Low value: Ten steps on how to read your real estate appraisal.

<<>> You’ve been waiting eagerly for the results of your real estate appraisal. Finally, here it is.

What! You’re shocked.

How in the world could your home be valued at such a low value? After all, you just spoke to your realtor friend and he assured you that the home values in your area are stable.

Do you know how to read a real estate appraisal? Well guess what. You’re in luck. You’re going to find out how to read a Real Estate Appraisal from a seasoned Real Estate Appraiser. I’ve been appraising real estate in the Northwest for the past nine years. So take a seat. If you think you have a low home appraisal, go through your real estate appraisal and check these 10 steps to find out if the appraiser did a good job.

1. Review basic information: Get out your appraisal and let’s get started. Thumb through your appraisal and review the basic information about your home and look at the photos and maps in the report to be sure they are correct. Find your local public records or city assessor to determine what is on file and compare this with the appraisal. If you’re still not sure, drive around and look at the homes that are used in your appraisal. Now turn to the sales comparable section in the appraisal.

2. Proximity to the subject: Check the proximity to the subject for each sale. For homes within the city urban or suburban locations, the sales should be located within a ½ mile to 1 mile from the subject. If the home is Rural, the comparable sales will be located 1 mile to 20 miles from the subject. If they are within this guideline, then let’s move on. If they are outside these criteria, then you may have a good reason to check to see if there are better sales that the appraiser missed. Read the rest of the appraisal to determine why the appraiser went outside this distance to locate comparable sales.

3. Date of sale: This is the date that the comparable home has sold on. This information is usually verified by MLS data, realtors and public record information. Make sure that that the homes that the appraiser used are recent. The newer the sale the better it is. Make sure that the sales are at least within one year, preferably with six months or less, from the date of the appraisal. If the sales are any older than this, I’d question if the sales are the most recent in your area.

4. Location: No doubt that location is important to determine the value, but usually, if the comparable sales are within ½ mile from your home, they will share similar location and offer access to similar amenities to your home. But in some cases, your home may front a busy arterial street or back to a lake or a river. Look at your appraisal and be sure that at least one of the comparable sales offers a similar location.

5. Site: This normally refers to the lot size. If the lot size is within 20% to 25% of your lot size, then let’s move on. Sometimes appraisers will make adjustments for slight differences. My old boss, a full time real estate appraiser, appraising for close to two decades, once told me to always appraiser the home first and the site second. He is right. The banks will always give most of the emphases to the home and the structures on the home and secondary importants to the lot size. However, pay close attention to the lot size to be sure that the appraiser bracketed the lot and if not, ask questions why not?

6. Views: Many times the location and the views overlap. But let’s say you are within close proximity to a hillside and your home offers spectacular views of the surround city and/or lake. If this is the case, make sure that at least one of the comparable sales offers a similar view as your home.

7. Design: I am required to take continuing education to keep my appraisal certification. During these classes I always find that the design is noted as one of the top complaints by the underwriters and appraisal review board. As a real estate appraiser, I understand how tricky this can be, but that said, I will always try to locate one home with similar design as the subject. If I can’t find a home offering similar design, I will go outside the immediate market area to find one. If your appraiser has done this, it is okay, as long as they explain why. If there are manufactured homes in the appraisal, your home better be a manufactured home. If not, I’d question the accuracy of the appraisal.

8. Quality of construction: Most of the time, the appraiser will put “average” but in some cases, your appraisal may state fair, good or excellent. The term may not be as important as the photos in the report. Many times the appraiser will list that all homes are in average quality compared to homes in this area. In this case, homes could be good overall quality, but the grid will say average. As long as the comparable sales show similar quality in the grid and the photos look similar to your home, your appraisal is, most likely, okay.

9 Gross living area: This is one of the most misunderstood sections of the appraisal. I get several home owners that call me every year to try and understand this section. If your home is a 1 story home or a ranch style home with a basement and the square footage on the main level is 900 square feet and the basement is finished with an additional 900 square feet, you do not have an 1800 square foot home. You have a 900 square foot home with 900 square foot home that is included in the basement section.

The gross living area (GLA): This is always the area noted above grade or above ground level. The bedrooms and bathroom that are located above ground level are included in this section too. The basement area is included below this section. If you have three bedrooms and one bathroom on the main level and one bedrooms and 1 bathroom in the basement, The GLA will show the three bedrooms and one bathroom in this section. The basement square footage will not be included in the GLA, but in the basement section.

10. Heating/cooling: This is one of the biggest pains for every real estate appraiser out there. Here’s why. If your home is heated with oil heating and most of the comparable sales in your area has converted to natural gas heat. The appraiser must use recent, sales in the immediate market area. In most cased, these homes will have updated the heating/cooling systems. Therefore I have to go outside the immediate market area to lend support for homes with similar heating systems. If you have one or two sales with similar heating systems, move on. This step is the least important, but often lends concerns for the banks, so, if you find that all of the home offer different heating systems then your home, I’d ask more questions.

These ten steps can be used to review any real estate appraisal. If you go through these ten steps and find out the appraiser has supported each one of these criteria and, if not, clearly explained the reason why these criteria were not used, then you can conclude that it is a good appraisal and that the value is supportive. If not, I’d question the low value in your appraisal report and ask the appraiser or the bank to provide further support on your findings.