How Paradise Valley Home Appraisals are Done
One of the most important aspects; yet least understood part of the home purchase process is, how Paradise Valley home appraisals are done. In other words, “formulated”. Home appraisals are prepared for three primary reasons. #1. Homeowner is refinancing an existing loan on a property. The lender requires a new appraisal. #1B. A NEW lender needs an appraisal done for a new loan. #2. A Home buyer is purchasing a home and the bank requires an ‘appraisal’ in order to establish value and approve the loan based on the value of the security. #3. The third most common appraisal is ordered independently by the home owner. This appraisal is ordered to determine or obtain an estimate of a home’s market value.
When is a Home Appraisal Ordered
In many cases appraisals are ordered prior to placing the home on market for sale. In the first two scenarios. It is the lenders primary goal to be assured they have a “valuable security” in the event of default. Essentially an ‘asset’ – The lender requires a security ratio that meets lender guidelines. For example, If the borrower is qualified for a $800,000 loan on a $1,000,000 property (Known as an 80/20). The lender/note holder requires confirmation the property is in fact worth $1,000,000.
How do Appraisers Appraise a Paradise Valley Home
So let’s get to it. How Paradise Valley Home Appraisals are Done, actually formulated. The myths and the facts of appraisals. In any home appraisal. The appraisers goal is to compare similar “sold” properties with the “subject” property and then make ‘feature value adjustments’. Adjustments up or down are made based on the plus or minus attributes of subject property versus, the properties being compared. Seems easy enough right? Well it is not so cut in dry in the custom luxury market of Paradise Valley, Scottsdale or Arcadia AZ.
The Tract Home Appraisal
In tract home communities. There are usually three or four floor-plans, most of the homes are on similar lots with similar features. Minor adjustments might be made for a home with granite counter tops vs. Formica. In addition, because the price range in tract communities are so much less. The adjustments are less significant.
Examples – Tract Appraisal
For example, if a home being appraised is the same size as a home that sold two weeks ago. On the same size lot, built the same year. Neither home with a pool, however one home has upgraded counter tops in kitchen and bathrooms. The appraiser may make a line item adjustment as a ‘plus’ for the subject property of $5,000.00. If the comparable home sold for $400,000 the additional upgrade of the granite might allow the subject property to be appraised for $405.000. If this still seems easy and clear cut – ahhh wait. It gets more complicated as we move up to custom luxury homes. That is why there are appraisers certified to do appraisals on properties valued at over a million dollars. Below is an example of why there are specific appraisers – certified for luxury homes.
The Luxury Home Appraisal in Paradise Valley
How Paradise Valley Home Appraisals are done is fundamentally the same way as tract communities. Firstly, there is a value comparison of like properties similar in size, age, condition, lot size, views, gated vs. non gated, pool, no pool, age range, size range, proximity etc. However the stakes and features, carry substantially more weight and vary dramatically in the luxury home market.
Not only do the standard finish variables carry more weight. In addition, features not as easily jotted down on a standardized form have a significant impact on value. For Example. The actual over-all presence of a home. How finishes are installed, manner and feel of construction, design and floor-plan. In the luxury real estate market, particularly in Paradise Valley. We may see two 6500 square foot homes. Both built same years, same size lots etc. However from a personal perspective. You may enter one of these homes and it may feel and look absolutely breathtaking. Whereas the other may feel like an over-sized tract home. I see this all the time. So, what is the “luxury homes market value. How is fit, finish and presence justified/quantified on a piece of paper.
The Un-quantifiable Must be Quantified in Luxury Appraisals
Can the luxury home appraiser check the adjustment box “breathtaking? ” No, they cannot. As an interesting note here. Even IF the appraiser were to itemize the finishes on the “appraisal forms”. The homes may sound equal. Both may have marble, hardwood, etc. However again. The #1.Application #2. Design #3. Build Quality and #4. Presence of one may make the luxury subject property’s market value (to the savvy luxury buyer) a million dollars more. Having subjective variables like these carrying so much weight with the luxury home buyer. Therefore, qualified Luxury Appraisers must be allowed to submit appraisals with a very high degree of manipulation. There are so many variables factored into the value of a luxury home. I could write entire articles on any single value adjustment on any luxury home appraisal.
Appraisal Adjustments in Paradise Valley – What are They
For example “Views”. ‘View’ value assessment’ alone could be a book. Don’t get me started. I have been working as a Realtor specializing in Luxury Homes for a number of years. As a result, I’ve learned a book or two about luxury homes. For instance, one of the most interesting facts to me is. One of the most significant features affecting a Luxury Home’s value is not typically part of the appraisal, even though this singular feature can affect up to 35% of a luxury home’s market value. Yet little or no value is given to it on the appraisal. There is limited space here to review details. However please free to call me to find out what may affect up to 35% of a home value but is NOT on the appraisal form.
Weird Science Appraisals
Before we get to the rest of the article. Is anyone reading old enough to remember the movie weird Science. I digress. Following is an example of how appraisals work and how they can be manipulated. However, as I write this article I am not placing any judgement whatsoever on the ability of appraisers to manipulate an appraisal. But to educate and dispel any myth that appraisals represent supreme value accuracy. I am here to share. #1. Home appraisals are simply a ‘science of opinion’. Depending on the #2.Experience of appraiser #3. The purpose of appraisal. #4. The “intent” of appraiser. The completed appraisal for the same luxury home can vary wildly.
