Appraisal advice to help make you a smarter consumer
If you ever need appraisal advice be careful who you get it from. Not everyone who offers appraisal advice can give
you the information you need that will help you to price your home to sell. Today I’m going to share with you some advice I’ve heard shared over the years but not necessarily from an appraiser. If you have questions I’d be glad to answer them for your or I would suggest you talk to a certified appraiser in your area.
Appraisal advice: Price your home at the value the tax assessor has
Why you might hear this: Most people think that there is a secret formula for pricing your home by using the value that the tax assessor has. For example, if the tax assessor has your home valued at $100,000, they might say that you need to add 25% to that value to come up with an asking price. This would mean you should ask $125,000 for your home, but is this accurate?
Why it’s bad advice: This is not good advice because there is no secret formula using the tax assessment value. This mythical advice may have gotten started in the past when most assessments were below true market value, however, that is not really the case these days, especially in the Birmingham, AL area.
After the real estate crash around 2007 most municipalities tax revenue was lower than in the past because homes were selling for less. Most assessors now try to assess homes more frequently and for closer to true market value. With that being said, the values they come up with are normally not as
accurate as an appraisal done by a fee appraiser.
Appraisal advice: Don’t worry about how much your home improvements cost because you will get a 100% return on them
Why you might hear this: If you watch HGTV or other similar home renovation show you will see that most of the time they will have you believe that you get a greater than 100% return on all of your renovation projects, however, this is not always the case.
Why it’s bad advice: This is bad advice because it is not always a given that you will get a positive return on your investment. There are a lot of factors to consider when estimating the return on your investment. It will depend on how local buyers feel about the improvements and how much they are willing to pay for it when they make an offer on your home.
Appraisal advice: It’s a hot market so you don’t need an appraisal
Why you might hear this: When inventory is low like it is now in some areas, most people don’t think you need an appraisal. Even though a market may be hot you still need to know what the majority of people are willing to pay for a home similar to yours. The appraisal needs to take into consideration recent updates and renovations and the accurate square footage of your home.
Why it’s bad advice: This is bad advice because if you go into selling your home blindly two things can happen. You will either list it too low and leave money on the table or you will list it too high and it will stay on the market too long.
Even in a hot market, buyers are still savvy enough to know not to overpay for a home. A pre-listing appraisal will help you arrive at a market supported value to successfully list your home.
Appraisal advice: The appraiser always comes in at the contract amount
Why you might hear this: This is not always true but it can happen, and I’ll tell you why. I actually talked about this recently when speaking with a group of real estate agents. In a regular refinance appraisal the appraiser can look at all three approaches to value including the sales comparison, cost, and income approach to value.
Most of the time the appraiser will end up using only the cost and sales approach due to a lack of rental data. So by using these two approaches we have two indicators of value. When an appraisal is being done for a purchase there is one more indicator of value that the appraiser has, and that is the sales contract.
If the contract is an arm’s length transaction then this is one more value indicator that the appraiser can use. This can be relied upon if the home has been exposed to the market for a reasonable amount of time and is within the range of value indicated by the other sales. It can be used to reconcile the final opinion of value within a specific part of the value range.
Why it’s bad advice: It is bad because it can give the wrong impression that the appraiser always comes in at the contract amount. This can be bad for sellers because they may price their home too high because they might believe that the appraiser will come in at the contract price no matter how overpriced it is. Obviously, if the contract price is either below or above what the sales indicate then the likelihood of the appraisal coming in at the contract amount is highly unlikely.
Appraisal advice: Use Zillow to appraise your home and set an asking price.
Why you might hear this: Many people are familiar with the Zillow website and their infamous Zestimate. The Zestimate can provide a highly overstated value for the property. This is exactly what some homeowners like to see, however it may not be very accurate.
Why it’s bad advice: This may result in an overpriced home and an unsuccessful attempt to sell it. Many times these values cannot be supported with a mortgage appraisal and deals can fall through.
Appraisal advice: You can’t challenge an appraisal because they’ll never change the value
Why you might hear this: This advice has probably been perpetuated by those who have tried to challenge an appraisal and were not successful.
Why it’s bad advice: It is possible to challenge an appraisal if the challenge is made in a way that provides market supported evidence for a higher value. The challenge should be put together in a way that offers actionable items for the appraiser to address.
Appraisal advice: Use the square footage from the tax records to price your home
Why you might hear this: Most people choose the information provided by the tax assessor if they do not have access to an appraisal or know the correct amount.
Why it’s bad advice: This is not good advice because basing a selling price on an incorrect square footage will only provide an incorrect asking price that is not market supported. If you don’t have access to accurate square footage information you can always get the home measured.
Appraisal advice: Use the cheapest appraiser because they’re all the same
Why you might hear this: Why pay more for something if you don’t have to, right? Well, remember the old adage that you get what you pay for. Most appraisers are well-trained professionals who realize that to do a good job requires time and effort that cannot be done at rock bottom prices.
Why it’s bad advice: If you choose an appraiser based only on a low price you may end up getting an appraisal that is not well developed because it has been rushed through so that the appraiser can move on to the next job so they can increase their volume and make up for the low fees. Paying a little more for a job that is well done can save headaches in the future.
Questions
Do you have any other appraisal advice that your not sure about? If so, leave a comment below and we will keep the conversation going. As always, thanks for reading.
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Well said, Tom. Some of this is based on the old economic theories that say if you can keep the other party less informed about reality, then you have an advantage. Sellers often encourage emotion in order to remove facts from the equation. It’s the Nick Saban school of appraising – be polite but do not accept anything, promise anything, or encourage anything.
Thank’s Mike. I’ll go with the Nick Saban school of winning! 🙂
You are a wealth of advice not only to Realtors, but to homeowners or homeowners to be. I have begun to post your blogs on my Business Face Book page. Great job! Please “LIKE” Gail Ward Realtor, on Face Book .
Thanks Gail, will do!
Nice job Tom. I find many claim lofty returns in value if owners will do certain things to their homes. The truth is it’s not that easy to get dollar-for-dollar returns on our money though. In reality many investors make most of their money when the property is acquired below market rate at a discount rather than when upgrading the home. I know there is one down the street from me right now that an investor has been working on for the past 4 months. It looks really nice, though part of me is wondering how much they spent and how much they expect to sell it for. I know what they acquired the property for and it just seems like there can’t be too much room between that and resale value. We shall see though. The market will tell the truth.
Great points Ryan. I have heard the same thing about making money when you buy the property not when you sell it. Maybe they’ll sell it for top dollar and help the values in your neighborhood. 🙂
Thank you Tom. Great stuff. This leads right into your post next week, “The best appraisal advice for home sellers.” I will give you the first one one the list. Always have freshly baked cookies to offer the appraiser.
Great idea Gary. 🙂 I once did an appraisal on a house that was on lock box so the owner was not there but they left out a “welcome package” with snacks, a drink, and a kind note. It was a nice gesture but I did not feel comfortable taking it because I did not want to give the wrong impression of possibly favoring them in value.
Excellent article!
Thanks!