5 Ways to Spot a Turkey Appraisal

What’s a Turkey Appraisal?

turkey home appraisal is badOne of the definitions for turkey in the Merriam-Webster dictionary is something that is a failure or a flop. In my own words, a turkey appraisal is one that does not provide a reliable indicator of market value for various reasons.

Turkeys are great for Thanksgiving but not for appraisals. In the spirit of Thanksgiving this week I thought I would share some helpful information about how to spot a less than stellar “turkey” appraisal.

It’s important that your appraisal provide correct information about your home and that it reflects the most accurate value. The value indicated on the appraisal helps determine the loan you will get and how much money you can borrow. Let’s take a look at how you can spot a turkey appraisal.

Ways to spot a Turkey Appraisal

1) An appraiser didn’t even come to your home- If you’re an active reader of my blog you may have read the article I recently wrote on Property Inspection Waivers (PIW). The PIW allows you to forgo a traditional appraisal for certain refinances or purchase transactions.

The big problem with the PIW is that an appraiser does not actually visit your home. The physical data the lender uses is most likely taken from county records or some other unreliable source.

When a PIW is used it is impossible to take into consideration any recent home improvements you may have recently made to your house. It also may not reflect the accurate square footage in your home. Can you see where this may prevent an accurate value from being used in your loan decision?

2) Comps are not comparable- The sales included in the appraisal do not reflect reasonable alternatives to your home. What does this actually mean?

A comparable should be a home that a potential buyer would consider if the home being appraised was not available for sale. The comp should be a home that is similar in quality, condition, physical characteristics (such as bedroom and bath count as well as square footage), location and price range.

The more similar the comps are to the subject property the fewer adjustments need to be made and the more accurate the indication of value will be. Sometimes there is a lack of recent and similar sales so the appraiser must use the only sales available, which may require larger than ideal adjustments. This is understandable and we’re really not talking about this.

3) The comps are not from a similar area- Sales from the same subdivision or neighborhood are typically the best ones to use, especially if they are very similar physically to the subject.

The situation I am referring to is when there are good sales within the neighborhood but the appraiser used sales from a more distant neighborhood that are not very similar. If you know that a very similar home in your neighborhood recently sold but it was not used in the appraisal then this should be cause for concern. Of course, the appraiser may have considered it and discarded it for some reason but it is worth asking about.

4) Adjustments do not make sense- You don’t have to be a professional appraiser to spot questionable adjustments. I’m not talking about the actual dollar amount of the adjustment but whether an adjustment was even made for obvious differences.

Let me give you an example. If your home has a swimming pool and one of the comps does not, and no adjustment is made for this, then this could give an inaccurate indication of value.

What typically occurs is that if the sale comparable is superior to the subject then a downward adjustment is made to the sale and if the comp is inferior then an upward adjustment is made. So even if an adjustment amount is made you want to make sure that the direction of the adjustment is correct. Both the amount of the adjustment and the direction of the adjustment are critical factors and can result in the final value being off.

5) Appraisal did not include recent improvements you made- I hate to say this but if the recent improvements you made to your home were not included in the appraisal this may be your fault. I always highly recommend owners provide a list of recent updates or remodeling to the appraiser.

Please keep in mind that cost does not always equal value and you may not get dollar for dollar on the improvements. You do, however, want the appraisal to reflect the work that has been done. Renovations help to decrease the effective age of the home, which can affect adjustments made in the appraisal and even the comparables chosen.

What Do I Do Now?

If your appraisal exhibits some of the items noted about what should you do? The best place to start is by requesting a reconsideration of value.

A reconsideration of value should include a request for the appraiser to relook at the appraisal with more accurate information. If a full appraisal was not done then you may want to ask for one so that the most complete information about your home can be considered.

When an appraiser visits your home they can get accurate square footage measurements and they will be able to personally view the quality and condition of the home.

If a full appraisal was done but there are additional sales you would like the appraiser to consider then you can provide that information to them. Keep in mind that the appraiser may have considered the newer sales but discarded them because they were not comparable.

If you did not initially give the appraiser information about the updates and renovations made to your house then you can provide this information with the reconsideration of value request.

Question

Do you have any other questions about a turkey appraisal? Feel free to leave a comment below and as always thanks for reading.

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Comments

  1. Thanks Tom. It seems like most of the time if there is a problem with value it comes down to comps and adjustments. Bottom line. I think your point about property inspection waivers is valid. I saw a purchase happen last year and all parties were very happy that an appraisal wasn’t needed. The Listing Agent was surprised about it, and I was too.

    • I’m sure most people would be happy about an appraisal not being required because the PIW is promoted as saving money and time, however, we might see problems crop up later if the sale price was not accurate. I guess only time will tell. Have a great Thanksgiving, Ryan!

  2. One way to spot a “turkey appraisal” is to look and see if the comparable sales have something that is overall superior to the subject and something that is overall inferior to the subject. Then see if the appraiser came to a value that logically and reasonably fits within the range between the high and low. If the appraiser did not, then you might have a turkey. I found a turkey appraisal a couple of days ago, although the appraiser did have homes that were superior and homes that were inferior to the subject, there were very large adjustments applied to the sales (not a problem in itself). The problem was that the adjusted indicators of value were no closer together than they were before the appraiser started applying adjustments. That suggests to me that the adjustments are not credible or are incomplete and we might be looking at a turkey appraisal. After that turkey, I’m ready for a nap. Happy Thanksgiving Tom!

    • Thanks for your take, Gary. I think what you are referring to is the method of bracketing that appraisers use. Great tips on spotting potential problems with the appraisal. Hope you have a great Thanksgiving too!

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