During periods of economic growth, home values typically go up and most homeowners do not question appraisals.
Conversely, in times of turmoil when property values are declining, homesellers naturally question appraisal values.
The actual appraisal process has changed very little over the course of the housing boom and bust cycle but since the topic of home values seems to be a hot discussion, let's address the top five appraisal myths/questions.
Myth #1- Appraisal values are based upon a simple formula that uses dollar per square foot and comparable sales prices.
Reality - There are several factors the affect the value of a property which include comparable sales prices, location, amenities, exterior and interior condition, maintenance, lot size, bed and bath count, traffic and much more. There is no simple formula.
Myth #2 - A clean house appraises higher.
Reality - Appraisers do not care if your laundry is on the floor or dirty dishes in the sink. They notice maintenance issues like peeling paint, holes in flooring, etc. but the mess does not affect value. However, iIf there is a mess large enough so that the appraiser cannot see the floors or the walls, then it is a good idea to clean up.
Myth #3 - Telling the Appraiser the value you want means they will try to hit that value.
Reality - The first and foremost rule for the appraisal is that it is an UNBIASED report of value. Appraisers must act independently of the owner and the lender which better serves both parties. There have been strict guidelines put in place since the 2008 meltdown that do not allow the appraiser to discuss value with the borrower.
Myth #4 - The value of the home appraisal reflects the dollar for dollar value of recent improvements.
Reality - Rarely. Some improvements increase the value of the property while other improvements are the owner's preference. The appraised value is mainly based upon how your home compares with the homes that have sold recently in your area rather than on a list of improvements.
Myth #5 - An appraiser always uses the most recent closest sales, regardless of the term of the sale.
Reality - Only if necessary. If there are enough standard sales, meaning not a foreclosure or short sale, then we use those and avoid the REO sales as they are not often the best representation of the market. However, if we must use the REO sales, then we will adjust the REO sale by a percentage. Many times when an REO sales Is used it is one of 5 comparables and carries less weight for the value.
Keep in mind that an appraiser is looking at several things when determining the value of a property. Your mortgage professional can run comparable sales to give you a better idea of the value range of your property before you proceed with the cost of the appraisal.