Appraisal Valuation Metrics

9 Replies

Hello,

When a bank is doing an appraisal to refinance a property what are some of the major metrics they look for?  Also what are some small/inexpensive things you can do to bump up the appraisal a little?

Originally posted by @John Terwilleger :

Hello,

When a bank is doing an appraisal to refinance a property what are some of the major metrics they look for?  Also what are some small/inexpensive things you can do to bump up the appraisal a little?

 Look at ALL the numbers on the appraisal! I had 2 refi appraisals in 2012 that were literally criminal, one understated the sq ft 20%, the other 15%.  I know they had the right numbers, I held the tape for one, and it's a rowhouse, a simple box. They fudged the footage to bring in their "gut" number.

@Dorothy Butala this is really just for my own personal preliminary research before purchasing my first property.

but....  for the sake of this discussion lets say it is a conventional loan for a residential property with 2 units?  How would a property with only 1 unit change your answer?

@Johann Jells unfortunately I don't have an appraisal to view for an example.  Do you know of a good place where I could view example appraisals?  I didn't realize they actually break everything down for you on the appraisal.  That would be very helpful :)

These might help, they're the most interesting pages from 2 bad appraisals I got. Note how the 3 methods of calculation magically fall so close to each other. No compensation at all was given to the fact that my property is brick and the comps all frame. Zillow tells me this property is now over $700k, and they're guessing the rent is half what it actually is.

@John Terwilleger My inquiry was more to find out about the type of loan and property because that can make a difference in the appraisal method.  A property that is 2-4 units that is all residential may just use a sales comparison (recently sold comps within a certain time period and distance from the subject property) and income approach (using similar properties to garner what the average rent rates are), while 5+ units they will use just the income approach for the appraisal.  For a single family the appraisal may only use a sales comparison approach.  Appraisers can use a 25% differential for square footage as well in the sales comparison approach.  They generally will look within a 1/2 mile radius or same general neighborhood if there are roads that dissect one neighborhood from another, and they also like to find comps within a 6 month period of past sales, but can go out to a year if need be. If the properties are in rural areas, the comps will be run differently as opposed to urban/suburban properties metrics.  Appraisers look at the overall condition of the property.  For example, if you were to just update one bathroom, and the kitchen partially, but the rest of the house is dated, you will get a "dated" rating.  Removing any items that make the property look dated like green toilets, blue sinks, pink tubs can help, updating all the light fixtures, removing old carpet to expose hardwood floors, removing wall paper and painting can all help with an appraisal.  Hope this helps.  

I have literally reviewed thousands of appraisals. As a general rule the most important things are going to be the comps and location. The appraisal generally consists of 6 comps, 3 are going to be currently for sale like properties, and then 3 are going to be recent sales preferably within the last six months. Obviously area dependent but you want all comps to be within a half mile and not cross any major roads. There are other things like condition that are rated 1-5 and market approach, but comps are the real driving factor behind appraisals.