Property Appraisals – My little research project on “typical” value adjustments

When pricing your home to sell, you have two audiences to consider. First, of course, there is the potential buyer. But remember, unless that buyer is Warren Buffett or some dude who has been cashing in his aluminum cans at the recycling center for a very long time, chances are he is going to need a loan. And before that buyer can get loan approval, the lender is going to want a neutral third party to confirm the value of the home. Enter the appraiser.

“But it has to appraise!” we find ourselves hollering a lot lately, often to a bunch of non-believers seated at the kitchen table. You see, you may know that you spent $247, 850.98 on all of your stunning improvements. Heck, you have receipts! And I may know that your wood floors are not just any wood floors, but made of materials hand-crafted by indigenous peoples of the exotic rain forests of Malaysia… or Burbank.

Guess what?

The appraiser doesn’t care. He doesn’t care if you selected the higher-end granite or popped for the pull-out cabinet shelves. She doesn’t care if your windows were installed by a certified Pella specialist or by Gus from your golf foursome who has a booth at the swap meet on weekends.

All of this got me thinking. How much value, exactly, will an appraiser place on a home’s various and sundry, unique qualities? So, I embarked on a little research project. With the help of our awesome San Diego Castles agents who provided me with much of the necessary research materials, I compiled a sampling of eleven recent appraisals. These appraisals were commissioned for transactions in which we represented either the buyer or seller. The results? A lot of confusion, I’m afraid, but I’m guessing the results might surprise you.

First, know that the majority of the time, we never see the appraisal. The appraisal belongs to the buyer, so if we are representing the seller, we aren’t privy to the actual, written report. And even when we are representing the buyer, the lender will simply tell us that the appraisal “came in at price,” and we march along our merry way toward closing.

The fact is that appraisals almost always comes in “at price.” Buyers are so smart. It seems that in almost every case, the buyer has offered to pay exactly what the appraiser ultimately concludes the home is “worth.” Super impressive! But, here’s what you need to know. The point of the appraisal is to assure the bank that their investment is solid and that there is no funny business going on. We all know that coming up short on appraised value means no loan, which leaves us all scurrying to renegotiate. In the bank’s eyes, a higher appraised value makes them equally nervous.

Without further ado, here are the results of my compare-and-contrast take-home assignment. First the spreadsheet, and then I shall perform a little interpretive dance. Keep in mind that appraisals work like this: The home being appraised is the “subject” and the sale prices of all of the “comparables” are adjusted either up or down to reflect the varying features with the goal that, ultimately, the appraiser is comparing like fruits. (Note: For line items where no adjustment value is given, the properties were either considered to be equivalent or the appraiser didn’t consider that particular feature relevant to value.)

Pool/spa

This one was a stand-out as being fairly consistent among appraisals. They will generally give you props to the tune of $15,000 to $20,000 for having one, and it doesn’t matter if your pools is a simple rectangular concrete watering hole or something reminiscent of a scene from Blue Lagoon.

Barbecue

I have never seen an appraiser give credit for a built-in backyard barbecue. Never, that is, until my most recent appraisal. This time, we were awarded 10,000 bonus points. Practically speaking, don’t expect the same treatment. This was an anomaly. And, it is worth mentioning, that we got this credit for a barbecue we didn’t even have.

Bedroom/Bath

This one might be the biggest surprise of the bunch. Buyers, sellers and agents know that there is a world of difference between a three-bedroom and four-bedroom home — so much so that these properties attract different buyer pools altogether. However, appraisers only look at “room count.” So, whether that extra room is a bedroom or bath (or half bath, because they round up!) makes no difference. With one exception, our appraisers considered the extra room worth between $1,500 and $5,000. The exception? One appraiser gave a $35,000 credit for having an extra bedroom. Like my barbecue, don’t count on this.

