This week’s Q&A column is sponsored and written by Hope Peele of The Peele Group and McEnearney Associates Realtors®, the leading real estate firm in Alexandria. To learn more about this article and relevant Alexandria market news, contact The Peele Group at 703-244-6115 or email [email protected]. You may also submit your questions to McEnearney Associates via email for response in future columns.
Question: Are real estate appraisals always accurate?
Answer: The short answer is, no. Not always. However, it’s complicated! Here are some important considerations for understanding appraisals, and how to assure the best appraisal outcome.
Real estate appraisals are an important part of the process for buying and selling homes when there is a mortgage lender involved in the transaction. The lender needs to assure the value, since they are often contributing 80% or more to the purchase price. An appraisal will be ordered by the lender, and they will send a licensed professional to evaluate the property. The appraiser will take note of all the important property characteristics. However, there are many nuances about a property that can affect value, and sometimes the individual doing the appraisal is not aware of them all.
First, the real estate market can change, year to year and even month to month. We’ve seen drastic changes during presidential election seasons, during Covid, during the seasons of the year, and even due to nearby construction or other short-term factors. This can lead to variations in accuracy.
Secondly, an appraiser needs to find recent comparable sales (comps) to determine value. If the market has changed, like after the recent increase in interest rates, sales may be down for a period of time. If it’s a small community, there may not have been any sales for many months. Things like this may affect the accuracy of an appraisal.
Next, the condition of the property will affect the appraisal. Has it just been updated top to bottom? Or does the subject property still have all original features from the 1980s? This can affect the appraised value. It can even matter if the home is staged beautifully versus having the appraiser visit when it’s empty and sad looking. Some appraisers will value the aesthetically pleasing property at a higher amount, while others can look past these factors.
This brings me to subjectivity! Appraisers are human, and sometimes different people will look at the level of upgrades, the condition, and curb appeal of the same property and come to drastically different assessed values.
We recently had a buyer’s appraisal that came in $40,000 low. This may seem like a good problem. You may think that the seller will just have to lower the price. However, if there’s an appraisal contingency, which there was in this case, then there’s a negotiation that needs to happen. In our recent case, the seller knew that sales for this sized condo over the past few years fully supported the sales price, and I agreed. They also had multiple offers, so there were other buyers waiting to step in. What did we do? First, we provided facts for an appeal.
However, the appraiser would not budge on value. The lender agreed with us, so they ordered a new appraisal. This time the appraiser read through all the data that we provided and agreed with the sale price, which was a full $40,000 higher than an appraisal that was issued just two weeks prior.
So, what does one do to assure the best outcome for an appraisal?
- Make sure the property is “show ready” for the appraiser, as if a potential buyer were visiting. If the home was “staged”, leave the staging until the appraiser has visited. The better the home looks, the higher the assessed value tends to be.
- Prepare a list for the appraiser with all recent upgrades, ages of the HVAC, hot water heater, roof, appliances, and estimate the amount that’s been spent on everything in the last couple of years. This will help an appraiser find extra value in the home.
- Ask your Realtor to provide a report on recent sales (comps) for the appraiser. This is typically something that a listing agent does, but so many buyers are waiving appraisal that when we represent the buyer, we send comps to the appraiser, as well. Appraisers have access to recent sales and will look for comps themselves, of course. However, sometimes they may miss a good comp, so it’s best to make sure that they have all of the sales that could be used to support the price.
- Last, but not least, ALWAYS have someone meet the appraiser. There is no substitute for a face-to-face discussion of the features and improvements of the property, and the nuances of the home and neighborhood. This assures that the appraiser has all the important information in making an accurate appraisal assessment.
Real estate assessments are important to the lender, so that they are comfortable that the property is worth the sale price. They are also important as a buyer, to be sure that you are not overpaying for a home that you should be able to sell at or above the sale price in years to come. And appraisals are important to a seller, as they want the sale to happen at the agreed upon sale price, and don’t want to negotiate a new price if the value comes in low.
In theory, real estate appraisals are supposed to give an accurate assessment of a property’s value. However, they are definitely subjective and there is lots of room for interpretation. That’s why it is so important that your Realtor takes an active role in the process. By meeting the appraiser, providing recent comparable sales and lots of information on the property and neighborhood, you have a much better chance of a positive outcome on the appraisal.
Whether buying or selling, to have the best appraisal experience, you should have an expert working with you.
Hope Peele is a licensed real estate agent with McEnearney Associates, Inc. in Alexandria, Virginia. She grew up in Old Town and currently lives in Del Ray. As a partner with The Peele Group, Hope is dedicated to guiding her clients successfully through the many-faceted process of buying or selling a home. Contact Hope at 703-244-6115.
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