Home Buying in 95747>Question Details

Kshitij Desh…, Home Buyer in Sacramento, CA

How to know that an appraisal is valid/correct?

Asked by Kshitij Deshpande, Sacramento, CA Sat Feb 2, 2013

I have been reading about appraisals and have found online that it is difficult for a lender to come up with exact value of a property. In my case, i am leaning towards using a lender suggested by my agent as GFE's from him are much less than other banks. I want to be sure that whatever appraisal the lender will give is accurate and the value is not simply bloated. Are the lenders (appraisers) bound by any law that they much give accurate appraisal of the home?

Finally, many friends and relative have referred me to Zillow and asked me to check Zestimate value. However, Zestimate is about 20K less than the list price and my agent says that those estimates are not accurate. Is that true?

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Answers

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First, you can't use an appraiser's estimate of value for your purchase decision. That's not the point of an appraisal. Appraisers are just making a guess on the value based on a few simple guidelines. With any set of guidelines, there are limitations on their accuracy. Only lenders use appraisals to determine how much to lend on that property.

In the current market environment, you only have two main concerns:
-- Win the house against all other bidders at a price that makes sense to you. If you feel the price is bloated, then stop bidding. The appraiser isn't responsible for what you pay.
-- Hope the house gets appraised for whatever you want to pay so you get the financing you need. In a recovering housing market environment, this is actually quite a challenge.

Zillow's Zestimates are not perfectly accurate, but they're not worse than any appraisals. In the end, both Zestimates and appraisals are rough guesses. Only the market will determine the real price and only you can determine whether you should pay that price.
Web Reference: http://www.archershomes.com
2 votes Thank Flag Link Sat Feb 2, 2013
I could go on for pages answering this question. Let me say just a few things in regards to your question.

First, lenders don't do the appraisals. A lender contracts an appraiser to do this. Laws have changed and lenders can no longer select a specific appraiser to complete an appraisal.

Second, an appraisal is an opinion of value (that will be used by and for the lender's benefit, assuming you are applying for a home loan). Appraisers have guidelines that they should follow to provide a good and accurate appraisal. Since the appraisal is for the lender's benefit and not yours, it does not serve the lender to have an inflated price.

Bottom line on this point, it is not likely that an appraisal is going to be "bloated." In my opinion, the opposite is more likely in today's environment.

Your real estate agent should be able to provide you with a competitive market analysis on every home you want to make an offer on and you should do this before you write the offer. If this is done properly it should closely match the appraisal and you should already have a good idea of what the property is worth. With prices on the rise and competition high to purchase a home in many areas of the US, many buyers are making offers above recent comparable prices.

I would suggest that using a lender solely because of the lowest good faith estimate provided may not be wise. You should have faith and trust in the loan agent and have confidence that the lender is going to perform appropriately and in a timely manner. If your agent recommends this lender because he/she has done business with the lender in the past with good results, that's your best bet.

I would not rely on any values provided by Zillow or other 3rd party sites. They are frequently way off the real value and I've seen them as low s 50% of actual market value. As long as you have a good agent looking out for your interests, that's who I would place my trust in.

Hope that helps! Good luck.

Steve Quaranta
1 vote Thank Flag Link Sat Feb 2, 2013
Thanks Steve. That was really helpful.
Flag Sat Feb 2, 2013
Yes, don't look to Zillow for estimates because the calculation is unable to tell neighborhoods. For example, Oak Park in Sac is close to Land Park and Curtis Park and East Sac but the homes vary quite a lot. If you just used a radius search, like several websites do, then the radius search wouldn't be able to define the neighborhoods from one another.

Also, short sales typically lag in value behind other sales - equity and bank owned homes, because the valuation may have been done a while ago with the home selling a couple months later. With a fast moving market in certain price ranges in Sacramento, these homes could tend to drag down the price on your home, while equity sales may have a higher value. Since there's not a human brain doing the work on the Zillow estimates, they can't discern the difference. Just like Nichole said, your realtor can help find comps for you in your specific neighborhood.

