Cost vs Value on an Appraisal Report

I had completed the first appraisal six months prior to the second one.  The home owner had not been able to get the loan the first time and was trying again.  The first appraisal came in at $108,000.  The second one was at $112,000.  The home owner was confused and upset because she had just spent $23,000 on new blacktop for the driveway.  Why didn’t the appraisal come in $23,000 higher the second time?  The answer is found in the difference between cost and value.

A good analogy between cost and value is that of a bottle of water.  It may cost $1.25 at the local Maverik, but how much is it worth to someone?  Well, it was worth at least $1.25, or they would not have bought it.  However, if their car broke down in the middle of the Arco desert and they were miles from civilization, that $1.25 bottle of water would likely be worth much more than what it cost them.  Similarly, when an amenity is added to a home it may cost X-amount, but the value to a potential buyer may be more or less.

It is a common mistake that homeowners make.  They believe that if they spend $6,000 building a new deck, their $100,000 home should now be worth $106,000.  It typically is not.  Cost, of course, is what you spend on something.  Dollar-for-dollar it does not usually equal value.  Value is what something is worth to the average buyer (actually, there is a much more defined definition of value, but this will suffice for purposes of this article).  A big discrepancy between cost and value in the Idaho and Wyoming markets is sometimes found in outbuildings.  I often see home owners spend $50,000-$100,000 building a large shop.  When the value of their home only increases $30,000-$40,000, they wonder why.  The answer is again, cost does not always equal value.

When someone builds a shop, they typically do not do so with the intent to immediately sell.  If shops gave the same or a higher value than cost, you would see more of them on spec homes.  The fact is, an appraiser must look at how the market reflects such an amenity.  Most of the time, an average buyer is happy about the shop, but that is not the only thing she might be looking at.  In other words, it will add to her decision in buying and she will pay more (all things being equal) than she would for the neighbor’s house without a shop, but she will not typically pay the same amount that it cost to build it.

When looking to add amenities to a home, it is wise to consider how the market will react to such additions.  What you spend (cost) will not always come back to reward you with an equal or higher value.

How Much Do Ceiling Fans (and other small items) Add to the Value of a Home?

A common question that appraisers get asked while performing an assignment is “How much does [fill in the blank] add to my home’s value?”  Those items range anywhere from the spectacular skyline view all the way down to a ceiling fan.  It is impossible for any appraiser to answer that question directly, because most items do not have a specific dollar amount that can be attributed to direct value increase.  Rather, values vary depending upon the house, neighborhood, competing sales, etc.  The appraiser’s refusal or inability to answer the question should not be seen as reflective of his lack of kindness or intelligence.

When I am asked how much an item adds to the overall value of a home, I answer as honestly as I can, “I don’t know.”  In fairness, I typically go into more detail than that and explain, “Most items in a home are not detailed out or specified on the appraisal report.  However, all observable items, upgrades, amenities, conditions, etc. are considered.  Most of the time if an item is not listed out, it is included in the final value as a contributor to the overall quality, condition, or type of house.  In other words, you may not see ‘granite countertops’ on the report, but you better believe the appraiser considered it in his comparable sale selection (or adjusted if the market warranted such).  As another example, specific details of your landscaping may not be listed on the report, but if landscaping makes a difference in value, the appraiser will pick sales with similar landscaping, or adjust for the differences.”

Our office sometimes gets calls from home owners wondering why a certain item was missed.  It is likely that the item in question was considered, but a summary appraisal report is simply that… a ‘summary.’  The item(s) in question was/were considered, but the details will not be found on the report.

Does the Appraiser Need to Take Pictures of EVERY Room?

Since the “2008 Housing Crisis,” lending institutions and secondary lenders (such as Fannie and Freddie) have tightened their regulations regarding appraisals.  One of the areas that has received attention is that of photos at the subject property.  Where it used to be considered normal to take a picture of the front, street, rear and maybe a few interior shots, it is now quite common to require much more.

Though every lender is different, many now require the appraiser to not only see every room in the house, but to take pictures of each.  Due to the wide number of lenders requiring such photos, most appraisers (myself included) will take a digital shot of each room whether or not the lender requires it.  This helps us avoid unnecessary follow-up visits later if a picture is requested after the fact.

