Appraiser question of the day: How long is my appraisal good for?
One question I was asked recently, and which I hear often is “How long is my appraisal good for? What the person really wants to know is how old does the appraisal have to be before a lender will not accept it or for which the opinion of value will no longer be valid. We’re going to take a look at this today and what needs to be considered when asking this question.
The bottom line…
First off I would like to say that technically speaking an appraisal is only good for the day that the appraiser was at the house. The reason for this is that anything could happen after that to alter the market value of the home. An extreme example of this would be some catastrophe like a tornado or fire that destroys the home. If this happened then the improvements would no longer exist and the value would only consist of the value of the land.
If we move away from extreme examples like weather and fire and into more market related or economic reasons we might see the closing of a plant or large business in the town the home is located in. This would most likely affect supply and demand and local property values.
So you see, there’s many things that affect the market value of a home. It may be that these factors don’t change much in the area you are located in, and if that is the case then your appraisal may be good for 3-6 months or longer.
Factors affecting how long an appraisal is good for
Today I want to share with you some of the factors that appraisers look at that influence value. Again, if these are stable in your area your appraisal will be good for a longer period of time, however if there are changes then expect the value of your home to be affected.
You should also note that each lender has their own guidelines relating to how old of an appraisal they will accept so you should check with
yours to find out their guidelines. If you’re using an appraisal for something other than a mortgage loan, such as one used to sell your home, then what we’re discussing today will help you to determine if a past appraisal still reflects current market value.
Supply and demand- Anytime the supply and demand is changed the price of a home can be affected. The more inventory introduced into the market will result in property values declining. Likewise for a shortage of homes, as this will result in prices increasing. These two scenarios lead to what is known as a buyer’s market and a seller’s market.
Date of comparable sales- Many lenders and their underwriters require the sales in an appraisal to have occurred within a certain time frame. If a market is appreciating and an appraisal occurred 3-6 months ago then additional sales may have occurred since the original appraisal that indicate a different value.
Appreciating and depreciating markets- As noted previously, if there has been rapid change in the market since an appraisal was performed then the appraisal will probably not reflect a current market value. The best appraisal is one that reflects the current state of the local real estate market. If there are more recent sales that have occurred since the last appraisal then a new appraisal should be performed to include them.
Seasonality- One last point I would like to include is that of housing seasonality. While most areas experience some form of seasonality there are some that are affected by it more than others. Vacation real estate such as at the beach or in skiing communities will probably experience greater variations in property value depending on the time of year. Homes may sell for more or less during the summer and winter months. In situations like this it would be very important to use the most recent sales that reflect the current market.
Conclusion
As you can see, there are many factors that are considered when determining how long an appraisal is good for. Lenders have their own guidelines which consider some of the points I made above. If you are a homeowner and would like to know if a past appraisal you had performed still reflects current market value then you will want to consider the points I brought up today. If you need a current appraisal on your home give me a call and let’s talk.
Still asking “How long is my appraisal good for?”
If you are still curious about how long an appraisal is good for then leave me a message below and I’ll do my best to answer them for you. If you have anything else to add lets continue the conversation and leave a comment below. Thanks again for reading.
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Nice article Tom. I say pretty much the same thing as you do when explaining how long an appraisal is good for. The way that I explain how quickly a value can change is by pointing out that if a couple of nearby competing listings come on the market or go off the market, it can quickly change how prospective buyers would view your property and likely change its value at any particular time.
Very well put Gary.
Nice post, Tom. I can remember taking some of my first appraisal courses and the instructors would joke when the “how long is it good for question was asked”. The answer would be – looking at the watch and responding, probably an hour or so after the report is done. 🙂 But seriously, there are numerous factors as you point out.
Thanks Wendell. Most people don’t like to hear that the appraisal is not valid much past our visit but realistically, unless there is something extreme like I mentioned, it is valid for a little longer.
Nice job, Tom. There are so many factors that can impact value. Sometimes markets increase or decline rapidly too depending on factors such as housing inventory, demand, interest rates, etc… Big changes in these factors can really change the market. I can think of two periods of time in recent years where values spiked up or down in my market. In the summer of 2007 values literally declined by almost 10% in the Sacramento area. It’s incredible to see graphs at the time. On the other end of the spectrum, values saw a huge uptick in the first few months of 2013. Buyers were offering $20,000 or more above the list price regularly. Normally the market might not swing like that, but it does underscore your point why appraisals are good for their date of value.
Thanks for sharing examples from your own area Ryan. I know graphing a history of sales in an area can make these trends more apparent and you do an excellent job of that.