It is that time of year again where people are buying and selling homes, and refinancing their current mortgages for lower rates. Typically our posts deal with the buying and selling side of real estate. Many of you may not realize that I am also a certified general appraiser (it means I can appraise all types of real estate). I’ve been an appraiser longer than I have been a Realtor, and while I do a considerable amount of real estate sales, I am an appraiser first and foremost. I bring this training to every deal I’m in, and see every deal not only as a Realtor but as an appraiser as well. I get asked the same questions regularly, so I thought I would sum up a few of them.
What is a comparable sale? Many people ask what criteria an appraiser uses to select a comparable sale or “Comps”. It is a recent sale of a home that is nearly identical to your home in terms of location, design, size, foundation, quality of construction, condition…etc. Typically identical homes do not exist, and if they do, they rarely sell. So this means that we take all the above criteria and adjust for differences. This is where most people tend to get upset with the appraiser, “…my house has a bigger lot, that comparable is sooo much smaller!”. This is where good adjustments come into play and are used to level the playing field between sales. However, most people do not realize that the cost does not equal the return on value. My new $55,000 kitchen will at best return $15,000 to my house’s overall value…frustrating as it may be, its true. People today now expect a generally updated kitchen.
Can I use a Comp that sold last year? Short answer-it depends. I say this in the context of an appraisal for lending purposes. A lender would rather see a comparable sale that is very dissimilar to your home that sold in the last 3-months, than an identical sale that occurred over a year ago. Lenders, their agents (AMCs) tend to have guidelines for appraisals, and while I think that the most similar home should be used as a comp, a lender would like recent activity to showcase the value. Lenders also have other arbitrary comp guidelines that vary from lender to lender. How much of an adjustment you apply to a difference cannot exceed a certain amount. Differences in your home need to have at least one comparable that has the feature (you have a pool, one comp needs a pool) or bracketed by the comparables (you are 1400 SqFT, your comps should be between 1200 and 1600 SqFT). These limits by the lender can have a chilling effect on your home’s value, and typically without these restrictions, the results would be different if the appraiser was allowed to select their own data.
What do I need to do to prepare for my appraisal? The biggest things:
1) prepare a list of improvements on the home over the last 10-years with dates of completion. Your appraiser is good, but not everything is obvious and it would help to have a guide to understand what was done.
2) Repair drywall holes, cracked doors, torn screens, broken windows…etc. While not a big deal, you do not want anything that distracts from the overall feel for your home. The appraiser is trying to imagine if the home is on the market at that exact moment. If there are things you wouldn’t want when you sell your home, fix them.
3) Clean. The appraiser is not appraising the cleanliness of your home, however, you really do not want the appraiser distracted by this. Remember you are selling your home (albeit figuratively in some cases here).
As always, we are here to help you with all your real estate needs. Give me a call or email if you have any questions.
Brian Kirksey, MAI, ASA, SRA, FRICS