What Makes an Excellent Appraisal?
Care and Skill in Identifying a Home
The above floor plans are of the same home. The major deficiencies are highlighted in red. If ever a picture was worth a thousand words, this is it!
Unfortunately, appraising has drifted towards being a commodity service, and sometimes “close enough” is good enough. Things don’t work that way for a high-quality appraisal. Here’s why… an error allowance of 10% on “each” side (positive or negative) is 20%, when combined. That could be a range from $360,000 to $440,000 (for a $400,000 home). That’s $80,000, and the error spread could easily exceed the 10% example we are using here. In real dollars, we can now see how important an accurate appraisal can be!
As you might suspect, my work is the floor plan on the right.
Typical appraisals over the last 20 years have always used three sold comparable properties (comps) for analysis. This all looks good, in theory, but is it “good enough?” I use six comps instead of three. This shows the market reaction to the analyzed features in the appraisal in a much stronger context. I also complete a full 12-month market analysis of *similar* properties (not all properties) ideally within one mile or less of the property being appraised. This is very much like knowing how the stock market is doing. That’s not good enough for investors. What investors need to know is how their particular stock is doing. I use the same logic and filter out the excess market data that doesn’t matter to deliver a complete, precise, high-quality appraisal.
Being Able to Read the Market
You might recognize the photo above. It’s Denver! This is one of the most vibrant cities in the entire country. From this vantage point, it is even more impressive.
Being able to read and understand the market is very much like being able to read and understand the stock market. There are so many variables in play at any given time. Being able to see and understand those variables is the difference between making money from good stock choices instead of losing money on bad ones. If it were easy, why isn’t everyone making a lot of money by investing in the stock market? Why can’t we win all the time? Isn’t there a simple formula to use? I sure wish there was, because it’s not easy; even for the pros.
Reading the housing market and trends is also not easy. What you are really paying for in an appraisal is the experience and skills of the appraiser.
As illustrated in the earlier example of the $400,000 property having a variance of $80,000, it is clear that advanced analysis and precise methods must be employed at every phase of an excellent high quality appraisal.
As Vince Lombardi said, “Perfection is not attainable, but if we chase perfection we can catch excellence.”
Data and Analysis Skills
Exactly how good is good enough? Look at the price differences in the two homes above – and then look at their addresses. They are next door, yet have more than a $50,000 spread in price!
Scenarios like this one are common. For the faint of heart that don’t want to gamble with their life savings, it is imperative to work with an excellent appraiser that produces high quality appraisals. Your home is an investment that is too important to trivialize or to entrust it to a less experienced appraiser.
Which price is right? Too many people play “follow the leader” in pricing a home. Is there a way to analyze that and decipher the market? Yes, there is. An excellent appraisal will prove and explain all the facts and analysis so it is completely understandable.
Details and precise explanations are what make appraisals credible. When you are dealing with the largest investment of your life, don’t settle for anything less. For any particular question, give me a call or send in a question using the submit comment section at the bottom of this page.
Knowledge, Experience, and Skills
Some people think that this is what makes an excellent appraiser.
That’s not enough.
Knowledge alone is not enough. As seen in the floor plan layout example, not all appraisers apply knowledge effectively. Being an appraiser is a business, and a goal of business is to optimize profit, so doing a faster job is sometimes desirable in order to maximize profits. I prefer the method of focusing on quality and everything else will fall into place.
It might stand to reason that 20 years of experience is better than 10, but that is not necessarily so. Five years of experience performing high-quality appraisals can be much more valuable than 25 years of appraising average homes in average neighborhoods.
Contact us for any general questions about appraisals or buying and selling a home.
We can bill your credit card through email. Contact us for details.