Accurate Data Equals Accurate Appraisals
Appraisers are always on a quest to provide the most accurate appraisal reports possible. Part of this task involves collecting recent sales and listing data and then sifting through it so that the most relevant information is included in the report in order to produce a reliable value estimate. If you’ve ever asked your self “How accurate is my appraisal?” then this post is for you and I hope it provides helpful information to answer this question.
More Adjustments Means Less Comparable
The idea behind an appraisal is to select the most similar sales available to compare with the subject property. In a perfect world you would find three or more identical sales that occurred recently, and because they were identical you would not have to make any adjustments. There most likely would be some differences in sale prices because of different buyer and seller motivations, however it would probably not be much. The sales would provide a range of value that would be pretty tight and the final value estimate would be pretty easy to come up with.
The real world does not work out this easy however and most of the time each sale will require various adjustments for things such as location, view, age, number of bedrooms and bathrooms, gross living area, finished basement area, parking, and other various amenities. The more adjustments that a sale requires the less comparable it becomes. A good indication of the amount of adjustments that a sale requires can be expressed in terms of the amount of gross and net adjustments to the sale price of the home. Gross adjustments are the addition of all adjustments made to a sale regardless of whether it was a positive or a negative adjustments. Net adjustments are the addition of all of the adjustments, taking into consideration whether it was negative or positive.
Example:
| Gross Adjustments | Net Adjustments |
|---|---|
| $2,500 | $2,500 |
| -$3,000 | -$3,000 |
| $1,000 | 1,000 |
| Total Gross Adjustment $6,500 | Total Net Adjustment $500 |
Banks like for appraisers to use sales that do not have gross adjustments that exceed 25% or net adjustments that exceed 15%, however these are only suggested guidelines. It is not always possible to meet these guideline suggestions but striving to use sales with minimal adjustments will help increase the reliability and accuracy of the appraisal. By looking at the amount of adjustments that a sale requires we can get an idea of how “comparable” it really is. Sales that require lesser adjustments are usually given more emphasis in the final value reconciliation. The total gross adjustment of a comparable is usually better to look at because it shows us the total adjustments whereas the net adjustments does not.
Drive-by or Interior Inspection
The most accurate information for an appraisal is obtained from an interior inspection of the property, however not all appraisal inspections are performed this way. Depending on lender guidelines a bank may only require the appraiser to view the property from the road. Whenever an appraisal is made on a property the appraiser must get accurate information on the square footage and features of the property. Many times this is obtained from county records, which is not always accurate, however this is the only source of information the appraiser has. The accuracy of the appraisal is directly related to the accuracy of the physical data used in the report. An appraisal made with an interior inspection is typically more accurate than a drive-by because the appraiser physically measures the home him or herself. If you question the appraised value of your home, and it was a drive-by, you may want to check to see if the square footage is correct. You can do this by comparing the information from the drive-by appraisal with that of a previous interior inspection if you have an old report. If these numbers vary significantly then the drive-by appraisal may not be as accurate as it could be and you might want to request an interior inspection.
Accuracy of Physical Data
Another way to gauge the accuracy of you appraisal is to check the various physical features that your home has and make sure they were included in the report. You can aid the appraiser during the inspection by pointing out value related features or providing a list of features and updates that have been made to the house. I wrote a blog post in the past regarding common errors in the appraisal report which pointed out areas of the report that you can check for accuracy. If errors exist then your appraisal report may not be very accurate and by requesting this to be reviewed the accuracy of your appraisal can be increased.
The accuracy of your appraisal can be tested by reviewing the various points I’ve listed in this post. What are your thoughts? Is there anything else you would add? Leave me a message and we’ll discuss it.
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12/25
Thanks for the information. We just got an appraisal done to have our home refinanced. In reading your info, we feel that that comparables chosen by the appraiser are not ‘comparable’ at all. Our home needs no repairs. Two the the ‘comparables’ chosen were foreclosed homes having major repairs needed. One needs a roof and appears to have rotted wood or termites. One of the others looking at the front looks great – going to the back it has been broken into and major vadalism…..needs repaired before it can be livable.
Also the comparables are way off on the gross living area, no garage etc.
So again, thanks for your info. We are not at all happy with our appraisal.
Sorry to hear about the appraisal but glad my information was helpful.
Great post Tom. I just wanted to add to the discussion that an appraiser can also increase the accuracy of an appraisal by selecting comparables that require less subjective adjustments. For example, I might select a comparable that requires time or living area adjustments (adjustments that are easy to support) over a comparable that requires much more subjective and difficult to support adjustments like condition, location, or view.
Great point Gary. Subjective adjustments can vary, however using adjustments supported by market data do provide a more accurate value indication. Thanks for sharing.