Hear it from an Appraiser
Say the word “appraisal” and it can elicit all kinds of emotions in home Sellers and Buyers, alike. It’s likely due to the fact that a home sale is dependent upon the appraisal. There can be a lot of uncertainty with an appraisal, particularly when you just don’t know how an appraisal will go, rather in your favor or not and you likely have a lot of questions. With this in mind, I invited a top-notch, trusted Real Estate Appraiser to share his insight on commonly asked appraisal questions. I invited Ryan Lundquist. Although Real Estate is local, Ryan answers appraisal questions that can apply nationwide. Getting inside the head of an expert Appraiser is what’s on the menu today. I hope the questions I’ve asked Ryan provide you with some clarity on the appraisal process.
A little bit about, Appraiser, Ryan Lundquist.
Ryan Lundquist is a certified appraiser and focuses on residential appraisals in the Sacramento area. His clients include homeowners, real estate agents, governmental agencies, attorneys, and lenders. Ryan runs the Sacramento Appraisal Blog, which is a top-ranking appraisal blog in the United States. He has written over 1000 articles to help illustrate what is happening in the market as well as offer insight into how appraisers think. Ryan has been quoted in local and national publications, and he is the Vice-Chair of the Housing Opportunity Committee with the Sacramento Association of Realtors, and is a board member of the Real Estate Appraisers Association of Sacramento.
Let’s get started with the Questions
What is an Appraisal?
Ryan: An appraisal is an opinion of value from a state licensed appraiser. It’s easy to hear “opinion” and think of an appraisal as an entirely subjective ordeal, as in “I have an ‘opinion’ about which movie should win the Oscar” or “I think my house is worth $300,000”. But an “opinion” in the appraisal sense is really an established value that is supposed to be well-supported by market data.
Lynn Pineda: Oh yes Ryan, we can get a lot of “opinions” that aren’t supported by market data in Real Estate. We often hear from family members, friends, neighbors and co-workers who all have their opinion on what the price of your home should be. Great clarification of exactly what is an appraisal.
What does an Appraiser look at to determine a home’s value?
Ryan: Determining the value of a property involves so many characteristics. An appraiser will take into consideration neighborhood sales, current listings, the condition of the property, the quality of any upgrades, the location of course, and even things like bedroom and bathroom count. An appraiser will need to find comparable sales (“comps”) to help establish the value for a property. The appraiser can make any adjustments to the comps based on differences, and eventually arrive at a well-established value that makes sense for the neighborhood and property at hand. It’s easy sometimes to think of all sales in the neighborhood as “comps”, but a comp is really a property that is actually competitive to the subject property. In other words, if the subject property was not available for sale, would a buyer consider purchasing one of the comps as a replacement? That’s a good question to ask in order to not lump in any old neighborhood sale into the comp category.
Lynn Pineda: Excellent way in which to describe a true comparable home, in that, if the subject property wasn’t available for sale, would a Buyer consider purchasing one of the comparable homes as a replacement. Makes perfect sense.
How does an Appraiser determine which homes to use as comparable sales for my home?
Ryan: What makes a property a “comp” is that it is a good substitute for the subject property. A comparable sale is likely similar in location, square footage, condition, and bedroom/bathroom count. Would a buyer consider purchasing the “comp’ if the subject property was not available? That is an excellent question to ask, and it underscores the reality that not every neighborhood sale is actually a comp. For instance, if a 3000 sq ft sale across the street sold for $400,000, and your house is 2200 sq ft, that’s probably not a great comparison. There might be an enormous price difference between your house and the sale nearby. It’s best to find other sales that are closer in size to yours, have a similar location, a similar bed/bath count, and a similar level of upgrades. In an ideal world we would be able to find recent sales that require no value adjustments because the homes are nearly identical. In the real world though, appraisers have a limited pool of sales to choose from, so sometimes non-identical sales are chosen, and then the appraiser has to figure out how much to adjust for the various differences. It all comes down to how much more or less the market is willing to pay for the differences. For example, if one house has a built-in pool and another house does not, and the price difference is $10,000 between the two sales, the value of the built-in pool is $10,000. Now the pool might cost a whole lot more to build, but the market is only willing to pay $10,000 or so for the pool, so that becomes the adjustment. The same holds true with square footage. It may cost a whole lot more to build the extra space, but the key is how much typical buyers are actually willing to pay for that space in the resale market.
