What the seller, buyer and appraiser consider the “value” of a house can be vastly different. The seller is likely to focus on all of the benefits of the house to drive a higher sales price. The buyer is more likely to pick out the problems to negotiate a lower price. And the appraiser is meant to be the neutral party to determine the actual market value of the home.

The appraiser’s job is critical as it protects both buyers and lenders from paying more than the market value, and they must comply with regulatory standards. To determine the market value, appraisers typically follow the Uniform Standards of Professional Appraisal Practice (USPAP) guidelines. These guidelines include evaluating the house itself, such as checking out the general condition and evaluating any upgrades, the neighborhood and comparable sales.

Appraisers usually refer to sales within the past few months, but with home prices rising so quickly this past year, they’re looking at more recent sales to get a real-time picture of the market.

“Traditionally, we looked at homes that sold three to four months ago. That always worked well. But now, we have to look at what’s going on today, what’s under contract (and) what sold last week,” says Mary Davis, a licensed appraiser at C. Howard Davis Appraisals in Memphis, Tenn.

The appraiser can change the appraised value of the property if the market changes. The type of changes that affect the real estate market could be anything from mortgage rates spiking to a natural disaster.

To change an appraisal based on outside influences, appraisers have to create a detailed analysis of why there’s been a material change and what caused it.

Because the appraisal is so integral to securing financing, real estate agents, sellers and buyers can get frustrated if the appraisal comes in low, especially if an equivalent home in the surrounding area has sold for what your home is listed at.

However, just because one buyer paid over the appraised value for a home in your area doesn’t prove that the market value has gone up. This sale could be an outlier, which is why appraisers have to look at several comps to establish value, says Karen Mann, an appraiser at Mann and Associates in Discovery Bay, Calif.

Another issue appraisers run into is renovated houses that have “over improvements,” which means that the home’s upgrades are excessive for the neighborhood. This is also known as functional obsolescence.

Usually, upgrades that fall into this category don’t count toward the value of the home. A good example is a home with a pool; if it’s the only pool home in a 5-mile radius, then that feature probably won’t be included in the appraised value. Natalie Campisi,  Rachel Witkowski -Forbes Advisor

THOUGHT FOR THE DAY: The Way I See It, If You Want The Rainbow, You Gotta Put Up With Rain (Dolly Parton).

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