How Appraisers Arrive at Value

How far away from the subject property (geographically and in time) can an appraiser go to find comps?

Jason Ault: It depends on the property. If sales are few and far between, we have to go as far away or back in time as you would need to find something that makes sense. We need something to compare it to. We do have guidelines. For residential properties in urbanized areas, you have to get as close to the subject property as you can. You look for similar property types. You don’t want to cherry-pick and skip over good sales because you’re trying to reach the contract price or a pre-determined value. But if you can make the case that there are no comps close by, it is appropriate to go farther.

Candy Cooke: What I ask is: Where would your buyers go? What would appeal to the same buyer? The example I always use is the double-wide on 10 acres. You may have to go to a couple of different counties to find comps for that. It’s different than, say, a house in a subdivision in which another house would appeal to that same buyer. Regarding how far back, the Federal Housing Administration allows you to go back 18 months, but I haven’t done that in years. Commercial you can go back five years. Then you look at appreciation. But what you really want are the sales that are close in time and similar.

What do you do when the property doesn’t have good comps, such as a custom-built home, a home with features uncommon in the area, a home on a different sized lot, etc.?

Ault: First of all, we have to try to find something to compare it to, something as similar as possible. And sometimes that’s impossible. That might make it potentially difficult to market. There may be market resistance to that. We may have to use something that is not the same and find something to base our determination of value. Maybe it’s something that’s available in other parts of the county or state. We have to use the best available data and go with that. I can tell you that won’t be any appraiser’s favorite assignment.

How do you determine an appreciation rate for comparable sales?

Ault: You try to derive that from the market. It’s sales. If sales are happening right now, you can look back 12, 18, or 24 months to see if there’s a trend. If appropriate, you’d get an appreciation or depreciation rate and divide it out to find out how much it is per month. There are going to be flat spots. It’s the average over time.

Cooke: It’s not just appreciation rates. The rates go up and down. It goes both ways. We look at historical data and graph it out. What were they selling for a year ago? That’s why it is so important to have good MLS data.

Can new-construction homes be compared to resale homes for the purpose of appraisal value?

Ault: New construction homes could be, if appropriate. There’d need to be an adjustment for the age of the resale homes.

Cooke: You can but I don’t like to. Will that perk or premium feature stay that way? Will that corner lot become a busy intersection when the subdivision is built out? Will that scenic view be there five years from now? The same questions could be asked of special materials or technology. Again, it’s about finding the best possible comps for determining value.

Do appraisers use inspection reports when determining value of a property?

Ault: We can, if we have access to it. It’s a good way to determine if there’s a major problem. Appraisers are looking for what’s readily observable. It’s different than what a home inspector would see. If one was made available, it could be useful.

How Much Is That Upgrade Worth?

How do appraisers figure out how much to adjust for upgrades to homes?

Ault: We try to find the market’s reaction to that amenity. Some things are going to bring in additional value, while others won’t. Some upgrades will be considered a superadequacy—that’s an improvement that goes beyond what the market will pay for it—or even a detraction. My favorite example of this is a smaller, basic home in an affordable neighborhood, no garage or a one-car garage, maybe a three bed/one bath, and it has a swimming pool. A pool isn’t going to bring you anything in that neighborhood. It may even be a money pit. Now, in an area with much larger homes, where pools are a common feature, it will be worth more money. But it’s all about the market reaction. If it’s difficult to find one, if that pool is an unusual feature, well that’s a good indication the market is not necessarily showing much need or demand.

Cooke: The appraisers don’t decide the value of upgrades. Buyers decide how much that upgrade is worth in that market, and it’s the appraiser’s job to find that information from similar sales. A pool in South Texas is worth a lot. A pool in Amarillo, where you can’t use it all year round, is worth a lot less. How much are homes with pools selling for in Amarillo? This is important to emphasize: it is not a dollar-for-dollar thing. Cost does not equal resale value.

Has the popularity of outdoor covered living spaces started to add value? If so, how is that value determined?

Ault: Again, it depends on the location and type of property. There are all different types of quality and expense levels. If it’s something you typically see in that market, yes. If not, it’s a superadequacy.

What factors go into assessing the value of a pool?

Ault: Again, market acceptability. If it’s not common, and it could be an extra expense not typically undertaken in the market, the value is going to be less. If pools are common, and it’s what the market demands, it’s worth more. As the home sale price goes up, the size, complexity, and features of the pool might, too.

