South West Florida Real Estate

I have written several articles on market value in recent years because the term is widely used but often poorly understood.

In a broad sense buyers determine values with their ability and willingness to pay for a house.  We can list our houses for $1 million but if no one is willing or able to pay that much then the list price is simply speculation. 

So isn't a buyers purchase offer market value for a given property?  Maybe.  Some buyers are not well informed, and make purchase offers not supported by other similar sales.  And buyer preferences play a part. 

Consider a house listed for sale for $150,000.  A buyer makes a full price offer based on the property's location adjacent to a school.  They like the fenced back yard, and the fact that the house has a well and septic system so they don't have to pay for city water and sewer. Unfortunately the buyers credit is questionable, and they cannot get a mortgage. The house is relisted for the same price.

Now a 2nd buyer views the house.  They need to purchase since their house is under contract.  They don't like the location next to the school, and hate the fenced back yard. And they really wanted city utilities. Since they need to move and the house is in their price range they offer $145,000 and the deal closes a month later.   

So what is the market value of this property?  From an appraisal perspective the market value is likely $145,000.  I say likely because other factors may come into play including concessions and creative financing.  But assuming other similar houses sell in the range of $145,000 then that is market value on the date of sale. 

Buyer perception and motivation plays a major role in determining values.  Changing interest rates, housing inventory levels, new construction, and local and national business and economic factors come into play.  So the next time some one uses the term market value, ask which definition they used and how they arrived at their conclusion!

Homeowners are often concerned about the appraisal process, especially first time buyers, for good reason. A home purchase is typically the largest purchase most of us make. Understanding the appraisal process, and some steps you can take to aid the appraiser and appraisal process, can alleviate some of the anxiety.

Sunset Cape Coral

An appraisal is an opinion of value developed in accordance with state and federal guidelines. Don’t let the word opinion mislead you. It is an opinion that must be supported by credible and verifiable market data and analysis. To develop an opinion of value an appraiser must gather as much information regarding the subject property as possible, and federally regulated mortgage transactions will require a visual inspection of the interior and exterior of the property. For a purchase transaction the appraiser is typically retained by the lender’s appraisal management team or a third party appraisal management company. This is the entity that communicates with the appraiser, sets turn times and fees, and completes an initial review of the appraisal.

Most appraisers are given 3-5 business days to complete an appraisal, and have no control over the report once submitted to the client. If you have questions regarding the appraisal, send them to your lender, who will pass them along to the management company and appraiser as required.  The appraiser may not legally discuss the value of your property with any one but the person or entity that retained his services, so don’t be surprised if your appraiser doesn’t discuss value with you.

Do….

1. Make sure the appraiser has access to all areas of the property, including the garage, closets, storage areas, and extra buildings such as storage sheds. For FHA inspections make sure the windows can be opened and there is access to the attic hatch if in the garage.
2. Make sure the utilities are on and working. These are frequently turned off in vacant houses. Many lenders are requiring this for conventional loans. The utilities must be on for FHA appraisal inspections. Your appraiser likely won’t turn on water mains or set breakers, so if these are off it may require another inspection by the appraiser.
3. Repair items that present a safety or health hazard. Exposed wiring and missing railings are two common problems. Complete additions or renovations before applying for a refinance. I have been to inspections where the house was unlivable due to an ongoing renovation. The loan application was of course denied.
4. Provide any information available on major repairs, additions, or renovations that you have made to the house, the date completed and the approximate cost. This is for major projects, not replacement of ceiling fans or faucet washers! Provide permit and inspection information if available. Be ready for the appraiser to take photos of the interior of the house. Most lenders require interior photos of at least the common living areas including the kitchen and living room, as well as the baths.

Don’t…

1. Expect the appraiser to give you their opinion of value at the time of inspection. The appraiser can only discuss their opinion of value with the company that hired him once the report is complete.
2. Delay the inspection so you can clean house. The appraiser is looking at the physical attributes of the real property, not the clutter. As long as the appraiser can see all aspects of the property your personal property should not be an issue. Don’t worry about minor cosmetic issues. Most houses, unless new or just renovated, show some wear on the carpet and walls. These are not major issues if the house is well maintained otherwise.

Providing the appraiser with additional information about your property can help him expedite your report, providing for a faster and more accurate appraisal. Take few minutes to look around your house. See any minor items that could be a safety issue? Take care of them before the appraiser arrives!