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Dear Kelly: I have a seller/client that wanted more info on an appraisal. One of his questions was "is the appraisal recorded with the county and will it affect taxes?". He's also afraid to get an appraisal because he's scared he's going to "get a bad one" and wind up with a severely undervalued home. What are your thoughts?

Answer: I get these questions often. First, an appraisal is a private document and the intended users of the report are controlled by the client - in this case -  your seller. Per Appraiser/Client fiduciary relationship, I do not share any information about a client's private appraisal with any other party or County, without the permission or authorization of your client. Second, In today's market, many sellers are proactive in ordering a private appraisal up front, prior to or during the listing process in order to be prepared, have knowledge of the value, be educated and double check the Realtor CMA in order to get the highest sales price the market will bear. In addition, an appraisal from a St Cert appraiser may be used to submit in case the client needs to challenge a lender appraisal or automated value (computer generated value) by lender. If your client does not like the appraisal results or the opinion of market value, then he or she simply does not need to share that private information with any other parties. If a second appraisal demonstrates similar results, knowledge of the appraised value up front in the selling process allows a seller to make a more educated decision with less emotion.
Kelly Kellogg 
The Appraisal Expert 
Author, "ABC's of a CMA, Comparative Market Analysis"
Buy the book at www.TheAppraisalExpert.com
  



Posted by Laura Vincent on February 17th, 2016 10:37 AMLeave a Comment

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Dear Kelly Kellogg, The Appraisal Expert, 407-644-8885 How do appraisers adjust for energy efficient amenities including solar power in the house? Answer: Energy efficient amenities may include various items such as solar power, energy efficient windows, spray foam insulation, energy saving appliances, LED lights, tank less water heaters and heat pump systems. The Appraisal Institute announced on October 31, 2013, that solar photovoltaic systems (solar power) typically increase market value and decrease marketing time of single-family homes in the Denver metropolitan area, a conclusion from a study performed in Denver, Colorado. The value given by local appraisers for the energy efficient items may depend on the cost of the energy efficient items, age of the energy efficient items, depreciation or wear and tear on the items, and most of all, the market reaction to those amenities. How much would a typical prospective buyer of that home be willing to pay for the "energy efficient package" or solar panels amenity? One should consider the actual cost of the solar power installation and depreciation (age, wear and tear). In other words, if a seller did a solar installation five years ago for a cost of $15,000, one could consider its maximum life span (remaining economic life), the wear and tear during the past five years (depreciation), the monthly savings the solar system provides, and most importantly, the market reaction, or perspective buyer's reaction to the solar amenity. If the solar panel system has a 25 year economic life, then it would be safe to say that it has 20 years remaining economic life which would be 20% of its original value. Therefore, the current approximate depreciated value would be approximately $12,000. The interesting thing about a solar installation is that, once installed, the homeowner begins saving money immediately. Now if we add the savings into the equation, then potentially, that solar amenity could be worth more. I have been told that the average savings for homes with solar installation saves homeowners approximately $50 per month on an average size home. It would be safe to say that a typical homeowner of an average size home may save $600 per year in energy bills. In 25 years, that would be a $15,000 savings which evens out in the end. In addition, let's keep in mind that as energy costs typically rise, the homeowner will save even more money on their solar panels. The question remains, how does an appraiser adjust for energy efficient amenities or how much would a prospective buyer be willing to pay extra for the energy efficient items package amenity? Regarding adjustments, if the home is "new" construction, then it would be safe to use local builder's prices of the energy efficient package that they charge to the buyer. Keep in mind that that cost should not exceed 10% of the value of the home. For example if the value of the home is $200,000 then the appraiser's maximum allowable adjustment for solar could be a maximum of $20,000 as long as the market or buyers support that. If a builder charges a buyer $18,000 for the solar installation on a new home, then an appraiser may adjust up to a maximum of $18,000 for a Comp that does not have the solar amenity. However, if a builder charges $25,000 for solar for a home that has a $200,000 value, the appraiser is capped at the 10% maximum adjustment of $20,000. On a re-sale, when the subject has an energy efficient package, the appraiser should include comparables with energy efficient amenities. However, if the appraiser includes a comparable that does not have the energy efficient package, if an adjustment is warranted, it is supported by buyers or market derived. For a hypothetical example of a paired sales analysis, let's assume that two homes sell in the same neighborhood and they have the same floor plan, are similar in quality and have similar locations and views, and the only difference is that one of them has an energy efficient package. A market derived adjustment could be extracted from the following equation: House A (no energy efficient package) sold for $200,000 and House B (with energy efficient package) sold for $205,000. The difference between the two sales prices would be the adjustment for the energy efficient package. The energy efficient package adjustment in this scenario is $5,000. That is a hypothetical market derived adjustment. In other words, buyers of similar properties paid an extra $5,000 for the energy efficient package amenity in this hypothetical example. That being said, appraisers may adjust for energy efficient amenities if the market or buyers are paying a premium for those amenities. The appraiser's adjustments are based on what recent buyer's have paid for those items. When providing an appraisal, the best scenario is for the appraiser to include comparables that have similar energy efficient or solar power amenities in order to avoid making an adjustment.