Patio

Most of our appraisers didn’t care. A patio is a patio, they concluded, so no credit was given. One appraiser did consider that having a patio or balcony versus none was worth $1,000. Another (our lover of the outdoor barbecue), gave a $10,000 credit simply because our patio was covered and the others were not. (Punch line: $10,000 is very close to the estimate we received from the termite company to replace the patio cover that was the victim of much wood rot.)

Location

This one is oh-so subjective, so any credits will be dependent on the appraiser you are assigned. One appraiser dinged a home by $20,000 for backing to a road but made no adjustment to the home that’s side yard abutted a busy road and gave no concession for a cul-de-sac location. Another thought the cul-de-sac was worth $5,000. And our beach property? The appraiser made upward adjustments of between $50,000 to $100,000 the closer a property was to the big blue wet thing. Eight appraisers ignored location altogether.

Lot Size

I have always found this one slightly flawed. Usability, design, quality of landscaping and hardscaping, the fact that the rear neighbors’ homes are slightly elevated giving you that charming “amphitheater” feel — those things are rarely considered. On the other hand, the lot size shown on your Assessor’s record will get you between $1 and $6 per square foot in our study.

Home Size

We’ve already adjusted for room count, but here is our double-whammy. Square footage of the home will be adjusted. By how much? Beats me. Our appraisers applied values of between $35/square foot and $135/per square foot. This one is a turkey shoot at best.

Fireplace

$1,000 to $5,000, depending on… well, I’m not sure.

Parking

You will be awarded $4,000 to $5,000 for an extra garage stall. If you have a garage versus a parking space, the difference could be between $2,500 and $5,000.

Air Conditioning

Credits here were between $1,000 and $3,000, and while you might think it varied due to size of the home, it did not.

View

“How much is my view worth?” This is one we get all the time. The answer is that you will get some credit, but it won’t be anywhere near the view premium you paid the builder when you bought that premium lot. First, we have our little beach pad. The beach is different. Here, our appraiser awarded price tiers of $50,000 for varying degrees of ocean view. Our barbecue enthusiast considered a view of Miramar Lake (the home was a first-tier, lake view home) worth $50,000, but gave our home no credit for having an open space view. With those two exceptions, “view” premiums ran between $10,000 and $20,000 depending on just how pleasant the particular appraiser considered the particular views.

Condition

Finally! This is where nearly every seller thinks they will get the standing O’s. But, and I can’t say this loudly enough, THERE ARE JUST THREE CATEGORIES OF CONDITION. They go by different names, but there are only three. You are either worse than, equal to, or better than the other homes in terms of upgrades in the eyes of the appraiser. Our credits were at least ballpark-consistent. Again, our one outlier was Sam the Cooking Man. He conceded a total swing of $60,000 between the homes in the poorest versus best condition. (In retrospect, he was quite generous on almost all fronts — and we still came up short on value.) As for the others, the pristine homes with the shiny new kitchens and remodeled baths were considered to carry only a $20,000 to $40,000 premium over their poorly maintained, under-improved counterparts.

There are other line items and considerations in the appraisal report, of course. “Year built” is a zinger and one for which, for the life of me, I can’t decipher the formula. It appears to involve dreidels, Ouija boards, and a game of “Rock, Paper, Scissors.” Those “extra rooms” are always fun. Our client who paid $50,000 for the fanciest California Room I have ever seen (complete with real Pella windows, cable, electrical, closets and ceiling fans) got a $5,000 credit and lost their buyer in the process.

Finally, there is a curious line item in the Uniform Residential Appraisal Report titled “Energy efficient items.” I say curious, because I have never seen an appraiser take energy efficiency into account. Such was the case for Property 1 (remember the barbecue?). This home had a $50,000 energy system. The owner worked out of the home, and thus it was lit up like a runway every hour of every day. His heating and air conditioning systems worked non-stop, as he had a two-degree temperature span, and he heated his pool in December. Despite all of this, most months he sold energy back to the utility company. Appraiser’s credit? Zip.