Appraisals are tough, and you have to remember that they are an opinion of value based on information available. If you are in a suburban neighborhood with similar or exact floorplans to your home that have sold recently, those are usually the best comparable properties. Be sure to review your appraisal when you get it and make sure you agree with the comparables used. Good luck!
1 vote Thank Flag Link Sat Feb 2, 2013
Hi Lauren, When you say "make sure you agree with the comparables used", do you mean i should look at the "Sold for Price" for exactly similar homes? In other words, if i currently look up CMA then then should i ONLY compare the price of a "single family home" v/s another "single family home" in the same neighborhood? Or is it valid to compare sales price of a 2-bedroom condo in a 3-storey building v/s a 3-bedroom single family home on a lot? Also, how does one compare the price of an older/newer recently sold home against newer/older home to be purchased?
Flag Sat Feb 2, 2013
Appraisers are just people giving their opinion of value. 3 different appraisers can give 3 different values. Hopefully all are in the same ballpark. The appraisers are a 3rd party to the lenders so their isn't any conflict of interest. Although I wish we could lock up a couple appraisers and throw away the keys for their lousy appraisals, they are not bound by any accurate appraisal laws. They are hired by the lenders to make sure the value of the home works with the loan you are receiving. The lenders have to protect themselves in case you don't make your payments. Appraisals might not always come in at what we want them to but the lender is the one loaning their money so we have to play by their rules. The Zestimate is not an accurate appraisal system to rely on either. It's good for general prices found in the area you are looking.
0 votes Thank Flag Link Tue Apr 14, 2015
Kshitij - the information you're getting about the appraisal process is just flat out wrong, hopefully you're paying attention to the previous response by agents and taking it to heart....

There's no such thing as an exact value, the appraised value is simply a value estimate by a qualified professional...however, there are instances where a value can be challenged (pretty much when a value comes in low), this is done with a rebuttal process...since you mentioned 'bloated' values, I'm gathering that you're hoping for a lower value than an agreed purchase price? And in today's market (with virtually no inventory), the seller will ask the buyer to come in the difference with a low value, so this would increase your cash to close amount....

I realize this isn't heartwarming news, but I'm more concerned about giving you the inside track on what really is happening and how the process really works....let me know if I can be a further resource to you!

Best, Jeff M
0 votes Thank Flag Link Sun Feb 10, 2013
Zillow is a computer generated estimate of neighborhood prices based on square footage and other attributes of a home entered on the MLS. It certainly can't take into account special remodeling features or the level of care that each house receives. Your agent has experience to do their own conparison estimates, and will be far more accurate, and will be thinking of whether the home will have the value needed for the bank to give loan approval. The big question is how much do you like the house, do you have a good downpayment or are you just putting down the minimum, and does your agent expect to be up against multiple bidding. If you are just looking for a basis for a lowball offer, have your agent run a list of neighborhood homes that sold recently and see if they went for below asking or over.
0 votes Thank Flag Link Sat Feb 9, 2013
Basic overview:
Appraisals are an opinion of market value or cost comparison value on the day of the appraisal. Appraisers have a set of guidelines to follow based on the lenders underwriting standards and the standards of practice for appraisers, so even though it is an opinion of value it is based on a defined criteria and market comparable properties. The appraiser is also the eyes for the bank and may be instructed to look for certain condition issues, again depending on lenders underwriting guidelines. Since the bubble burst laws changed and the lenders cannot have direct contact or direct control over the appraisers, this is usually by the way of an appraisal management company, which the lender places the appraisal order with and then the management company assigns the appraiser. Problems arise with appraisals when the appraiser is not familiar with the subject area, or type of property. If you are buying in a subdivision it should be fairly easy to find comparable properties. Right now the Sacramento market is increasing in value, that can also be a problem because the appraiser is looking for sold properties to compare, and the pending properties will not show the sold price until closed.

Same issue with Zillow, they don't have new sold data until the property closes, also Zillow doesn't know the condition or other reasons a home may have more value to a buyer than its same model neighbor.

One way to do your own research is with your agent, review the activity in the neighborhood, are properties going pending in just a few days? That would indicate good pricing at what the market perceives value for the area. Your agent may be able to find out from the listing agent if the property went into contract below, at or above listing.

On comparing loans, compare the % APR, that is why APR is shown, so consumers can compare different loan products easily.

These are good questions to bring up to your agent and loan originator, they should be able to answer them so you understand the process.
0 votes Thank Flag Link Sat Feb 2, 2013
Yes zillow is not accurate. Owners can contact zillow and change the value of their house. Your realtor should have comps for your area on what has sold. That is more accurate than zillow.
0 votes Thank Flag Link Sat Feb 2, 2013
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