Old Saying in Real Estate: "First You Have to Sell It to the Buyer and Then ...

... you have to sell it to the appraiser." In a rising market appraisals are usually not a cause of concern, but the market of the last two years is seeing a return of cautionary words about knowing the appraisal process. This is where sellers are smart to choose agents who provide them with realistic comparables when listing their property, and this is where it's smart for buyers to work with agents who are familiar with their prospective new home.

Sellers who bought recently may not be happy with the actual rate of return on their new purchase, particularly if they've refinanced lately, or took out a home equity line, or had a 100% mortgage to begin with. Sorry, but your equity won't be so great, if any. Furthermore, in the words of a local loan representative who sent me an e-mail on appraisals today:
"The appraisal process often confuses consumers and loan officers. They may feel that their home is worth a higher dollar amount, and so the appraised value doesn't always make sense to them or sales staff because there has been so much time and effort invested in the file. It is important to know that the appraiser is completely independent from borrowers, buyers, sellers, and Real Estate Agents, and that the guidelines to which they adhere are dictated by the Uniform Standards of Professional Appraisal Practice (USPAP) and Fannie Mae. In most states, the mortgage lenders must also disclose the purpose of the appraisal, as each transaction carries its own set of rules. In essence, these important guidelines help appraisers put a fair market value on homes based on comparable sales in the same area, and the home must be bracketed in size and value. The most important feature of a home is location, location, location."

It's not uncommon for sellers to think their lovely home is worth more because of $50,000 invested in certain upgrades, but that depends on the age of the home. Per our friend from Wachovia, "the upgrading or remodeling of an older home is rarely reflected in full in the final appraisal" because much of the total remodel cost usually involves demolition and upgrading of the basics such as plumbing and wiring. Upgrades in a very new home would get a higher return on the investment because they are an addition to the cost of building the new home. The value of those upgrades will depend on the local value of other recent sales with similar upgrades.

If you have an all cash buyer and no lender appraisal is required, you may or may not deal with an appraiser because the buyer may still want a 3rd party opinion.

A most difficult thing in a transaction where the buyer is obtaining a loan is to have the appraisal reviewed prior to closing--last minute questions can delay the closing. The best of all possible worlds is for sellers to realistically price their properties for their area.

(And why is there this picture with the dog? Because I couldn't find a photo of an appraiser.)

'Voice this!

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