Buried in the 2,000-plus pages of the new financial reform law is a little-noticed provision that could help end low-ball real estate appraisals blamed for sinking many home sale deals in the past year.
What appraisers look for
When determining a home’s value, appraisers consider location, square footage, room layout, quality of construction, functional appeal and upgrades. Recent sales of comparable homes nearby also help establish value. Factoring in foreclosures or distressed sales, however, can artificially affect valuations if they are an anomaly and do not accurately represent the market.
In the current real estate climate, some appraisers talk of pressure to low-ball. “I’ve done this for 17 years and the one thing I’ve learned is that there is not one number for a home,” said appraiser John Montgomery of Willow Glen, Calif.
“It’s a range of value, and right now I’m incentivized to go to the low end of the range just to stop getting questions from these people at management companies.”
The Appraisal Institute, the nation’s largest professional organization of real estate appraisers, says the financial reform law will right many of the wrongs caused by the HVCC.
“With distressed sales prevalent in the real estate market, it is critical that highly trained appraisers be actively involved,” says Appraisal Institute President Leslie Sellers.
In the meantime, Sellers says, a homeowner refinancing a house or a buyer applying for a mortgage can take steps to help ensure an accurate appraisal. If an appraisal management company is involved, the owner can request use of a certified appraiser located in the same market area as the home. Certified appraisers have education and training above those of licensed appraisers.
Owners should also provide the appraiser with details of all improvements made to the home. They may also inform the appraiser if factors such as divorce or bankruptcy forced the sale of a neighboring home at a depressed level.
How to raise your home’s appraisal
Here are five improvements that may boost an appraisal’s bottom line:
- Upgrade a home’s plumbing, heating and air conditioning or electrical systems. While replacing an outdated mechanical system may not be a “sexy” upgrade, it will catch your appraiser’s eye because it extends the home’s “economic life,” a key component of a valuation assessment. This work may be overlooked “because aesthetically it doesn’t do anything for a house, but it does have a big impact on the value,” said appraiser Craig Jennings of Garfield Heights, Ohio.
- Modernize outdated bathrooms and kitchens, but don’t install high-end features, fixtures and cabinetry that far surpass the quality in the rest of your home or neighborhood. “You really have to consider where you live, where your home is located, and what the typical buyer is willing to pay for those upgrades,” said appraiser Armando Malanga of Temecula, Calif.
- Neutralize wall or flooring colors such as pink or purple that may not appeal to a potential buyer or to an appraiser. “Appraisers don’t like things that are out of the norm, whether it be functional—an outdated water heater or dated tub-shower, or odd colors,” said Sellers of the Appraisal Institute.
- Update closets in an older home by installing space-maker closet systems to improve function and appearance.
- If your budget does not allow for a complete kitchen renovation, consider upgrading only the appliances.
Andrea Downing Peck is a Bainbridge Island, Wash.-based journalist who writes frequently about real estate, finance and military family issues.