Red Flags

red-35853_960_720There are a few things that are big red flags to the appraiser when they are appraising a property. I want to take this time to share a few of those red flags with you to make the appraisal process as smooth as possible for everyone involved.

Although it may not always seem like it, appraisers want your deal to go through without a hitch. As an appraiser we are a non-biased party, meaning we do not gain or lose anything if the deal goes through or not. We are just trying to provide the true market value of your home so that the process is fair to everyone involved.  In writing this my hope is that this may help clear up questions but also help make the appraisal process go smoother in the future. This way the agent will be prepared to answer some of the appraiser’s questions or provide information to help the appraiser understand the situation.

So here are some Red Flags I see most often.

#1: Large increases in the subject’s sale price in a short period of time

If there is suddenly a drastic change in price the appraiser will notice. Appraisers are required to review all sales of the subject for the last 3 years. If your property is being sold for significantly more that it recently sold for, consider explaining this to the appraiser and why or how the property value has increased so much per your evaluation.

A large change in price can happen, but there is usually an explanation such as significant renovations, foreclosure, short sale, and divorce sale. We are aware that these things occur, and it will help us if you share this information with the appraiser.

#2: The Contract price is significantly higher than recent neighborhood sales

It is common knowledge that the appraisers best comparables come from the subject’s immediate neighborhood. When the appraiser is selecting his comparables, that will be the first place he looks and if there is a significant difference in price between what the subject is selling for compared to other properties in the neighborhood the appraiser will question the subject sales price because this is a sign that the subject is overpriced.

Any information you can provide the appraiser to show that the property is not overpriced would be helpful. This may include backup offers showing that multiple people are willing to pay this price. There is no guarantee of what the appraiser will value the home at but any supporting evidence for the sales price is very helpful to the appraiser.

#3 The subject square footage is much larger than other homes in the neighborhood (overbuilt)

Overbuilt homes cost more to build but unfortunately that cost usually does not translate into a higher market value. Comparables are crucial in valuing a home and if there are no homes to support your value it generally means the subject was overbuilt.

A problem I have run into with overbuilt homes is that the sales price was determined on a price per square foot basis. This pricing strategy does not always work with regular homes but especially will not work for an overbuilt home. Overpricing a home in most cases will result in killing the deal so be sure that your property is not overbuilt before pricing it out.

#4 Agent providing sales from competing neighborhoods when there are available comparables in the subject neighborhood.

Agents will often send the appraiser comparables to help support their sales price which can be helpful to the appraiser to make sure they did not overlook any comparables. However, this can also be a red flag if the comparables are not in the subject neighborhood. Regardless of the comparables the agent provides there is never a guarantee of value.

Agents should not be looking outside of the subject’s neighborhood to support the value. If the homes in the subject neighborhood can not support the value that is a big sign that the subject is overpriced.

#5 Non-Gross living area was included in the overall square footage when pricing the property.

Gross living area adds value to a home but there is such thing as non-gross living area or non GLA. If non GLA is included to price the home the value will be incorrect. This will result in the home being overpriced.

Appraisers will measure the home, check the MLS, Realist, and verify with the city of any discrepancies in square footage. Unpermitted additions, screen porches, enclosed patios, detached rooms, and basements are not considered part of the gross living area. If they are included to determine value then when the appraiser completes his report there will be large discrepancies in square footage, price, and room count which can kill the deal. So be sure to price the home based on it’s true gross living area.

I hope this is helpful and please let me know if you have any further questions.

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