Property value is something you as a homeowner take very personally. In a down market, which is what we’ve experienced recently, the reality of your property value can be quite painful. And it is even more confusing when you don’t understand how an appraiser arrived at a value.
You estimated a value and he/she comes in and rocks your world (and not in a good way!). After talking with countless borrowers over the years, I found 3 common themes. One, people think all improvements increase property value. Two, they think their home has to be spotless before they can let the appraiser in. And three, they listened to their neighbors.
People tend to look only at their property and its pros and cons to come up with a value. I've heard so many things like, “it's a mess…can the appraiser come later” or “we just put in new carpet that should increase the value right”. And of course, “My neighbor said he just had his house appraised and it came in at blah, blah, blah.”
Home Value Misconceptions
When estimating your property’s value, try not to let these factors cloud judgement.
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Basically, your home's cleanliness is not going to be an issue unless it is so disgusting a pack of wild dogs would pass. It has to be basically unlivable. If it is unlivable, the appraiser will definitely have to put that in their report and yes…the value would be just the land it sits on if that’s the case. But some clutter and dirt is not going to make a difference.
If you put in new anything, you don't get a dollar for dollar increase in value. Cosmetic things don't make a huge difference in property value. I wrote extensively on the topic of improvements in an article about appraisals so be sure to click over and read it.
And of course, be careful when talking to your neighbors about your property value when coming up with an estimate. They may not have a comparable property and they also may lie about what their home actually appraised for. I’ve actually seen this happen on several occasions when I originated mortgages. I had to show my client what their neighbor’s house really sold for or what comparables were used when their neighbor was telling them the complete opposite.
Neighbors can be very competitive.
Also, your assessed property value is not going to be your appraised value. The assessed value could be much higher or lower than the value an actual appraiser would determine. Since your county does not assess your property every year, your assessed amount is behind. If values are going up, your appraised value would be much higher than your assessed value. If values are going down, your appraised value could be lower than your assessed property value. And even if they were on the same time table, they probably would not be exactly the same.
So, your assessed value is for tax purposes only. It is not a good measure for actual property value.
Property Value Estimate
To determine property value, the appraiser looks at other homes more than yours. Once the appraiser finds 3 homes sold in the last 6 months exactly like yours (same square footage, same style, same bathrooms and bedrooms) then they can come up with a value for your home. So again, unless your property is totally unlivable, it is more about other sold properties more than yours.
That is a market. There has to be a value for what you have and it's determined by what others have already paid for that same thing.
Quicken Loans has a Home Value Index showing what homeowners think their property value is and what appraisers determine their value is.
“Home values continued to climb nationally, increasing 2.03 percent from September to October 2014 and climbing 3.35 percent since October 2013, according to the Home Value Index (HVI). More than half of the metro areas assessed also saw monthly increases, and nearly 90 percent of the metro areas’ home values have increased in the past year.”
You can find other properties like yours by trying a property search at places like Realtor.com, Trulia, Zillow, etc. or your county records. Drive by these homes next time you are out and about. Make sure they are the same style as yours, sold in the last 6 months, and are in your neighborhood. That will give you a good idea of what your residential property value is.
But again, it's only an idea. You won't really know the value until an appraiser gets in there.
I hope this helps!
The Mortgage Insider
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Author: The Mortgage Insider
