5 Reasons Why Your House Didn't Appraise For What You Thought it Should

By
Real Estate Appraiser with Thomas Horn, Real Estate Appraiser

Why didn't my home appraise for what I thougt it would?Have you ever gotten an appraisal back on your home for a refinance (or sale) and found that it did not appraise for what you thought it should?  Unfortunately this does occur on occasion.  You may chuckle and say this occurs more times than not and you may think the appraiser is just a "deal killer", however you must realize that appraisals are based on actual market data and not a spin of the appraisal "value" wheel.  Please don't blame us, we don't make the market, we just report it.  Most people don't understand how we arrive at a value so I thought I would fill you in on some of the top reason where there could be confusion on what you think your house should be worth.  So here are some top reasons why your house may not have appraised for what you thought it should, drum roll please:

  1. Bad real estate market- As you probably are already aware, the real estate market in most areas is down.  You may not be unaware of how much depreciation is occurring in  your area.  The large number of foreclosures and short sales is affecting "normal" properties; this is unfortunate but a reality in today's market.  We are likely to see this continue until the inventory of foreclosed properties is depleted.
  2. Cost does not equal value- This is a common problem with homeowners who have invested a lot of money in improvements and renovations.  In a previous post I noted a website that will give you an estimate of how much of a return on your investment you could expect on some common home projects.  Just because you spend $50,000 on home improvements does not mean your homes value will increase by that amount.  It could be more, less, or the same.
  3. Your neighbor did not tell you the truth- I had a client one time that was selling their home themselves.  They had priced their  home based on what their neighbor (who recently sold their home and moved) had supposedly sold theirs for.  The neighbor exaggerated a little and said he had sold his home for around $15,000 more than he actually did.  My client figured that since their home was very similar to the neighbors they would list theirs for a similar amount.  Because it was overpriced my client could not sell their home, which is why they called me.  Always verify through public records before you take someone for their word.
  4. Tax assessment is wrong- In some areas the tax assessors have not revalued your property recently, so its tax assessment is based on old sales from several years ago, when prices were higher.  It is not a good idea to estimate your homes value based on its tax assessment.  In addition, you could be overpaying in property taxes.
  5. The real estate appraiser may not know your market- Last year a law went into affect that regulated how mortgage companies could order appraisals.  Because of some confusion, most lenders are utilizing third party "Appraisal Management Companies" (AMC's).  Some of these AMC's use fee as a main criteria in choosing an appraiser.  The appraiser the AMC is using may be from out of the area and not know your market.  It is always a good idea to ask the appraiser where they are from, how long they have been appraising (ie: experience), and if they have any experience doing appraisals in your neighborhood.

These are by no means the only reasons your  house may not have appraised for what you thought it should.  If I can answer any of your questions please give me a call and I will be glad to help.  I can be reached at 205.243.9304.

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Re-Blogged 8 times:

Re-Blogged By Re-Blogged At
  1. Linda Jamail Marshall 01/15/2012 11:04 AM
  2. Monika McGillicuddy 01/15/2012 11:05 AM
  3. Charita Cadenhead 05/08/2012 06:24 AM
  4. Eric Michael 05/08/2012 04:27 PM
  5. Cheryl Ritchie 05/09/2012 01:34 AM
  6. Lenn Harley 05/09/2012 03:54 AM
  7. Richard D. Ferris 05/17/2012 03:34 PM
  8. Gabe Sanders 05/21/2012 03:59 AM
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birmingham alabama real estate apprai
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Show All Comments
Rainmaker
278,010
LaNita Cates
REMAX of Joliet - Joliet, IL

We get appraisers so far away that I've never heard of the town they are from. It's frustrating when the appraiser doesn't know our market.

May 09, 2012 05:48 AM #39
Rainmaker
257,882
Rob Spinosa
RPM Mortgage, Marin County, CA - Mill Valley, CA
Marin Mortgage Broker

RE #5, RPM Mortgage selects appraisers from an HVCC-compliant pool, however the appraiser's license will be in the same or a nearby zip code if at all possible.  This has helped dramatically reduce the number of reports that surprise to the downside because of the appraiser's lack of knowledge of the area.  HVCC forces us to live in a very imperfect world, but we are trying to do the best we can while certainly still playing within the rules.

