Judy Leister, an appraiser and co-owner at Northwest Appraisal in Boise, was recently asked a series of general questions about the appraisal industry – mostly regarding residential appraisals – in the Treasure Valley. She provided the following answers:
Q. What is the difference between assessors and appraisers? Do they place different valuations on properties, and why?
A. Assessors and appraisers both value properties. Let’s just deal with real estate properties (the alternatives being personal property and business property, excluding real estate).
Appraisers value properties as of a given date, typically the date they inspected the property, but not always. This can be any day, month or year (but usually not in the future).
Assessors also value properties, but they do almost all of it as of Jan. 1 of each year.
Appraisers inspect the property, go out and find sales of similar properties to compare to, look at costs to rebuild the property if the property is fairly new and typical; and, if the property provides income, they may consider the value of the income stream.
Assessors use mass valuation techniques (statistical analysis) to raise or lower values of most properties in a given year. This is based on sales prices, overall, of relatively similar homes (properties) in a given geographic area. This is how about 80 percent of properties are assessed.
Occasionally (about every five years) an area will come up for reappraisal. When that happens the appraisers on staff with the County Assessor’s office will go out and look at the outside of the property and perform an appraisal. This sets a value for the property which, in subsequent years, is raised or lowered according to the assessment process described above. The appraisal is always done as of Jan. 1 of the year regardless of when the appraiser looks at the property. (Houses built during a year are an exception.)
There are industry-wide standards for appraisals and every appraisal is expected to meet these standards; however, the client (person for whom the work is done) can call a lot of the shots.
For example, some clients want a very detailed study of what it would cost to rebuild a property, and some don’t. Some clients want all of the comparable properties to be sales within a certain physical radius (say 1/2 mile).
Some clients don’t care about proximity but want you to use similar neighborhoods with homes of the same age. For example, you might compare parts of the North End to certain areas on the Bench.
Fannie Mae, Freddy Mac, FHA, VA and Jumbo loan providers all have different requirements. The county, as the client of the assessor, also has different requirements for its appraisals, so an appraisal for the county could be very different from an appraisal for, say, an FHA loan even if they were both done by qualified appraisers.
But the big difference is date. Most fee appraisals are done and the client gets the results right away. What’s my home worth? The appraiser comes out and inspects and you get the value in about a week.
With the assessor’s office, the appraisal is always done as of Jan. 1 and you get the results in May or June. This means that if a house just like yours sold in August 2009 for $100,000 but in January the same floor plan in your area sold for $80,000 and in March for $75,000, when you get your assessment in May they won’t be able to use the last two sales because they happened after Jan 1. Your house may be assessed at $100,000. You know that’s wrong because you know what houses in your neighborhood are selling for. And if you don’t look at your assessment until you get your tax bill in November, it’s even worse because now it’s almost a full year later.
Nobody cares when the market is going up (obviously.) But people being how they are perceive a great injustice if the market is rapidly falling.
I’ve referred to houses here, but basically I think it all works pretty much the same, except often the appraiser is dealing with income, too.
I think they [assessors] are hampered by an overlying attitude, right from the top down, that everyone is always trying to cheat on their taxes by insisting that their property is worth less than it is. It’s understandable but very annoying and it does predispose them to value higher than may be realistic in a downward trending market.
Q. What is looked at when the appraiser is gauging the value of a home?
A. We look at the tangible and intangible things that give or take value away from a property. In other words, we try to mimic a typical buyer’s reaction.
Here are some of the things we look at:
• Were there any sales concessions (did the previous owner also include all the new leather furniture with the purchase or did they pay $10,000 worth of closing costs or prepaid loan fee for the purchaser)?
• Was the transaction a normal fee simple deal or was there something else to consider (like, maybe it was a state cottage lease up on Payette Lake and the state will own the land)?
• What’s the design of the house? A single level, 2,000-square-foot home might be worth more than, say, a 2,000-square-foot skinny little three-story. Is the floor plan good?
• What’s the quality of the construction? What is the wall construction like? Are the windows wood clad or metal? Hardwood floors or vinyl? Formica or slab granite?
• What’s the age of the property? Is it 20 years old or new?
• What condition is it in? Like-new or trashed? Has it been well maintained?
• How many bedrooms, baths, square feet does it have? Does it have a basement? Is the basement finished?
• Is there anything strange about it? Is the only bathroom off the kitchen? Is the patio only three feet wide? Is there no room for a normal kitchen or dining room table? In other words, does it work right in its use?
• Does the property produce income and how much? And then we adjust for other items that add value in the eyes of a buyer like heating and air conditioning, patios and decks, appliances, hot tubs, fireplaces, fences, landscaping, etc.
Other items are looked at, at the discretion of the appraiser, depending on the type of property.
Q. Along the same lines, do some factors weigh into the overall assessment of the home more than others?
A. Sure – lots of things. A three-car garage versus a single-car garage will typically be given more weight than a hot tub.
Some of the most weighty factors are more intangible – for instance, location. We all know how important that is. Each property is different.
Q. Why do appraisals fluctuate and how is that determined?
A. Supply and demand. Whether we want to believe it or not, our local population is decreasing as people leave to find work elsewhere. This contributes to an oversupply already in place through overbuilding and overdeveloping of lots.
Foreclosures add to the oversupply of properties available for purchase and nothing is worth more than a buyer can find a reasonable substitute for at a lesser price. Given two similar properties, a buyer will usually buy the cheapest.
Q. How and why does the market factor into the appraising process?
A. Property values move up based on increased demand backed up by the power of people to purchase. They move down on the opposite. Right now we have an oversupply and some lack of purchasing power due to unemployment and uncertainty in the economy.
Appraisers can make adjustments for the market moving up or down. If statistics prove that a market is dropping 1 percent per month, for example, an adjustment can be made. Similarly, if the market is going up rapidly, an upwards adjustment can be made to the final value.
Q. On what factors should commercial building valuations be based, in your opinion?
A. Net income for sure and also some of the physical properties which are too numerous and varied to list here. Each property is different. The best rule of thumb is to try to mimic the actions, desires and concerns of qualified buyers in the market for that particular type of property.
If people are picking properties up from banks at half the price it costs to build them or half of what they sold for two years ago, then that is a big factor in the value.
Remember, normally people don’t pay more for something than they can go out and buy a reasonable substitute for. If a significant part of your market is repossessed properties, then that is your market. Deal with it.
Q. Is there less work for appraisers right now, due to the downturn in the economy?
A. Yes. And there will be even less if sales fall off as the first-time homebuyer subsidy ends.