3 Appraisal Myths to Avoid
A property appraisal is one of the most critical elements of the home buying process. If the property doesn’t appraise, chances are the buyer won’t be able to secure the financing to close the deal.
With record low inventory and high demand, pressure on property prices continues to increase. The challenge is that appraisals always look backward where values have been and not where values are headed.
Over the years these common myths have impacted real estate deals for the good and the bad. It’s important to remember the myths during any transaction so that missed opportunities are avoided.
Here they are:
Myth no. 1: The tax assessed value reflects the actual market value
Many buyers and sellers look at the tax value and think that is what the property is worth. While most county assessors use comparable sales data and use complex algorithms to estimate your property value, the fact is that most of the time these values don’t represent the actual value.
Remember that county assessors use broad sweeping assumptions and generalizations when valuing properties and rarely have even stepped inside the property. Just as it’s not wise to make generalizations with people, the same is true for properties.
This rule applies to websites and home estimates obtained on the web such as Zillow – unless someone comes and measures and walks through a home, just remember it’s a guess and it’s not super reliable.
Myth no. 2: If I spent $10,000 on upgrades then my property is worth $10,000 more, right?
False. This is most common mistake and flawed thinking property owners make when valuing their home or property. Believing that every dollar invested, returns a dollar is just not the case. While every home needs flooring, bathrooms, a kitchen, and heating and air conditioning, rarely do these upgrades and improvements add the full value of what they cost. The best example of this is a building a pool. Pools can easily cost $40,000 to $250,000, however on the appraisal – pools only affect the final value $10-15K, regardless if you “splurged” and put in that salt water filtration and cool rock formation water slide.
Homeowners should not trust or listen to sales people that claim improvements will increase the value of the home. True improvements and amenities may add perceived value, but never as much value as people make it sound. Two examples of this is when you add shutters and solar panels to a home. Again – the salespeople want you to believe that these improvements will add tremendous value and it may make the difference when a buyer is faced between two homes, but if the new buyer doesn’t like the improvements – the improvements have little or no value.
Let’s face it…we all like nice things and want to live in the very best place we can but the reality is that when you make major updates and improvements to a home, you are trading dollars for nickels and dimes. The majority of the time we make decisions to upgrade our homes for our own enjoyment and then try to justify it to ourselves because of resale value. The truth is that adjustments for cosmetic and some of these updates don’t even appear on the appraisal and if they do, they add little value.
Myth no. 3: All appraisers provide the same valuation results
Although the appraisal industry is highly regulated, many times appraisers cover a large geographic region and are not experts in every neighborhood. Sometimes the luck of the draw favors the buyer and sometimes favors the seller.
Appraisals are not the result of exact science although when you have a sales price of $267,000 and get back an appraisal that is $265,500 – everyone is left scratching their head. Really?!! Frankly, appraisers are not that good at coming up with exact values (I mean down to the $500 or even $1,000) – its important that everyone remembers that an appraisal is just an opinion of value at that moment in time. The more accurate value is what a willing buyer and seller are willing to agree on (within reason of course).
If you are the buyer and if the appraised value comes in lower more than 1-3% from the purchase price there could be reason or need to order a 2nd appraisal. Some appraisals stick with a property for several months. Talk with your lender and real estate expert before ordering a second appraisal if it is worth it. It is not uncommon for one appraiser to appraise a home differently.
If you are the buyer and the appraisal is more than 3% from the sales price there may be some value issues, red flags or other intrinsic value that appraisals cannot measure. You as the buyer, may be willing to make up the difference in cash or try to work out a compromise with the seller.
Sometimes appraisers are used to appraise a property when a owner wishes to re-finance their property to either remove mortgage insurance or pull cash out. Typically, these appraisals are more generous and it’s not uncommon to have these types of appraisals come in slightly higher than the true market value of the property. If a property appraised a month, six months or even year or two back for an amount, it doesn’t mean that the property is worth that today. Remember appraisals are opinion of values at the moment in time.
These are just some of the appraisal myths that you should be aware of during the home buying and home selling process. Its important you know the facts and to remember to have a trusted real estate expert to help you through the process.
NextHome Experts is a Utah Real Estate Company that provides buyers and sellers expert advice from our highly professional and trained agents and brokers. If you would like to know the true market value of your property, talk to one of our experts or email us at info@NextHomeExperts.com for a FREE, no obligation property valuation.