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A & J · Guest

My husband and I purchased a new home last December (7 months ago). The model of the home we currently live in is still being sold in the builders second phase. The second phase is just down the street. (same builder, same community)

We are looking to refinance our current home loan. An appraisal is a necessary component to refinancing. When asked by the appraiser what we thought the value of our home might be, I turned to the base price of the current value in which our model is being sold and added a couple thousand dollars because we've since added the back-yard landscaping.

I also advised our appraiser that I hadn't seen any other homes matching our floor plan sold recently. The only home I knew of was a slightly larger (by 180 sq ft) home that sold for approximately $25,000 over my guesstimate.

The appraisal report came back at $20,000 under the base price of new builds in our area and 65K less than the slightly larger home. With that said, I have a few questions for you.

- How can that be?
- Are appraisers able to use new builds as comps?
- What should we do to have the appraisal reviewed?

Thanks!
Jennifer

nemmar · Site Admin

Jennifer,

The first question I'm wondering about is why did your appraiser ask you "what we thought the value of our home might be"? That seems odd unless he/she was trying to get an idea of recent sales and market values in the neighborhood to assist him/her later when doing the research to complete the appraisal report. In my opinion it's unusual for an appraiser to ask that question. Perhaps the appraiser does not have a lot of experience in that particular neighborhood. The appraiser knows that non-appraisers really have no idea of all the aspects and methods used to estimate market value. Realtors often THINK they are appraisers but they are not. What a Realtor does is a CMA - Comparative Market Analysis which is not an appraisal.

Do you have a copy of the written appraisal report? If yes, then I would ask you:
"I also advised our appraiser that I hadn't seen any other homes matching our floor plan sold recently." - How recent were the sales comparables that your appraiser used for the written appraisal report? The sales comparables should all be the most recently sold and most comparable properties located as close as possible to the subject property (your house).

- How many sales comps did the appraiser list on the written report? The appraisal standard URAR form lists 3 sales comparables but a thorough appraiser will use the additional forms to get up to 6 sales comparables which is a much better and more accurate method. Unfortunately, most appraisers only give you the minimum of 3 sales comps and do not exceed the minimum requirements of the standard appraisal forms.

"The only home I knew of was a slightly larger (by 180 sq ft) home that sold for approximately $25,000 over my guesstimate." - What is the square footage of your house? A 180 sq ft difference is NOT much at all for a home. The appraiser only needs to make an adjustment for square footage differences on the appraisal form to "equalize" the differences between the subject property and the sales comparables. What price adjustment base did the appraiser use on your report for this? For example, your immediate neighborhood would most likely have a set amount for sq ft adjustment that the appraisers in the area use, i.e. $75 per square foot or some other figure like that.

For the lower estimate of market value on his/her appraisal report:
"How can that be?" It all depends upon the experience and credentials of the appraiser that did the report. It's possible the appraiser is highly qualified and the written report is very accurate. It's also possible the appraiser is lazy and incompetent (which unfortunately happens when appraisers/appraisal offices are only interested in pumping out as many reports per day as they can to maximize their incomes without being concerned about the quality of their work). If the appraiser used very good comparable sales and made correct price adjustments for the Direct Sales Comparison Approach, then the appraisal should be accurate. The other factor is the time adjustments in the report. This is also called market-to-market adjustments. Basically, what the appraiser has to adjust for is the differences in the local real estate market between the sale dates of the sales comps and the current date of the appraisal report for the subject property. It's possible the appraiser feels that the local RE market has declined within the past 7 months from the time you bought your home. The accuracy of the appraisal all depends on how good the comps and the appraiser are.

"Are appraisers able to use new builds as comps?" Yes, since your home is only 7 months old and the new houses sold are just down the street, then the appraiser can use those as sales comps - as long as those comps are comparable in style, size, appeal, etc. to the subject property. Any differences will need to be adjusted for in the written report in the Direct Sales Comparison Approach on the form.

"What should we do to have the appraisal reviewed?" Who paid the appraiser? Did you pay the appraiser directly or did the mortgage lender? If you paid then you can ask the owner of that appraisal office to review his/her report and get the details after. You can ask the mortgage lender to have that appraisal reviewed again if they paid for the report. You can also take a copy of that appraisal report to another appraisal office or the most qualified appraiser in the area and ask/pay them to review the report. Anyone is allowed to have any written appraisal report reviewed by anyone they want. All appraisers can be held liable and disciplined by the State/Federal appraisal boards if they do written appraisal reports that are flawed or clearly incorrect. You don't even have to be the person who hired or paid the appraiser to be able to submit their written report to the appraisal authority boards for questionable practices/conclusions.

Now, I'm not saying your appraiser did anything wrong. As I said, it's possible he/she is very accurate with that report. Just have it reviewed to determine the report is accurate and does reflect what a TYPICAL buyer in your area would pay for your home in this current market in an arms length transaction (standard/conventional financing and terms with no abnormal conditions). You should also go to my online Real Estate Library on my site and go to the Search page and type in "sales comparison approach" in the search box. You'll find many appraisal articles that go into a lot of detail on the State/Federal requirements appraisers must follow for the Direct Sales Comparison Approach (DSCA) which is generally the most effective indicator of market value for single family homes and condos.
http://www.nemmar.com/real-estate-library.html and http://www.nemmar.com/search-real-estate.shtml