If you’ve bought or sold a home, you might think that you know all that there is to know about home appraisals. Think again! There is a lot more to home appraising than you might realize! Take a look at these nine common myths about home appraisals and see if they surprise you!
Myth #1: An Appraisal Is All About Protecting The Buyer
We’ll start with the myth that barely slips onto our list. This myth isn’t 100% false, but it’s worth addressing! While an appraisal can protect a buyer by alerting them that the home is valued at less than the sale price, an appraisal is actually designed to protect the lender. If there are any benefits to the buyer, they are unintentional.
An appraisal can alert the lender to the same warning that buyers see: that the home is selling for more than it’s value. This protects the lender from loaning money on a home that may not be recouped if the buyer defaults on the loan.
Myth #2: Appraisal Results Are Owned By The Payer
It seems natural that if you pay for something, it’s yours to keep! But in the case of appraisal results, this is not always the case!
Gentry Lawson, SRA, from Lawson-Lifferth Appraisals, shared this story:
As part of a mortgage refinance transaction, I had a conversation with the homeowner during the appraisal inspection. He asked me to send the appraisal to him upon completion. I kindly informed him that I could only release the appraisal to the client, who [in this case] was a local credit union. He didn’t like this response and demanded that I send him a copy of the appraisal since he was the one paying for it. I bristled and told him that I was bound by the appraiser-client relationship and could not give him a copy of the appraisal. He became more upset and disclosed to me that he used to be in law enforcement, and he knew the law and again demanded I send him a copy of the appraisal directly to him. We were at an impasse.
What I learned from this experience was to politely acknowledge the borrower’s desire to receive a copy of the appraisal and move on. If pressed on the issue, I simply disclose that the lender will forward the appraisal onto the borrower. Digging in your heels and bristling with anger gets you nowhere. At the same time, an appraiser needs to stand his or her ground. Use good judgment in these situations, and a little bit of humor can go a long way.
Myth #3: It’s Easy To Become An Appraiser
This myth annoys any home appraiser because they know what it really takes to become a professional appraiser!
The process is a long, intense journey designed to ensure that licensed appraisers really, really, really know their stuff! Here’s the process in a nutshell!
Take a breath!
And remember, the process may be slightly different in different states.
First, a would-be appraiser must become a trainee/apprentice appraiser. This is possible only after completing 75 hours of elementary appraisal education, including Basic Appraisal Principles, Basic Appraisal Procedures, and Universal Standards of Professional Appraisal Practice [USPAP] classes, and, in some states, passing an exam.
A trainee appraiser must work with supervision until the required hours of experience are met. The trainee is then qualified to apply for the Licensed Residential Appraiser certification.
Trainees must complete 150 hours of education. In addition to the 75 hours of classes spent at the trainee level, they must take four more courses:
- Residential Market Analysis and Highest and Best use;
- Residential Appraiser Site Valuation and Cost Approach;
- Residential Sales Comparison and Income Approaches; and
- Residential Report Writing and Case Studies.
Before sitting for the exam, prospective Licensed Appraisers must complete 1,000 supervised hours of experience in no less than 6 months. Once the required time is met, appraisers must pass the Appraisal Qualifications Board (AQB)-approved Licensed Residential Real Property Appraiser exam.
Depending on the state you live in, you may or may not be required to hold a bachelor’s degree. (The AQB abandoned the degree requirements in May 2018.)
Should an appraiser decide to continue with his education, he can become a Certified Residential Appraiser level.
To reach this lofty level, appraisers complete 1,500 hours of experience in no less than 12 months. These hours include the first thousand hours earned previously. The additional 500 hours must be directly supervised by a licensed appraiser.
