By: Jeanette Joy Fisher

Appraisal vs. Market Value

When you sell your home, appraisers use comps (comparable market sales) of local properties sold within the last six months to value your home. With today’s rapidly rising seller’s market, six-month-old information is ancient history. Appraised value does not always equal the true market value, or what the home will sell for on the open market.

Realtors will give you a comparative market analysis, an informal estimate of market value based on comparable sales. Lenders, on the other hand, will use the appraised value to determine a new mortgage amount. Some lenders require that the stated property value covers the mortgage amount plus their selling costs in case of foreclosure. For this reason, a sale may fall through if a home sells on the open market for more than the appraised value, which often happens in bidding wars over hot property.

We learned the importance of securing a sufficiently high appraisal when we sold a rental property in Lake Elsinore, California. We listed the house for $234,700 on Friday. By Monday morning, we had three offers: $245,000, $255,000, and $260,000. We accepted the one for $255,000 because the buyers had $80,000 down, reassuring us that they had sufficient funds.

As usual, the lender sent an appraiser to review the property. This busy appraiser didn’t take the time to view all the upgrades we put into the custom-built home. Even worse, he used only comps from the local one-mile radius. Because this home is close to a shopping district, there were not many homes sold in this limited area during the six-month period.

The appraiser used comps six months old; during this time housing costs in Southern California appreciated around thirty percent. Sales from six months previous should have gone up in value by $30,000 on a $200,000 home. This means that our home should have been worth $250,000 to $260,000, especially since buyers are willing to pay this price on the open market. To increase the value of this home, at the time there was not another three bedroom home listed in the area for under $250,000 (excluding manufactured homes). However, the appraiser valued our home for only $230,000 — and we would have lost the sale if the offer did not include a sufficient down payment.

Because a low appraisal can kill your sale, finding a buyer with a large down payment provides you with a safety net. You may also choose a buyer with strong credit who doesn’t have to put a large percentage down. If you think that your home’s appraisal could become a problem, make sure you don’t include a clause in your sale’s contract which states “subject to appraisal.”

How to Avoid Low Appraisals

Hire your own appraiser before the sale. Then ask your buyer’s or lender’s appraiser to review your appraisal.

Retain the option to approve your buyer’s mortgage lender. Make sure that the buyer doesn’t use a lender with a history of deliberately underestimating property values. A good real estate agent should know which lenders routinely under value homes.

Keep records of repairs and upgrades, including costs. Take “before” and “after” photographs. Create an organized journal with a listing of expenses and include pictures to show to the appraiser during the appraisal appointment. Stage your home for the appraiser like you do for buyers.

Secure your own property comparables to make sure the appraiser uses complete information. Call real estate agents with homes in escrow and get the sales prices. Make a list of these properties with the agent’s phone numbers and give it to the appraiser.

What to Do When Your Selling Appraisal Comes in Too Low:

Ask for another appraisal.

Protest the appraisal with documentation of your upgraded expenses.

Have the buyers make a larger down payment.

When you sell or buy real estate, remember that the certified appraisal is just one person’s opinion of the value of your home. The opinion that counts for you is the buyer’s: you want to be sure the buyer values your home above all others.

About the Author:
Jeanette Fisher, author of Sell Your Home for Top Dollar–FAST! , and other real estate and interior design books, teaches Design Psychology and real estate investing. Free “Design Psychology for Selling Houses” Report http://www.sellfast.info/.

If you are considering buying a home or have spent many years saving in preparation of buying a home, the questions and process involved in buying a home can be extremely stressful. As exciting as it is to begin looking for your new home, there are many unexpected costs and details to be considered before contacting a real estate agent. Home buyers should be aware of every aspect involved in purchasing a home before they take that big step towards home ownership.

You will want to get the most value possible for your money. You should be aware of every detail in regard to the home you wish to purchase. Home inspections can reveal many hidden flaws and problems that could cost you thousands of dollars in repairs. Be aware of your right to a home inspection and contact a professional, licensed home inspector.

