The Loan Doctors Team

Five Myths About Home Values

During periods of economic growth, when home values are typically just going up, most homeowners do not question appraisals much.

And in times of turmoil when property values are declining, home sellers and even listing agents quite often question and pick apart appraisals.

However, the actual appraisal process changed very little over the course of the housing boom and bust cycle American homeowners witnessed between 2001 – 2009.

Since the topic of home values seems to be a hot discussion, let’s address the top five appraisal myths.

Appraisal Myths / Questions:

“I just put $15K into the property, why isn’t the appraised value higher? ”

Not all improvements to the property are equal in producing added value. A local real estate investment club used to tout buying a run-down, roach-infested property cheap, and after de-bugging and adding a fresh coat of paint and carpet – *presto* – the house would appraise like the new homes up the street.

Even with cosmetic repairs, the property may still be much more comparable to the foreclosure next door than the new home a block away. Look first to the “guts” of the property, the electrical, heating & air, etc. If they are updated, then the number of beds/baths and square footage are the next biggest weight, followed by a genuine updating of cosmetic improvements.

“But my home really compares to some of the properties in the neighborhood across the way…”

For example, if a homeowner preparing a house to sell adds $150,000 in upgrades to the kitchen, built-in cabinets and flooring, it may help the property show better in an open house and in magazine advertisements.

However, the seller might still be stuck with a $450,000 appraised value like the three comparable properties on their street vs the $750,000 they were hoping to list it for.

Even though the neighborhood across the main street had similar homes in the higher price range, especially after the seller’s extensive upgrades, appraisers will always use homes from the actual neighborhood to establish value first.

So basically, the seller simply over-improved their home for their specific neighborhood.

“This appraiser included foreclosures as comps – that’s not fair”

It isn’t fair, especially if your home is well-kept and in great condition compared to the run-down foreclosures in the neighborhood.

Unfortunately, if every recent sale, or nearly all sales, are foreclosures at reduced prices, then the appraiser is forced to use the recent sales and trends as comparable values.  High foreclosure rates generally depress values and show a trend of lowering prices. 

And abnormally high foreclosure rates generally depress values and show a trend of constantly lowering value.

“But I just put in a $50K pool, doesn’t that count for anything?”

Pools and professional landscaping rarely see a dollar for dollar value add on a property.  The value is going to mainly be based on comparable sales in a neighborhood.

“How can similar homes in the same neighborhood appraiser for such different values?”

This is a typical question for older neighborhoods where similar models may have drastic price differences.

Additional rooms and square footage can be the main reason for one property appraising higher than another.

Keep in mind, just because the market trend in a particular neighborhood is improving over time, the individual properties need to meet the same conditional improvements as the others in order rise with the tide.

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An appraiser is looking at several things when determining the value of a property: improvements, size and square footage of the living area, neighborhood amenities, location and the market trends around the area.

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March 28, 2010 by · Leave a Comment

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The Loan Doctors is a team of very experienced Senior Loan Officers who have mastered the art of qualifying clients that would not otherwise qualify anywhere else. Much of our business comes from builders, when they cannot qualify their clients with their in-house lenders, and our Real Estate Agents, when their clients get declined with other mortgage companies. We understand that many potential home-buyers do not have perfect credit or perfect job history so we have built our whole entire business helping these home buyers that no one wants to help. We believe that credit should never be the reason why you are not able to achieve your dream of purchasing a home. When it comes to rebuilding your credit & restoring your dignity you need a team of experts behind you every step of the way. We are prepared to listen to you with compassion & understanding to help you move forward to a brighter future. During our consultation, we create a customized written plan for each client. Our staff will then follows up with each client regularly to ensure that the borrower is properly following on our recommendations. Our goal is to help our borrower's to get back on the road to financial recovery straightaway as soon as possible.

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