Once an appraiser completes all 1,500 hours, he must pass the AQB-approved Certified Residential Real Property Appraiser exam. Along with successfully completing the exam, an appraiser must meet one of the following five degree requirements:
- Bachelor’s degree in any field of study
- Associate’s degree in business administration, accounting, finance, economics, or real estate
- Successful completion of 30 semester hours of college-level courses with 3 semester hours each in the following topics: English composition, microeconomics, macroeconomics, finance, algebra, geometry, other higher math, statistics, computer science, business or real estate law plus two elective courses in those topics or accounting, geography, agricultural economics, business management, or real estate
- Successful completion of at least 30 semester hours of College Level Examination Program (CLEP) examinations in the following topics: college algebra (3 semester hours), college composition (6 semester hours), college composition modular (3 semester hours), college mathematics (6 semester hours), principles of macroeconomics (3 semester hours), principles of microeconomics (3 semester hours), introductory business law (3 semester hours), and information systems (3 semester hours)
- Any combination of college-level courses or CLEP examinations that ensure coverage of all topics and hours required in the 30 semesters of college-level colleges option
Those who have a Licensed Residential credential with at least five years of experience may qualify for the license without a degree. Appraisers must meet all of the following national requirements and anything else required by their state:
- No adverse, final, and non-appealable disciplinary actions in the years preceding the application
- Completion of additional education required for the Certified License level
- Successful completion of the experience needed for Certified Residential level
- Passage of the Certified Residential Exam
Whew, that is an impressive list of requirements that isn’t anything to sniff at. Real estate appraisers are well-educated, highly-trained professionals that go through an intense training process!
Myth #4: An Appraisal Is Based Only On The House
As frustrating as it may be, your neighbor’s backyard stash of rusty old El Caminos, peeling black house paint, and monstrously overgrown yard (you swear that you saw Big Foot peering at you from the shadowy backyard forest last night) can impact your home’s appraisal value, even if your home and yard are immaculate!
Not only can your neighbor’s lack of pruning and painting drag your appraisal value down, so can nearby buildings, highways, crime areas, and upgraded amenities in your neighbors’ homes (which aren’t in your home). On the flip side, many of these negatives can also be positives should the nearby building be a top-rated school, your neighbors homes are as equally well-kept and upgraded as your home is, or your neighbor drives an orange Lamborghini and occasionally parks it out front (well…not sure if that last one really counts, but how could an orange Lamborghini NOT raise the value of the surrounding homes?).
Myth #5: Appraisals Are The Same As Inspections
No, no, NO! Appraisals are NOT the same as inspections! Yet another appraisal myth that needs to be squashed!
An appraisal’s purpose is to provide an opinion of value. The client uses the value to justify risk or gather the value of assets before a legal proceeding.
Inspections focus on home buyers and providing the condition of the home and whether the house appears to be in great shape, will need repairs soon, or is in imminent threat of imploding.
Pretty simple, really.
Myth #6: It Doesn’t Hurt The Value of Your Home To Do An Appraisal During Renovations
An appraisal is a snapshot of your home’s value at that very moment! The value of a home with a refurbished kitchen versus the value of a home with an unfinished kitchen can vary significantly!
Caleb Bowen, LA, an appraiser at Lawson-Lifferth Appraisals, shared this experience.
An experience that comes to mind is about a small two-bed, one-bath home in Ogden, Utah. The homeowners were adding a dining/pantry/laundry area to the rear of the house, and I came out to inspect it when it was stud walls, trusses, and OSB sheeting.
I explained to the homeowner that it would be better to have me come back when it was more complete. But he told me, ‘The lender knows about the situation.’ He did hesitate when I said that this would definitely negatively impact the home’s value. His initial response was, ‘How much?’ I informed him that I would have to finish the appraisal to know.
Overall, the state of the remodel lowered the value by several thousand dollars, but for this particular situation, the homeowner was okay with it. For other owners, the impact of the renovation could be a non-starter.”
Myth #7: All Appraisals Have the Same Terms of Validity
Here is another myth based on reality: the expiration date (how long your appraisal is good for, i.e., the term of validity) of your appraisal depends on your mortgage lender.
Fannie Mae requires appraisals to be completed within 12 months of the date of the note of the mortgage, with several exceptions that can shorten the length of time that the appraisal is valid.
VA-insured mortgages also have expiration dates set on their appraisals. In this case, it’s usually six months. However, just like Fannie Mae, VA’s rules have exceptions that can also diminish the length of time given to an expiration date.
If you’re not going through FHA or the VA, the length of time that an appraisal is considered valid depends on the rules of your mortgage lender. Most lenders accept appraisals that are less than four months old; however, if the market is unusually hot or unusually cold, a lender can shorten or lengthen the term of validity.
