Why Your Home Appraisal Costs $500

Why Your Home Appraisal Costs $500

When our clients get their homes appraised, they’re often astounded by the price. “$500 for an appraisal?! Wow!” they often say.

Yep. Appraisals used to cost $300, and they stayed at that price for what seemed like forever. In fact, I remember a couple of appraisers raising their price to $325. I thought they were crazy!

Appraisal fees have gone up thanks to federal legislation, specifically the Home Value Code of Conduct (or HVCC), which was passed in 2009.

Spearheaded by New York Attorney General Andrew Cuomo, the new law sought to end what Cuomo believed to be the “illegitimate and unlawful partnerships between real estate and mortgage professionals and the appraisers they use.” (Our words, not the law’s language. Read our initial post on the topic.)

With this law, the entire industry changed. Instead of operating as independent business professionals, appraisers now have to work through clearing houses known as Appraisal Management Companies (AMCs).

These for-profit companies were created to act as “neutral” middleman separating consumers, realtors and mortgage professionals.

Mortgage brokers like myself now most order appraisals through AMCs; the AMC then assigns the appraiser.

While the intent of the law was good (you can find bad apples in any industry), its effect has been problematic.

The problem with AMCs

The first problem associated with AMCs is price. AMCs (typically owned by banks) need to make a profit, so they raised the cost of appraisals, first to $400, then to $500.

This doesn’t mean that appraisers are making any more money. Most AMCs cut appraisers’ fees to a fraction of the $300 they once charged – anywhere from $75 to $150 per appraisal. As a result, many experienced appraisers left the business.

Second, entry-level appraisers flooded the market – which is causing a whole host of issues, particularly with sloppy appraisals.

We’ve lost a great deal of market knowledge

Before HVCC, I had spent years building relationships with appraisers all over the country. Post-HVCC, I no longer have contact whatsoever with appraisers.

When I had these relationships in place, I knew when I was working with a trusted, quality appraiser who had a clear and detailed understanding of the market. The appraiser could drive up to a property and, based on the exterior, give a quick analysis of its value.

In fact, I had times when a trusted appraiser would call me to say, “Glenn, I can tell you right now this property won’t appraise at what you were hoping for. Do you still want me to go in?”

When this happened, I could call off the appraisal and save the homeowner a few bucks!

Today, homeowners are charged for the appraisal as soon as it’s ordered. Many are dismayed to learn they’ve paid for the appraisal but can’t get a loan due to the property’s low appraised value.

Know what to expect when it’s time for an appraisal

If you plan on having your home appraised in the near future, educate yourself first

  • Know the difference between your home’s appraised value and its market value – Remember, a home has four “values”: Assessed value, appraised value, market value, and sale price. Don’t confuse them.
  • Do your own research using online valuation tools – While these tools don’t take the place of a good realtor, they can help you determine sale prices of similar properties in your neighborhood.
  • Know what to expect once you’ve ordered your appraisal – While today’s appraisal process has changed, some things remain the same. Learn what you can do to help keep the process on track.

The more you know about the appraisal process, the less you’ll be taken by surprise by things you can’t control.

The Effect of Home Improvements on Appraisal Value

The Effect of Home Improvements on Appraisal Value

After discovering that Meridian covers the appraisal costs for all pre-selected candidates, you’re probably wondering what your home improvement and maintenance projects around the house are going to do to your property value.

Thanks to a rebounding economy and real estate market, more people are remodeling and making home improvements. And that includes you and your neighbors.

In the second quarter of 2016, The Remodeling Market Index reached 53%, according to The National Association of Home Builders (NAHB).

Nielsen Scarborough reported that 53% of US adults made some type of home improvement in the last 12 months – and 56% spent $1,000 or more on developments.

What are people spending their money on? According to the NAHB, people are making major additions and alterations, minor alterations and repairs, as well as regular maintenance and repairs.

All this is good, since you recoup any money you put into your house, right?

Well, yes and no. Before I explain, let me define 4 terms associated with a home’s value that are often used interchangeably but mean very different things.

The 4 Home Values

  1. Appraised value – This opinion of value is determined by a trained and certified professional. As the saying goes, the opinions of people can vary! Three different appraisers can appraise your home on the same day and get three different values.
  2. Assessed value – The value given by the local government in order to determine the property tax owed. Appraisers and home lenders don’t consider tax-assessed values when appraising homes.
  3. Market value – The price a seller can expect to receive for their home on the open market, similar to a listing price.
  4. Sale price – The final price a home actually sells for. Sale prices are what matter most to home appraisers when valuing a property.

Unfortunately, most common home improvements have little impact on a home’s appraised value.

Many homeowners believe their weekend home improvement projects automatically increase the value of their home, but expectations hit a wall when the appraised value of their home is much lower than anticipated.

Why Appraisers Don’t Look at Home Improvements

When an appraiser determines the value of a home, they don’t take into account your new Berber carpets, your new glass-paneled kitchen cabinets, or even your new roof.

This is due to 2 reasons:

  1. Replacing a roof, furnace, or carpet is considered maintenance, not an improvement that adds to the appraised value.

    Maintenance is expected and therefore doesn’t increase value. However, if you neglect the general condition of your home, causing “deferred maintenance,” the appraiser will adjust the value accordingly and home loan financing will become more difficult.

  2. Appraisers primarily base their opinions of value on broader factors, such as:
    • Age of the home
    • Square footage
    • Style (i.e. ranch, colonial, Victorian, condo, duplex, etc.),
    • Number of bedrooms and baths
    • Lot size
    • Overall condition

Most importantly, the appraised value of a home is primarily based on the sale prices of similar homes in the immediate neighborhood.

Most appraisers won’t adjust for vinyl flooring versus hardwood or high-end plank siding versus standard. These “materials used” variances are noted in the appraisal, but the appraiser doesn’t use them to adjust the value of the home.

Home Improvements that Will Increase Appraisal Values

Major and minor additions, however, will increase the appraised value. For example, adding a new bedroom or bathroom will increase the appraised value as will finishing your basement or attic. New decks, swimming pools and fencing can also increase the appraised value.

Also, note that unique properties can be difficult to appraise and sell as both appraisers and buyers have fewer properties with which to compare.

A well-maintained home, on the other hand, does appeal to home buyers.

While an appraiser may not reward you for your brand new custom-designed, multi-zone furnace, water heater, and wired-in generator system (yeah baby!), a home buyer will.

Anything you do around your house, from installing energy efficient windows and doors to improving the landscaping and replacing the cracked driveway, will make it more appealing to potential buyers. As a result, your sale price could increase, which, unlike an appraiser’s opinion of value, means real money in your pocket.