- The Washington Times - Friday, March 27, 2009

As homeowners and potential home sellers monitor housing value reports for their area, they often speculate on the current market value of their own homes. A recent survey by the online real estate company Zillow.com showed that more than half of the homeowners surveyed (57 percent) believed their home had lost value at the end of 2008. In reality, 76 percent of all homes across the country lost value in 2008.

The only true way to determine the current market value of a particular property is to have an appraisal performed for about $300 to $400. Appraisals are usually required by lenders for refinancing or home-equity-loan applications. An appraisal is also required by lenders before a home mortgage can be approved. Occasionally, homeowners opt to pay for an appraisal to determine whether their property-tax assessment is accurate. Homeowners considering selling may want to have their home appraised before setting an asking price.

Whether the appraisal is ordered by a lender or by the homeowners themselves, federal law requires that the owners receive a copy of their appraisal. If the appraiser has been hired by the lender, then the homeowners must obtain the appraisal report from the lender.

Homeowners and potential buyers may worry that an appraisal will come in too low, which could cause a rejected mortgage application.

“Low appraisals happen in a down market and in one recovering from a down market,” says Rita TenBroeck, owner of Cedar Run Appraisal Services LLC in Gainesville. “What consumers need to understand is that a low appraisal is not the fault of the appraiser. Appraisers are essentially the ‘auditor of a transaction.’ The amount someone needs the home to appraise for in order to refinance - or for the sale to occur - has nothing to do with the appraisal. Appraisers are not paid on commission, so they cannot benefit from a high- or a low-home price or even if the transaction goes to settlement or not.”

Gary S. Denny, owner of Woodbridge Appraisal Services in Woodbridge, says that appraisers must carefully analyze the impact of foreclosures on a home value.

“As part of the appraisal, we typically look at a house and compare it to other homes that recently sold in that area,” says Mr. Denny. “We look first at what we call ‘good quality’ sales, houses that were occupied by the homeowners and well-maintained, and sold for a reasonable price. If there is an obvious difference between this home and the foreclosures in the neighborhood, then we appraise it according to the better quality sale.”

Mr. Denny acknowledges that in some neighborhoods, which are essentially dominated by foreclosures, it can be hard to find “good quality” homes to consider, so a home may be valued at close to the foreclosure prices.

Ms. TenBroeck says, “Foreclosure sales generally represent a lower sales price than a typical home because foreclosures are usually ‘as is’ sales that are different from a regular transaction. But if foreclosures are a large part of the market activity in an area, then they cannot be ignored. If there are just one or two foreclosures in an area, you still have to include them in the appraisal, but you don’t have to base the home’s value on them.”

Many consumers are confused by the difference between a home inspection and an appraisal.

“A home inspector determines the condition of the home and its major components and reports those findings,” explains Angie Hicks, founder of Angie’s List, a consumer group that provides members with information about local contractors and companies. “An appraiser looks at the structural integrity of the home and prices it based on comparisons to similar homes in your area.”

About one third of all homebuyers today are opting for a Federal Housing Administration (FHA) mortgage since these loans require just 3.5 percent for a down payment and have slightly looser credit requirements than conventional loans. However, the FHA has developed stronger stipulations for home maintenance that must be checked as part of an FHA-loan appraisal.

“The FHA has stricter appraisal requirements for both refinances and purchase loans because they want to make sure the home, which is the underlying asset for the loan, is well-maintained,” says Ms. TenBroeck. “The FHA believes that when a new owner buys a home, they should be able to have one or two years of living in the home with just normal maintenance issues rather than anything major, in order to get used to paying their new mortgage. They make sure that the appraisal evaluates the condition of the roof and the heating system so they won’t need to be replaced right away. For safety reasons, they also require that all windows, especially in the bedroom, can be opened and closed and that the carpet is in good repair so that no one will trip on it.”

While homeowners concerned about a low appraisal cannot control the sales prices of other homes in their area, they can take steps to make their appraisal more accurate.

“The first thing homeowners should do is make a list of all the major improvements they have done to the property since the last appraisal,” says Ms. Hicks. “The list should include the date and the cost of each upgrade.”

Mr. Denny says that appraisers look objectively at the overall condition of the home, but he says that homeowners should do some basic cleaning and make the house as neat as possible, since it can be difficult for an appraiser to see past piles of messy clothing.

“Maintenance is king,” says Ms. TenBroeck. “No one expects perfection, and we understand that people live in their homes with their kids and their pets. What matters most is that the carpeting isn’t torn or ripped and that the roof doesn’t leak. We need to be able to say that the house has received enough care to be livable. Neat and tidy is nice, but if the homeowner thinks their home is worth 50 percent more than the other houses around them, neat and tidy won’t get you there.”

Ms. TenBroeck highly recommends maintenance and service contracts to prove that heating and air conditioning systems have been maintained. She also says that tidy landscaping and a mowed lawn help demonstrate that the owners care for the home.

“Homeowners should repair small things, such as leaky faucets or missing door handles, to improve their appraisal,” says Ms. Hicks. “It’s also important to make sure every place is accessible to the appraiser. The appraiser will need to look at your crawl space, so you need to trim the shrubs. He or she may need to get into the attic, so make sure the attic entrance isn’t blocked.”

Mr. Denny says that in the Washington area, a major investment that makes a difference in an appraisal is installing central air conditioning.

Ms. Hicks says that while homeowners should stay with a home inspector so they can learn about their home, it is best to allow an appraiser to work alone. If possible, it is best to have pets and children out of the way during the appraisal.

If the property being appraised is vacant, the owners need to turn utilities on for the day of the appraisal.

Mr. Denny says that in addition to a list of repairs and upgrades to the property, homeowners can help their appraisers by providing them with a copy of the plat or survey of the land; information on homeowners association rules and fees; details of the latest purchase of the home (if it has been sold in the past three years); and a copy of the current listing agreement and purchase agreement, if the sale of the property is pending.

In the case of a refinance or purchase mortgage application, the lender will choose the appraiser. Homeowners paying for their own appraisal should be sure to hire a licensed appraiser. Mr. Denny and Ms. Hicks recommend choosing an appraiser who is a member of a professional organization, which means that the appraisers have agreed to abide by a code of conduct and meet a higher standard of qualifications. Homeowners may search the Web sites of the National Association of Independent Fee Appraisers (www.naifa.com) and the Appraisal Institute (www.appraisalinstitute.com) to find local licensed appraisers.

Preparing your home for an appraisal can help achieve the highest possible market value.

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