Why Your Home Appraisal May Be Lower Than You Think — and What You Can Do About It

With home prices on the rise, it’s easy to assume that property appraisal levels will increase accordingly. But that isn’t always the case.

Quicken Loans recently found in its so-called Home Price Perception Index that home values assigned by appraisers were 1.93 percent lower than what homeowners had estimated in June. For example, if an owner estimates that his or her home is worth $200,000, the appraiser’s value (according to the national study) would come in at $196,140 (1.93 percent or $3,860 less than anticipated).

“Perception is everything,” said Quicken Loans Chief Economist Bob Walters. “That’s why it’s so important for homeowners to realize [that] how they perceive their home’s value could vary widely from how an appraiser views it. If the estimate is lower by just a few percentage points, the buyer could need to bring as much as another several thousand dollars to the table to avoid having to restructure the loan.”

Prudent homeowners may be wise to look at criteria that is similar to what appraisers use and then come up with their own preliminary estimate of value. Any problems that are found can be repaired or remedied before the mortgage application is made and before the start of the subsequent formal appraisal process.

Here are some tips:

• Look at the recent sales or “comps” in the area, and identify “like-kind” properties that include the amenities that are similar to ones that your home has.
• There are online services that track the current “for sale” price and the “recently sold” price of homes in your neighborhood, such as Zillow.com and Trulia.com. Ask a realty agent to do a “comparative market analysis” for you of properties sold in the past three to six months. Try to be as complete as possible in your search.
• Professional appraisers may include only three to five “comparable” properties in their reports, but in reality may have looked at more than half a dozen.
• Do the best you can to look at the condition of the structural components of the house, including the foundation, roof, electrical and plumbing systems. Check for any obvious signs of cracks, discoloration, or structural issues.
• Look for water damage around baseboards, ceilings and faucets, and be aware that mold can cause unwanted damage. Include a review of the hot water heater, air-conditioner or heating system, propane or septic tank (if applicable) and appliances.
• The date of purchase and/or service should be posted to a water heater, or other appliance to help give you an indication of the age or condition of the unit. Many systems have a life span of about 10 years — subject to the level of maintenance provided over time.
• You could hire a professional to make a formal inspection, but that may cost hundreds of dollars or more depending on the size (square footage) of the house.
• Compile a list of any improvements or repairs that you’ve made during the past five to 10 years and be prepared to show any permits or invoices that may have been required for the work.
• Factor in future expansion in the neighborhood, such as parks or community centers, to help your property valuation. Access to a freeway or public transportation could also give your house an advantage on many appraisals.

“Appraisers welcome input from owners to point out recent improvements or repairs or systems upgrades,” said Ken Chitester, director of communications for the Appraisal Institute, a global association of real estate appraisers based in Chicago. “Even attractive landscaping and outdoor improvements such as [fresh paint] will be taken into consideration when determining house value.”

“In general, location, design, age, quality of improvements, building and lot size, view, parking and exterior amenities are the big factors for most single-family homes in D.C.,” said Victor Brown, a principal at Capital Market Appraisal, based in the District.

A report from the company even found that “seasonality” plays a factor in managing expectation for home valuation. For example, the study found that homes in February were appraised lower than they were in the month of September. The report is available to download at www.capitalmarketappraisal.com.

Be aware that if you are considering a Federal Housing Administration-sponsored mortgage, a “health and safety” appraisal performed by an appraiser approved by the Department of Housing and Urban Development will be required in addition to the conventional appraisal.

Additional steps that an FHA appraiser takes will be to look for such isolated items as standing water around the house, defective paint surfaces, rodent or insect infestation, missing doors or unsafe stairs.