By D.Scott Murphy – CEO, Chairman of the Georgia Real Estate Appraisers
Appraisal Philosophy: We recognize that appraising real estate is a somewhat subjective task. There is typically a reasonable range of value for a property rather than one single correct value. We strive to apply as many quantitative tools as possible in the appraisal process in order to reduce subjectivity. This involves ongoing statistical analysis of the sub-markets which we serve. We calculate time trends for lots, homes, and condominiums; monitor marketing times, sale-to-list ratios, and construction costs for use in the preparation of standard form appraisals; and track the supply/demand ratios for various market segments. We strive to take the time to describe our observations and conclusions in a narrative fashion and to avoid standard boiler plate text in our residential appraisals.
We believe in the real estate market and fully understand that appraisers do not determine market value but rather interpret market value. The appraisers at DS Murphy and Associates have been extensively trained to thoroughly research the subject market, carefully choose the most representative comparable sales, and use the best methods for adjustments which will not just report value but also prove value. The most important step in the appraisal process is the final reconciliation. This is when the appraiser steps back from the report, compares the results from each appropriate approach and carefully tests his results to be certain the final value is reasonable. Our appraisers are not limited to using only closed sales but also carefully analyze current listings to ensure our value is as recent as possible.
It is important to understand that real estate values do not move linearly. They rise and fall (much like the stock market) in response to changes in supply and demand, changes in interest rates, major economic changes, and due to seasonal factors.
The DS Murphy Consultation Appraisal® is more than a pre-listing appraisal. Our services begin by viewing the home and offering suggestions on needed repairs, optional improvements which will have a positive return and advice on how the seller can maximize the value of the home. We complete an appraisal subject to any improvements agreed upon by the owner to arrive at our estimate of market value. We also provide a suggested list price, which leaves room for anticipated negotiation.
Another benefit of the Consultation Appraisal® is the power afforded to the seller during the negotiation process. Knowing the true market value and the most supportable range of value, the seller is in control.
If additional sales occur after the completion of our report which will impact the value, we will update the report at no additional charge. The only caveat to our service is that we require the home be priced within 5% of our suggested list price and be listed within 30 days of the effective date of our report in order to maintain the relevance of the report.
Q. Who owns the report and do I have to disclose I have had an appraisal?
This report is confidential and shared only with our client which is you. It does not have to be disclosed and will not be “on record” anywhere. We recommend that the report be shared with potential buyers in order to provide a basis for the property’s valuation and to assure the buyer they are paying a fair price. We also recommend that the report be shared with the lender’s appraiser. We trust the appraiser will use it to help expedite their process but will also verify the information and add any additional information or sales they deem fit.
Q. Why can’t this report be used for the buyer’s loan? Lenders are bound by strict regulations which require them to order an independent appraisal through a blind rotation system of approved appraisers. However, you can pick your own appraiser for prelisting purposes, corporate relocation, cash purchases, property tax appeals, date of death appraisals, divorce valuations, etc. You also have the flexibility to pick your own Home Inspector as buyer or seller in any real estate transaction.
Q. Do you guarantee your value? As confident as we are with our value, we cannot guarantee it. However, if the terms above are met, you supply the bank appraiser with a copy of our report, and the value from the bank appraiser is lower than our value, we will write a letter of rebuttal which can be turned into the lender as a reconsideration of value. Simply forward us the bank appraisal and within 48 hours we will have the rebuttal prepared and returned to our client. Most homeowner or agent-authored rebuttals are not successful due to a lack of understanding of what the lender is looking for. Our appraisers are trained to thoroughly critique the appraisal and pin-point errors in such a way that the lender will be compelled to request revisions or, in certain circumstances, order a new appraisal report.
Q. Why were certain sales in my subject neighborhood not used in the report? There is a difference in a sale and a comparable. Not all sales are comparable properties. Variances in style, size, age, condition, view, etc. can differentiate sales and comparables.
Q. Why did the appraiser not count all my bedrooms or bathrooms? Generally, the answer to this question is – they did. It is typically just a misunderstanding of categorization, however. Bedrooms and bathrooms in the basement level generally carry less weight than those above grade. What we do, in order to be fair and accurate, is separate the below grade (basement) space from the above grade space. Then, we can compare above grade space to above grade space and below grade space to below grade space among the comparable properties selected. Look near the bottom of page 1 of 3.
