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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.

 

 

 

 

Kris Berg

Kris Berg is Owner and Designated Broker of San Diego Castles Realty. She has been serving San Diego buyers and sellers since 1997.

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  • Appraiser

    I know this is an old post but if Mrs. Berg would like to offer support of these value differences in amenities it sure would help us appraisers. Realtors seldom ever even measure the home or know the proper way to measure, they use the county recorded square footage. Don’t you think that is misleading? Lets discuss comments, the appraiser uses the MLS data and comments to get a description. What I find in comments are a sales pitches to other Realtors or the public, not a true descritpion of the condition. How about pictures, even without comments the pictures you take are worth everything to me but have you every taken a picture of damage? Or a picture of every room in the home? Most Realtors do not. My point is the Realtor has access to the home and needs to provided accurate details and they seldom do and they make far more money in this transaction than any appraiser. You are correct, adjustments are way out there but where I appraise in the rural areas of Indiana you do not have the luxury of matched pair analysis. The best that we can do is to offer sales that have the most similar amenities and that are located within the same neighborhood so no adjustments are made in the first place. But again, I have been at this for many years and I challenge you to provide proper adjustments. I bet for every figure that you come up with I can provide a sale that proves it false.

  • Rereport

    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.

    The appraisal belongs to the lender, they provide a copy to the buyer.

  • Bridget

    I loved this article!  I am a realtor in Minnesota, and we struggle with this as much as you do.  It also reinforced that when I am not quite sure how much to adjust a comparable home for certain differences when doing a CMA, that I am giving myself too hard of a time…appraisers apparently don’t do any better, and by the looks of this far worse!  In this market, we ALL need to get better at this.  You did a great job educating the consumer on this topic.  WELL DONE!

    • Kris

      Thanks, Bridget. I wrote this last May and, unfortunately, things haven’t gotten measurably more rational.

  • http://www.meadowvillelanding.com/ Melanie Herring

    Great article

  • Fred

    Kris:

    I know agents are generally frustrated with appraisers, and the work you reviewed undoubtedly reinforced a lot of those feelings. The problem really stems from the fact that most lenders (not all, but most) don’t really care about having good quality appraisal work. Most of the mortgage finance appraisal work in this country has been taken over by appraisal management companies who pay the appraisers very little. That $350 – $450 appraisal fee? Most of that is pocketed by AMC’s, and most of the appraisals you looked at probably earned the appraisers $120 – $180 per report. Additionally, they were expected to be completed 12-24 hours from inspection.

    This is not practiced by all lenders, but quite a few of them have put this kind of stuff in place. So until they change, you are going to continue to see substandard appraising on a rather widespread basis.

    Most appraisers just continue to make adjustments from what they were told when being “trained.” For example, do you or your clients look at a home with two fireplaces, and think, “Gosh, I think I want to pay $3K more for the house because there’s a fireplace in the master bedroom!” ? Of course not. I doubt most buyers think of $/SqFt for lot sizing – like you say, there’s a lot more complexity than that. But many appraisers and more importantly, underwriters, aren’t going to relate to the complexities.

    One item you didn’t mention is the Market Conditions Summary in appraisals. More than likely, you might find that part of the appraisal even more surprising than the Sales Comparable analysis.

    By the way, some of the appraisal differences may be going the way of the dodo with the implementation of UAD (Uniform Appraisal Dataset) for conventional financing as of 9/1. This is being put in place nation-wide and supposedly will mean for more uniform definitions….. a nice idea, but unfortunately what has been released is a mess………

  • Joecarll

    As a full time appraiser (20 years experience including as a review appraiser), let me say I am very impressed with your analysis!  Unfortunately, I am not surprised either.  In my opinion, many appraiser’s aren’t worth their fee.  Like any profession, you have those that know and care about what they are doing, and those just trying to make a quick buck.  I believe the appraiser should look at the subject like a typical buyer would.  Does a pool have value?  It sure does.  But a buyer can also have a contractor build a custom pool.  So how much is it worth to a buyer to not have the hassle of hiring a pool contractor?  If one could spend $50,000 and get exactly the pool they want, then they would probably justify only spending no more than 1/2 as much for a dated pool.  That is how I estimate the amount of adjustment (really just common sense).  Also, a 30 year old pool rectangular pool is no where near the value of a $100,000 zero-edge/waterfall/rock slide pool.  I think any 5 year old that knows how to swim should know that.  But most appraisers aren’t as smart as a 5 year old!  Again, great work!  I wish every lender would read it!          

    • Anonymous

      Thanks, Joe! I do understand that much of the process is an art form, but the degree of lack of consistency is curious.

  • Wallyg8r

    Wow. Stinkin’ incredible. We’re feeling the pain on this right now. Somehow got appraised at the lowest ppsf of all the comps the appraiser chose… Kinda felt the whole thing was arbitrary-maybe we hang on to the ol’ place for awhile…

  • Dan Statlander

    Awesome posting.

    Dan Statlanderhttp://www.statelandbrown.com(Real estate experts in Boca Raton Florida)

  • Guru

    ask all the people who bought in 2005 how good their appraisals were.

  • Sunday Gover

    I think the consistency piece is what is missing.  Truly, one appraisal will never piggy back on another just like two homes are rarely identically upgraded and maintained.  Subjectivity is just that – subjective.  But when it’s totally the Wild West every time an appraisal is done, that doesn’t serve the buyer, seller or “money people”.  The money people want a clear valuation of their investment so they can tuck away its risk factor into their portfolio.  If they knew their 800K paper was really worth 650K because of some bad appraisal, does that serve the “money people”s interest?  If the buyer and seller are of no consequence and we just want to talk about the “money people”, I’m pretty sure the same cry for consistency would go up from their camp as well.

