Making Stricter Appraisal Rules Work for You

If there’s a homeowner out on your street frantically painting and pruning, he could well be awaiting arrival of an appraiser. Whether selling or refinancing, owners everywhere are sweating the outcome of appraisals these days.

“To many owners, reading an appraisal report is like having a personal meeting with the Frankenstein monster,” said Peter G. Miller, who writes on real estate.

“They quake, they shake, they tremble all over at the thought that their dreams won’t be fulfilled because of the appraiser’s opinion.”

And with good reason. Appraisers have adopted a newfound conservatism.

“Appraisers have become visibly more conservative because lenders have become visibly more nervous,” said Miller, author of “The Common-Sense Mortgage,” a book published by HarperCollins.

Gyrating market values have made the lenders nervous. During most of the 1980s, when residential real estate prices rose steadily, a lender could count on getting his money out of a property if foreclosure became necessary.

Some in the industry practiced so-called “creative appraising,” says Michael J. Lange, president of the National Assn. of Independent Fee Appraisers.

Rather than setting a market valuation for a property on an independent basis, the creative appraiser simply sought out justification for the value required to close the home sale or refinancing deal.

“Now the guidelines are much more stringent and detailed,” said Lange, noting that lender nervousness, coupled with stepped-up government regulation, have brought an increased level of professionalism to the field.

Meanwhile, values have slumped, even fallen, in many communities.

That makes the appraiser’s job all the more difficult. If he issues a low valuation, below what the owner needs to sell or refinance his property, he’ll enrage the owner and disappoint the loan officer who needs to close the deal to make his commission.

On the other hand, if his valuation proves too high when a property goes into foreclosure, his name is mud among local lenders.

Caught in the bind between an owner’s yearning for a high valuation and the lender’s increasing interest in financial safety, appraisers are finding their work far more arduous lately, Lange said.

“The appraiser today is working twice as hard for the same fee,” he said. He noted that an average home appraisal still costs between $175 and $400, but can involve twice as much research as in the past.

Understanding the pressure that appraisers feel is important for any homeowner who wants to get the best possible valuation on his property. Realty specialists offer these pointers:

--Get a grasp of the appraisal process.

“Most people aren’t knowledgeable on the subject. When an appraiser comes to their house, they just open the door and let him in. They never ask any questions or offer any assistance,” Lange said.

The appraiser’s job is to determine what the market should fetch for a property such as yours. For most appraisals, this is done by finding comparable sales of at least three similar homes that are located near yours.

These “comps,” as they’re called, must be from completed home sales--typically within the last six months. The appraiser compares these comps with the property to be financed and makes adjustments to come up with the market value of your home.

For instance, if the other homes have fireplaces but yours doesn’t, he might knock value off yours. On the other hand, he might add to your home’s value if your property has a swimming pool and the others lack that amenity.

--Help the appraiser by providing factual information.

If your property is being sold through a realty agent, the agent can be expected to provide comps to the appraiser by tapping the computerized Multiple Listing Service or another such listing. Be sure this is done.

On the other hand, if you’re refinancing your mortgage, there’s probably no agent directly involved. But you can still obtain comps for the appraiser by calling on an agent--perhaps the one who sold you the house in the first place.

An appraiser will not only appreciate your help in finding good comparables but will also appreciate your providing him factual information on improvements to the property--such as a new hot water heater, family room renovation, etc. Floor plans and other such information can also be valuable.

--Never lie to an appraiser.

“Through the years I’ve probably heard every line there is,” Lange said. To get a higher valuation on their home, people misrepresent information about other sales in the neighborhood and also say they’ve spent more on home renovations than they have.

But appraisers weren’t born yesterday. They have ways of verifying other sales and also know the cost of basic home improvements. You’re unlikely to fool them.

Worse, your false statements could backfire on you by calling into question your credibility, Lange cautions.

--Spruce up your property before the appraiser’s visit.

The outcome of your appraisal is largely out of your control. Your house will be viewed against the realities of your marketplace, no matter how harsh. The outcome will depend primarily on such factors as square footage and whether your home has a garage.

But just as buyers are influenced by cosmetic features, appraisers may be too. That means you can add to your home’s valuation by improving its appearance. Cleaning, painting, yard work and other inexpensive activities can add up to a higher value because they imply pride of ownership.

Appraisers may present themselves as totally objective, but there’s a subjective element there as well, said Buddy Koolhof, a branch manager for Pittsburgh-based NVR Mortgage. “Appraising is not an exact science because, after all, appraisers are only human.”