A real estate appraisal is supposed to give you a fair market value for your home, but it covers more than just the condition of your roof and your air conditioner, or how many bathrooms you have. Does the county appraiser’s office have correct information on your property, and what if they are in error? Do you know what intangibles affect an appraisal? Your neighborhood is a factor, but it’s more than just local sales prices. What about schools and school districts? What about improvements you have made? Lots of factors go into that real estate appraisal, but you need to be armed with data and information to make sure you get the best appraisal possible. Watch this video to learn more.
(transcript below)
Hey there, this is Debbie Wright with Charles Rutenberg Realty, serving St. Petersburg to Clearwater and all of Tampa Bay, and I’m here to talk to you today about real estate appraisals- what you need to know, so let’s go.
Okay, before we get started, just a little bit about my background. I was in commercial appraising from 2007 to 2010, and that is the lens in which I look at everything through. I learned a lot during that time period about real estate and I am truly grateful for the experience that I gave me, and I know that it is benefited my clients. And I also have a sales/marketing background like a lot of my peers and associates, they have sales and marketing backgrounds, but a lot of them do not have appraisal backgrounds, so I do bring that unique perspective, and I hope it has served my clients well over the years.
Okay, so our first order of business is you want to put your house on the market and we need to collect data, and part of that the data collection processes is, we need comps, we need to make sure that the data that is presented at the county about your property at the property appraisers website is correct. Is the square footage correct? Are their open permits? Do you have unfinished space? Are there discrepancies in square footage? All those things need to be addressed before you list your property on the market for sale.
And it doesn’t typically take the county very long to make corrections. They like to, because it means your taxes go up! Haha, But usually it’s not very much, and it is important because you want to make sure that the facts of the county are accurate, and you want to make sure that you’re dealing with accurate information, because the appraiser, if you are engage in a contract with a buyer who is financing, that appraiser is going to head to the county and verify that data. They’re going to see what the county has to say.
Now here in Pinellas County, we have a whole host of converted garages, especially on little bungalows where they were two/ones and they close the garage is living or bedroom space. A lot of that was unpermited, so you just want to make sure to understand if you do have open permits, you need to deal with those, because you don’t want the buyer to inherit those open permits, or at the very minimum you have to disclose that you have them, because they’re going to find out eventually, and it can be kind of ugly down the road if that’s not addressed from the start. So, just a little word of caution there.
Okay, so the second order of business is to determine, as the seller, what type of loans are you going to accept on your property? Are you going to except FHA, VA, are you going to go with conventional only, in cash, what is the benefit and what are the drawbacks? Well first of all, you know the market a big place, and the majority of buyers are FHA buyers, and FHA means typically it’s 3 1/2% down, they have a little bit more relax on credit score and debt-to-income. Most working folks will fit into that category, and so the majority of the market is in the FHA category. Conventional buyers, they usually have a little bit more to put down, they have a little bit higher credit score, and they may have a lower debt-to-income ratio. They usually appear to be much stronger buyers and more desirable at the end of the day, because they usually don’t run into as many issues as a an FHA or VA buyer will. And then of course, cash is king.
VA and FHA dispatch their own inspector appraisals, and so property condition is super important for those two loan types, so your house needs to be in tip-top shape. They can’t have exposed wires or peeling paint or rust, because those two types of loans aren’t going to work on that type of property. So you need to make sure that you’re going to match the type of loan with the property that you’re trying to sell, okay, and make sure we’re marketing it to the right people, the people who can actually get to the closing table, so that’s important.
Another important thing to note is that the FHA buyer, their appraisal sticks with the property for six months, and it’s super important understand that, because if you do engage with an FHA buyer and the property does not appraise for the contract price, then you may run into issues, and those are some things we’re going to talk about in a few minutes, but it’s important understand that that that appraisal follows that property.
