What is “appraisal”?
by Scott Robinson / Robinson Realty
Appraisal is the process where an individual appraiser/appraisal company is hired by the bank, paid for by the borrower/buyer to come up with an accurate value for the subject property. This is done so that the lender can come to an agreed loan amount. Usually you will ask for a loan for say 80% of value. This appraisal will give them an exact amount that 80% is. It’s very hard to overpay for house nowadays due to the more difficult appraisal regulations developed in the last few years.
The appraiser looks at the property, measures and draws a plan of the house and property. He takes extensive notes on the amenities and issues adding and subtracting value to the property(Pool, what condition.. ) Each factor being important and make adjustments so they can come to a value. He/she should compare your new kitchen to a home with an older kitchen and make a higher adjustment in your value for your new kitchen.
Before he or she does this, he/she will then use their computer to find three very similar properties in like neighbor hoods( A like neighborhood is one that has similar properties to the subject (Size of house, care of property, often year built….).( The subjects neighborhood extends as far as the similar homes do.) If we are lucky we find our “com-parable’s” within blocks of the subject, sold within a few months, within a few hundred square feet in size and property, within ten years or less of age. With all of these values the closer the better, and thus less guess/adjustments.
When and why a property sold can also have a dramatic effect on what it’s value is relative to yours. Why a property sold;REO, Short Pay, divorce, probate, regular sale, can all effect the value of a subject property and cause need to adjust the property for your normal sale. An Appraiser knows that when a property sells REO, divorce, short pay, that the property is in distress. Generally the property is not as well taken care of and the conditions of sale effected the price. Since REO, Short Pay, Divorce aren’t conditions of the house but of the sale a quality Appraiser will make “adjustments” for those issues. Even though those “situations” don’t relate to the condition of the house, they usually cause a need for a fast sale and often lower price.
The appraiser will then do research and some driving to learn all they can about the subject property and the comparable properties. In many cases calling the listing agents and getting more details to compare the properties, after seeing them. Then making a decision after carefully weighing all the differences, pluses and minuses.
It’s a really interesting process with many factors involved. In a booming market (market with raising prices.) two month old sold prices maybe too low for “today’s” sales! So you have to adjust those comps/sales by a percentage up for one market market and down for another. In a rapidly falling market you must do the opposite or you will be giving too high a value.
It takes time and experience to know how to do the adjustments. How much more is a home worth with a view, pool or larger yard? Some views and pools are worth a lot more than others.
In today’s loan world one bit of good news is that the appraisal process, regulations on the lenders, and the lender’s attitude make it highly improbable that anybody in the near future will pay more than a property is worth. Something I used to see happen quite a bit.
The new laws make it so banks can’t use appraisers that they have a relationship with. Now in some ways I agree and it was abused by many. On the other hand I work some very unique areas such as the Girard Tract of Woodland Hills, or the hills of Chatsworth, Topanga in the canyon and Malibu and if you have an appraiser that is familiar with the hood it really can make a difference in a good way. Some come to areas I work and can’t believe how high or even low the prices are?? So their lack of impartial judgement scares me.It’s also nice to know the guy you are using is good at it and always having to rely on someone you don’t know is a little scary. Either way things were very abused for a long time so now we have to suffer a little.