The purpose of photos is not to invade upon your privacy, but rather to give the lender a good idea as to the condition and quality of the home.  As they say, “a picture is worth a thousand words.”  Do not be worried if your home is not as clean or uncluttered as you might like it to be.  Unlike a real estate agent, we are not staging your home for sale.  Those few individuals who might see the photos do not care if there are dirty dishes in the sink or a pile of unfolded towels on your couch.  They are looking at the home itself only.  For example, the good condition and quality of this kitchen can be seen, despite the slight clutter on the counters and even the floor.

Of course, your home is your castle and, as an appraiser, I am not trying to step on your privacy.  The purpose of taking photos is to fulfill the requirements of the lender.  If you do not want photos taken of certain things, it is within your rights to request such.  I will respect your wishes, of course.  This may or may not affect your ability to get the loan, but this is between you and your lender.

Can’t You Give Me an Exact Time When Setting up an Appraisal Appointment?

When the staff at Appraisal Precision sets up an inspection appointment, it is typically done in 2 or 3 hour windows.  Why?  This is actually to your advantage.

We understand that you do not have all day to wait around for an appraiser to show up, and we do not want to be like the cable company.   In the past, we did set exact appointments, but we found that to do so was unfair to you, the homeowner.  Here is why;  It is not typical that your appointment is the only one an appraiser will have that day.  In fact, a day with 3-4 appointments is the norm.  Because it is impossible to know how long each appointment will take, it is impossible to work with integrity with specific appointment times.  For example, an appraiser may show up to an appointment at 9:00 AM with the thought that 30 minutes will be plenty of time.  However, reality may play out that the first appointment may take 50 minutes instead.  If the next appointment is 25 minutes away but is set for 10:00 AM, this can be disconcerting to the next appointment.  Of course, we have no control over weather, road construction, or other driving obstacles as well.

When setting exact appointment times in the past, we found that the appraiser was often showing up too early or too late for appointments on a consistent basis.  This made our company look bad and was upsetting to those who were meeting us as well.  In order to be fair to the homeowners, we have found that 2-3 hour windows are a much more honest way to work. 

Of course, we do not want to put you out any more than we need to.  Having a stranger walk through your abode can be uncomfortable enough.  Therefore, if you would like us to call you 10-20 minutes before we get to your home, we would be happy to accommodate that request.  That way, you do not need to be waiting for us during the entire window.  Just be ready for our call when it comes and we can meet at the house together.  Our goal is your satisfaction.

Why Most Purchase Appraisals SHOULD come in Just Above the Purchase Price

How many times have you had this comment from someone who knows relatively little about the appraisal process, “I am not so sure about you appraisers.  Seems like every time there is a purchase transaction needing an appraisal, you come in just above the  purchase price.  If the house is selling for $200,000, you come in at $202,000.  If it is selling for $450,000, you come in at $460,000.  Seems a little rigged to me.”  Ever had a client get really upset when you asked to see the purchase contract before you begin working on the appraisal?  “Well, I don’t want you knowing what the purchase price is.  How can you be unbiased and give me an honest appraisal if you know what they are buying it for?”

To the ignorant (and I mean that in the most gentle of ways), these are legitimate questions. To a trained real estate appraiser however, looking at and even analyzing the contract in detail as part of the appraisal process is necessary in order to complete a credible report.  In fact, the Uniform Standards of Professional Appraisal Practice (USPAP) REQUIRES that we do (Standards Rule 1-5a). Why?  To answer that question, let’s step back from the trees for a view of the forest for just a minute.  What is an appraisal?  In layman’s terms, an appraisal is an opinion of value by a qualified professional supported by market data. That is all fine and dandy…if you have support in the market.  Now, some appraisers work in metro areas where support for the market is easier.  I (and many others like me) work in a more rural market where finding true ‘comps’ are sometimes like finding Big Foot in aisle 13 at the local grocery store.  It is times like this that we appraisers have no choice but to just do the best we can with what little we have to work with.