Okay my next points are improvements and conditions of the property. What have you done? Have you improved the property? Do you have a list of what the improvements are? Did they require permits, like say for instance, you upgraded air-conditioning? In Pinellas County, you’re supposed to pull a permit for that, so that it’s listed on the county at the property appraisers website. It gives the year that that’s done. Was it done or was it not done? If it wasn’t done, then making a list of things that you have done to the property and include what you have or have not permitted, in terms of improvements. You might want to let the potential buyer, prospective buyers know that. You need to also collect all the things you’ve done that the county doesn’t care about, like him upgraded all your fixtures, new ceiling fan, stuff like that. You want to take as much credit as you can as a seller on all the money that you’ve invested into the home, and the deferred maintenance, etc. And you want to make sure that you have that in a list as for the prospective buyer, and also for the appraiser. That’s part of that data collection, it’s going to be really important later on, so you want to make sure that you assemble all that information
Understanding the neighborhood is also critical. Your neighborhood has a huge impact on value. Here in Pinellas, you can have three or four streets that look great, and you have one house on one street, and you’re like, what is going on over there?, right? It happens, we don’t live in- typically have a lot of HOA’s here, so by and large, if the city’s looking to expand the road that’s a major artery through your neighborhood, that’s going to impact value. We need to understand how. Is that going to be negative, or is it going to be positive? How long is the construction going to last, and is it gonna create so much congestion, no one’s even gonna want to come see your house? How are the homes surrounding yours? Is everybody maintaining their property? Does it look good? What your curb appeal like? That sort of thing, you want to understand that’s going to impact the value.
And most importantly are the schools. What school districts are you zoned to, or schools are you zoned to within your district? Case in point, Plant High School in South Tampa, nationally recognized high school, people come from all over the place to go to this high school because of its sports. If you happen to be zoned to Plant High School in South Tampa, your house is significantly higher in value than people just outside. In other words, you can literally say, that homes across Euclid Anenue may cost less than homes on the other side of Euclid Avenue,. That happens to be the dividing line today that I’m using for example, but you get the point.
I currently have clients building a home there, that home is in the 700s. If they went across Gandy, that home would be in the 500’s. So you can see that the value is significant, and it’s important to understand. There are other schools like that in Pinellas County, Pasco County, and Manatee County, and they do impact value. You just need understand of what the school is in your immediate area and how they will impact your value. A-rated schools and grade schools impact value. People seek out those neighborhoods to buy homes in, so it’s really important that the appraiser understands that, and you as the seller and the listing agent understand that, so that you can make sure that the buyer knows that as well. That’s a great selling tool and selling point.
Alright next, you have engaged with the buyer, you’re in contract, and the appraisal has been initiated, and the appraiser is going to be heading to the property. As a listing agent, I make sure that there’s a lock box on the property with a code, so the appraiser cannot just show up and go in. I want to make sure that I know when the appraiser is going to be at that property, so that I can meet them with all kinds of goodies. Or, at least the seller will be there if they sneak past me. One of us will be there with that packet of information, preferably me, as a listing agent. I want to meet that appraiser and I want to make sure that they know about all the great things about the property that may or may not be public knowledge.
I also want to make sure that they understand that, maybe there was a house down the street that sold that’s not public record as of yet, has not been recorded at the county, but that it definitely will affect the value of the home. And I have a name and the number of the realtor who is involved in that transaction, or the seller or buyer that that appraiser can call and get first-hand confirmation of that sale. I also want to make sure that he has a list of all the improvements that have been done to the property that may not be public knowledge, or may not be well-known, and I want to make sure that he understands the comps that we used with the buyer and the seller that we used together to establish what the list price is. And the market plays a big role here, because that appraiser is actually establishing a short-term opinion of value. That appraiser maybe going back 30 days if it’s a hot market and there’s a lot going on in your area, they don’t have to go very far to determine what that value is. If it’s slowed down or the market has cooled down, and there are less transactions, number of transactions, they may have to go out of further distance, or they may have to go back further in time. So it’s important to be able to give them as much information as possible, so that they can make the best decisions possible in their opinion of value on that appraisal report.