Example of ‘Science of Opinion’ Appraisal
I had a buyer interested in an exclusive pocket listing of mine in Paradise Valley. The seller said, “he would be happy to sell his home for – “appraised value”. I said, “great”, the buyer would be happy to pay “true market value” which should translate to “Appraised value”. Meaning, what others buyers paid for similar size, age, featured homes in the same community.
To make sure the seller felt 100% comfortable with market value, I provided the names of three very experienced Paradise Valley appraisers. I further suggested that the seller, “interview the different appraisers”. Then “pick the most experienced Paradise Valley appraiser. With whom they felt most comfortable”. I offered, “that I would need not information on whom they selected”. I was nice, honest and helpful.
How Appraisals can be Inaccurate
How Paradise Valley Home Appraisals are done and not done correctly. 10 days after discussing the appraiser options with sellers . I receive the appraisal from an appraiser based in central Phoenix. Not an appraiser specializing or intimately familiar with Paradise Valley homes. The seller did not use any one of the three professional Paradise Valley appraisers I shared. Therefore, the appraisal came in approximately $125,000.00 OVER true market value. I know this because that home later sold after 202 days on market for 125,000 less than appraisal prepared by the central Phoenix appraiser.
You ask. how did that happen? First we have go back to the cornerstone of any appraisal which should be “like properties” with adjustments according to the “public’s cash value assessment of attributes or negatives.”
Let’s Appraise the Seller’s Paradise Valley Property
#1. The subject property was #1. Very dated with very basic finishes #2. Condition was a ‘5’. #3. The yard had virtually no landscape. The pool was in a very odd location. All of these issues were fine with my buyers. Again as long as they paid market value. However, the appraiser did not use “like home comparables”. The appraiser used homes that “penciled out” as ‘like homes comparable’ i.e. same age range, similar square footage etc but on fundamental points, the homes were not equal. So rather than use all the sales in the last six months of equal, similar, condition, finishes, yards, age, size homes which sold for between 2.45 million and 2.75 million. The appraiser used “sold’ homes that matched only the subject property’s base attributes. Age and size were equal but the compared homes were superior in all other areas.
Comparing Homes For Sale in Paradise Valley
In this manner, the appraiser was able to adjust the subject properties ‘appraised’ value UP. The appraiser matched only the base criteria i.e size and age homes. Then applied sold homes that were perfection, beautifully remodeled, gorgeous yards, landscape, condition ‘9’, impressive entries and interiors. In addition; to support the two impressive “sold’ homes. The appraiser used “active listings” to also support what the subject home might sell for. The application of ‘active listings ‘is part of a standard ‘ home appraisal’. However the appraiser used the most expensive “active listings”. Then made an adjustment downward from a “high point”. Rather than using comparable homes that were more reflective of the subject property.
Playing with the Appraisal Numbers
So the appraiser manipulated the standard – allowing for a higher appraised “market value”. Did the appraiser technically do anything wrong? Actually no. In Fact, by guidelines he/she followed the rules. Was the finished ‘appraisal’ accurate or reflective of the homes actual market value? The answer was a resounding “no”. Did my buyers purchase the home? Again the answer was a “no”.
Both of the Homes featured below were built within one year of eachother and livable space is within 400 square feet of eachother. One sold for 2 million MORE.
Tips for Ordering an Appraisal in Paradise Valley
My recommendation when ordering an independent appraisal is #1. Make sure to use an appraiser very familiar with the area. #2. If you are appraising a luxury property make sure to use a appraiser certified to do luxury homes.
#3. Make sure the appraiser knows you are looking for an accurate, fair market value appraisal. Home appraisals can be similar to how politicians play with numbers to favor their agenda. In other words. An appraiser can manipulate the numbers in such a way as to raise or lower the “appraised value of a home”. So make sure your appraiser does not “play” with the numbers. There are so many features that factor into a buyer’s value decision for a home. The very best, most experienced Realtors have the knowledge to quantify those numbers into a reasonable range price when considering a purchase offer. Or assist in determining market value in order to sell a luxury home for the highest price. Please note. I said the “Very Best Realtors” I did not say, ‘check with your friendly local real estate agent or a friend with a real estate license’.
More Home Buyer and Seller Real Estate Tips
To learn more about the #1.Real estate market. #2. The best luxury home finds. #3. Real estate trends. #4 the best values in this market. #5. Your home’s value in Paradise Valley, Scottsdale and Arcadia. Please feel free to call me. I am always happy to discuss real estate.
Michael Chaisson.Realtor. 480-450-4632. Russ Lyon Sotheby’s International Realty. Premier Client Services. Ranked Top 1% Nationally. Circle of 26 Excellence Award Recipient.
Bonus Round – Home Appraisals
*As a result of the financial crisis circa 2008. Federal guidelines mandate that all home appraisals are to be arm’s length transactions. Lenders are not supposed to be able to have any influence on the appraisal results. Laws instituted as result of the 2007-2009 financial crisis. Lenders are required to order appraisals through “independent appraisal management companies”. Oddly enough Wells Fargo bank owns one of the largest independent appraisal management companies. “Arms length? ”
*Appraisers do not base ANY value adjustments based on what improvements may have cost the home seller.