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Appraising Your Home Is Not As Easy As You Might Think | Robson Realty Experts

Appraising Your Home Is Not As Easy As You Might Think

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Do You Think You’re Paying Too Much For An Appraisal?Are You Paying Too Much For An Appraisal?

Being a residential home appraiser is no picnic, and it’s gotten even harder and more time consuming since the 2008 financial crisis and the inception of Dodd-Frank and AMC’s (Appraisal Management Companies).  Appraisal reports have quadrupled in size, and appraisal fees have shrunk to poverty levels.  More and more good appraisers have gotten out of the business, as you just can’t make a living off the income anymore, since appraisal reports can take up to 3-5 days to complete just one assignment.  Most AMC’s offer an appraisal fee based on a guestimate of the home’s value, not the complexity of the assignment.  Here in El Dorado County, where most home values are $400,000 or lower, the fee given to an appraiser is around $300.00.  The consumer is probably being charged between $450.00 to $600.00, as the AMC tacks on their fee, and the lender may tack on their fee.  Some states have already enacted laws to breakdown each of these fees, but unfortunately, California is not one of them yet.  

The average homeowner may think that $450.00 to $600.00 for appraising a home is a lot of money, when all they see is the appraiser come out and spend 30 minutes to an hour at their home.  What they don’t know is:

  1. The appraiser doesn’t get the full appraisal fee
  2. How many hours and hours of research are done before the appraiser even sets the appointment with the homeowner, or
  3. How many hours or days are spent completing the report after the inspection.  

Appraiser’s don’t mind the “standard” appraisal fee if you live in a rather large residential track home neighborhood, with similar type and age houses, and where there are lots sales.  Comparable sales for these types of properties are usually fairly easy to find, and you don’t have to be a rocket scientist to figure out the market adjustments for the differences.  

Appraising Complex Properties

Most homes in El Dorado County though are completely dissimilar to each other.  That makes pretty much every single appraisal a complex property, and requires so much extra work.  Even the basics, such as year built, bed/bath count, and lot size, can be a huge challenge when an appraiser is looking for comparable properties. Bedrooms and bathrooms may have been added or subtracted without permits, and land topography can create a huge challenge of it’s own.  

If you live on 10 acres, but only 2 acres are useable and the rest are up a steep grade, how can you compare it to a home on 8 acres with all level land?  

How about that 2 story barn, where the top section was set up as an in-law unit?  Was it done with or without permits?  If the owner does not have a copy of the permit, the appraiser has to contact the city or county to find out.  The same goes for the comparables.  

What if the home located on a busy road?  What if it’s located next to a manufacturing plant?  How about the house that has the cracked foundation, or the well has dried up?  

The appraiser has to find properties with similar amenities/issues/locations that sold recently and try to determine market reaction to each in order to give it correct value, which is sometimes near to impossible to find.  There are so many other factors, rules and guidelines an appraiser has to follow, that can’t all be detailed in this post.  Let’s just suffice to say that appraising homes in El Dorado County can be a huge challenge for an appraiser.  

Listed below are examples of items in residential home appraisals that may not have even been addressed, or are not being addressed properly.  