Lynn Pineda: Yes, too bad it isn’t always easy to find an exact replica of a home to use as a comparison. Unfortunately, it just doesn’t happen that way. Adjusting for the differences is therefore the critical piece of the puzzle and the pool example you provide is a perfect illustration.
What home improvements add the most value?
Ryan: This is actually a tricky question because there isn’t one definitive answer to apply to every property in every market. First of all, what the market is doing will help impact value the most. In a rapidly appreciating market, for example, inventory is probably running low, and that means buyers will tend to buy just about anything (and even look past some negative features at the time). But if the market is declining in value and inventory is increasing, that makes buyers a bit pickier about which houses to buy. With that being said, specific improvements that usually sell a home tend to be an updated kitchen, and some of the big-ticket items already taken care of (such as upgraded bathrooms, a newer HVAC/AC, and newer roof). When the more costly items have been recently upgraded, it tends to draw buyers in for a purchase.
Lynn Pineda: Yes, Ryan it seems as if Buyers like things that are “new and updated” and are willing to pay for it, typically in Kitchens and Bathrooms.
How can my home’s condition affect my home’s value?
Ryan: Condition is a big deal for buyers. In a market with extremely tight inventory, buyers tend to be a bit more forgiving about condition because it might be difficult to get into contract. This means buyers will make offers on just about anything. However, in a market with a normal level of housing supply, condition becomes a huge issue. When a house is in disrepair or outdated, buyers will expect a price discount, or simply pass on a property unless the price is already discounted. Ultimately, when a house is pristine with even modest updates, it makes a big value and marketing difference since buyers can simply move in without having to shell out any more greenbacks to make repairs after escrow.
Lynn Pineda: Excellent points Ryan. Now that many markets are moving from the very strong Seller’s market to a more balanced/stable market, a home’s condition ought to matter more as Sellers look for ways to get their home sold.
How can current market trends affect the value of my home?
Ryan: There are many different layers to the housing market, which means there are many different things that can ultimately impact a home’s value. It’s easy to simplify real estate into being about supply and demand, but there is so much more than that. For instance, when interest rates decline, it helps buyers afford more house for their buck, which can help values increase. Likewise, when the job market is booming and wages are increasing, that can also lead to value increases because buyers can afford to pay higher prices. Other things like the national economy, stock market, cash investors, loan programs, and the public’s perception of real estate can make a difference in shaping the local housing market.
Lynn Pineda: It’s true, Ryan there are so many parts of the housing market that affect home values and you pointed them out clearly to understand how they affect a home’s value.
How does the age of a home affect a home’s value?
Ryan: The age of a home is something buyers will consider, but what matters most is the condition of the home. For instance, I’ve seen homes that are 100 years old that are in better condition than three-year old homes.
Lynn Pineda: Yes, I can’t preach it enough to my home Sellers on the importance of the condition of the home that they’re selling. The condition of one’s home is all in the hands of the homeowner who’s putting their home up for sale. Get your home in tip top condition and see the benefit when you receive top dollar for the sale of your home.
Does my home have more value if it’s a 2 story home when my neighbor’s home is a 1 story ranch?