Myth #8: Zillow Is As Accurate As An Appraisal
We can only imagine the sound of all appraisers roaring with laughter at this myth. “But,” some may say, “Zillow is the place to go online to see exactly what my home is worth! How could this be if it’s NOT accurate?” Alright, let’s debunk this myth once and for all!
First of all, just to get this out of the way, in Zillow’s defense, the company does not claim to replace appraisals, at least according to its explanation of how the Zestimate works:
It is not an appraisal and it should be used as a starting point. We encourage buyers, sellers and homeowners to supplement the Zestimate with other research such as visiting the home, getting a professional appraisal of the home, or requesting a comparative market analysis (CMA) from a real estate agent.”
However, Zillow does claim to be very accurate in its Zestimate of a home’s value when the home is listed for sale, but not as accurate in its Zestimate when the home is not currently listed for sale. Zillow has done a fantastic branding job, and many people turn to this behemoth for estimations that they consider very accurate.
Let’s take a look at Zillow’s claims of accuracy.
Consulting Zillow’s most recently reported metrics from June 26, 2019, the median error of the Zestimates on homes currently listed for sale in 25 major metropolitan areas around the United States ranges from 1.2% to 2.5% (the nationwide median error rate is reported at 1.9%), which doesn’t seem too shabby! However, the median error of homes that are not currently listed for sale ranges from 4.9% to 12% (nationwide, 7.5%), a much higher rate of inaccuracy.
Keep in mind that the median error reports the middle number for all homes, meaning that Zillow is only that close HALF of the time! The other half of the time…not so much!
Another key point to remember is that Zillow uses the most recent Zestimate. According to Zillow, “Zestimate accuracy is computed by comparing the final sale price to the Zestimate on or before the sale date.” Ah, a very sly way to report that the Zestimate is reduced or increased as the sale progresses (or doesn’t progress) on a home. So instead of claiming an accuracy rate of 10% because the original Zestimate estimated the value of a home at $400,000 and it sold for $360,000, Zillow moves its current estimate to $368,000 to more closely match $360,000 and can then claim an accuracy rate of 2%.
Pretty sneaky, no?
Zillow (as well as it’s cohorts Realtor.com, Redfin, and Trulia) is not a bad place to get a very general estimation of a home’s value. Reporting on Zillow’s accuracy, John Wake wrote for Forbes:
They’re good data points for home sellers to have as long as they realize that online home value estimates are just ballpark estimates.”
Clearly, Zillow’s Zestimates are NOT anywhere near as accurate as a home appraisal’s valuation done by a certified, licensed home appraiser!
Don’t hold the applause folks!
Myth #9: Home Improvements Always Increase A Home’s Value
While some home improvements can indeed increase the value of your home, there are a few home improvements that negatively impact the sale of your home! Just what are these “un” improvements?
The most notable no-no in some locations is a swimming pool. Sure, a pool can draw buyers to your home, but it can also send people running in the opposite direction. Some people love ’em, some people hate ’em. The headache of maintenance and the extra precautions that a swimming pool adds to a buyer, especially a buyer with children, may make the potential buyer cross your home off the list and keep looking.
Another improvement to avoid is the addition of high-maintenance landscaping. Many homeowners simply don’t have the time, or the desire, to own a high-maintenance yard, no matter how beautiful it looks. Water features, extensive flower gardens, rose bushes, uncontrolled grass or weeds, and other high-maintenance landscaping can deter would-be home buyers. Opting for simple yet effective landscaping is a better choice.
How about another very commonly misunderstood areas of improvement? Upgraded utilities, a new roof, or a new HVAC are seen as standard upgrades and will not increase the value of your home! These are required upgrades for any home, and no one wants to pay more for a home that has had routine care, even if that care is newly installed.
One more upgrade worth mentioning, although there are certainly more improvements that are not worth your time (and money), is the installation of solar panels. That solar panel installation usually doesn’t raise the value of a home is commonly known among real estate professionals. However, many homeowners are still being duped into believing that investing in solar panels will increase the value of their homes. Well, they usually don’t. And keep in mind, if you haven’t paid those panels off when you want to sell your home, you’re going to have to figure out how to cough up the money to pay off those panels before the sale can close. Ouch!
There you have it, nine real estate appraisal myths debunked! Did any of them surprise you, or have you heard them all? You might even have more tales to add to this list! The good news is that we can work on debunking all appraiser myths, starting now!