Cooke: Before COVID, I used to drive everyone nuts by saying a pool is worth $5,000 to $7,500, because that’s what it costs to fill the hole in the ground if you wanted to get rid of it. A lot of pools were filled in. Then during COVID, no one could go anywhere and the market valued it at $50,000. We’re now past that. It’s not as far down as it had been, but it’s nowhere near where it was. People are not willing to pay for a pool what they paid four years ago.

It seems that subjective adjustments to value (such as location differences) are rare these days on appraisals. Is that true? If so, why?

Ault: Appraisals have to be based on facts, usually numeric data. If you’re just pulling values out of thin air, that’s a really quick way to find yourself in trouble. Lenders, especially working with government sponsored loans, are looking at appraisals for non-fact based bias. You can’t just make up an opinion.

Cooke: It isn’t the appraiser who’s picking the adjustments. It’s what the market is telling us. It’s the buyer and seller who have agreed on what something is worth. We have to make sure we support any adjustment we do. And it can’t be based on my 40 years of experience and this is how it’s always been. We have to come up with the data and use real information.

What Happens If…

How does an appraiser complete an assignment if the property has no electricity?

Ault: There are some circumstances when that does come up—a foreclosure, for example. We wouldn’t be able to test items that required electrical service, such as lighting, heating, and cooling. There are some types of loan products that require some testing. It would be difficult to complete an appraisal without electricity. We may have to make that a requirement to have it activated and go back to check that. It also poses some safety issues. It could be a hazard when showing or appraising.

Cooke: Paragraph 7A of the One to Four Family Residential Contract (Resale) says the seller has to keep the utilities on while it’s under contract. We have to be able to run the faucet and flush the toilet. New construction doesn’t have that, so we do have to make some assumptions.

In situations where a major repair (for example, a new roof) is scheduled but not completed at the time of the appraisal, is that factored into the appraised value?

Ault: We could appraise the property with the conditional requirement. It would be subject to completion of the new roof being installed. If it’s new construction, it’s subject to it being completed.

Are basements and attics included in the total square footage if air conditioned?

Cooke: The American National Standards Institute counts anything below grade on a separate line item. So basements are not included in square footage. For attics, if it’s at full height, you can have regular access to it, it’s heated and cooled, it can be counted. But if there’s a sloped roof, or you can hardly stand, or you have to pull down the stairs to access it, it isn’t included in the main square footage. That doesn’t mean either space doesn’t have value! It just isn’t counted on that line item.

I know square footage can vary depending on who is measuring. How does the square footage used by the appraisal district change without someone from the appraisal district visiting the property?

Ault: Sometimes they’ll use aerial photography or satellite photos. They can look at photos year over year and tell a property’s had an addition put on. From there, they can estimate how much more square footage. It’s not uncommon.

Cooke: Sometimes, if they have a sketch, or if the house has been measured by a viable service, districts can make the change.

For FHA and VA appraisals, what repair issues will prevent a buyer from closing until the issue is repaired or replaced? I’m specifically interested in windows, electrical, septic, plumbing, wells, and others. Are there standards for this, or is it left to the opinion of the appraiser?

Cooke: There are standards. FHA has a guidebook, Single Family Housing Policy Handbook 4000.1, at hud.gov. VA has them, too: the Lender’s Handbook — VA Pamphlet 26-7. They want to make sure that this borrower, who is making this big jump to homeownership, is going to be able to afford to live there, that this is a livable place, and that there aren’t major repairs needed. They’re looking for safety, security, and soundness.

What Can I Do?

What are the best ways for agents to factor in the value of upgrades before the appraisal is done?

Ault: They would need to do adjustments on their CMA. The easiest way is to put your property next to the comps and make your adjustment. It may also be worth a call to your friendly neighborhood appraiser or ask other agents what they’ve encountered.

Cooke: Section 535.16(C) of TREC rules says an agent must do a CMA when negotiating a listing. They have to have the ability to look and research in the marketplace and see what other people are paying for things.

What items do agents provide in an appraiser packet that are not helpful? What items are the most helpful?

