carrying charges,” says Thistle. “High taxes and assessments can bring down the value. And most importantly, the comps in the building. There are many buildings on Rittenhouse Square here. Each of them comps differently, even though they share the same sought-after location.”

Thistle says a personal touch can work with an appraisal in the same manner it does with a client. Being nice and helpful won’t change a high appraisal to a low one, but it can’t hurt.

“Appraisers are nice, hard-working people,” she concludes. “As they prepare their appraisal reports, they usually call agents to verify sales and talk about the houses that have sold to compare to the subject property. I receive many calls from appraisers and always try to help them out. If I am the listing agent meeting with the appraiser, I try to remember to bring a cannoli from Isgro’s. Who wouldn’t want that?”