The topic of home values continues to be a hot issue. When the market is laden with uncertainty home owners and agents pick apart appraisals. However when the market is booming we don’t spend too much time focused on appraisals.
In good times and bad, the appraisal process remains the same…its the value of the property that fluctuates. Lets look at the myths and answer a few questions on appraisals.
“I just put $10K into freshening up the property, why isn’t the appraised value higher?”
Even with cosmetic fixes and “freshening up”, it’s likely that the home will remain comparable to the foreclosed property next door than a newer home several blocks over. There is a certain hierarchy of items that need to be addressed
1. Are the electrical and HVAC updated?
2. Number of bedrooms
3. Number of bedrooms, bathrooms and square footage
4. Genuine cosmetic state of the property
“The appraiser included foreclosures as comps.”
As much as we may not like it, foreclosures unfortunately play a part in the total comp analysis. If you live in a neighborhood where there have been several (or many) foreclosures, then an appraiser has no choice but to use these recent sales as comparable values. Therefore, neighborhoods with higher foreclosure rates will depress values.
“But I just put in a pool and expensive landscaping – shouldn’t that increase the value of my home?”
Pools and professional landscaping rarely see a dollar for dollar value add on a property. The value is mainly based on the comparable sales of homes similar in size, number of bedrooms, lot size, etc. within the same neighborhood.
“How can similar homes in the same neighborhood appraise for such different values?”
Additional square footage and the number of bedrooms can be one of the main reasons for one property appraising higher than a neighboring home. Even though values in a particular neighborhood may be rising, each individual property needs to be equal in improvements as the others in order to see similar appraisal numbers.