In a refinance transaction (or a foreclosure, or a divorce settlement, or a tax appeal, etc.) you have one less luxury to work with than you do with a purchase.  With a purchase, you have the best comparable available.  This comp has the same location as your subject.  This comp has the same year built, effective age, square footage, amenities, and condition as your subject.  This comp is exactly like your subject BECAUSE IT IS YOUR SUBJECT!!!  Let me put it another way.  When appraising for a purchase, sometimes the best indicator of value is what a willing seller and a willing buyer have already agreed to sell/pay in an open and free market.  Why shouldn’t this be considered?  In fact, why shouldn’t it be relied upon QUITE heavily?

Now, don’t read what I didn’t write.  I am not saying that it should be your ONLY consideration of value.  If it were, why would the lender need an appraisal at all?  Why shouldn’t Bob’s Bank of the Burbs say, “Hey, we got a willing buyer and a willing seller.  Here is the purchase price, so that will be our loan amount.”  There is a very good reason the bank (and potential buyer) pay upwards of $3-500 to an appraiser.  Both the buyer and the lender want to know that the real estate being bought and mortgaged is actually worth the price that was agreed upon in the contract.  That means…sometimes it isn’t.

Let me give you a recent example.  In a recreational area not far from where I live, I was recently engaged to complete an appraisal for a purchase.  The inspection was completed and the process of finding and adjusting comparables was commenced.  Though the purchase price was $370,000, I could find support for no more than $320,000.  The comps were good.  The adjustments were within normal guidelines, and there was no reason to believe that my analysis was flawed.  Therefore, I turned in the appraisal with a value of $320,000.

The expected call from the real estate agent came a day later.  You can imagine how that played out.  Nevertheless, when I asked him if he could provide me with any other comparable to support the purchase price, his answer was not surprising.  “You used the only three sales available.”  It was tough to not let the smirk on my face turn into an audible laugh.  (Side note:  When dealing with a professional with whom you may care about a future relationship, do not laugh at them.  Just don’t).

Vindication came a week later.  I was invited back to the same community and to the same subdivision.  This time, the home was slightly larger, but otherwise identical to the first one in every way.  Same condition.  Same view.  Virtually the same amenities.  Purchase price?  $335,000.  My appraisal came in at $343,000.  Law of Substitution come to mind anyone?  Now, how would I have felt if I had done the unethical thing with the first deal and “made it work?”  As it was, the amended purchase contract for the first home came over a week later for $320,000.  Saving a buyer from a $50,000 mistake helped me sleep better at night. As an aside, ‘coming in low’ on a purchase appraisal does not always kill the deal.  Rather, it often allows the two parties to renegotiate.  That can only be a positive thing.

Again, an appraisal is not a fact.  It is an OPINION of value.  Of course, being a qualified professional and using accurate market data makes it more reliable than Uncle Leroy stating his opinion of what your trailer house is worth around the Thanksgiving table, but it is still not an exact science.  Because it is not as easy as 2+2=4, there is room for interpretation.  Have any two appraisers look at and value the same property and, though they will be analyzing the same market data, they will not typically agree on value.  That is where the ‘opinion’ portion comes in.

You all remember the bell curve from high school, right?  “Wasn’t that one one invented by Alexander Graham?,” you ask.  Um, no.  The curve is a way to show deviation in statistical sampling.  Because an appraisal is derived from statistical samplings, the curve applies.   Though an appraisal is typically reported as an exact number, no appraiser (who is honest) will bet their life that the property appraised will sell for that price-no more and no less.  If a home appraises at $100,000, does that mean it would not sell for $95,000 or $105,000?  Of course not.  Does it mean it will not likely sell for $150,000?  Probably.  But, at what point does the likely selling price become unlikely?  $110,000?  $112,000?  $112,300?  In a bell curve, that number is the point in which the most likely price falls outside the first standard deviation-or the grey area.  Now, try to keep up.  The bottom line is, an appraisal is more accurately reported as a range rather than an exact number.  Frankly, giving an exact number is (IMHO) misleading, though there is not a bank in the country who would accept a range for most transactions.  

The exception to the grey area rule is homes that are nearly identical.  Let’s take a townhouse as an example.  If I were appraising a townhouse where the contract said the sales price was $110,000, but there were three sales of identical townhouses in the same complex that had all sold for $108,000 in the past 3 months, I would have a hard time supporting the value (even though it is well within a 2% spread.  Unless the market was rising quickly or there were other considerations that could be analyzed, I am not going to ‘hit value’ on that appraisal.  A real estate agent might cry, “It’s just $2,000! Can’t you make it work?,” but my ethics would cry louder that I cannot.

