How much is your property worth? You enjoy the comforts, perform the chores and pay
the costs. Who knows more about your home than you, the owner?
When it comes to how much your home is worth, the ultimate authority is a licensed
Everyone’s heard about the housing crisis, but an owner can be surprised when an
appraisal reveals just how much the home’s value has been affected.
Home appraisals are professional estimates of the market value of a piece of real
estate. The Federal National Mortgage Association, commonly known as Fannie Mae,
regulates and licenses real-estate appraisers. It also set guidelines specifying what
information an appraisal must include, and what information an appraiser should not
consider in a real estate appraisal. Typically an appraiser compares the target property
with at least three comparable ones.
Appraisals compare recently sold properties to the subject property. The square
footage of the home, the number of bathrooms and bedrooms and the lot size and
location influence the appraisal number. Other less tangible factors also influence an
appraisal, such as location and view.
Factoring in foreclosures:
To be sure, housing markets today are affected by an unprecedented number of
Should that empty home two blocks away with the overgrown lawn that the bank sold at
a fire-sale price really be considered a comparable value to your pristine home? That’s
a difficult call.
If it’s the only distressed sale in the neighborhood, it can probably be eliminated. But if
other foreclosed sales are nearby, they count.
Moreover, many new lending rules, like those for loans backed by the Federal Housing
Administration, require appraisers in markets where prices have been declining to not
only consider values of recently sold properties, but listing prices on homes currently
for sale. For instance, if a bank is having difficulty selling a foreclosed home and
reduces the price every three weeks, that lower listing might be used in the comparison.
Significant Home Improvements:
Home improvements that typically yield a high return on investment, such as major
additions including bathroom and bedroom additions, increase a home value and the
Other Home Improvements:
Cosmetic upgrades to a home generally do not influence a home appraisal. Unless a
home has unusually sturdy or excellent construction, an appraiser might not even
notice decorative touches. Any improvements that are not permanent are usually
inconsequential to a home appraisal. Removing a bedroom to expand a closet, or
combining two smaller bathrooms into one large one can actually hurt an appraisal
Informing, not influencing:
Appraisers have the last word, but they will consider input from homeowners who are
refinancing or from real estate agents when a home is being sold.
In fact, new appraisal rules should make it easier for homeowners who are refinancing
to see exactly how the appraiser arrived at the appraised value. These new rules
stipulate that mortgage borrowers be able to see the appraisal report at least three
days before they’re scheduled to close on the loan.
An appraiser can reconsider a value conclusion if they learn they had an omission, like
they missed reporting an extra bathroom. Owners can also provide information on
homes used as “comparables,” pointing out, for instance, that the home is slightly
bigger than others in the neighborhood.
Valuing a home isn’t an exact science, but appraisers try to make it as objective as
possible by carefully plotting the prices of similar, nearby homes.
These days, a scarcity of sales, as well as more low-priced, foreclosure-related sales,
make finding comparable values especially challenging.
The new set of appraisal rules, known as the Home Valuation Code of Conduct, applies
to all mortgages that will be owned or guaranteed by Fannie Mae or Freddie Mac, and
aims to limit influence on appraisers from lenders and other parties who would profit if a
transaction at a certain price point proceeded.
But appraisers, who gather sales data from public records and other sources, should
be willing to talk with homeowners who are intimately connected to the neighborhood.
Any competent appraiser is open to considering additional data.
The key for appraisers is knowing the difference between influence and accepting
legitimate, additional information about properties — like a lender saying, “I really need
this to appraise at X amount,”
When a home is being sold, appraisers say they generally don’t hear complaints as
often as in refinance transactions. For one thing, if a homebuyer wants to purchase at
a certain price and then finds that the appraised value comes in lower, the buyer often
renegotiates the price. But in cases where the buyer wants to proceed, it’s usually the
seller’s or buyer’s real estate agent who submits data in support of a certain value.
Winning your appeal:
Yes, mistakes happen, appraisers say. But it will take some homework to bolster your
case that your home is worth a certain amount. And even then, you can’t necessarily
expect the appraiser to agree with your argument.
Appraisers say any professional will turn a deaf ear to impassioned pleas such as, “Are
you crazy? My house is the best one on the block.”
What could work is: “You didn’t describe my house correctly — it has four bedrooms, not
three.” What could work even better is gathering paperwork with descriptions and
pictures to bolster your case. Such careful documentation could prompt an appraiser to
re-evaluate his or her conclusion.
However, the nuances of appraisal rules sometimes negate a homeowner’s argument.
“They may say, ‘You made a mistake, I have four bedrooms.’ But if it turns out that
fourth bedroom was a florida room enclosure done without the permits, so it’s not going
to change the valuation.