And what happens if your appraisal misses? You can appeal it, right? Of course! And we do. With the new appraisal rules, here is how the process works. We can’t speak to the appraiser directly. He’s neutral, remember? So, we prepare our thoughtful appeal and submit it to the lender who, in turn, will submit it to the appraiser. He will carefully consider our appeal, including all of the errors and oversights that you we respectfully pointed out. He will “duly note” those points that we have raised, and then he will give us a big, middle-finger wave.

The bottom line is that we can talk all day about what your home is worth to a buyer. We can talk about return on kitchen versus bath remodels and new roofs versus crown molding. But the reality is, your home is first worth what a buyer is willing to pay but ultimately, what an appraiser says you are worth.

 

 

 

 

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Blogging Survivor

photo credit: watchwithkristin

In April, we had our fifth bloggy birthday, and I missed it. No party hats, no ponies, no dancing bears. I think I was at a walk-through.

While it doesn’t seem like it, it has been over five years since I hit the “publish” button on my most hideous, inaugural post. It was a post that was shallow, boring, and laden with typos and grammatical errors. At least some things never change.

What has changed is that, back in the early days, blogs were not assigned in the prenatal unit. We liked to call ourselves “early adopters,” but the fact is that there weren’t that many of us with the deranged notion that someone might want to read our idle musings about real estate and, in my case, kids, domestic animals, meatloaf, or any other random thought that might be passing through my circuitry at a given moment. Most of us didn’t have a clue what we were doing or why we might be doing it, but we were having fun.

Many years ago, during our salad days when there were approximately 17 real estate agents chatting amongst themselves online and, in the process, making their risk-averse brokers prematurely gray, we sometimes, like all children, had to make our own fun.  Sometimes we engaged in some good-natured ribbing; other times we participated in our own online version of the chain letter.

It’s that meme of yore (yore being 2006) I was thinking about yesterday when, during a webinar on real estate marketing, I was asked about the “right” way to blog.

Stop laughing. Stop it. Right now!

I am fully aware that, even though I can boast three-readers, asking me to give advice on blogging content is like asking Queen Elizabeth for a good tuna casserole recipe or asking Charlie Sheen for advice on, well, anything. You’d be asking the wrong person.

Specifically, the question was, “What percentage of blog posts should be personal versus professional?” And I think my awesome-expert response was something like this: “There is no right answer. Some very successful bloggers never inject personal information or anecdotes. The idea is to be genuine, to write in a way that you will enjoy it (and, therefore, stick with it) and your occasional reader may be at least mildly entertained rather than tempted to shoot both eyes out with their two-hole punch.”

The honest answer, however, is, “I dunno.”

Face it, not everything has to be all that purposeful. Over-thinking tends to stifle. I know I was handcuffed by over-thinking when I became a Broker and began pausing a little too often to consider how the 11^th Circuit Court might interpret my writing. I went through periods where I became so overly concerned with whom it was that I was supposed to be writing for that I ran out of words altogether. My most successful posts have been those where I blogged like no one was looking (which is mostly the case.)

Maybe the right answer is that we should just write for ourselves. Because, this medium’s value is in it’s opportunity to attach a personality to the bus bench photo, whatever that personality might be. It is an opportunity to be genuine and transparent. We won’t appeal to everyone; we can’t. So be honest, and whether you honestly feel like writing about market statistics or the 23^rd season of Survivor, just do it.

And if anyone is interested in starting another one of those silly memes, I could tell you about my having been rejected by Survivor Casting twice, most recently at the point where I was so close a career-ending move that I could smell the bad editing and unfortunate footage of a fifty-one-year-old in a bikini. I was so close, that Steve was dangerously close to being fitted for a straight jacket over the thought of managing the business alone for two months while I ate rats in some sweltering rain forest.

Maybe, instead of waiting to get tagged, I could be true to the style I have adopted over the years and just weave my experience into a story with a real estate message.