WARNING TO APPRAISERS:  Doing the right thing when it comes to honestly deriving value can appear to hurt your appraisal practice in the short term.  It will, in the long run however, be the only thing that will keep you viable and thriving.  It is a fact of life that not all real estate agents are honest.  Most are.  Some however, rather than wanting what is best for their client, are only looking at whether or not THIS deal is going to close.  A pesky (otherwise know as an ‘ethical’) appraiser can only be a hindrance to them. Some will even go to extreme lengths to make sure “you never do another appraisal in my town again!”  About 95% of my appraisals for purchases come in at or above purchase prince (for the very reasons outlined in this article).  However, the 5% that do not can be a headache.  Let’s just say one or two deals that ‘do not go through’ because of that ‘low ball appraiser,’ can cause some turmoil and hurdle jumping.  For some reason one deal that ‘goes bad’ for some agents somehow translates into, ‘That appraiser always comes in low.’  Weird, but true.  Remember however, doing the right thing is always the right thing.  In the end, I think all professionals would rather that the transaction be on the up and up all the way around.

There is need for a sidebar here:  If you are a real estate agent and are reading this, you may be screaming at the article, “Okay, if you are not able to support value, why don’t you pick up the phone and call me?  I can show you how to come in at value!”  First of all, I used to make that call every time the value looked to be coming in lower than sales price.  I can count on one hand the number of times the call was helpful and information was shared that helped me see the prospect in a different light.  Secondly-and most importantly-federal laws that have been passed since the ‘housing crisis of 2008’ have significantly tied the hands of the appraiser in their abilities to pick up the phone and talk with anyone about value.  It is nearly impossible anymore. We appraisers are not trying to be rude, we are just trying to retain our license.

When I first began as an appraiser, I had to decide whether or not I would appraise in an honest and ethical manner, or try to fit into the ‘Good ‘Ol Boys Network’ and play the silly little games that some play in order to stay ‘liked’ by those in power positions. I decided then that the most important Power in my life was not a banker, real estate agent, or any other professional.  I have made a few people angry over the years (and even ended up on more than a few ‘black lists’) as a consequence of that decision.  And yet, our firm still does more business than our peers.  There is something to be said about running an honest business and the blessings that come in spite of the challenges.

One of those challenges, interestingly enough, is trying to explain to those not familiar with the appraisal process why a HUGE majority of appraisals DO come in at or just above the purchase price.  In my case, that is about 95 out of 100.  Nationally, the numbers are a consistent 88%-91% (“Red Herring Du Jour – Low Appraisals” By: Joan TricePosted on Appraisalbuzz.com Wednesday, August 24, 2011).  That means only 1 out of every 10 purchase appraisals comes in below the agreed upon sales price.  In other words, a super majority are coming it at or above the purchase price! Though it may smell a bit fishy, it actually makes complete sense…if you understand the appraisal process as explained above.

Here’s where the problems start.  Most real estate appraisers are good and ethical, but there are far too many appraisers that care more about their professional relationship with the real estate agents in town or their clients to do the right thing when the right thing requires the appraisal to come in below the agreed upon contract.  In other words, they may not feel like the data supports it, but they will ‘rubber stamp’ the deals so as not to make anyone upset.  In my humble opinion, by doing so, they do a huge disfavor to themselves, the bank, the borrower, the market, and yes….even the real estate agents (listing and selling).  Hear me out.  No one wants to see an agent (who has worked very hard to put the deal together) lose their commission, but it may be the best thing that can happen for all the involved parties.  As a potential buyer, wouldn’t you want to know if the purchase you are attempting is going to cause you to immediately be upside down in the market?  If you are emotionally tied to the property, there are still other options to secure the purchase.  Do you really want to get into a long-term loan and not be able to refinance (or resell) a year after the purchase because you are upside down (even if the market stayed steady)?  From the bank’s perspective, you would certainly want to know what the true value of the collateral is.  That is why you hired the professional appraiser in the first place, right?  Now, as a real estate agent, you are an advocate for your client.  If you are the selling agent, it would be reasonable (though you may lose this one commission), that your highest aspiration would be to protect your client from making a grave error.  Even as a listing agent, your reputation is on the line.  Most would rather be known as honest rather than “the agent who will do whatever it takes to close a deal.”