Now once they’ve done that and you’ve given them all the information and you get the appraisal back, and it’s short, it’s less than what the contract value is, here’s where you going to have to make some hard decisions. First and foremost, you need to challenge the report, but you need to make sure that you have specifics you’re challenging and you have data to present to directly challenge what he’s done. As soon as you get that appraisal back, you, the listing agent, and the seller have to go over it with a fine tooth comb. There’s a lot of data that’s used, you want to make sure that it’s correct and that there’s no problems in the appraisal that they just simply use the wrong information. I’ve seen many appraisals, I know appraisers are busy and this isn’t knocking them- they’ll have three or four reports up on their screen, and they’ll accidentally have a discussion that was meant for another property embedded on the report that went with your property, that the discussion points are even related to the subject property in the report. I’ve seen that before, it happens, it’s not a lot of them, just make sure that everything in that report is valid and accurate, and where it isn’t, those are your challenge points. You need to collect information and data to support your position, and then you need to escalate, challenge, and ask for a review.
Once you do that and you get the review process back, maybe they say “great, we understand, we’ll correct the appraisal, you’re right.” Or they say, “so sorry, nope not moving, this is the value.” As the seller, you do you have an option to pull the trigger on another appraisal and you pay for it, and you can dispute the value that way. And in some ways, it may help you and benefit you, in other ways, it may not. It just depends on what comes back. It’s important to know that you have this option, and make sure that the lender is aware, so that they know that you are are requesting a second appraisal that you’re paying for, and they dispatch a licensed appraiser to come and use fresh data, fresh eyes, etc., and come up with their own value, and then you can kinda see where is it gonna shake out.
After that’s been accomplished and you understand what your options are, it’s time to make a decision. So you can negotiate with the buyer in certain markets. In the past, we’ve been in bidding wars, buyers are completely prepared to come to the table to stroke a check for the difference. I’ve seen it a hundred times. They know that they’re in a bidding war and that they’re overpaying for the property, but there’s no inventory, this is the house they want in the school district they want, and they’re willing to pay over for it. Seller gets a check, we’re done, we go to closing. There are other instances where the buyers simply can’t do that. They are strapped. Every dime they have, they have used to get into the property, and they don’t have any more money to give the seller for the property. At that point, the seller needs to figure out what is in their best interests? If they want to move forward with the sale or not? Maybe they have a sale riding on this sale, you know? Sometimes you have to sell a home to buy home, and if that’s the case, it may be that the price needs to be adjusted to meet the appraised price, and just move on to the next transaction. Sometimes that has to happen. It’s unfortunate, however in the grand scheme of things, it is a win-win because everybody gets to move forward and towards their goal, which was to buy the home and to sell a home to buy another home. So if you look at it that way, it may hurt at this particular juncture, but at the end of the day, you may achieve exactly what you wanted, and you look back over it and it wasn’t worth the squabble over a few thousand dollars.
Another aspect is to cancel. Let the buyer walk, relist the property, and look for a new buyer. Maybe this buyer will be a conventional buyer instead of an FHA buyer. If you did engage with an FHA buyer and the appraisal is an FHA appraisal, it will follow the property for six months. If you decide to relist and not move forward with the buyer, then you need to just make sure that you can’t accept FHA as a financing option, or that section of buyer, that market segment of buyers won’t be available for you for six months. So you’re only going to be able to accept cash, conventional, or VA buyers if you do decide to go that route, and cancel with the existing buyer and move forward and try to remarket the property.
A lot of moving parts, a lot of what-ifs, and a lot of different scenarios, I know, so if you have questions please let me know. Comment below and let me know what they are, I’ll be happy to address them. If you want to contact me, reach out to me, I’d love to hear from you. You can email me, you can call me, you can text me, or you can send me a message on Facebook. I promise to respond, and I hope to hear from you soon. Thank you so much.