May 09, 2012 06:10 AM #40
Rainmaker
37,414
Tom Horn
Thomas Horn, Real Estate Appraiser - Alabaster, AL
Appraising The American Dream

Morgan- Exactly!  The market we cannot control, however getting a knowledgeable should be a no brainer.

Laura- I tell agents and homeowners to "interview" the appraiser the lender chooses to make sure they are familiar with the market, AND subscribe to local data sources.

Gina- Thanks!

Reba- It does help to look at the house through the eyes of a potential buyer and not the homeowner who has so many fond memories associated with their home.

Christine- That is why it is important to do the homework upfront when listing a home and getting a "true" market value.  This can either be done by the Realtor or appraiser.  Lately, I have provided support to agents when the homeowner did not like the value.  The appraisal helped back up their findings.

Cheryl- Thanks a lot, I appreciate that!

Michael Hobbs- Go figure!

Michael Bolton- Thanks Michael.

Ron- I hope that sending appraisers from out of town ends too.

The Christian Team- I agree, that is a problem we should not have to deal with.

Gene- It helps when mortgage professionals have deeper knowledge and understand what we go through, thanks.

Lanita- It seems to be a far reaching problem.  Sometimes they are chosen because of their lower fee, which I do not understand.

Rob- That certainly seems like it would help address the issue.  Wish more would use that method.

May 09, 2012 06:32 AM #41
Rainmaker
893,858
Michael Setunsky
Michael's Commercial LLC - Woodbridge, VA
Your Commercial Real Estate Link to Northern VA

Tom, all good points why a property may not appraise. I don't understand why a bank would use an appraiser who is not familiar with the area.

May 09, 2012 07:04 AM #42
Rainmaker
37,414
Tom Horn
Thomas Horn, Real Estate Appraiser - Alabaster, AL
Appraising The American Dream

Michael- Good point.  Government regulations recently require lenders to use Appraisal Magement Companies (or a seperate department within the same company to provide a seperation between the loan officer and the appraiser).  Some of these AMC's choose appraisers based soley on fee.  I don't quite know how these companies do it but they are charging lower fees than local appraisers and the lenders are using them.  So you have a an appraiser that is not knowledgeable of an area doing an appraisal for a cut rate fee resulting in a sub par appraisal.

May 09, 2012 07:24 AM #43
Anonymous
Anonymous
Lori Noble

Excellent observations, thanks for sharing! The commentary is fantastic, too and gets us one step closer to what right looks like. Thanks again!

May 09, 2012 07:35 AM #44
Rainmaker
315,442
Dave Halpern
Keller Williams Realty Louisville East (502) 664-7827 - Louisville, KY
Louisville Short Sale Expert

The housekeeping diminishes the perception of value. Pet odor permeates. Carpets have odd red stains all over. Grass hasn't been cut in months. Busted doors. The list goes on.

May 09, 2012 08:29 AM #45
Rainmaker
37,414
Tom Horn
Thomas Horn, Real Estate Appraiser - Alabaster, AL
Appraising The American Dream

Thanks Lori, discussions are always good.

May 09, 2012 08:33 AM #46
Rainmaker
37,414
Tom Horn
Thomas Horn, Real Estate Appraiser - Alabaster, AL
Appraising The American Dream

Great points Dave.

May 09, 2012 08:37 AM #47
Rainmaker
313,710
Sandy Acevedo
951-290-8588 - Chino Hills, CA
RE/MAX Masters, Inland Empire Homes for Sale

Hi Tom, you have a lot of good reasons here. Makes one think of the many factors that go into selecting a price and there are some that should not enter into it.

May 09, 2012 08:38 AM #48
Rainmaker
305,126
AJ Heidmann
McEnearney Associates, Inc. - Alexandria, VA
YOUR Alexandria & Arlington, VA Real Estate Expert

Tom - In my experience and that of agents in my office that I speak with, once a property goes under contract reason #5 rears it's ugly head quite a bit.  An agent had an appraisal come in low, so she contacted the appraiser to discuss a few comps he missed... but he told her that he could not discuss the case while he was driving a cab.  I think that says a lot.

May 09, 2012 09:56 AM #49
Rainmaker
37,414
Tom Horn
Thomas Horn, Real Estate Appraiser - Alabaster, AL
Appraising The American Dream

That's funny AJ...kind of.

