An Appraisal What Is My Home Worth?

Dennis Clark
Appraiser gathering research for the appraisal

YOU HAVE GONE THROUGH COUNSELING, carefully weighed your options and decided that a reverse mortgage is the right solution for you. Now your lender can begin the application and order the appraisal.

I have been appraising residential properties in the Washington, D.C. metro area for 25 years. My job is to assign a dollar value to your home. The lender needs this information to verify your eligibility for a reverse mortgage and calculate the size of the loan.

Like many appraisers, I own my company and I am the sole employee. I am also an independent contractor who works with Appraisal Management Companies (AMC). When ordering an appraisal, a lender contacts an AMC, which assigns the job to a competent appraiser in its network who has prior experience evaluating properties in the same neighborhood as the subject property.

Don’t be concerned if the person assigned to do your appraisal doesn’t live in your immediate area. I live close to Annapolis, Maryland, but I do appraisals as far away as Northern Virginia, because I know the neighborhoods. If an appraiser is unfamiliar with the area or the style of home being appraised, then he or she is obligated to decline the assignment.

Keep in mind that I have no idea what type of mortgage you are applying for as it is not necessary for me to perform the appraisal. I only find this out if the borrower volunteers the information. I mention this, because while people sometimes ask me questions about reverse mortgages, I’m not the best resource. Save them for your lender.

I do not discuss my fee with homeowners as, by law, my client is the lender, not you. There are many variables that impact the cost, such as location, property type, age and condition and the scope of work. It is safe to say a few hundred dollars, but I can’t be more precise than that.

If the appraisal goes smoothly, it should take roughly six to seven hours to complete. My work can be broken down into upfront research (1-2 hours), travel time/inspection (1-2 hours) and data entry/analysis (3-4 hours).

When I receive a new assignment, the first thing I do is compile as much market research as possible on the subject property and neighborhood. Most of this information can be obtained from the Internet. For example, I can pull county tax records to confirm the type and square footage of the subject property and I can even view your property from satellite photos.

The perfect appraisal would be to find at least three or four comparable properties (or “comps”) in the same neighborhood that are almost identical to your home and which have sold within the past 30 days. In other words, I look for homes that match yours, or nearly so, in terms of architectural style (i.e., Rancher, Colonial, Cape Cod), quality, condition, square footage, number of bathrooms and bedrooms and interior layout. If I can’t locate any comparable properties, I will extend my search to other neighborhoods, but generally nothing more than one mile away from the subject property. If nothing has sold within the past 30 days, I will expand my sales search to 60 then 90 days, and so on.

Once I inspect your property, making notes on the details of your home and all the characteristics noted above, I measure the property and take photos. I then start the search for comparable sales from my original research, driving by as many potential properties as necessary to find “comps” for your yours. Returning to my office, I research the details of each “comp,” do the actual comparison of each, and reconcile the sales to estimate a value for your home.

Recently, I appraised a home for an older couple that lives in Columbia, MD. The subject property was a single-story, Contemporary (sometimes called a California Contemporary due to its open floor plan) with seven rooms altogether, including three bedrooms and two bathrooms. The home was built in 1970.

I took photos of the front of the home, both sides and the back. I went into the home and photographed every room. I also looked for any serious structural or cosmetic issues that could detract from the marketability of the property, such as cracks in the foundation or ceiling, water damage, etc. Despite its age, the property’s condition was above average, having new flooring and paint, as well as a renovated kitchen and baths. Afterward, I drove around the neighborhood photographing each of the comps so that I could properly document their similarity to the subject property.

When I got back to the office, I uploaded all of the data that I collected that day into the appraisal report. In this instance, the four comparable properties sold recently from between $355,000 and $370,000. I carefully analyzed every- thing and then used my 25 years of experience to determine a fair market value for the subject property. Because the subject property was in good condition and there had been several improvements made within the past five years, I determined that $365,000 was a fair market value.

One question I frequently get asked is the impact that home improvements have on a property’s value. If you spend $50,000 renovating your kitchen, do not assume that your home will appreciate in value by that amount. The value of the subject property is influenced by many factors, including location, size, condition, and amenities.

Each individual market reacts differently to a specific renovation. The market also reacts differently to a basic level kitchen or builder grade renovation, versus a top of the line kitchen with custom cabinets and granite counter tops. A $50,000 renovation will improve your property’s value something less than the dollar amount spent, with a kitchen renovation returning more than any other type of improvement.

As important as the home is in an appraisal, its location is also of major importance. In other words, it’s “location, location, location,” with land values varying greatly. That is why an identical Cape Cod similar in age, size and quality on a similar size lot has a value of $300,000 in Wheaton, MD, and $600,00 in Bethesda-Chevy Chase, as Bethesda- Chevy Chase supports overall higher land values. Location is perhaps the most significant factor in valuating properties, which leads me to my final comment.

If you live in a Cape Cod-style home in a neighborhood that is predominately Ranchers, an appraiser with experience has methodologies available to value your home, which may require extending the search to outlying areas or competitive neighborhoods to find comparable sales. An analysis of each different location is required to determine whether the locations are truly competitive before I can use a sale from a different neighborhood. As a general rule, the farther away a potential “comp” is from the subject property or the further back in time I need to go to find a comparable sale, the less reliable that “comp” may be.

If your home is totally unique to the area, not only is it more difficult to value, but it also may not meet the lender’s underwriting criteria, making it harder to get a mortgage.

In the overall scheme of things, I view myself as a problem solver and the process of appraising properties to me, at least, is akin to those math “word” problems in school that most of you hated, but I loved. It may take time to figure out a final solution, but the longer I analyze the question, or attack the problem from a different direction, the greater the likelihood I can find a solution. To me, the joy in appraising is that every day is different. A different road, a different house, a different smile to meet and a different problem to solve. For me, absolutely perfect!