With home values fluctuating the way they have in the last three years, appraisers are under increasing scrutiny from government agencies, lenders and mortgage insurance companies. Three years ago it was relatively easy to conduct an appraisal based of recent comparables and escalating property values. Today, the market is very inconsistent, partially because distressed (such as short sales, foreclosures and lender-owned) properties skew the "normal" market and makes value prediction more of an art than a precise science.
What are appraisers looking for in this market? Here are some of the things they are looking for (I have received many calls from appraisers to find out information about some of the listings I have sold recently):
1. Builder Incentives and/or Seller Concessions. Many times the contract selling price does not reflect the true NET for the seller.
2. Closing date. It used to be the case that appraisers could take comparables from 6 months back (even a year in certain cases!). Now they are looking at recent (i.e. last 60 days) sales only, given the rapidly changing landscape for residential markets.
3. Property Condition - repairs and deferred maintenance issues affect the value of the property. Many foreclosed and lender-owned properties are in poo state of repair and are being sold "as-is", at a discounted price. Appraisers need to account for this whan comparing different homes.
4. Changing Demographics and Market Factors. Is the area growing (or dying)? What is the relationship between supply and demand for that specific price range in that area? Is this a high unemployment area? When the appraiser writes in a comment such as "this is a declining market", lenders take a very careful look as the loan-to-value ratio, and make sure they have adequate room and protection.
5 Distressed Properties (Foreclosures). Although technically these distressed properties are not priced according to "free market" variables, if there are a few homes in distress, the reality is that prices will be affected negatively, since buyers look at these homes as bargain opportunities.
In summary, appraisers are having a much harder time now than before. They have to be more careful and conservative and incorporate factors that were not that important in an appreciating market.