Real Estate Appraisals and the True Value of Your House

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By Devon Thorsby

It can be hard to place a monetary value on something that carries sentimental value.

But when you're ready to sell your home and find yourself tasked with pricing the place you hold so dear, how do you do it right?

Gregory Barr, chief appraiser for Graham Appraisal in Glasgow, Kentucky, explains that all too often homeowners expect a higher appraisal value for their home when they put it on the market. "When we come by, everyone thinks their house is worth a lot more. When the tax assessor comes by, it's worth a lot less," he says.

At the end of the day, your home is worth as much as someone else will pay for it -- and it's an appraiser's job to estimate what that value could be. "The market value is what a prospective buyer is willing to pay for the subject property," explains Kelly Kellogg, owner of Appraisal Experts Inc. near Orlando, Florida. Kellogg is the author of "ABCs of a CMA," which provides real estate agents with a breakdown of comparative market analysis to price and sell properties.

An appraisal can be used at different stages of the home selling or buying process by the buyer, seller or lender to determine the market value of a home. The appraisal process is often helpful for owners preparing to put their home on the market and especially when a seller and real estate agent have trouble agreeing on an initial asking price.

If you're told your home is worth less than what you thought it was, what could be the cause? Appraisers weigh in on some of the major factors that could be dragging down the value of your home.

Your home doesn't compare to that house down the street. Appraisers use recent transactions of similar homes in the area to assess your home's potential value -- but the houses must have the same amenities, features and condition to be truly comparable.

According to Carole Christensen, owner of Appraisal Minnesota in Northfield, Minnesota, homeowners are often confused when they receive an appraisal value lower than expected, and argue that the neighbor's house down the street sold for X more dollars. "Well, [your] neighbor's house has a brand-new kitchen and baths and is 30 percent larger than your house and is a different design," Christensen says.

The number of bedrooms, in particular, is a key factor in selecting comparable sales. Kellogg says appraisers aim to compare prices of homes with the same number of bedrooms because the detail changes what the potential buyer is willing to pay.

"Typically we find that three-bedrooms sell for a higher value variance than a two-bedroom dwelling. You want to compare apples to apples if possible," Kellogg says.

Planes, trains and automobiles are always zooming past your house. There are a lot of things you can control when it comes to ensuring at least a certain value in your home, but some are outside your reach -- and outside your property lines.

Christensen says while a lake or pond can add value to a home, property backing up to a busy road, airport or power line is typically less desirable. "If you have a highway or a railroad, that's not conducive to a good sales price. But that's the exterior stuff you can't do anything about," she says.

You upgraded too much. Updates and added amenities can be a great way to increase the value of your home, but don't expect to get back what you paid for those changes when you sell the home.

Many subdivisions with homes that are similar to each other will often sell within a 20 percent price range of each other, depending on the age of the homes and renovations, Christensen says. For instance, a homeowner could make major upgrades, such as "a pool and a sauna, and an outdoor kitchen," she says.

But spending $100,000 on improvements doesn't mean you'll sell your house for $100,000 more -- and especially not in a subdivision where homes sell for $150,000 to $200,000. "They're not going to get that back because the area does not support that," Christensen says.

Barr says improvements made for the purpose of selling your home might not have the return on investment you're hoping for either. "If you put in $10,000 worth of landscaping, it might help you sell your house faster, but no one's going to give you back that $10,000," he says.

What You Can Do With a Low Appraisal

If your home appraised for less than you were hoping for, you're not doomed. The calculated value isn't set in stone; it serves as a snapshot of the market at a certain time, rather than an everlasting price.

"If I'm at your house on the 15th of December and I do an appraisal, and the next day the house across the street sells, that could have changed [the value] dramatically," Barr explains.

You can't guarantee changes in the market, and you can't change your neighborhood, but appraisers recommend doing a few things to ensure you understand your home's value, and they offer some easy fixes to increase interest from buyers.

Talk to the appraiser. It doesn't hurt to talk to the appraiser about what led him or her to the specific value of your home. And if you think something is missing from the conclusion, mention it. Lance Coyle, president of the Appraisal Institute and an appraiser in Dallas, says human error can potentially lead to a mistake in the analysis. "If it's not factually correct, 99.9 percent of appraisers out there are going to fix it, with no questions asked," Coyle says.

Even when all the facts are right, it's possible the appraiser is unaware of a similar house on the market that isn't available in the public record, and any missing transactions can have an impact on your home's value.

"Maybe you know your neighbor sold their house in the last six months. It sold off of the [multiple listing service] and so not a lot of people know about it," Coyle says. "If you have a situation like that, then that's certainly something you'd want to convey to the appraiser."

Ask for the price you think is best. An appraised value lower than expected doesn't mean there isn't a possibility you could sell your home for more money. If you believe you can get a higher offer, go for it.

"A seller can still sell the home or put the home on the market for what they believe the value is. But at least when a buyer comes along and makes an offer, now the seller has the appraisal to go back and say, 'Oh, there's something here, because I'm getting a similar offer [to the appraisal],' and then they can negotiate," Kellogg says. "Or if they get a lowball offer, the seller may decide to pull the appraisal out and share it with the potential buyer."

Just keep in mind, it's not easy to pass off a home for more than it's worth. "Buyers and sellers of homes are pretty astute as to what they're looking for and what they're willing to pay for," Coyle says. The appraised value reflects what people would be willing to pay, and it can be hard to find an outlier who will pay significantly more.

Fix things up. A new coat of paint and tidying up around the property can go a long way. Any real estate professional will encourage you to make your home clean and clutter-free , both inside and out, before potential buyers start touring.

Barr also recommends painting any rooms that might have bright or unique colors, and using neutral tones. "Neutral sells because people want to be able to go in and visualize their stuff in the house," he says.

Get the neighbors to help. To draw more interest and potential bids, ask your neighbors to park in their driveway, which will make the street less crowded. Kellogg says the fewer cars parked on the street in a subdivision, the better for any homes on the market.

It's only a slight inconvenience, and Kellogg explains the neighbors will benefit in the long run. "As a neighbor, you want the person who's moving to sell their home for the highest [price] the market will bear," he says, "because that affects your real estate value indirectly."

Sorry if these tips burst your home value hopes, but at least you'll be ready for an appraised price tag below the one you may have in your head -- and maybe even be prepared with a few tricks to increase interest and add value to your home.

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