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
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.
Consumer Notes
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.
Sales Information
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.
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Nice post. In Philly and New Jersey, we’re still seeing errors pop up in the square footage listed on MLS and county records as well. I expect this to be all addressed in a few years (or decades) once blockchain is used for real estate records.
It would be nice if the square footage could be relied upon but right now thas is not the case.
Great article! When you’re trying to use tools to find market adjustments (think regression or GandySoft PAIRS), you’re going to want the information to be available in the MLS listing. Given the direction of supporting appraisal adjustments (a la FNMA’s CU product), it’s becoming more important to use some form of credible, repeatable, and explainable analysis technique.
Even having pictures available makes this process easier, as that allows you to scan photos for comparables to estimate condition or simply verify the basic details (beds, baths, basement, exterior features, etc) of the property. In an age where we can analyze “big data” for patterns, trends, and other market and motivation information, reliable sources of data is the key.
Great points Michael, thanks for your comments.
I couldn’t agree more about the pictures. The more the better. And be sure to include a picture if the front of the house (you’d be surprised to know how often they are left out of the MLS listing, here in Philly). Thx Tom.
That is frustrating Mike when the front picture is left out. It is especially helpful to have a picture of the house when taking comparable photos in rural areas that may not have addresses on all the mailboxes. At least you can use the pic to help you narrow it down.
Good stuff, Tom. One of the positive byproducts of agents providing more details and photos in each listing is they’ll probably have less phone calls from appraisers (not to mention better marketing for clients). I love to see 20-25 photos as that often helps me understand what is meant by “remodeled kitchen” or “addition on rear”, etc….
Good points Ryan. Those examples are items that can be interpreted differently from one person to another but can be made more clear with lots of pictures.