Posted by Kelly Kellogg on November 17th, 2014 3:49 PMView Comments (1)

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Typically, appraisers may make an adjustment for the difference between a four-bedroom home verses a three-bedroom home. One method appraisers utilize is linear regression analysis, which is used to determine an adjustment of an independent variable or a property characteristic. The adjustment is market derived, meaning what buyers in the subject's market area are paying, in this case, for the difference, if any, in bedroom count. I recommend that you research, "Linear Regression Analysis" to get a better understanding of this technique. To simplify this approach, one can research and pull 20+ (the more, the better) "comparable" sales of three-bedroom homes in the subject's market area and determine the average sales price for the three-bedroom homes. Then pull a similar number of sales of four-bedroom homes in the same market area and determine the average sales price for the four-bedroom homes. In theory, the variance between the averages of the sales prices should demonstrate what buyers paid for the difference in bedroom count. Keep in mind that this method may not be accurate if the selected comparable sales are not truly comparable. I recommend you refer to page 23 in "ABC's of a CMA, Comparative Market Analysis" by Kelly Kellogg for her definition of "Comparable". The book can be ordered on line at: TheAppraisalExpert.com However, if you have a one-bedroom dwelling that is your subject property, you shouldn't compare it to a two-bedroom or a three-bedroom dwelling. You should select other comparable one-bedroom sales for your analysis. Likewise, if you have a two-bedroom dwelling, you should use similar two-bedroom comparable sales. Typically, most buyers would pay more for a three-bedroom dwelling than they would pay for a two-bedroom dwelling, and, most buyers would pay more for a two-bedroom dwelling vs. a one-bedroom home. It would be best to utilize 3-bedroom sales for a 3-bedroom subject and 4-bedroom sales for a 4-bedroom subject, and so on. Kelly Kellogg, The Appraisal Expert 407-644-8885

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Posted by Kelly Kellogg on January 11th, 2014 9:35 AMLeave a Comment

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Dear Kelly Kellogg, The Appraisal Expert,

Is concrete flooring or exposed concrete acceptable to FHA?

 

Answer:

 

Exposed concrete, concrete flooring or concrete floor that is acid stained or painted is no longer acceptable flooring. It is considered to be exposed foundation to FHA and must be covered with a finished, marketable flooring. This issue is not clear because at one time FHA deemed it as an acceptable floor. However, it is no longer allowed for FHA financing.

Kelly Kellogg, The Appraisal Expert


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Posted by Kelly Kellogg on August 22nd, 2013 1:28 PMView Comments (1)

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Dear Kelly Kellogg, The Appraisal Expert,

We are getting ready to put our home on the market and have a porch that was enclosed and want to know if the enclosed porch can be included in the main living area under AC. What qualifies the enclosed porch to be part of the main living area of the house?

Answer:

In order to be considered living area, a finished enclosed porch must have air conditioning, be located under the main roof of dwelling or have a similar quality roof, and have finishes (floor, ceiling, walls, electrical) that are similar or better in quality compared to the main living area.  To further clarify, an "AC" means an AC vent or an AC unit with a vent that blows cooled air and hot air into the finished enclosed porch or room must be located in the finished enclosed porch/room.

Appraisers define the porch as finished or unfinished. A finished enclosed porch can be counted or included in the main living area of the house. An unfinished enclosed porch is not considered in the main living area of dwelling. For example, an enclosed porch that has vinyl windows and an aluminum patio style roof is considered “unfinished”. Another example of an “unfinished enclosed porch” is a porch that has thin glass windows, aluminum patio style exterior wall siding and no finished flooring.

A finished enclosed porch has good air conditioning vents where the temperature stays the same on a very hot or cold day when you walk from the main living area into the finished enclosed porch area. The floor, walls and ceiling are finished with quality and workmanship that are similar to the main dwelling. The finished enclosed porch must have good flow and good functional utility.

If your porch is an unfinished enclosed porch, it will not be included in the main living area, however, an appraiser may give it value, assuming it is considered a usable feature or amenity and has positive market appeal.