Compare the mortgage terms and interest rates offered by various mortgage lenders. Even a slight difference in your interest rate can add up to thousands of dollars over the length of your mortgage. A pre-approval from the lender of your choice will not only give you added confidence when shopping for a new home, but could give you added leverage when bargaining with the seller. A pre-approval will let you know the exact amount you are approved for and will save you time after your offer has been accepted by the seller.

Using a buyer agent is an excellent way to help protect your interests when shopping for a home. A buyer agent will be responsible for helping you get the best deal possible on your new home. While shopping for a home, be aware that certain features can adversely affect the resale value of the home. Detached garages and swimming pools can actually lessen the value of the property. Protect your investment by educating yourself on the home buying process and the way property is appraised.

You can make the home buying process fast and painless if you take some precautions along the way. Choose your lender carefully. Interest rates and closing costs vary from lender to lender and the difference could mean thousands of dollars over time. There are numerous flexible loan programs available. Finding the loan that will best suit your long term needs will be of great value to you when it is time to sell the home. Just a half point difference in your interest rate will translate into a lot of money over the years.

Keep in mind that there are additional costs involved in purchasing a home. Homeowners association fees, furniture, annual heating and cooling costs, and homeowners insurance need to be considered when planning to purchase a new home. Buying a new home does not have to be stressful and frustrating. Make sure you know the facts and your home buying experience will be quick and painless.

Here’s my first addition to writing about real estate. I remember when the appraiser came to do our house, I was nervous, I decided it would be a good thing to write about. Don’t worry, the appraiser won’t bite.

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Your realtor or lender told you to plan on getting a call from the appraiser. They’d need to set up an appointment when they could come over and appraise your home. Don’t panic. This isn’t a final exam and you don’t need to dread this visit. She (or he) will be there to determine the value of your home, not to look at or in your stuff. They will be looking in all rooms on all levels as well as your outside property. They will measure boundaries and take photographs. Appraisers have seen everything so you need not scurry around tossing things in closets and under the beds as you would if your in-laws were coming over.

Whether you’re selling your home or refinancing, the process is the same (in most cases). The appraiser’s job is to determine market value of your home so that your lender knows the home is valued at or above the amount of money you are borrowing. An appraisal is basically an opinion of value, an estimate of worth. It’s not entirely a subjective process. The FNMA, Federal National Mortgage Association sets up the guidelines and assigns values to certain assets of your home to ensure a fair sale.

The value of a residential home is estimated by comparing the property with similar properties that have been sold recently. This is commonly referred to as “Comps”. “We need to look at comps”. They start by looking at your neighborhood to find comparable sales or properties in similar neighborhoods that share similar characteristics of lifestyles, income level of residents, surroundings, average age and home values. If your home is a 3 bedroom ranch with 1.5 bathrooms, attached garage situation on ½ acre of land, the appraiser will try to find a similar property in a nearby neighborhood or same school district. They will need to find three or more homes that recently sold with similar characteristics for a valid appraisal.

Once they find the comps, some adjustments will need to be made. The other homes likely had some features yours didn’t, or vice versa. The comparable properties are adjusted (added onto or subtracted). By doing it this way, your house reveals more value when compared to a comparable house with lacking items (such as no fireplace or central air).

There are basically four phases the appraiser will use in determining market value for your home. They start by listing and evaluating home value data from your property and potential comps. Then they need to go through and determine which items are comparable. Do their adjustments, and rework the figures to your property.

They also have assigned values on areas to use when finding comparable properties. The first area they look at is similar neighborhood. Then they look at living space, numbers of rooms, and sales within the last four months. There are a number of other factors they consider, but it is very methodical and universal.

You can plan on spending $120 to $350 for a qualified appraiser. Often your lender will have a particular company they generally work with. If you would prefer a particular appraiser or appraisal company, just let your lender know that you want it done through that particular service.

Relax, don’t worry. Selling and refinancing a home can be nerve-racking enough. Don’t stress over the appraiser’s visit. You can’t schmooze them into higher values and they’re not going to trash your appraisal because they didn’t care for your choice in wallpaper!

