Fall leaves and the appraisers mailbag

Fall leaves and the appraisers mailbag

WOW! That is really an understatement but I hope it conveys my amazement at how colorful the fall leaves have been this year in the Birmingham, Alabama area. I love this time of the year and we have not been disappointed, so I thought I would share some pictures with you before we dig into some appraisal related questions I was asked recently .

Nice, right? I hope you have a great fall too. So lets dig into some questions I was asked recently.

Question: I recently had an appraisal for refinancing. Is that appraisal different than if I had an appraisal for a sale?

Answer: This is a common question that I’ve been asked numerous times. Contrary to what you may have been told there are no real differences in the results between a refinance appraisal and a purchase appraisal. Both appraisals seek to determine the market value of a property. Market value is defined as:

Market value is the most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller, each acting prudently, knowledgeably and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: (1) buyer and seller are typically motivated; (2) both parties are well informed or well advised, and each acting in what he considers his own best interest; (3) a reasonable time is allowed for exposure in the open market; (4) payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto; and (5) 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.

Because they seek to determine the same type of value the final opinion of value should be approximately the same. There is one piece of information that a purchase appraisal has and the refinance does not and that is a contract on the subject property. The contract is one extra value indicator that provides a value indication for the subject, especially if it falls in line with what other similar properties have recently sold for and are currently listed at. This contract can add a level of refinement to the final value estimate that a refinance appraisal cannot.

Question: How important are cosmetic conditions such as paint and carpet in an appraisal?

Answer: When items such as paint and carpet have been updated in a house this can help the appraisal in a positive way. There are both large items like HVAC systems, roof shingles, electrical updates, and plumbing updates, as well as smaller cosmetic improvements like paint and carpet that can help decrease the subjects effective age which in turn helps to increase its value. It is difficult to determine an exact dollar contribution for these times however it can be given consideration in the final value reconciliation. If a home has had these types of improvements and has good appeal then this provide support for the appraisal reflecting the upper end of the adjusted value range.

Question: Can you use sales that are further than a mile away if there have not been any recent sales within the immediate neighborhood?

Answer: Most people believe that comparables have to be located in the same neighborhood or subdivision but this is not totally true. While this may be the best case scenario it is not a deal killer if it is not. A sale within the same neighborhood/subdivision will reflect similar locational characteristics, however it is possible that there can be other areas that have similar influences and be good indicators of value. I prefer to look within the subject’s neighborhood first but if there have not been any sales then I will look to other areas that are in the same school system, access to work areas, and similar type homes. You want to ask yourself: If there were no homes for sale in my subject neighbor what other neighborhood would my buyers look at that have similar price, age, and style of home.

Do you have a question that was not answered here? If so, leave me a message below and I’ll do my best to get it answered. Thanks again for stopping by to read my blog.

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