Then you can see it carried over to the middle of page 2 of 3
We look very closely at each of the comparables to make sure we are comparing like-spaces. We give significant value to basement finish – sometimes as much as the above grade space. But it is important to separate the two for consistency.
Q. The square footage listed in my appraisal report does not match that of the tax records or what the builder told us. The appraiser who completed your appraisal report physically measured the property using the industry standards outlined in the ANSI Guidelines (you may visit our website to see a copy of the standards). All measurements were done on the exterior or equated to exterior dimensions. Any open space such as two story foyers or two story family rooms were not included. Only spaces which were heated, cooled, and finished to the same quality of the rest of the house are included in the GLA (gross living area). In the case of a condominium, measurements will be interior dimensions, in accordance with your “walls-in” ownership rights. Assessment records are often outdated, may reflect a prior owner had not permitted an addition, or may have been measured by different standards. Assessors in many areas record by GBA (gross building area), which includes any finished space, regardless of quality or contributory value.
Q. Where do I find the final appraised value? About ¾ the way down on page 3 of 3 in the reconciliation section you will see the opinion of value.
Q. Why was the cost approach not completed or if it was completed why was it not given any weight? There are three approaches to value; the sales comparison approach – which uses recent sales to demonstrate the actions of buyers and sellers; the income approach – which analyzes revenues for income producing properties and capitalizes that into a value (not applicable for most residential properties which are not purchased for the purpose of generating income); and the cost approach. The cost approach is only applicable for new or very new homes and is based on estimates for the land value, subjective calculations of depreciation and building cost factors derived from published cost manuals. In all, the cost approach is a less reliable approach to value and no indicator of what a typical buyer would pay for the subject property for most situations. Remember, cost does not equal market value.
Q. The city appears to be reported incorrectly. The appraiser uses the city in which the subject property is located that has judicial authority.
Q. What is the difference between a pre-listing appraisal, a refinance appraisal, a conventional purchase appraisal, FHA appraisal and a VA appraisal?
Very little! The valuation process is exactly the same. The same comps should be used and the same value should result. The only two which vary slightly are FHA and VA. They are lending almost 100% on these loans and borrowers generally have less cash available. FHA and VA want to make sure the properties are safe, sound and habitable. Therefore, the appraiser must use a more stringent checklist when looking at the overall condition of the property. Conventional is generally considered to be “buyer beware”, while FHA & VA offer more protection for the buyer/lender.
Q. How long is an appraisal good for? An appraisal is an estimate of market value for the subject property on that specific date. As time passes, the value becomes less reliable. The industry standard is that an appraisal is good for 90-120 days, but in rapidly changing markets, this time may be significantly shorter.
Q. Where can I go on the internet to get automated valuation information?
Nowhere. Realtor.com or any other site offering an appraised value, estimate of value, or a Zestimate are not providing true valuations. These companies are not appraisal companies; they are data companies using public information to make assumptions and generalizations about a property based on other local data using a mathematical algorithm. How does Zillow know the condition of your home, any view amenities, quality or recent upgrades? Much of the public data used to value your property is likely incorrect as well. In many markets where public record data is not reliable, Zestimates may be off by 40%.
Q. Where do appraisers get reliable data? In many markets, appraisers have created proprietary databases which track the physical information as measured, verified and reported by appraisers.
Q. What should I do if my Zillow Zestimate is lower than the appraised value? As the owner of the property you can supply Zillow with corrected information.
Q. Is it okay to pay some or all the buyers closing costs? Determine if it is typical in your area to pay these costs. If so, then it is generally ok as long as it does not exceed 3% of the sales price.
How to prepare for the bank appraisal:
We recommend that the agent(s) be present for the appraisal and also supply the following:
– Copy of the Consultation Appraisal®
– Copy of fully executed sales contract
– List of recent improvements including year and cost
– List of comparables – good and bad including justification as such
– Recent survey if one is available
Should I give the appraiser a copy of the home inspection? No, not unless the appraiser specifically asks for it.
How long should the appraisal inspection (site visit) take? Depends on the size of the home but generally 30-60 minutes.
What happens if the bank appraisal comes in below the DS Murphy Consultation Appraisal®?
– DO NOT CONTACT THE BANK APPRAISER
– DO NOT SUBMIT A REBUTTAL TO THE LENDER
Rather, email the DS Murphy appraiser who completed your appraisal and include a copy of the bank appraisal. We will prepare the rebuttal information and have it back to you within 48 hours.
For more information please visit our website http://www.dsmurphy.com