• “Why do some of the things we do make no sense? Applying for Survivor and laminate flooring.”

• “You think you are priced right? Long market time, lots of showings, yet no offers – The tribe has spoken.”

• Old homes, old contestants and viewer ratings – It doesn’t matter how well preserved and maintained you are; most people just want to see newer construction.

• “When you ask me to complete a 140-page finalist application including releases from my entire family, many of whom themselves live in remote locations — like Green Bay — would you please allow me to use electronic signatures like we do in real estate? You’re a game show. We deal with the transfer of real property. Who do you think you are, Bank of America?”

But then again, this is supposed to be a real estate web log. So perhaps I should write something about appraisals and how the appraiser doesn’t care that you spent $300,000 upgrading your guest bathroom. They will attach a value of approximately $2.95. That’s just the way it works.

Maybe tomorrow. Because, if I am honest, today I feel like meeting a garage door repairman and scheduling some property showings. That’s my reality show. Take that, Jeff Probst!

 

 

6 COMMENTS

Sunday Short – Jumbo Conforming Loan Limits

From Mortgage Man, Dan Green:

If your current home–or the home you are buying–is in a designated “high-cost” area, keep an eye on your calendar. Effective October 1, 2011, the temporary conforming loan limits for your area will expire.

This may be old news for some – the Wall Street Journal reported on this back in February – but just in case you missed the memo, this will affect our San Diego market.

The conforming loan limit for a single-unit purchase has been $417,000 for years. For loan amounts above that, or “jumbo” loans, we have enjoyed two tiers of loans and accompanying rates – “jumbo conforming” and pure jumbos. The “jumbo conforming” loan limit currently stands at up to $729,750 in “high cost” areas. San Diego, being one of those guys, has a current jumbo conforming limit of $697,500.

Come October, the new “jumbo conforming” floor is set to adjust to $625,000; our San Diego limit will presumably be lower. What that means, of course, is that your mid-sixes loan will cost you more. Or, what it might really mean is that your home priced in the mid-eights today will be worth less.

5 COMMENTS

A trip through Kris’ brain – Thursday Potpourri

First, some bloggy talk. You will notice a slightly new look here. In this, Phase 2 of Operation 21^st Century, we (with a whole lot of help from the folks at Virtual Results) married our home-grown, do-it-myself blog with our shiny new-ish website. The result? Hopefully a cleaner look, a less hack-prone environment, and some logical one-stop integration.

This is admittedly minimalist compared to our old theme. A really bad pack rat, I had to put some of my old side bar widgets to sleep – like the “Who’s Among Us?” map that showed the approximate whereabouts of anyone currently on the site. As much as I liked that one, losing it is probably a good thing. Most days, only San Diego was lit up on the map — since that is where I happen to live.

The promotional button for my Vook, the one that at last count had sold 14 copies? Gone, along with the really hideous cover photo. Ditto my Twitter stream, meaning it will now take you a few extra keystrokes to see my 140-character conversations with my daughters.

I have been hesitant to post anything in the past week or so lest I blow something up during the migration, but all appears in order now, so I am back with a vengeance. OK, not so much a vengeance, but here are some of the random things on my mind this morning. Don’t bother looking for a nexus; there is none.

Looking for something to do in Scripps Ranch this weekend? It’s that time again, and we will be there armed with an arsenal of swag – balloons, beach balls and, this year in a stroke of Kris-genius, an air mattress pump which the nice man at Sport Mart assured me would inflate those puppies and add several years to my life span.

Look for us in the Platinum Sponsor booth. The fun starts at 11:00 AM, Sunday, May 15^th and wraps with a free concert at 6:00 PM by the fabulous “Igniters.” The fair is held at the Scripps Ranch Community Park, at the corner of Blue Cypress Drive and Cypress Canyon Road. Be there – or buy your own beach ball.