Remember (lean in a little as this is important), sometimes the appraiser’s job is to protect the buyer.  Furthermore, appraising a property has, on many occasions, allowed the two parties to come back to the negotiating table and mutually agree to buy/sell based on a price that is more suited to the current market.  In other words, because an appraiser was honest and did the right thing, the transaction was a better fit for all parties involved.

Of course, the purpose of this article is not to explain why or how appraisals come in below the agreed upon purchase price at times.  As the title says, most purchase appraisals should (and do) come in just above the purchase price.  The dynamics of the market ensure that this is true.  To my fellow appraisers, do not be embarrassed or chagrined next time someone asks why appraisers ‘always come in just above the purchase price.’  Take the opportunity to educate them and explain why this is.  Better yet, send them a copy of this article and save your breath.

Now, go create some value!

An Idaho Appraiser in Wyoming?

It is not unusual for an eyebrow to be raised when an office with a 208 area code calls to set up an appointment for an appraisal in Wyoming.  You might be asking yourself why an appraiser must travel all the way from Idaho Falls to do an appraisal in Jackson or Star Valley.  Furthermore, you might wonder if that appraiser (who lives so far away) is even qualified for the job.

Why an Idaho Falls Appraiser?

As you know, the Lincoln and Teton County areas of Wyoming are not highly populated.  Thus, finding qualified professionals locally can prove difficult.  Just as you often travel to Idaho Falls to do your major shopping and/or have contractors or other professionals travel from there to you, it is not unusual for an appraiser to put on a few miles to get to you.  There are not many appraisers in the entire state of Wyoming.  Only a handful of them reside and work in the Jackson and Star Valley areas.  Thus, Idaho Falls is the next closest (and logical) area for appraisers to come from.

 

Is This Appraiser Qualified?

This is a logical and understandable question.  No one wants their appraisal completed by an unqualified individual.  It is important to know if your appraiser is geographically competent to complete the work, meaning he knows the area.  You should know that Dustin Harris has been appraising real estate for nearly two decades.  He was first licensed and practicing in the State of Wyoming in 1998.  In other words, Dustin has been an expert in the Teton and Lincoln County areas for longer than most appraisers have been living there!  He travels to Wyoming an average of once per week (sometimes more) in all four seasons of the year.  Mr. Harris is a Certified Residential appraiser with expertise in both unique and high-end properties.  In fact, his knowledge and expertise is often sought after by other appraiser peers.  He is well-versed in the local real estate market and economy.  You could say he knows the difference between Rafter-J and Melody Ranch or between Alpine and Grover.

 

Can I Request a Local Appraiser?

Perhaps you are still uncomfortable with an out-of-town appraiser—despite his qualifications.  We understand and respect that.  However, you should know that changing appraisers mid-stream in the lending process can prove difficult.  Federal regulations have unfortunately made it very difficult for the loan officer to have much control over which appraiser is chosen for a certain job.  The typical process for appraiser selection includes the loan officer and processor hiring an Appraisal Management Company (AMC) who in-turn hires the appraiser.  It is the AMC’s responsibility to hire the best and most qualified individual for the job.  Due to the extensive amount and quality of work Dustin does in the Western Wyoming area (as well as his impressive turn-around time), he is often chosen by AMCs to perform work in this area.

 

Yes, discovering that the individual chosen to do your appraisal is from ‘the other side of the border’ can be disheartening, but it does not have to be.  Due to his extensive history and impressive knowledge of the market, he is likely to be the most qualified appraiser to assist you with the valuation of your home or property in Western Wyoming.

How to Prepare for an Appraisal Inspection

Your home is your sanctuary.  Having a stranger visit your home can be uncomfortable.  Allowing that stranger to walk through the interior of your home is downright intimidating.  At Appraisal Precision and Consulting Group, Inc., we understand your concerns, but being prepared for that inspection can help ease the apprehension.  Most appraisals from a real estate appraiser are referred to as ‘full appraisals.’  This simply means that the inspection portion of the appraisal process will be on site and will include both the exterior and interior of your home.  So how does one prepare for and best accommodate such an inspection?