  • Wfblack

    Kris, It appears you want to controll the marketplace and make easy money and not let the market control the marketplace.  PS  the money people control the market.   Bill

    • http://twitter.com/Cyndistetson Cyndi Stetson

      No WFBLACK, I think what Kris wants is a set of rules that the money people must comply with, that’s all. Give us an appriasers handbook with CONSISTANT values that we can inform both buyers and sellers is fair…and stick with them. Eeeek Gads, did you not even read her post. a $10,000 BBQ credit where there was not even a BBQ present!!! Why not deduct $50,000 for an airport noise issue for a house that is on the beach and nowhere near near an airport, that’s what she is saying, There are no checks and balances for the appraiser, no set of rules they must comply with, and it really is a sad day when an appriasal kills a deal and it is obvious the appraiser didnt even realize the house was on the stunning view side of a golf course water feature or had 1500 sq. feet added on in 2008, who cares? Oh yeah, the “money people” that loaned the money for that home addition in 2007 or that $800,000 golf course veiw home to the present sellers back in 2004! Great folks your “money people”!

      • Anonymous

        Thanks for defending my honor, Cyndi. Wfblack – This was not intended to be an indictment of appraisers. But, Cyndi is right. It’s unfortunate that there is so much inconsistency and a little more than unfair that a seller has very little recourse when they believe values were assigned (or not) improperly. Case in point — I had an appraisal when the appraiser transposed two numbers on the sale price of a comparable, resulting in a $40,000 snafu. Upon appeal, the appraiser corrected the price entry, but refused to adjust the values based on this “new” information.  This same home had been completely remodeled including a $40k kitchen and was considered in “similar” condition to a foreclosure where you could actually see in the photos the garage door hanging at a 45 degree angle and all of the light fixtures piled in the center of the dining room floor.

        I understand that the process can’t be completed objective. Things like “location” and “view” are subject to interpretation. However, an air conditioner is an air conditioner. And an apparent cap on “condition” differential of $40,000 is just goofy in some cases.

        I want to control the market and make easy money? If I was only concerned with the latter, I would have handed in my license in order to become a ballerina years ago. As for controlling the market, I’m not sure I get this comment, but I certainly know better than to think I can or do.

        • http://mnhome.org Ben Goheen

          As you can clearly see, an air conditioner is NOT just an air conditioner: http://goo.gl/FazYP 

      • http://mnhome.org Ben Goheen

        Cyndi – I’m not defending Wfblack’s statement, but I do have to disagree with your reply. Appraisers have far more regulation then Realtors. Underwriters, HVCC, Dodd/Frank, USPAP, Freddie/Fannie and more play a role in every report.

        What regulation do Realtors have? One of my biggest frustrations as an appraiser is how square footage is listed incorrectly in the MLS. The solution of using a blanket statement “information is deemed reliable but not guaranteed” is hardly the answer.  

    • Guru

      the banks control the market via credit.

  • http://mnhome.org Ben Goheen

    By definition the appraisal is an opinion of market value, and we all know the saying about opinions…  I’m not familiar with the San Diego market so I can’t say if these adjustments are typical. 

    A pool in Minnesota is definitely not as valuable as one in California. The BBQ adjustment is just insane – does Guy Fieri cook you a meal daily for that price? Patio adjustments are hard to determine since often times it is unknown what the comps have – plain ‘ol concrete, paver or stamped concrete. I usually put this one back on the Realtors because it isn’t clear in the MLS listing. Of course location is extremely subjective (location, location, location). Buyers pay a premium for living on the water or having a great view, and most of the time appraisers are in tune with this. For home size, a high end home around here may be adjusted up to $60-$75/sq.ft. but that is fairly rare. Most are around the $30/sq.ft. range. Again, San Diego is much different then Minneapolis. 
    Fireplace and AC adjustments seem right. Typically you adjust more for a higher end home, because $3k for an AC on a $100k home will be red-flagged by the underwriter. Although we’d like it to seem more complex, your explanation of condition differences seems to be accurate. And for year built, that all depends on the appraiser. Most use ‘effective age’ instead of actual age. A house built in 1960 has (usually) been improved over the course of the last 51 years – roof, mechanicals, flooring, etc. So the effective age is a highly subjective number determined by the appraiser that represents how old the house ‘seems’ with all these improvements. I’ve never used a ouija board but maybe it would help. :) 

  • Michellersilverman

    Kris another great post! Appraisers are the Achilles heel of our business! I love how you explained them. Appraisals are so subjective!! They can either  make a deal or break a deal!

    • Wfblack

      The appraiser represents the lender, the money people, and not the seller, the buyer or the agents.  Our charge is to tell the lender what is the most probable sale price to the majority of the market they can sell the property.  If the buyer wants to pay extra for the upsacale amentites, they can pay out of their pockets. You know the way the system was before all the greedy money people and politicians got invovled to help the people who should not own a home get a property with no verification on anything. There is more involved with an apprrasail than you think.   Bill

      • Guru

        appraisals are good one day worthless the next.

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  • San Diego Castles Realty
  • 10636 Scripps Summit Court, Suite 153
  • San Diego, CA 92131
  • P: 858.530.2374
  • F: 858.876.1701
  • E: info (at) sandiegocastles.com
  • CA BRE# 01853496

Broker Information

  • Kris Berg, Broker
  • CA BRE #01241572