Reader Question: We are selling our home. We ordered a home appraisal. We do not agree with their opinion. How do we go about challenging them? Sandra and Don T. – Louisville, KY
Monty’s Answer: Three thoughts immediately come to mind; The substantial correction recently in home values, the appraisal is simply one person’s opinion, and, appraisers are not paid to agree with their clients. My personal experiences are that appraisers certainly do make mistakes.
For you to challenge the appraiser successfully, you will have to demonstrate a solid reason to convince them to reconsider. To reach a conclusion the appraiser has to verify the assembled information. It is easy to correct the error if the home’s size is incorrect. If the conclusion is causing the disagreement It may be more difficult for them to change.
Here is some information that will help you know which situation you have on your hands.
There Are 3 Approaches To Value
There are multiple approaches to determining value. Each method brings perspective to a home’s value. Each method also has limitations. Blending the 3 approaches allows the preparer to consider multiple viewpoints in reaching a conclusion.
- Cost Approach – Replacement cost. When evaluating a home always remember that cost sets the upper limit of value. What would it cost to build? The main limitation of the cost approach is that it only deals with one element in the marketplace.
- Income Approach – All improved real estate has economic value. When property can produce income, that income determines rates of return on capital invested. The marketplace dictates the rents based on supply and demand. The limitation with this method is that often there is little or no rental market where you want to live.
- Market Approach – What are similar homes selling for in the neighborhood? How many similar homes are offered currently? The market approach is the primary focus of the three approaches to value for single family homes.
Picking Good Comparable Sales
In valuing a home, the key is picking the sold homes out of the pile that most resemble it. Here, are the key points to consider:
- properties relative condition, quality, age and location
- general real estate conditions in the neighborhood
- extent and time of updates
- the same style (example:ranch)
- the same size (main floor footage)
- the same age
- same number of baths, half baths, bedrooms, room count
- same type and size of garage
Making Value Adjustments
If any of these points are not the same, make adjustments between the comparable sales and the subject property. Never adjust the subject, only the comparables. Adjust the comparable home to make it like the subject. Sometimes the comparable is less valuable than the subject. In these circumstances, add value to that point to bring it up to the subject property. Sometimes the comparable is more valuable than the subject. Subtract value from that point to bring it down to the subject property. The formula for adjusting comparables is: plus (+) if the subject is better, minus (-) if the subject is lesser.
The Individual Value Adjustments
The schedule below is a home selling for $175,000. If prices where you live are higher or lower, the values may require adjustment.
If the total adjustments net over $25,000, you may not have the best comparables.
I recommend practicing with a few homes. See how close to predicting the final sale price you can come on home sales in the neighborhood.
The adjustment presented here represent typical calculations for a $175,000 home in Brown County, WI and were reviewed by Joel Tetzner – Act One Appraisals in Green Bay, WI.
I hope this helps you find agreement. Thanks for asking.