May 09, 2012 10:46 AM #50
Rainmaker
692,881
Gene Mundt
www.genemundt.com - 708.921.6331 - New Lenox, IL
Chicagoland Mortgage Lender - 37 yrs experience

Tom:  Interesting comments being made here ... great chance to communicate.  Seems like the issue of local appraisers comes up often.  Personally, I've always thought that the "local-ness" of the appraiser was more to their advantage then to those ordering the appraisal.  You certainly can do the appraisal much faster because of that knowledge you already have.  But I don't agree that an appraiser from a distance can't do a good job.  The info needed is available for all appraisers, the ones that come from a distance may just have to work a bit harder to find it.  Therein lies the game-changing fact.  If you have an appraisers, for whatever reason, chooses NOT to work that hard or do that much research, you get a poor report.  If they're willing to do the homework and research, you get a good report.  With today's vastly reduced fees and underwriting being what it is, many appraisers are choosing NOT to work that hard at it ... and many play it very very safe.  That's where so many of the problems arise from ...

Just my two cents worth .. 

Gene

May 10, 2012 08:05 AM #51
Rainmaker
37,414
Tom Horn
Thomas Horn, Real Estate Appraiser - Alabaster, AL
Appraising The American Dream

Gene,

Thanks for your comments.  You are correct that an appraiser from a distance can do a good job.  I believe that even though you may be based out of a distant location, if you specialize in an area and keep on top of whats going on, AND subscribe to local data sources you can do a good job.  What I find is that some distant appraisers don't subscribe to local data sources, and/or may not know the various nuances of the many markets in our area.

I agree that fees have played a role in some of these appraisers not doing their best, so it then the problem starts snowballing with inadequate knowledge and then minimal effort.  The result is an appraisal that is not worth the paper it is written on.

May 10, 2012 01:00 PM #52
Anonymous
Anonymous
Gregg Foglia

I agree with your short and to the point article, the biggest misconception is that what you do to improve your property you automatically get back when you sell, we all know that the actual result is dependant on the "local market" responce.

May 11, 2012 05:40 AM #53
Rainmaker
37,414
Tom Horn
Thomas Horn, Real Estate Appraiser - Alabaster, AL
Appraising The American Dream

That is a big misconception  Gregg.  You are right, it all depends on what the local market is willing to pay.

May 11, 2012 05:58 AM #54
Rainmaker
67,411
Richard D. Ferris
AmcAppraisalsinc.com - Clermont, FL
Florida State Certified (FHA) Appraiser

Great article Tom!  I'm gonna reblog this one I think!!

May 17, 2012 03:32 PM #55
Rainmaker
37,414
Tom Horn
Thomas Horn, Real Estate Appraiser - Alabaster, AL
Appraising The American Dream

Thanks Richard.

May 17, 2012 03:50 PM #56
Rainmaker
477,805
Beth Atalay
Cam Realty and Property Management - Clermont, FL
Cam Realty of Clermont FL

Tom, Great Post. I've wondered why an Appraiser would use only low end or high end comps to drive at a certain value!! I say "drive to certain value" only because, we all know most markets are REO and Short Sale driven and Standard Sales almost always higher than distressed sales. If comps used are a mixture of distressed and FMV, you will have a fairly realistic value vs using only distressed sales or only FMV. Also, where there are comps in the immediate area that are similar to subject, why would an appraiser expand their search 5 miles to pull comps?

 

Jun 01, 2012 07:24 AM #57
Rainmaker
37,414
Tom Horn
Thomas Horn, Real Estate Appraiser - Alabaster, AL
Appraising The American Dream

Thanks Beth for your comments.  Appraisers typically use the particular sales that are predominant in a market because it is reflective of what is going on.  Like you said, if a market has a lot of homes that have sold REO or short sale, AND there are still similar homes in inventory then yes that is what is going to be used.  Active and pending sales are very important to appraisers because those sales are the most recent.  I hate to say it but if an appraiser is going 5 miles away when there are legitimate, recently closed COMPRABLE sales within the neightborhood, there might be a competency issue as it sounds like they might be trying to make the value something it is not.

Jun 01, 2012 10:23 AM #58
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Rainmaker
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Tom Horn

Appraising The American Dream
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