Here are some suggestions for homeowners in each portion of the appraisal process:

1.       Before the Appraiser Comes

Most people have the mistaken belief that their home must be sparkling clean in order for the appraiser to visit.  Though we understand your desire to show your home in its best light, a thorough cleaning is not necessary.  The appraiser is looking at the house itself (floor coverings, wall coverings, countertops, siding, roof materials, etc.) and not the contents.

The best way you can prepare before the appraiser comes is to make every area of your home (both exterior and interior) easily accessible.  If you are doing an FHA or VA loan, this includes attic and/or crawlspace areas.

Having a home feature sheet prepared for the appraiser may also be of assistance.  This document should include the major amenities that you believe might increase the value of your home and details concerning any recent updates you have made.  Though the appraiser will likely have a plat map from the county, having one on hand may be helpful.  Having a copy of a past appraisal is not necessary, but it may assist the appraiser to verify measurements and/or other important items.

2.       While the Appraiser is at Your Home

The appraiser will need to walk around your home, observe any outbuildings you might have on the property, and also do a complete walk-through of each interior room.  Though you are obviously entitled to accompany the appraiser, it may be helpful to point out a few things and then let him or her do the job without distraction.  However, it helps if you stay readily available should the appraiser need any questions answered or clarifications made.

We are often asked if it is necessary for the homeowner to be present during the inspection.  We understand that schedules are difficult and we are willing to work with whatever arrangements can be made.  We are professionals and will treat your home with respect  should you need to  have a trusted family member or friend let us in or leave a door open for an appraiser to do the inspection without you there.

Whether or not you are physically at the inspection, be prepared to answer the following questions:

  1. How long have you owned the home and have you had it up for sale in the past 12 months?
  2. What major updating and/or remodeling have you done in the past 15 years?
  3. Is there anything you would like the appraiser to know that is not easily observable?

While the appraiser is at your home, he or she will be gathering information on your home in the form of notes, photos, and a sketch.  Yes, he or she will likely need to take photos of the perimeter of your home, any and all outbuildings, and every room on the interior.

3.       After the Appraiser Leaves

It is likely that the appraiser will have everything that is needed once he or she leaves your property.  On occasion however, the appraiser may contact you for further information and/or clarification to assist in the process.  There are many federal laws and regulations governing the appraisal process.  Some of those laws have to do with the type and amount of communication that can be had between the appraiser and the homeowner after the inspection.  If you contact the appraisal office after the inspection and the appraiser cannot speak to you, or speaks to you but cannot answer your questions, do not take it personally.  This is not a reflection of bad customer service and the appraiser is not trying to be difficult. Rather, the appraiser is trying to comply with the red-tape of federal finance laws.  Should you need to contact the appraiser, please do so through your lending institution.  If the appraisal is for a non-lending purpose and you are the client, we always welcome your communication.

Though an appraisal inspection can be daunting, it does not have to be.  The more you understand what the appraiser will be doing at your property and what he or she is looking for, the less  intimidating it will be.

Why are Appraisals so Expensive?

The loan process can be a long and expensive endeavor.  We are often asked at Appraisal Precision and Consulting Group, Inc. why appraisals are so expensive.  It is a good question.  Let’s explore some of the answers.

3 Reasons Why Real Estate Appraisals Cost What They Do:

 1.       The Middle Man

In 2010, at the height of the ‘housing crisis,’ laws were passed on a federal level that highly regulate the financial (and thus appraisal) industry. Those regulations mean bankers and loan officers no longer hire appraisers directly.  Instead, most opt to go through a third-party called an Appraisal Management Company (AMC).  The job of an AMC is not only to find a qualified appraiser and to be the ‘firewall’ between the appraiser and those who make lending decisions, but also to complete work behind the scenes to make sure that the appraisal product is as good as it can be.  Obviously, these AMCs do not work for free.  They must also take their cut.  Most states do not regulate how the appraisal fee is reported.  Therefore, it is an easy mistake to think that your entire appraisal bill is going to the appraiser.  Most contracts between AMCs and appraisers make it a breach to reveal how much the AMC is paid vs the appraiser, but be assured that your local appraiser is only being compensated a percentage of the total.

