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The science behind appraising a Corridor home
By Michele Lerner | Contributing Writer
Originally published April 2008  Ron Freeland, a certified appraiser with Accurate Appraisal Services in Woodstock, measures the exterior of a home in Pasadena as part of a routine appraisal. Photo by Marilyn DiMarco.
It turns out Money magazine had just listed Catonsville as one of the best places to live in the country, adding to the home’s desirability.
“It just shows you, that ‘location, location, location’ thing isn’t just a saying, it really does make a difference in home values,” said Freeland, a
certified appraiser with Accurate Appraisal Services in Woodstock
in Howard County.
But not every house can be in a desirable location.
In this slowed real estate market, home appraisers face the daunting task of setting a value on each home, a job made far more difficult in a shifting marketplace like the Baltimore-Washington Corridor.
Appraisers rely on comparing recent sales of similar homes to determine a home’s value, adding or subtracting value based on the home’s features and condition. As sales slow, finding a comparable home becomes more challenging.
“A definitive appraisal would compare four row houses next door to each other, but the extreme opposite is just as likely, where the nearest comparable home that has sold recently is 15 miles away,” said Freeland.
As part of the fall-out from the tumbling real estate market, some appraisers have left the business in search of a more lucrative profession, hoping to return when the pace of home sales picks up.
For those still in business, nearly every job has become more complex, with home valuations taking longer to compute than when sales were brisk. Appraisal prices remain the same, averaging $300 to $450.
Carlton Mitchell, a certified appraiser and owner of the Carlton Group in Silver Spring, said that slower sales create the necessity to go outside a subdivision to look at another neighborhood of similar style and price range.
“If you look at what didn’t sell for the previous six months, you know that the value of the house you are appraising should be less than the asking prices of those expired listings,” said Mitchell.
Mitchell takes into account the historic view of 12 months to five years of home values in any neighborhood when he is making an appraisal, but the most important data is the freshest, including homes under contract and those with price reductions.
Seller incentives, popular in this slower market, must be taken into consideration when evaluating a home’s value. For example, if a comparable home sold for $400,000, but the seller gave the buyers $20,000 in closing cost aid, then the home’s true price was $380,000.
The real estate business is extremely local, so while one neighborhood may have seen tumbling values, others in Maryland have remained stable.
“The areas that have been the hardest hit with dropping prices are the peripheral areas where home prices jumped way too high a few years ago,” said Freeland. “Most of the appraisals I do, especially in Baltimore, are up a little over comparable homes.”
Appraisers sometimes experience pressure from lenders to elevate a home’s appraisal to meet a goal.
“Lenders often start a conversation by saying ‘I need this price, can you do it?’” said Mitchell. “If we even answer a question like that we are in violation of our appraiser’s license restrictions.”
Mitchell said that realtors highlight certain aspects of a home to raise the value, which he believes is appropriate for their job as sales people and does not create undue pressure on appraisers.
Realtors themselves do a comparative market analysis to advise their sellers and buyers of appropriate pricing.
“Some appraisals only go back three months to look for comparable sales, but they can be very skewed,” said Aidan Surlis Jr., a realtor with Re/Max Leading Edge in Gambrills. “For instance, if there have been very few sellers in a subdivision, one distressed seller can have a huge impact on home values.”
Surlis said that it is more important than ever to work with a realtor and appraiser intimately familiar with a particular neighborhood. Surlis said buyers are sometimes told to automatically offer 10 percent less than the asking price, but he believes that is fundamentally wrong.
“You have to start with what the house is truly worth by looking at recent sales and ignore the listing price, because it could be too high or too low,” said Surlis.
Pricing homes is both an art and a science, according to Yolanda Muckle, a realtor with Long and Foster Real Estate in Mitchellville.
Muckle shows sellers what is selling and, equally important, what isn’t selling, not just on their street but all over town. Recently she compared prices of homes in all of Prince George’s County to help price a home with a first floor master suite.
Muckle said many sellers are choosing to price their homes at the most recent sales price or 5 percent below the sales price of a comparable home.
“It’s important to look at what has sold and what’s under contract because those are the homes that people have actually bought, unlike homes that are just listed for sale,” she said.
Michele Lerner is a contributing writer in Washington, D.C. |