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Posted by Kelly Kellogg on July 30th, 2013 10:47 AMLeave a Comment

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Dear Kelly Kellogg, The Appraisal Expert,

When an appraiser has knowledge of a contract/offer price, does it influence their opinion of market value?

Did you know that when an appraisal is completed for lender loan purposes, the appraiser is required to review the sales contract? Complete impartiality is not out the window for a seasoned, well-trained appraiser. It is my professional opinion that we should be aware of and consider what prospective buyers are willing to pay for a home. An appraiser is to remain objective and utilize the most recent closed sales and active/pending comps in close proximity to the subject. A well-trained professional appraiser should keep in mind that a "Comparable" is what a typical prospective buyer of the subject would consider as an alternative purchase. As an appraiser, I must be able to substantiate and support my opinion of market value utilizing the most recent, similar comparable sales that are available in the subject's neighborhood while remaining impartial. It is rare that my estimate of market value is the same as an offer or contract price. My opinion of market value is typically above or below a contract price. Additionally, a good appraiser is aware that some buyers may submit offers above market to beat out other offers just to get their contract/offer accepted. Many of my cash buyer clients and Realtors have stated that they put in a contingency in the contract/offer that states that the contract is subject to the appraised value coming in at or above the contract price. They rely on the fact that an appraisal is an unbiased opinion of market value.


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Posted by Kelly Kellogg on July 17th, 2013 2:00 PMLeave a Comment

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Why should seller get an appraisal for listing purposes?

Dear Kelly Kellogg, Appraisal Experts, Inc.,

QUESTION: I sometimes think it may be an advantage to get an appraisal done prior to the listing. How would you explain this to your seller, why I would recommend an appraisal prior to listing the house, since I'm supposed to be the expert?

Nikki, Prudential Realty

Dear Nikki,

You are not alone. I often get asked this question! Here are the best reasons for your client to obtain an appraisal prior to listing:

1. Undoubtedly, the number one reason is to price their home strategically so it sells before the competition at the highest sales price the market will bear.

2. The current market and underwriter/lender requirements are constantly changing. An investment up front in an appraisal to learn about the appraisal process, how prooperties are valued, what an appraiser considers is most comparable, how the adjustments are calculated/applied will give you and your seller considerable knowledge about their market. This will assist you and your client in strategically pricing their home to sell and not sit on the market.

3. Recommending to your seller that he/she order an appraisal prior to listing lends credibility to your presentation. After presenting your CMA, recommend they get their home appraised to doublle check your analysis. You might suggest the seller pay for the appraisal fee up front and then offer a credit for the fee at closing. It ends up not costing the seller anything, but creates a commitment to you, helps you get the listing and more importantly helps you sell the house.

4.  An accurate, current appraisal can give your client confidence and peace of mind while negotiating a sales price. Recommend one or two well-trained appraisers with knowledge and experience of the subject's market area who will complete a thorough, supported analysis. This prevents any surprises on the back end!

Thank you for your inquiry. I'm confident this information will assist you in helping your clients.

Kelly Kellogg

Appraisal Experts, Inc.

KKellogg@Appraisal-Experts.com

407-644-8885

 


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Posted by Kelly Kellogg on December 17th, 2012 8:21 AMLeave a Comment

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January 10th, 2011 11:52 AM

Property values are determined by the market or buyers in the market area. In today's challenging market, it is crucial to strategically price your home competively in order to capture the next buyer that comes along. However, you don't want to list your home too low because you want to get the most amount of money for your home or listing that the market will bear. Homes that are priced too high or too low are detrimental to the seller, the listing agent and property values. It is more important than ever to hire the services of a professional appraiser prior to listing your home in order to get it sold before prices decline even further. When hiring an appraiser, I recommend you get a list of professional, experienced appraisers from your Realtor verses googling or refering to the phone book. When it comes to pricing a home to sell, this market is most challenging, even for many appraisers. A professional Realtor will advise their seller to get an appraisal from an experienced, State Certified Residential Appraiser in order to price the home accurately. In addition, an appraisal may provide useful information during the negotiation process between buyers, sellers, Realtors and lenders. The fee for an appraisal up front in the listing process may potentially save or make thousands of dollars for the seller. Selling a home that is strategically priced will benefit neighborhood market values versus not selling a home due to an over-inflated asking price, which may add to the decline in property values.

For an accurrate appraisal analysis, contact Kelly Kellogg, Author, ABC's of a CMA and State Certified Residential Real Estate Appraiser (FLRD 2727) at Appraisal Experts, Inc. at 407-644-8885 


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Posted by Kelly Kellogg on January 10th, 2011 11:52 AMView Comments (2)

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