Appraisers are the Sherlock Holmes of real estate
Much of what a real estate appraiser does is akin to a detective’s work. We dig through data to uncover the mystery of value. A major source of this date is the local multiple listing service (MLS), and whether real estate agents know it they hold the key to how accurate an appraisal can be. Depending on how thoroughly they fill out the MLS listing sheet this source of information can provide a ton of valuable information. As Sherlock Holmes said “you can’t make bricks without clay”, nor can appraisers accurately estimate value without reliable data. Lets take a look at the top 5 items an appraiser looks for in an MLS listing, in no particular order.
Pictures, Pictures, Pictures
I should have added GOOD pictures. You know the saying, “A picture is worth a 1000 words”, is very true in real estate appraisal because pictures provides information to help us determine the condition of a comparable as well as the quality of construction. It’s helpful to have pictures of every room if possible, including any basement rooms because it paints a clearer picture of the home, which can also provide insight into why a buyer paid what the did. Pictures of additional features that add value such as swimming pools, outdoor living spaces, detached garages or workshops and all four sides of the house are also good. From an appraisers perspective there can never be enough pictures.
Financing information can include the type of loan, (conventional, VA, FHA, cash, USDA, etc), the concessions that were paid, and any other closing costs paid by either buyer or seller. Knowing that the seller paid higher than typical closing costs will help us understand why the sale price was so high or other similar situation. An appraisal is an opinion of value based on market value which states that:
Payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto and the price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale.
If any special or creative financing or sales concessions exist they must be adjusted for, so getting accurate information is crucial.
Next to pictures a thorough write up on a listing is priceless. Appraisers hate to see “notes to follow…” because the agent typically never does come back and fill in this important section of the listing. Extended descriptions of the features of the home are included here as well as possible information on any updating or renovation the home has gone through. This area will also help the appraiser understand what features of the home the agent feels is a positive selling point because this is the description potential buyers will read when viewing a listing.
This information is pretty straight forward and includes date of sale, price, and days on market. Having this filled out correctly will help appraisers when doing searches for possible comparables. Lenders have guidelines pertaining to time of sale of the comp. and if this data is incorrect then a potentially good sale could be left out. Would you want the best comp. available not considered because the appraiser was not aware of it? Days on market can provide clues that a home was priced too high or had odd features that buyers did not like, which kept it on the market longer than what is normal.
House Physical Data
The local Birmingham MLS made it a requirement in May of 2014 for real estate agents to include accurate square footage information. Having accurate square footage helps appraisers and agents to develop value estimates for appraisals and CMA’s. I am still seeing errors in reporting the correct square footage from county records so if you need help check out my blog post about this topic. In addition to gross living area other physical data that the appraiser uses in the appraisal report are the number of bedrooms and bathrooms and any other rooms that add value such as recreation rooms, home theater rooms, finished basement rooms, and any rooms over garages whether attached or detached. Providing a list of features such as outdoor kitchen, barn, pool, or workshop will also help paint a better picture of the property.
I would be interested to hear your thoughts on the data provided in MLS listings. What other types of data do you think are important? Leave a message below and let me know your thoughts.