Naples Daily News February 28, 2004

Charles Kovaleski: Home appraisals Determining that magic number

By CHARLES J. KOVALESKI, Special to the Daily News
February 28, 2004

An accurate home appraisal - an estimate of a property's value on the open market - is one of the most critical components in the home-buying process. For the seller, the appraisal can justify the asking price. For the buyer, it can help in negotiations. For the lender, it guarantees that the home is worth the agreed-upon sales price.

New federal guidelines regulating independent appraisals go a long way in protecting both borrowers and lenders from unscrupulous appraisal practices. The regulations prohibit appraisers from having conflicts of interest, such as direct ties to specific transactions or cozy relationships with the bank's lending department, and recognize that more complicated appraisals require experienced professionals.

The goal of the new guidelines is ultimately to make sure the appraisal is fair and honest, and that it accurately reflects the property's true value, the property type and condition, its utility for a given purpose and value at its highest and best use.

The significance of the appraisal can't be overstated; for that reason, the selection of a qualified and experienced appraiser is essential for all parties involved. Appraisals are often ordered by lenders, not the consumer, but consumers have the right to approve the appraiser before agreeing to use him or her.

Before you agree to use a specific appraiser, be sure to ask for his or her professional affiliation, such as the Appraisal Institute, the National Association of Independent Fee Appraisers or the National Association of Master Appraisers. Ask for a list of credentials, training, areas of specialization, and how long they've been in business. Licensed appraisers must have 2,000 hours of experience, 90 hours of classroom education and pass a state exam. Certification requires an additional 30 classroom hours. In many cases, your real estate agent or attorney can provide recommendations on qualified appraisers with whom they've previously worked.

Once you have agreed upon an appraiser for you home, keep in mind that he or she will consider just about every aspect of a home when estimating its value, and will be looking at the home in much the same way as does a potential buyer.

To get the most out of your appraisal, make sure your home is in excellent condition before the visit. Although clutter and junk in the yard shouldn't affect the home's fair market value, it's a good idea to present a clean environment so the appraiser feels positive about the home. Appraisers will also photograph the home's interior and exterior for their appraisal report, and many will include a photo of the neighborhood.

The appraiser's checklist includes:

- The home's exterior. What will a prospective buyer think when he first sees your house from the street? Does the general condition of the home and lot contribute to the home's attractiveness, or "curb-side appeal?" Is your home on a busy or secluded street? Is the street paved? Does it have a sidewalk?

- The home's interior. How will a prospective buyer feel when entering your home? Does the overall condition reflect pride of ownership? Does the floor plan provide a comfortable traffic flow? What about closet space? Is the kitchen spacious and up-to-date? The appraiser will also record the number and dimensions of rooms. Quality of construction, floor coverings, paint, wallpaper, age, type and condition of kitchen appliances will also be a factor in the appraisal.

- Supply and demand. How many homes are for sale in your neighborhood, and how quickly are they being sold? The number of people buying homes and the number of homes on the market affect property values.

- Current economic climate. Single-industry economies or outgoing corporations can have a negative impact on property values. Conversely, new business openings, incoming corporations or locally-awarded contracts can increase the value.

- Local political factors. State and local governments can affect property values. School bonds, zoning changes, property reassessment, new school appropriations, municipal salary increases, as well as taxes, all have an impact on housing prices.

- Comparison with similar homes. How does your home compare with similar homes either on the market or recently sold? Appraisers usually look at several comparable properties for comparison in the same neighborhood, similar in size, style and construction.

- Other factors. Fireplaces, lot size, attached or detached garages, a screened porch or an open deck, a swimming pool, tennis court and even the method of heating as well as energy savers, such as insulation all factor into the appraised value.

Consider giving your appraiser a list of your home's features as well as any information you might have about recent home sales in your neighborhood. Although most complete appraisal reports include at least three "comps," it's possible that current information is not yet in the appraiser's database.

Finally, make sure you get a copy of the final appraisal report. Remember that although you pay the loan application fee, which includes the appraisal cost, the appraiser works for the lender, which uses an appraisal as the last qualifier for finalizing the loan. If you have any questions about the results once you have seen the report, you may want to engage your own appraiser for a second opinion or discuss the results with your real estate attorney.

Charles J. Kovaleski is president of Attorneys Title Insurance Fund Inc.