Wallpaper is not an upgrade. It had to be said, and Doug Francis said it well. “In twenty years of helping home buyers, I have never heard one say, ‘Doug, we love this wallpaper!’”

For once, I have nothing to add.

How’s the market? The very smart people at 1000WattConsulting will be Beta-testing an app to answer just that question. (Pick me!)

“Street-level real estate knowledge is irreplaceable. No matter how many charts and graphs you can get online, there’s nothing more valuable than a well-informed opinion from a professional with experience in your neighborhood or on your street….”

Or, as I wrote in my most recent column on Inman News, “I’ll trade you three reams of Ivy League spreadsheets for one agent having to buy more lock boxes for the first time in ten years, every day of the week, if what you want is a reliable economic indicator.”

Yes, we had to buy more lock boxes this week. That’s how our market is.

We all do the same thing.

These words were overheard uttered by another local agent. First, I would offer that if one truly thinks they offer no added value, then there is big ol’ flaw in the business plan. And they are probably neither unique nor are they staying up nights worrying about how they might bring something better to their clients.

Without distinction, you’ve got a day job. Stand for something, consistently demonstrate it, and continually strive to improve – then you’ve got a career.

From Seth Godin:

If the marketing and product development team do a great job, selling is a lot easier… so easy it might be called inviting. The guy at the counter of the Apple store selling the iPad2 isn’t really selling them at all. Hey, there’s a line out the door of people with money in their pockets. I’m inviting you to buy this, if you don’t want it, next!

The real estate broker who says that the house would sell if only he could get below market pricing and a pre-approved mortgage is avoiding his job… The goal of a marketer ought to be to make it so easy to be a salesperson, you’re merely an inviter. The new marketing is largely about this–creating a scenario where you don’t even need salespeople. (Until you do.)

This might not mean much to our three civilian readers, but real estate agents get it – or should. If your brand means something, and if you never, ever filch on that promise, the phone will ring. It’s that simple. Oh, and something about working hard.

12 COMMENTS

The No-Star General

Photo credits: This infographic was unabashedly ripped off and modified without permission from AgentGenius.com. While it is quite possible that my next blog post may be filed from the confines of a 6’ x 6’ cell, I am hopeful that my friends at AgentGenius.com will forgive me given that I gave them proper attribution and everything.

There has been a bit of a buzz lately as our friends at Z home of the Zestimates announced their $52 million IPO.

From the press release:

Seattle, WA, April 18, 2011 – Zillow, Inc., which operates real estate site Zillow.com®, Zillow Mortgage Marketplace, and Zillow Mobile, today announced that it has filed a registration statement on Form S-1 with the Securities and Exchange Commission relating to a proposed initial public offering of its common stock. The number of shares to be offered and the price range for the offering have not yet been determined.

I challenge you to find anyone that is the least bit surprised by this news, that didn’t see it coming. So, enough about that. What I did find interesting (albeit, again, not surprising) was the growth in ad revenue that Zillow has seen over the past several years.

Zillow makes money off of advertising and subscriptions sales through both their Mortgage Marketplace and directly to real estate agents. While they have yet to enter the land of profitability, the display ad revenues were up 27% last year. And as a matter of full disclosure, I did my part. We have been running a small display ad on the site for the past nearly two years.

It’s a crazy relationship, really – one that many agents and brokers have serious issues with.  We send our listings, the consumer eyes follow, and then we pay for the privilege of potentially recapturing some of those eyes. Personally, I am happy to populate these sites, because it is good for our selling clients; it means additional exposure. And, regardless, it’s too late to take our ball and go home. So, where growing our own business is concerned, having long ago set our listings free, we have to make the tough decisions about where to place our advertising dollars based on return on investment. Life’s not always fair.

Life recently got a little less fair at the hand of Zillow’s agent reviews. The idea is that we tell all of our clients to run, not walk, to their site and post reviews of our past performance. The party line is that consumers want transparency (true) and that buyers and sellers benefit by having past customer testimonials available to them to aid in the hiring decision-making process (also true). Here, you get no argument.