2.       More Than Meets the Eye

Another common mistake is to think that an appraisal service is only (or mostly) completed at the inspection itself.  Since this is the part of the service that the homeowner observes, it is understandable that they might ask, “I paid how much?  He was only in my house for 30 minutes!”  Be assured that the amount of time an appraiser spends on the inspection is only a small fraction of the service he or she is providing.  On average, there is approximately 1 to 2 hours of work completed before the appraiser even rings your doorbell.  Furthermore, when the appraiser leaves, there may be 3 to 6 hours worth of number-crunching, calculating, driving to comparable sales, report write-ups, etc.  Though every appraisal is different, most average between 5 to 8 hours of work from start to finish.

3.       Paying for Expertise

When you go to the doctor, you may only see the actual physician for 15 minutes.  However, it is not the amount of time, per-se, that you are paying for.  A nurse may spend more actual time with you, but is not the expert.  Your value is investing in the doctor’s education and experience.  Though an appraiser is not a doctor, the principle is the same.  Every certified appraiser has years of education, training, and expertise that they bring to the table.  Dustin Harris has been appraising real estate for nearly two decades and has been intimately involved in the Idaho and Wyoming real estate markets for even longer than that.  In addition to his or her vast experience and education (both initial and required continuing education), a good appraiser also spends a great deal of time studying the local market, keeping up with trends, and knowing how the real estate market is moving.  None of this time is specifically billed.

When you see that invoice for an appraisal service, it might seem a little over-the-top.  However, when you realize that the appraiser does not get paid that full amount and that there is much more that goes into an appraisal service than the inspection, you begin to gain a better understanding of why it costs what it does.

Why do I Need an Appraisal?

Having an appraiser come to your home can be inconvenient.  We at Appraisal Precision and Consulting Group, Inc. understand that.  We try to make it as non-intrusive as possible, but you may be wondering why you have to have an appraisal to begin with.

Though there are many reasons for an appraisal, most fit into 4 main categories.  These are in no particular order.

 

4 Reasons for an Appraisal:

1.        Lending Collateral

The large majority of appraisals are for verification of assets from the bank/lender’s perspective.  Whether you are getting an initial mortgage to purchase a home, doing a refinance, or getting a home equity loan, the lending institution wants to know if your home is worth enough to cover their risk should the loan ever go into default.  Even if the loan to value ratio is not high (if you are trying to get a home equity loan for a few thousand dollars and your home is worth several hundred thousand dollars), some banks have policies that require an appraisal no matter what the loan amount.  Most loans are high enough however, that a full appraisal is necessary to verify the assets you might bring to the table.   Most full appraisals require an appraiser to visit the property, do a full walk-through, and take interior and exterior photos.

2.       Bank Asset Verification

Every so often, lending institutions do a full inventory of the assets they have on the books.  Even if they already have an appraisal on your home, markets change.  For a variety of reasons, the bank may want to re-verify the value of your particular home or investment property.  Banks will also often re-evaluate your home’s value if you are in default on the loan.  This happens long before the foreclosure process begins and may happen without you even knowing (through an exterior drive-by or desktop valuation).

3.       Curiosity

Appraisals are not always ordered by the bank.  Sometimes homeowners are curious about the value of their home.  Perhaps they are contemplating selling and want to know a good asking price.  Maybe they want to refinance (or take cash out) and do not know if they have enough equity to do so.  Are you paying Property Mortgage Insurance (PMI) and want to see if you can drop it?  It is always nice to know where your property stands in valuation and an appraiser can help you know for sure.   Do you think your county property assessment may be too high?  An appraiser can tell you if it really is.

4.       Specialty Valuation

Appraisals are done for a variety of purposes.  Perhaps you gift all or some of your property to charity.  The IRS will want to know what it is worth so you can get the tax write-off you might seek.  Perhaps there is pending litigation on the property.  An appraisal can be used as evidence in a court case.  If you are going through a divorce, a valuation of your property by a qualified appraiser may be used to help the judge make a decision on the division of assets.  You might have an appraisal done if you had a death in the family and an estate needs settled.  The list goes on and on.

It is important that you understand why an appraisal is being ordered on your property.  If you do not, or have questions, contact the party who ordered it and ask.  They should be able to explain the reason for the appraisal.  If there are further questions, feel free to contact Appraisal Precision.  We are experts in the appraisal field and will help you in any way possible.