1. Discrimination
  • A1. Development of a valuation conclusion that is based either partially or completely on age, color, disability, exercise or rights under the Consumer Credit Protection Act, Familial status, gender, gender identity, marital status, national origin, race, receipt of public assistance income, religion, or sexual orientation
  • A2. Discriminatory statements in violation of local, state or federal laws
2. Not Analyzing Sales Contract
  • B. Sales contract and/or significant sales concessions not appropriately analyzed. Example:
    • Not analyzing and reporting a sales contract for a purchase loan
    • Not adequately analyzing and disclosing significant contract terms that affect contract price (examples may include seller concession(s), personal property or builder upgrades).
3. Misleading Neighborhood
  • C1. Neighborhood parameters expanded to justify the use of dissimilar market data
  • C2. Neighborhood housing trends reported that conflict with reliable market data comparable to the subject
4. Property Condition – Not Adequately Addressed
  • D1. Property condition/obsolescence impacting marketability or value is not adequately analyzed/disclosed:
    • Improvement additions are not adequately addressed with regard to legal use, zoning, permitting, or impact on value and marketability.
    • Property conditions, obsolescence (internal or external), or functional utility significantly impacting marketability or value are not adequately analyzed and disclosed
    • The appraisal does not properly identify the subject property as manufactured housing
    • Misrepresentation of the physical characteristics of the subject property, improvements, or comparable sales
  • D2. “As Is” value concluded, when subject property is not livable due to health/safety/structural soundness issues. Examples include, but are not limited to:
    • Incomplete construction
    • Structural integrity of roof or walls is compromised
  • D3. Subject property is appraised as a partial parcel without survey that legally divides portion appraised.
    • Subject property is appraised as a portion of a recorded legal parcel (partial parcel) without a survey that describes the portion appraised and evidence of approval by the appropriate local jurisdiction
5. Market Trends Not Consistently Addressed
  • E1. Appraisal report failed to disclose comparable data reflecting trends contradictory to those reflected in report.
    • Not disclosing comparable data that clearly indicates a changing market when the comparable data reported in the appraisal implies a stable/declining or opposite market trend
    • Not disclosing prior listing activity of the subject that indicates market resistance to list price(s) or an overall lack of marketability over an extended period of time
  • E2. Prior sales, current/prior listings of subject not analyzed/disclosed when either required/relevant due to market trends
    • Not analyzing and reporting subject’s sales/listing history as required (minimum 36 months) or relevant beyond 36 months due to changing market trends
  • E3. Prior transfers or listings of the comparable sales were not disclosed or analyzed as required or relevant as evidenced by market trends analysis.
    • Prior sales of all comparables not disclosed, which are either required (minimum 12 months), or relevant beyond 12 months due to changing market trends
6. Comparable Selection and Adjustments Not Reasonable

The term comparable is defined as follows:  The comparable property is physically similar, has similar external influences, is located in the same or similar market area, and has the same basic appeal as the subject property to the market participants.  A comparable must compete with the subject property for potential buyers.

  • F1. All or the majority of the comparables are out of the neighborhood when relevant comparable sales/listings were noted in the neighborhood.
  • F2. All or the majority of the comparables are dissimilar to the subject in physical characteristics when other comparable sales, listings, pendings with similar physical characteristics compared to the subject were available.
  • F3. New construction – all comparable sales/listings were sold by subject builder/developer
  • F4. Unsupported, insufficient or lack of necessary location adjustments to sales/listings located outside the subject’s neighborhood.
  • F5. Across-the-board or excessive adjustments are not explained and supported
  • F6. Inappropriate or omitted adjustments (clearly indicated by market data)
  • F7. Dated Sales used when more recent were available
  • F8. Inappropriate selection of comparables (not specified in 7a, 7b, 7c and 7g)
    • Creation of comparable sales by combining vacant land sales with the contract
7. Purchase price of a home that has been built or will be built on the land
  • If comparables are selected from competing neighborhoods, the appraiser(s) must indicate the comparables are from a competing neighborhood and address any differences between the subject and competing neighborhoods.
  • The appraiser(s) must also provide an explanation as to why the specific comparables were used in the appraisal report and how the competing neighborhood was determined to compete with the subject.
8. Appraised Value Not Reconciled
  • G1. Reconciled appraised value is not within sales price range of comparables in report.
  • G2. Reconciled appraised value is not supported by majority of comparables or most relevant comparable sales.
9. Improper Influence
  • H1. Reporting a valuation conclusion that is based on improper influence, such as use of data, particularly comparable sales data, which were provided by parties who have a financial interest in the sale or financing of the subject property without verification of the information from a disinterested source.
  • H2. Allowed value opinion of the subject property to be influenced by parties with a financial interest in the transaction.
10. Conventional Loan Photograph Requirements
  • I1. Conventional loan appraisal failed to include required photos as follows:
    • Front view of dwelling/improvements
    • Street Scene
    • External factors that impact value (e.g., adverse external influence, view, significant amenities, etc.)
    • Interior inspection reports
    • Rear view of dwelling/improvements
    • Kitchen
    • All bathrooms (partial and full baths)
    • Main living area
    • Examples of physical deterioration, if present
    • Examples of recent updates, such as restoration, remodeling and renovation, considered in the appraisal analysis

Note: Interior photograph requirements apply to each unit of a multi-family dwelling.

Hopefully you have some new insight on what actually has to go into an appraisal, and can better appreciate the challenges appraisers in our area face.  So based on all this information and understanding of some of the things that have to go into an appraisal, do you think an appraiser gets paid too much?  I don’t think they get paid enough….but that’s just my opinion.  What’s yours?