Ault: We like to know all of the data we can get. We operate off of data. If they know about an update, such as an improvement to the wiring or plumbing, we can factor that into the equation. There’s not anything necessarily bad to put in the appraisal packet. I do appreciate appraisal packets from agents; I like seeing where they came up with the list prices.

What are the benefits—and any drawbacks—of appraisers receiving a copy of the contract prior to the appraisal?

Cooke: It’s mandated. It’s a federal requirement. They require us to look at it. We’re required to analyze it.

What forms of accountability are there for appraisers and appraisals when mistakes are made that affect the value of an appraisal?

Ault: If it can be corrected, the appraiser can be alerted and the change can be made. There may be times when that’s not possible. At that point, it might be appropriate to talk to the lender and let them know. The lender might want to pursue that. If it was an egregious mistake and it’s not able to be handled through other means, the last resort is to make a complaint with TALCB. It’s like filing a complaint with the state licensing agency against a real estate practitioner—when everything else is exhausted.

Cooke: We do make mistakes. In those situations, the client would go to the lender. They can’t go to us.

How can agents and appraisers improve their relationships?

Ault: I encourage appraisers to go to association events like luncheons to meet the agents. That’s one way to build rapport. Agents should be reaching out to appraisers. That’s another good step. Sometimes that’s not always possible, or the appraisers aren’t always amenable to it. But that first step is key to establishing a professional relationship.

Cooke: We need to get to know each other. Interact. We could use some help. I would love to see education that counts for appraisers and agents, so we’re in the same room together. A lot of people don’t know the other role.

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Insights and tools for working with appraisers

The Texas Appraiser Licensing and Certification Board has resources for you.

It’s a common misconception that it’s hard to get an appraiser on the phone, says Melissa Tran, Director of the Texas Appraiser Licensing and Certification Board (TALCB). Agents may even incorrectly think appraisers don’t want to talk with them at all.

Not true, says Tran. “Appraisers are walking a fine line,” she says. “They’re working for the lender and required to be unbiased. But they do need to work with agents in order to do their jobs.”

Appraisers are working under significant time constraints. “Everyone wants their appraisal done yesterday,” Tran notes. And there’s fewer of them than you: In October 2023, there were roughly 7,521 licensed appraisers in Texas compared with 232,120 licensed real estate agents and brokers.

TALCB was founded to safeguard consumers in matters of real property appraisal services. But it also offers resources to others—including the public and real estate agents and brokers—to help make the appraisal process as smooth and professional as possible.

You Can Search Online

TALCB publishes informative articles in its News and Articles section of its website, talcb.texas.gov.

The site also features a license-holder search function. “If you need an appraiser, you can look up ones in your area,” Tran says. “If you need to file a complaint, you can look up the license holder to make sure you have the correct information you need.”

You Can Ask the Lender for a Reconsideration of Value

Appraisers can talk with you and your clients but they cannot discuss confidential information, such as the appraised value.

If you and your clients believe some part of the appraisal was incorrectly valued—and you have materials to back up your opinion—you can ask the lender for a reconsideration of value, Tran says.

Perhaps you have found more applicable comps or more detailed information on an upgrade that would warrant a second look. You can share these with the lender, who will send them to the appraiser.

“It’s an opportunity to revise it,” Tran says. “And it’s not adversarial. It could be the appraiser might have missed that information. It’s a more effective and practical way to get a resolution.”

TALCB doesn’t get involved with reconsiderations of value, but Tran promotes the practice as a strong tool for resolving concerns.

You Can File a Complaint

Members of the public—including real estate agents and brokers—can file a complaint against a licensed appraiser on the TALCB website.

The board offers detailed guidance about what TALCB can do and what you can expect. The Complaint Overview Handbook is another resource.

The most important takeaway is that complaints are not resolved quickly. “It may take as long as a year,” Tran notes. “We do not get into the middle of disputes between appraisers and agents. We are there to ensure that appraisal standards are being upheld.”

TALCB thoroughly investigates complaints. The board assigns the complaint to an appraiser investigator, a former appraiser who knows how the process works. Following the investigation, the complaint is sent to TALCB’s legal experts for resolution. You can learn more at talcb.texas.gov/public/filing-complaint.

You Can Reach Out

Real estate agents and brokers can contact TALCB through the board’s Contact Us page.

“If you have any questions, please feel free to reach out to us and we’ll do what we can to help you,” Tran says.