Appraising in Delaware, the Blog...

5 Reasons Your Real Estate Appraisal Matters

Getting an appraisal back within a reasonable time frame can make or break a deal. If you’re in a rural area or in an area where the real estate market is booming, you could wait up to 3 weeks or more just to get the appraisal results. This can be even more frustrating if the appraised value comes in low or repairs are needed.

Right now there are even some areas in the country where appraisers are flat out declining appraisal orders because they know they do not have the capacity to turn the appraisal report around in a timely manner.

When the purchase contract states that the deal needs to close within 45 days, and it takes 40 days to get appraisal results, expect an extension to the purchase agreement.

Condition

If you’re getting a mortgage, the property needs to meet some basic standards for the lender to give the thumbs up on acceptable property condition.

Common property condition issues that pop up on appraisals and cause issues: mold in the attic or basement, peeling paint on the outside of the home or garage, trip hazards, broken windows, and missing fixtures.

Anything noticeably wrong with the property is likely to be pointed out on the appraisal report including photos. When there are repairs noted on the appraisal the seller will need to complete those repairs prior to closing, and the property needs to be reinspected by the same appraiser to confirm the requested repairs have been made.

Comparables

When coming up with an opinion of value, the appraiser selects recently sold homes within the market that are similar in size/condition/location/amenities.

The appraiser then compares those homes with the subject property and makes adjustments based on differences and similarities between the homes.

For example: if the subject property is a 3 bed, 2 bath ranch on .5 acre, the appraiser would look to include 3 bed, 2 bath ranches that sit on a .5 acre lot. The appraiser would not be including a 3 bed, 2 bath condominium.

It doesn’t have to be identical and size and condition, but it does need to be the same property type. Unique properties can be very difficult to finance. If there are no similar properties sold within a reasonable distance and time frame (underwriter discretion) the deal could be dead. There is also a limit to how much an appraiser can make adjustments on value based on the differences in homes.

If the adjustments made are too high, the comparable property used could be considered irrelevant or unacceptable and would need to be replaced by a better comparable if possible.

Confidence

For some buyers the appraised value can have an impact on their ego.

Let’s say you get under contract on a house for $300,000 and it appraises for $380,000. There might be an increased warm and fuzzy feeling knowing you got a good deal. Another confidence booster in a case like this is that if you’re going to be paying private mortgage insurance (PMI) due to a low down payment, you may be able to refinance in a year and then use the new appraised value to drop your PMI (which could save you hundreds of dollars a month).

Knowing that you have instant equity in the home that you already loved to begin with can really add a nice cherry on top.

Compliance

The collateral (the house) used to secure the mortgage must comply with lender guidelines.

One of the biggest issues when talking about compliance has to do with finding out if the home is a non-warrantable condo (does not apply to single family homes). If the property is a condominium the appraiser will reveal information pertaining to the number of units that are owned by 1 entity, number of units that are not complete, and other important information about the condo that could cause issues. [more on non-warrantable condos here]

Another fairly common issue that can come up as a compliance issue is number of acres the property sits on. Depending on what type of loan program you’re seeking, there may be an issue with giving any value to acreage beyond 10-20 acres. For someone buying a 50 acre property, this can be a deal breaker if most of the value is in the land.

If the appraisal states subject property was recently was sold, there could also be flipping restrictions depending on what type of loan you’re seeking.

The appraisal can clearly make or break the deal in several unique ways other than home value.

When we go out to a home to do an inspection, there are 2 main things we need to do: measure the GLA (gross living area) and take photographs of every room. Here are some reasons why we measure:
1. We are required to measure by the lender.
It is a requirement that any appraisal for a federal loan include a sketch of the subject property with labelled rooms. 
2. Double check that GLA and county records match.
This is usually not a problem with homes built within the last 10 years, but if there is a large discrepancy between the appraiser's measurement and county records, it can be a flag for additions (unpermitted or sometimes permitted additions that have not been added to county records).
3. Does the floor plan flow?
By measuring we are able to determine things we may otherwise miss. For example, when measuring a home that has an addition, we determined that the master bedroom was only accessible by walking through another bedroom. Doing a sketch and labeling the floor plans, helps us notice these things.

The appraiser won't know what your home is worth the second he walks in the door...What can you do to help the appraiser? Here are 4 things you can do:

1. Prep your space - declutter, dust, and mop beforehand to show your home in its best light. Also, inform all occupants that an appraiser is coming so everyone is up and out of bed! Appraisers don't judge cleanliness but a neat, organized home might help you.

10 ways to boost the value of your home.
1. Paint Your Home

Choosing the right shade of paint can actually help you sell your home. A current color scheme adds to its appeal and can prompt a faster sale.

Here Are Just a Few Examples:

Estate Planning
Planning for the future of an estate or collection is important. An appraisal can provide a valuable tool so that owners can plan in advance for tax, distribution or donation. 
Refinancing
Most home buyers know that they need to get a home appraisal when they apply for a loan to purchase a property. However, an appraisal will also be required when a home owner wants to refinance their loan at a lower mortgage rate. Banks will order another appraisal to ensure what the value of the property is.
Prelisting
Some homeowners order a home appraisal prior to putting their houses on the market to determine the best listing price. This is a great idea regardless of whether the homeowner is or isn't working with a real estate agent to sell his/her property.
Divorce
Most state courts require a recent appraisal to determine a home's fair market value. In a contested divorce, spouses often want their own separate appraisals therefore two appraisals will be done. If the two appraisers reach different values, a judge will look over both appraisals to make his/her final decision.

A home appraisal consists of these three components:

1. A Physical Examination of the Property- 
The physical inspection at the house may take an appraiser as little as 30 minutes to perform or could take as long as two to three hours. This depends on the size of the house, known as Gross Living Area (GLA) and also the design of the home. An artsy Contemporary style home takes longer to measure than a standard rectangular Colonial home. Physical visits are usually brief when a home is in average to very good condition. However the inspection can take a bit longer if the property is in fair or even poor condition as there are more things the appraiser must observe and notate.