Getting Your Home Appraised
Home appraisals have changed considerably since the market crash of 2008. Before the market took a turn with all the subprime mortgage challenges and Dodd/Frank it was pretty different. The banks and the appraisers would work hand in hand through the beginning of the process. After 2008 they introduced a third party into the mix. Basically there is now a "pool" of appraisers that are used for a specific area.
What If an Appraiser Doesn't Know the Area?
These appraisers are supposed to know the area, the market and what drives home values in that specific market. Unfortunately sometimes they do not. Depending on the area of the country you are in even a few miles can make a difference. A view or what your home backs up to can make a difference. Here in Evergreen, Colorado for example we sometimes have appraisers from Denver (AKA flatlanders) that really don't know or appreciate mountain views or the complexities of the mountain properties. That is a big issue up here of why homes might not appraise. We have been hitting sale price almost all the time in the Denver Foothills but sometimes when we don't that is the issue. This could also be a problem in many other parts of the country where uniqueness of properties vary greatly in a small area.
My Zestimate Says My 1,100' sq Home is Worth $11,000,000!
Let's start with this....Please stop using Zestimates to price your home. The Zestimate is a decent tool to see the fluctuation of your homes value but by no means can a Zestimate predict with an algorithm how much your home is worth. In the above paragraph I just explained that a professional that only lives a half hour away that actually comes to your home, walks through and does a complete analysis can not get it right. How can an algorithm that has never seen the fixtures, condition or any other important factors know the value of your home. Please only use a Zestimate for long term indication of market direction in your neighborhood. A Zestimate is NOT an appraisal or true value of your home.
The appraisal process and what to expect
The first thing you need to understand is that you do not hire the appraiser as the buyer. Don't get me wrong you will pay for the appraisal but you do not get to choose who does the appraisal. What happens is the bank calls the "middle man" who in turn calls the next appraiser in the pool. The appraiser then comes out to look at the property. He does his own measurements and takes pictures of the subject property. He makes notes and heads back to the office with the data he collects. He then finds comparable (comps) properties similar to the subject property. Most banks like to go back up to six months and not go too far away from subject property's neighborhood to find similar homes. Like mentioned earlier in this article it is sometimes difficult to find comparables in some areas of the country. Another good example are mountain properties. There are very few "cookie cutter" lot and block properties in the mountains. So what makes them appealing to most is the uniqueness of every property. Unfortunately that makes it difficult to find value since you are usually comparing apples to oranges. Then what happens after the appraiser does his magic and adjusts his data he sends his best guess of what a home is worth. Keep in mind an appraisal is the opinion of one person's estimate of value of a specific property in a snapshot of time. In other words that value could go up, down or stay the same 24 hours later.
Reasons why your home may not appraise
This has always been strange to me when a home doesn't appraise. The definition of an apraisal is basically the market price of a property in a specific area in a snapshot of time. Basically what the market believes a property is worth. So by definition if John Q. Buyer offer X amount for a property isn't the market telling you the value is X? Isn't John Q. Buyer actually the market? So shouldn't the property appraise at John Q. Buyer's offer? Also if a property has multiple offers at, over or near X shouldn't that trump past sales? Unfortunately not and that could be a problem in a fast moving market? The fact that at times comparable properties don't keep up with the market? Sometimes comps lag for 30, 45 or even 60 days.
People also don't understand a basic real estate principal of location as well. Just because you live in a specific city or town doesn't mean that home will be the same value as another in a different neighborhood. It is almost always better to own a home in a nice neighborhood. So even if you have the biggest and nicest home in a specific neighborhood, it may have a lower value than a smaller not so nice home in a good neighborhood in the same town. In other words it is better to have the worst in a nice neighborhood than the nicest house in a lower value neighborhood.
Another reason homes don't appraise for what you think they are worth is because people put too much value in improvements made on their property. It is rare that you get 100% ROI on any home improvement. Some home improvements yield higher ROI than others. This is something you need to discuss with your real estate agent before picking up a hammer.
If your home does not hit the sale price and does not appraise
If the home does not hit the mark of the sale price there really aren't a lot of things that can be done. Getting an appraiser to change value is not an easy thing to do. Also you can't have another appraiser come out and do a new appraisal unless you can prove negligence or massive wrong doing on the firs appraisal. So the best remedy is obviously to have the seller lower the sale price to the appraised amount. Since most people don't like to more for things than they are actually worth. Not many people go into a store and see a shirt for $50 and say "I'll give you $60 for that". The other thing a buyer can do if they really want the home or if they truly believe the appraiser just didn't know what he was doing is bring the difference to the table. Since no lender is going to loan you more than the home is worth. Just remember the dangers of making up the difference, you are most likely going into your new home with negative equity.