As the housing market begins to get back on its feet, houses are starting to sell and that means appraisers are back in business. But what exactly is an appraiser looking for? Matt Mcwhoter who owns Ask Appraisals LLC in Indianapolis, Indiana has provided us below with some valuable insight into their thinking and process. Though housing markets vary from state to state, appraisers generally are looking for the same things. There are certainly more comprehensive lists out there to follow, but here are some personal notes from a seasoned appraiser...
Curb Appeal
The way your house looks from the street is very important. But if you spend 20k or 30k on landscaping which is easy to do, this added amount most likely won't show up in the appraisal. It is good if the home owner knows that I’m not going to add 20k extra to the property value. All that landscaping is essentially labor and plants and those bushes and trees may get ripped out or die next year.
People feel that if they have a 100k home and show a receipt for 70k worth of work that showing the receipt is enough to raise the appraisal. As you may have guessed, it doesn’t work that way. An appraiser has to find this out themselves. In essence, the market says this house is worth this on this date, not tomorrow. I look at other homes in the area and what they sold for, not listed for, because you can list a house for anything — the value is in the sale of the house.
Adjustments can be done on about anything, but an appraiser has to explain the adjustment. I made an adjustment for a pool once for $20,000 adding it to the house, but it was an $80,000 swimming pool.
Sometimes in a neighborhood I can find five or six houses that are the same house, with little differences. As an example, if you are selling a house that you took from 2,000 to 2,500 sq ft, I will find other houses in the neighborhood that are similar. I’ll make an adjustment for the extra 500 feet. However, I’m not adjusting at $100 a square foot, but rather at $25 — a quarter of what it costs to build (note: this ratio varies and depends on many factors). So in this example, that 500 sq ft on a $200,000 home would be about a $12,500 adjustment, moving the appraised price to $212,500. This is of course in an ideal world, where there were nothing different between the two houses, but that’s never the case.
As an appraiser, people try to sell me all the time on water softeners or appliances, but really those thing don't matter that much. In the grand scheme of things, I’m looking the quality of construction. Like, is your house all brick, siding, wood plank—is it well built? The way I look at it, you’re buying the floor plan not the paint.
Let the other people drag you up
Be careful when you buy a house that has been upgraded. You never want to be the biggest or most expensive in the neighborhood. You want those houses to drag you up. We have to be bracketed. I have to have a house bigger or smaller to appraise it. If it’s two baths, I like to have at least one house that is the same in the neighborhood in order to make a good estimate. In essence, I am trying to take a snapshot of the market.
You don’t want to over improve and price yourself out of the neighborhood. Builders build houses within a price range. You don’t want to have a 500k home in a 200k neighborhood. If all the houses in the neighborhood sell at 200k you can’t put your house for sale at 300k because you put a 75k kitchen in your house. Let the other people drag you up. As the big guy’s value increases, so does yours, so make your improvements but don’t go wild.
If your house was for sale and there is a house sold recently nearby that matches it, that house is what an appraiser will use as a reliable indicator of value. We call that "matched pair analysis".
You can’t plan for everyone
No matter what you do to sell your house, not everyone will love it. Now if someone feels that a small master closet was too small; well, too bad. Every house in an area was built by the same builder and the master closets are going to be the same. And going out to just make your closet bigger may not be worth the expense. The things that matter a lot are the bedrooms, baths and square footage. In addition, basements, patios, fireplaces, ponds, vistas and size of lot also factor in. The nit picked finishes, lighting, and upgraded carpet don't have a huge impact on appraisals because the appraiser doesn’t know what the comparable is.
Do what you want with your home. You live there for 10 years and then, when it’s time to sell you decide to fix it up for someone else? Why not make it nice for yourself? Very rarely has anyone walked into a house and said, "I love it. I’m going to keep it this way". Unless someone is doing a custom build, they're probably going to make adjustments to the house they buy.
Check out your competition
Competition in this case would be the other homes in your neighborhood. Realtors have open houses, go to them and if you see all the kitchens in the last five years have had rehab work and yours is still a 1970’s model, then remodel the kitchen.
You don’t want to be the only 1970’s Brady-Bunch kitchen. People blame appraisers, because people think we can just pull numbers out, but I have to see what houses sold within a year, so the price you knew about two years ago — can’t use it.
You can’t "cherry pick" neighborhoods to find the same house at a higher price; usually it’s about 1 mile or maybe 5 if the area is a bit more rural. Going online and seeing the same house as yours but in a different county at 40k more is just not the same.
For an appraiser the bank is the client, not the homeowner, so we can't discuss the appraisal. But if you get a good one, you might get some general information or a good direction to look at.
Don’t sacrifice your home — live in it how you want to
It amazes me that people do not know if they want upgrade the garage or office. But if you work from home, build in the place you’re in most of the time — the office. Who cares if the garage is nice but you’re never out there. If you’re a chef, spend it where you want it — in the kitchen. Do what is interesting to you while you live there. And make sure what you want is doable.
If you put your house up for sale and you have a kid and his room is painted Disney world; well, take it down to earth tones because it’s easier for buyers to picture their own kids in there. They may not like Disney. They’re going to be changing things anyway. Do what you want to do, not what you believe has the most value. Trends change.
If you are about to have your house appraised, call the New Era Group. We can answer your questions and help set you up for true success with buying or selling your home.
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