How Do I Figure Out My Home Value?
Here are four things you need to know about how appraisals are done.
Every time a house is bought and sold, it goes through a ritual known as an appraisal. Basic statement there -- nothing surprising -- but if you’re a new homebuyer or new to selling, that’s useful remembering: no matter how confusing this all becomes, everyone does this, and everyone gets through it.
Or at least, everyone used to get through it. Ever since some new federal guidelines for appraising a house were made law on May 1, 2009, there are a lot of houses that aren’t being sold, apparently due to the ever-changing, maddeningly-frustrating appraisal process. So with that in mind, if you’re going to buy or sell a house and haven’t gone through the appraisal process for awhile, here’s what you should know.
#1: Appraisals are taking longer than they used to.
Think a couple weeks, not days. That’s because, after the subprime debacle and financial meltdown last year, the federal government decided something needed to be done, and one of the mechanisms in house buying that was examined was how an appraisal is done.
It used to be that mortgage brokers hired their own appraisers to determine the value of the house. The federal government decided that that arrangement was a little too cozy and convenient -- after all, if you’re an appraiser, and the person cutting your paycheck tells you that these sellers are selling their house for $700,000, you’re going to know that if you tell them it’s actually worth $500,000, and you do this repeatedly, theoretically, you’re probably not going to be hired again.
That was the thinking behind the new federal guidelines called the Home Valuation Code of Conduct (often referred to as the HVCC), a set of rules that became law on May 1, 2009 and now determine how appraisals should be made. It’s a lengthy maze of rules, which people in the industry are still trying to decode, but one of the main changes to the process is that your mortgage company can’t hire its own appraiser.
An independent third party, an appraisal management company (AMC), has to be brought in, although even that’s a topic ripe for misunderstanding. The Federal Home Finance Agency recently put out a statement saying that “the Code does not favor the use of AMCs over independent or in-house appraisers. Significantly, for the first time, the Code places the same requirements for appraiser independence on AMCs as the limits placed on lenders.”
In any case, third party appraisal management companies have been increasingly involved in the appraisal process, and many in the real estate industry aren’t happy about it. In part, that’s because bringing in the third party, or adding this layer of independence onto independent and in-house appraisers, is adding time to the process.
Lance Kirshner, a licensed real estate appraiser for the last four years and a licensed Realtor for the last five, is one of the many critics of these new guidelines. Kirshner, who works at Mountain Residential Appraisals, Inc., a residential and commercial valuation company that’s been around since 1995 and has two offices in the Chicago area, says that whereas an appraisal used to take a week tops, he is seeing it stretch out for 20 days.
Appraisals are an important part of the home buying and selling process, but new federal guidelines have made them more complicated. 2
#2: Appraisals cost more than they did.
Think several hundred dollars, not a couple hundred. Kirshner says that the typical price for an appraisal -- thanks to adding the third party -- has gone up from $275 to $400 and sometimes $500. And for that extra money, contends Kirshner, the buyer isn’t getting better service -- but worse.
Kirshner says what a lot of people in the industry are saying -- that the new crop of appraisers being hired are typically inexperienced and often not from the same area as the house on the market. “The appraisal management company sends the request to a random appraiser whom may live 50 to 100 miles away from the property,” contends Kirshner. “This appraiser has no idea about the area and market trends.”
Be prepared to write a bigger check for a home appraisal these days.
#3: What stinks for the seller may be good for the buyer.
An inexperienced appraiser often means that they end up low-balling the value of the house. Of course, in theory, it could lead to over-estimating a house, but due to a declining market and foreclosed homes in neighborhoods, that hasn’t been a common complaint among homebuyers and sellers.
Still, while no home seller wants to hear that the house they want to sell for $275,000 is actually worth $211,000, no buyer should want to pay an inflated price for their house. After all, that’s how a lot of these problems came about in the first place. So if you’re buying a home and frustrated by the price you’re shelling out, and the time it’s taking, keep in mind that the appraisal process seems to be tipped in your favor now, and not the seller’s.
If you're buying a home, you might get a better deal thanks to current appraisal guidelines.
#4: And if you’re the seller, get engaged in the process.
Don’t just sit back and say you’ll be working in the garden while your appraiser looks around your house and decides what everything is worth. Make it clear that you’re going to be there from start to finish to answer any questions the appraiser has.
Diane Sikel, a Realtor with Powerhouse Realty, Inc., in Phoenix, Arizona, recommends showing an appraiser old photos of your house, and even (if you have them) listings of what houses in the area have sold for in the past. If you’ve made repairs in your home, or you’ve upgraded the house in anyway, let the appraiser know, and give them any documentation you can think of that may prove the worth of your house.
“I’ve had appraisers say, 'I didn’t realize that this was granite, I thought it was laminate,'” says Sikel. “There’s a big price difference between that. And, you know, rapport with your appraiser also helps. People are people.”
And as for the appraiser being new and untested, if that’s the case, Sikel says that that’s an even more vital reason for you to be involved. “If they’re new, they’re more likely to accept your information,” she says, adding, “Anytime you can make their job easier, and make the appraiser look good, you’re helping yourself.”
But for the record, Sikel likes the new HVCC rules. She is, after all, in a market that was a devastated by the subprime fiasco. “For a long time, appraisals, especially in Phoenix, were done so fly-by-night -- I’m glad there are new rules,” says Sikel. “A lot of people got hurt, and these new requirements will help everyone in the long run.”
If you're a seller, stick around for your appraisal to answer questions about your home.