Real estate valuation might appear complicated and arbitrary to some consumers. They might wonder why an “exactly the same” house next door is listed at a higher price or why new marble countertops didn’t add more to their home’s value.
Below are four myths that consumers may have about the valuation process and the facts that clear up these myths.
Myth 1: ‘I don’t need an appraisal because I’ve had a home inspection.’
Fact: A major difference is that inspections are not required, but appraisals often are required if the consumer is getting financing.
Although there might be some similarities, a home inspection determines the condition of the property and an appraisal indicates the value.
According to an Appraisal Institute handout, an appraisal is a credible and reliable opinion of value derived from factors that include research into appropriate market areas, the assembly and analysis of information pertinent to a property and the knowledge, experience and professional judgment of the appraiser.
Myth 2: ‘All appraisers are the same.’
Fact: At a minimum, all states require appraisers to be state licensed or certified to provide appraisals to federally regulated lenders.
But, as in other professions, appraisers’ experience, expertise and certifications might vary.
Real estate agents can recommend that clients ask their lenders to hire an appraiser experienced in valuing similar properties and one who has gone beyond meeting minimal professional requirements.
Myth 3: ‘Every improvement has added to my home’s value.’
Fact: Home improvement projects are not necessarily investments in which a homeowner should expect a dollar-for-dollar return.
According to Remodeling magazine’s most recent Cost vs. Value Report, the projects with the highest expected return on investment are attic insulation, manufactured stone veneer and garage door replacement.
Other projects with potential payoffs, according to the report, are entry door replacement (steel and fiberglass) and minor kitchen remodels.
Projects that take a home significantly beyond community norms are often not worth the cost when the owner sells the home. If the improvements don’t match what’s standard in a community, they’ll be considered excessive.
Myth 4: ‘The appraisal is below the list price of my house, and there’s nothing I can do about it.’
Fact: Appraisers strive to generate credible and reliable opinions of value, but mistakes can happen.
Homeowners can review a copy of the appraisal report, which lenders should provide to them free of charge no later than three days before the loan’s closing.
Agents should urge clients or their lenders to review it carefully and confirm the accuracy of data on square footage, number of bedrooms and baths and similar features.
If the homeowner finds errors, he or she should contact the lender and potentially request another appraisal.
Real estate agents can help their clients understand the valuation process by telling them that appraisal are intended not to confirm a home’s sales price, but to assist lenders in lending decisions.
Appraisers are independent third-party experts and highly trained and experienced valuation professionals.
By alleviating anxiety about the valuation process, agents can help make their clients’ real estate transactions more productive and efficient.
Source: InMan News, Scott Robinson, MAI, SRA, AI-GRS, is the 2016 president of the Appraisal Institute.