WASHINGTON—Much to their chagrin, many buyers, sellers and owners are finding that their homes aren't worth what they thought. At least not in the eyes of the professionals hired to tell lenders what the places could fetch if borrowers failed to make their payments.
In a perfect world, the value of a property is what a ready, willing and able buyer will pay for it. But the housing market is imperfect at best.
For example, buyers sometimes will pay whatever the seller asks to get a house they've come to love, whether or not the price has any basis in reality. And in a few instances, buyers and sellers conspire to inflate the agreed-upon price to defraud the lender and line their pockets.
So, an appraiser, a trained valuation expert who can give the property the once-over and give the lender his or her opinion of its worth, is needed.
But the art of appraising is just that, an art, not a science. And though those who practice it hold the fate of sellers, buyers and refinancers in their hands, they are not gods. If you honestly believe yours has made a mistake, you can appeal his finding to your lender.
Start by finding out whether yours is a full-blown appraisal or an electronic one. More and more lenders use automated valuations, particularly in the home-equity sector, to speed the process and cut costs. But they are notoriously inaccurate.
AVMs, or automated valuation models, give lenders a 30,000-foot view of housing values, especially when they are lending only 75 percent of what the house is worth. But they won't do on a house-by-house basis when lenders are putting up 95 percent or more of the home's value.
Whether you are seeking a home-equity loan or a primary mortgage, ask to have your place valued by a person who looks at your specific house, compares it to others in the neighborhood, checks out the community and does all the things an appraiser is supposed to do. In most cases, lenders will comply, especially if you are willing to write the check to cover the several hundred dollars for a full appraisal.
If a real, live appraiser is responsible for a valuation you think has come in too low, your appeal becomes a little more problematic -- if only because you are dealing with people who, unlike machines, have feelings. So to keep your appeal from becoming an exercise in futility, do it with as much finesse as possible.
"When a lender reassigns the appraiser to take another look at a house," a real estate broker whose name is long forgotten once told me, "it's like telling him he screwed up the first time. How many people are going to admit that?"
Of course, you can always enlist another appraiser. But you'll have to pay the freight a second time, too. Moreover, to stand any chance of winning your point, the second valuation must be more than 5 percent higher than the first. Anything less is considered an acceptable difference.
But, even if the second appraisal is far above the first, the lender gets to pick the appraisal on which the loan is based.
While this may seem as if the cards are stacked, you can level the playing field by suggesting, firmly but nicely, that the appraiser assigned by the lender erred and requesting, again nicely, that he take a second look. And you can grease the wheel further by doing some of the appraisal spadework on your own. It may take time and effort, but it could pay off.
Your job is to search out "comparables" the appraiser may have missed.
A comparable is a property of the same size and style in the same location and with the same features as yours. To determine a fair-market value for the subject property, an appraiser looks for recent sales of several comparable properties.
Usually, however, they limit their search for "comps" to the multiple-listing service (MLS) operated by the local real estate association. So, they may not be looking at the entire market.
Though enough sales pass through the typical MLS that an appraiser should have little trouble finding comps, not every deal goes through the system. Independent brokers who are not MLS members make many of them, and some are made without the help of an agent. Then, too, some MLS members don't put all their listings into the system.
As a result, half of all transactions in some major markets occur outside the MLS. Your job is to find them. And to do that, you'll have to comb the land records at the local courthouse.
Remember, though, that you are looking for sales not just in the same general neighborhood. You want at least two, but preferably three, of the same style -- ranch to ranch, for example, not ranch to Colonial -- size and features. Also, sales should be no more than six months old, and the more recent the better.
If your search bears no fruit, turn your attention to the comps cited by the appraiser. Sometimes they are not really comparable.
While the appraiser is required to go inside the subject property and measure every room, he does not have to do the same with the comps upon which he bases his valuation. He may have been inside one or even two, if he has appraised those properties. But more often than not, his knowledge of them is based entirely on their description in the MLS or the public land records.
Often, those narratives are far from accurate. Sometimes, they're incomplete; other times, they're blatant advertisements. A "large, wooded lot" may have but one tree, for example. And wallboard is hardly a fair comparison to your lovely wood-paneled recreation room with its wet bar and fireplace.
The trick is to find as many differences as possible in your favor, differences the appraiser may not have known about or failed to consider. In other words, try to find undefined superficial values where the appraiser can say you are right.
One item often overlooked is the age of the comparable house; another is the size of the lot; and a third is room sizes.
Of course, this kind of detective work requires that you visit comps with pad, pencil, tape measure and a sharp eye for detail. It also helps that they have cooperative occupants who will let you snoop around.
Most appraisers are aware of their shortcomings so if your pilgrimage turns up major differences, they should be willing to re-evaluate their valuation.
"We're not arbitrary," says one expert who claims he has no problems changing his opinion based on new findings. "We're open-minded within reason. After all, we're only as good as the data that's available to us."
You may write to Lew Sichelman c/o Chicago Tribune, Real Estate, 435 N. Michigan Ave., 4th floor, Chicago IL 60611. Or e-mail him firstname.lastname@example.org. Answers will be supplied only through the newspaper.