The problem is this. We began doing this long before Zillow rolled out the feature. We have been doing it on our own site, for the benefit of our own clients and would-be clients. We do not fear the transparency; we welcome it. So, why then, would we send our past clients away to traffic another site and promote (or pan) our services on foreign turf? We are told it will improve our “impressions,” increase our “click throughs,” and increase our business. That may very well be, as long as we rent one of those coveted side bar slots, that is. One thing we do know with certainty is that it will increase someone’s business, but whether or not we too benefit on the coattails of the success we help create for Zillow, it is the manner in which we are now being courted and coerced that doesn’t feel right.

Here is a screen shot of what you might see if you conduct a search on their site in the 92131 Zip code.

Look, there we are! Just like they promised! Wait. Now, it appears, we are paying to look really lame – that is, unless, we start populating those reviews and fast.

This isn’t about Kathy. She may in fact boast production numbers and client satisfaction that make me look like a part-timer opening a few doors between episodes of Oprah. What I do know is that she had two clients who left reviews, and now I am a sitting lame duck.

Here we are again! Look, it’s even our listing! Still lame, I’m afraid. Who wants to work with a no-star loser? Anyone?

I wrote a loooong time ago about Zillow’s genius.

As they set about building their traffic and their revenue in the earlier days, they used a grass roots approach. They courted and engaged the individual agents, recognizing, of course, that they wanted their hands on both our listings and our advertising dollars. It was not what they were up to then, which is no different than what they are up to today, but it was the way in which they went about it that was unique. They knew they had two customers, and it didn’t feel so much like we were tools – more like partners.

In Zillow’s case, the consumer is both the real estate agent and the homeowner (which makes for one crazy-big target market), and Zillow needs two things to succeed. They need data, sales and “for-sale”, and they need eyeballs. You can’t have they latter without the former, but rather than build their reputation and their inventory by taking the more-traveled route, courting the big real estate brokerages, they have reached this point primarily by appealing to the individual agent. It is the individual agent who is online and socially connected – and blogging. Appealing to us makes us happy, which in turn inspires us to write nice things about Zillow.

Things change, of course.

Now, I like the Zillow folks – a whole bunch in fact. Spencer, Sara and, in the old days, Drew and David, are each awesome and wicked smart. Sure, I have poked my share of fun at their Zestimates, but I have given them just as many kudos over the years for what they have built. This isn’t personal. Rather, it is about a cultural shift I have seen slowly occurring. The conversations and early press releases of yore have been replaced with multiple cold calls from a sales force phone bank, each time encouraging me to buy an ad I am already paying for. It no longer feels like a partnership, but rather another buy-what-I’m-selling telemarketing adventure — push versus pull, with the sales pitch being the threat of exclusion versus the promise of inclusion.

I know. It’s big business now. And today they have an IPO while I have an appointment with the stager. Again, I’ll give them props where props are due.

So, in this, our latest adventure of Watch Kris Shoot Herself in the Foot, I am not asking you to leave your reviews of my performance on their site. I would rather you left them on mine. I know your time is limited, and I am honored that you would bother to offer your endorsement at all, seeing that you have a whole bunch of boxes to unpack and stuff. To ask you to copy and paste over multiple sites so that I might have a couple of stars next to my pathetic likeness is a self-serving intrusion, and I am not ready to put a redirect on my site just yet.

Which brings us back to the pirated infographic at the top of this post. Trulia, Zillow, Move, and a whole bunch of other folks out there who aggregate our listings for fun and profit have partnerships. So do we. Our partnership is with our clients. When sending them away makes sense for my business or is in their best interest, I will gladly oblige. In the meantime, at the risk of (perhaps foolishly) diluting the effectiveness of my paid ads, I shall remain star-less.

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