During periods of economic growth, when home values are typically going up, most homeowners do not question appraisals much.  In times of turmoil when property values are declining, home owners/sellers and even listing agents quite often question appraisals.

An appraiser is looking at several things when determining the value of a property: improvements, size and square footage of the living area, neighborhood amenities, location and the market trends around the area. It all boils down to comparable sales to the subject property.

Since the appraised value of home is a key element when considering a purchase or refinance, the following are the top four most common questions about appraisals asked by sellers:

 “I just put a lot of $$$ into the property, why isn’t the appraised value higher?”

Not all improvements to the property are equal in producing added value. A local real estate investment club used to tout buying a run-down, roach-infested property cheap, and after de-bugging and adding a fresh coat of paint and carpet – *presto* – the house would appraise like the new homes up the street.

Even with cosmetic repairs, the property may still be much more comparable to the foreclosure next door than the new home a block away.  Consider the condition of the property, i.e. are the systems updated, operating…and then the number of beds/baths and square footage, and then any cosmetic improvements.

“What my home doesn’t compare to properties in the neighborhood but is comparable to homes in a nearby neighborhood?”

If a homeowner preparing a house to sell adds $150,000 in upgrades to the kitchen, built-in cabinets and flooring, it may help the property show better in an open house and in magazine advertisements. Even though the neighborhood across the main street had similar homes in the higher price range, especially after the seller’s extensive upgrades, appraisers will always use homes from the actual neighborhood to establish value first.  Proximity is the key. The seller simply over-improved their home for their specific neighborhood.

“Can the appraiser include foreclosures as comps?  That’s not fair”

It isn’t fair, especially if your home is well-kept and in great condition compared to the run-down foreclosures in the neighborhood.

Unfortunately recent comparable sales are considered, including foreclosures. The appraiser is forced to use all recent sales and trends. High foreclosure rates generally depress values and show a trend of lowering prices. 

And abnormally high foreclosure rates generally depress values and show a trend of constantly lowering value.

How can similar homes in the same neighborhood appraiser for such different values?”

This is a typical question for older neighborhoods where similar models may have drastic price differences. Additional rooms and square footage can be the main reason for one property appraising higher than another.

Just because the market trend in a particular neighborhood is improving over time, the individual properties need to meet the same conditional improvements as the others in order rise with the tide.

St. Louis MORTGAGE INTEREST RATES for September 5, 2012:

• Conventional 30-Year Fixed 3.3.625%/ 3.678% APR
• Conventional 15-Year Fixed 3.00%/ 3.094% APR
• Conventional 5/1 ARM 2.625%/ 3.321% APR
• FHA/VA 30 Year Fixed 3.750%/ 4.524% APR
• Jumbo 5/1 ARM 2.750%/ 2.427% APR
• Jumbo 15 yr Fixed 3.375%/ 3.630% APR
• Jumbo 30 yr Fixed 4.750%/ 5.010% APR*The above mortgage rates are based upon an 80% LTV, o/o single family with FICO scores of 720.

Paramount Mortgage is a locally owned Mortgage Banker celebrating our 41^st year. Great rates and programs are secondary to what is most desired in a lender relationship: Integrity, Communication and Customer Satisfaction. Be to check out our website: www.paramountmortgage.com

For more information or if you have questions on mortgage rates you may contact me by phone at my direct line, (314) 372-4319, email at rfishel@paramountmortgage.com or you can visit our company website at http://www.paramountmortgage.com.