Ryan: It’s best in real estate to compare “apples to apples” so to speak. When valuing a 2-story unit, it’s ideal to find other 2-story units for comparison. After all, in some markets buyers might be willing to pay a premium for a single-story 2000 sq ft home compared to a 2-story 2000 sq ft home. It all comes down to what the data says. Sales in the neighborhood won’t lie to us, and the prices help tell the story of what buyers are willing to pay in the neighborhood. Some neighborhoods might show a premium for certain types of property, but there is no hard and fast rule to apply to every neighborhood. One thing to keep in mind though is that single story homes do actually tend to cost more to build than a 2-story home with the same square footage. This is why builders sometimes charge a premium for single story units. Think about it this way. A single story unit has fixed costs, but if you decide to add a second story, it ends up being cheaper to build that second story since you don’t need a new foundation, new roof, and all the infrastructure is already there to simply build up. This is also why larger-sized homes tend to have a smaller price per sq ft, whereas smaller-sized homes tend to have a higher price-per sq ft (assuming the upgrades and quality of the homes are the same of course).
Lynn Pineda: Getting back to the importance of comparison is right on Ryan, with comparing “apples to apples” and not apples to oranges. Not always easy for home Sellers to understand and your explanation supports this method.
My home backs up to electrical power lines. How does a home’s location affect its value?
Ryan: It’s been said, “Real estate is about location, location, and location.” When it comes to backing to power lines, commercial property, a busy road, or any other adverse location, properties do take a hit to value. The interesting thing is that the negative reaction in the market tends to be a little less when inventory is very tight, but as soon as inventory becomes normal, these adverse locations tend to be a bigger deal for buyers. With that being said, power lines outright deter some buyers from purchasing, but there are some people who don’t see it as a liability. The most important consideration in terms of value is finding out what the comps say. Have other properties in the neighborhood with a similar adverse location sold for less than other homes without the power line location? That’s the key. Again, what does the data say?
Lynn Pineda: Sure, Ryan, we have to remember that it is so much about what the local data is saying about what the location is worth and it’s not always so cut and dry. The emphasis is on “local”. It’s all about the data!
What can I do to get my home ready for an appraisal? Is there really anything that I can do without spending a lot of money that can add any value to my home?
Ryan: Without spending a lot of money, it may be worthwhile to fix some of the small things. Focus on adding new fixtures, paint the interior, spruce up the kitchen or bathrooms in small ways if possible (new hardware, paint the cabinets, replace an ancient toilet….), and make some of those small neglected repairs you’ve been putting off. You may not have the means to do a kitchen remodel, but focusing on tightening up the small things is probably about as good as you can do. On a practical level, be sure the appraiser has access to each room, pick up the dog mess (thank you), and make a list to give to the appraiser of any recent upgrades that have been done to the house.
Lynn Pineda: Great recommendations! Too funny, I can imagine how stepping in a dog’s mess wouldn’t put you, as an Appraiser, in a very good mood! Something a homeowner certainly wouldn’t want to do. Preparing for an appraisal is always wise. Sellers need to plan for the Appraiser as being a very important house guest. What do you do when someone very special is coming to visit? You’re going to make sure your home is sparkling.
This completes the questions that I had for Ryan Lundquist. He clarified many aspects of the appraisal process by answering these questions that can be a bit confusing for the home Seller and home Buyer. I hope this helped you to clear up any confusion. If this interview helped you, please be sure to share this information with others so they may benefit too! And until the next interview, happy home selling and buying.
Today’s interview, “An Interview with a Home Appraiser” presented by Lynn Pineda. If you have more questions about getting an appraisal done when you’re selling your home, call Lynn. You’ll find Lynn selling homes in Southeast Florida in the cities of Coral Springs, Parkland, Margate, Tamarac, Coconut Creek, Boynton Beach, Delray Beach, Boca Raton, Sunrise, Plantation, Ft Lauderdale, Pembroke Pines and Miramar areas within Broward and Palm Beach counties.
Lynn Pineda, a licensed Southeast Florida Real Estate Agent serving Coral Springs Florida and surrounding Southeast Florida. Keller Williams Coral Springs Realty. Real Estate Promises Delivered. You can speak with Lynn by calling/texting her at 954-464-1100 or you can email her at: LynnP@ImagineYourHouse.com if you need to sell or buy your Southeast Florida home. Your local, trusted professional when it’s time to buy or sell your home. Real Estate promises delivered.