Well, a lot has happened since my last post. The rest of the inspection reports came in on Sunday afternoon. It was grueling to wait that long for them, I wonder what the hold up was? Anyway, my realtor told the buyer’s realtor that we didn’t want the reports. I guess that’s just how she handles it. Her theory is that, if there’s something on the there that we didn’t know about before, and it was an expensive item to fix, then we’d have to either fix it or disclose it. She didn’t want to do either.

So, instead of the reports, we ended up with a new offer and a “wish list”. When our realtor brought over the paper work I asked her what she thought, she said, “I just wish they’d go away!”. The buyers had supplied a list of 23 items that needed to be repaired, some of the items included multiple requests. I boiled it down to 28 things they wanted or we could pay them $2700 in lieu of the repairs.

Well, after talking to the buyer and her realtor on Thursday when they were here for the termite inspection, I know this is the doing of the realtor. Our agent said it might also be the buyer’s husband who has not been present in this transaction because he’s still up east at his old job. He won’t be moving to Houston until the end of June. Anyway, it was a ridiculous list of demands, all just compiled as a bargaining tool.

There were at least 8 or 9 items that were listed that weren’t broken. Example, the garage door opener? It works just fine, I use it everyday. It has a red safety cord and reverses when it hits something in its path. And how about the hot water heater? The buyer’s realtor told our realtor that we didn’t have any hot water and that the heater was clanging and there is a clogged pipe. Funny, I took a shower this morning and it was plenty hot. And how about the item where we need to repair the light fixtures in closets (plural)? Well…I found a burned out light bulb in one closet, all the others work. I replaced the light bulb. I guess that was my mistake, I knew it was burned out and meant to change it but it’s a closet in one of the spare bedrooms, I forgot.

There were some legitimate requests, like fix the leak under the master bath lavortory. We didn’t know it was leaking, it was slow. But Brent was able to tighten a screw and fix that problem. Then there were some piddly requests like tighten the loose electrical outlets. I spent about 30 minutes pushing on outlets to find 4 that needed tightening. All I had to do was remove the cover and tighten the screws that hold the fixture.

The item that took us the longest to do was the directory for the electrical box. Brent and I used cell phones. We turned on all the lights in the house. Brent would flip a breaker and I’d run around to see which lights went out. I also had a little contraption that I could stick into the outlets, if it lit up, there was electricity. That thing was really handy. I made notes then typed and cross-referenced the breakers to their outlets/lights and by room.

Anyway, there were some items we just wouldn’t or couldn’t do, like seal the hairline cracks in the brick mortar. We found two places and the cracks were short and small. Also, replacing the joint sealant between the pool coping and the kool deck, nope, it cost too much. If they want it, they can do it.

We decided to make a counter offer. We’ll see what they say.

This week was the week that all the buyer’s inspectors made their visit. It started on Wednesday, the home inspector came. Our realtors said the termite inspector and pool inspector would there on Thursday. So, at the designated time Wednesday, I left. Brittany didn’t have volleyball practice on Wednesday so we went together to run some errands and had a nice lunch together. When we got home, they were gone.

Thursday we expected the termite inspector to come but we weren’t going to leave for this one. Brent worked late and our realtor never told us what time they were going to arrive so when the realtor and buyer showed up we were sitting down to lunch. We just went about our business and were nice to them. We had a nice conversation and tried to sell some of our extra furniture to the new buyer. She was interested in a few pieces!

The inspector was late but when he arrived he went about his business. He was nice but didn’t seem to want anything to do with us, the homeowners, I guess because we weren’t the ones paying him. When he was finished he came and found the buyer and informed her that he had found termites. DAMN! I’m sure she was as disappointed as I was. Brent wanted to see them. He took us all outside and broke one of the tunnels and actually showed us one of the bugs. Ugh! He also found what he called “kick-out” holes inside in the living room ceiling and on the wall just behind where he found the tunnels outside. Again, DAMN!

The new buyer didn’t seem too concerned and neither did the realtor. The buyer loves this house, she said she had looked at over 100 houses and this was the only one that stood out to her. So I imagine she will do what it takes to make this work. On my end, well, we have a standing Terminix Guarantee. We’ve had termites before, they never did any damage but we first treated in 1996 and then retreated later in ‘96 and in ‘98. They are an ongoing problem here in Texas so having the guarantee was important.

I had considered not renewing the guarantee this year. It had been since 1998 since the last time termites were found so I figured they were gone. Heck, none of our neighbors had ever treated for termites. The policy was due to expire on June 30 and I had to pay $203 to renew it for another year. I finally decided it was best to renew it so any new buyer would have access to transferring it. THANK GOD I made that decision!! Now I’m covered.

I was a little scared after that inspector guy left. Now I realize he didn’t really know much about termites, their habits, and the damage they cause. I got on the phone to talk with Terminix. The branch manager gave me a call back and he was very nice and VERY informative. He said termites mostly live in and around the ground, they like the moisture that the ground gives them. When it’s time for them to swarm (so they can go off and start a new colony), they will travel as high as they can get so that when they take-off they will travel as far as they can (they are not good flyers), I guess this is just instinctive.

I thought since the pop-out holes (they’re called pop-out holes, not kick-out, like the other guy said), were up high, they had eaten the wood all the way up the wall and into the ceiling. The Terminix guy said no, that’s probably not the case, they just travel up there to get a high position for take off. Most of the damage is probably near the ground. He also said that if the colony was very active, they would have swarmed my living room (they swarm in the late spring and early summer) and I would have been screaming at him and not having this nice conversation. I hadn’t seen any activity at all, this was the first time I realized we even had termites, so I guess the colony isn’t as active as the inspector guy wanted us to think.

You see, the inspector guy said they’d have to be a pretty active colony for them to get that far up the wall since our last inspection in January. That or they just missed them during the inspection. Now I’m not so impressed with the inspector guy, yes, maybe he’s right and the Terminix guy is misleading me, but I just felt like Terminix had more knowledge, gut feeling I guess. Also, I looked at the the inspector dude’s business card, he misspelled the city in his address! He’s in Humble, he spelled it Humle. Doesn’t seem to be too involved in details if he can’t even get his business card spelled right, huh? Anyway, so far, I’m impressed with the service Terminix is providing and I’m going to advise the new buyer to keep the higher priced Terminix policy and not which over to the inspector dude’s policy, it would scare me to be covered by him.

So anyway, I’m not so scared now. There’s probably not that much damage and mostly it’s probably cosmetic. Terminix was just here to treat the active area, the manager said he would have it re-inspected two weeks from today and as long as there is no more activity, they will start the process of identifying the damage.

To determine the extent of the damage, they will make a small hole in a strategic place in the wall or ceiling. Then they will use mirrors and/or a camera of some sort to see what’s gone on in the wall. They will make a determination from there and they guarantee they will fix anything that’s wrong even if it’s after closing. He also said the buyer and/or her realtor could call him for a better explanation.

Keep your fingers crossed that this doesn’t deter the buyer and she moves forward on the sale.

Anyway, I also found out that the pool inspector came out on Wednesday when the home inspector was here. So, hopefully we’ll get some reports today and we can start to move forward. Again, keep your fingers crossed for us!

Honestly, Brent and I can’t think of ANYTHING the inspector will find, NOTHING. But, you know he will, it’s his job. He can’t come in here and NOT find anything, that would make him a failure, right?

So anyway, he’s coming at 11:00 a.m. today and I’m LEAVING. My realtor told me about how her brother-in-law stayed during their inspection. The inspector made a comment, “It looks like there’s been some water here.” The place he was referring to just happened to be on the wood floor. The brother-in-law said, “Yeah, the toilet overflowed.” Well, he admitted there was water there and the new buyer made them buy a whole new floor.

Not that I would lie if there had been water, it’s just that a doubt may have stayed in the inspectors mind if the brother-in-law hadn’t made the admission and maybe it wouldn’t have been a big deal. So, maybe a whole new floor wouldn’t have been necessary. Understand? Anyway, I’m ~outta here~.

I’ll fill you in with the details later.