As divorce attorneys specializing in family law, the recommendation of a real estate appraiser is often part of the process. Recommending a good appraiser can help make for a smooth process in a time when those involved can be on edge. Knowing what to look for in the appraisal as well as how to question the adversarial appraisal are also important. So as the attorney, what are the most significant aspects when dealing with a real estate appraiser?
There are 4 aspects to consider when choosing an appraiser:
Credentials – Appraisers start out as apprentices for a couple years working under a supervisory appraiser. Once they meet the required field and classroom hours, they can take an exam to become licensed. A licensed appraiser is limited to valuing properties under a million dollars. After more field and classroom hours, they can take another exam to become certified licensed. This is the highest level on the residential side and does not have a limit for appraised value. When dealing with a commercial property, a general certified appraiser is needed. For residential properties, I would recommend a certified licensed appraiser.
Experience – Experience in not only appraising is important, but in expert testimony as well. An appraiser will need to be competent in clearly explaining the report and showing support in their adjustments.
Reputation – Industry professionals can have a good or bad reputation. It is a good idea to speak with other attorneys to see if they have had any experience with the appraiser. It is also recommended to search online, like Google, to see if there are any reviews of the appraiser and see what others are saying about them. Effective communication to all parties involved is paramount as well.
Geographic Competency – I’ve seen some appraisers cover the entire state of NJ. This is simply a bad idea, as the appraiser will not be an expert in any particular area. When considering an appraiser, look at the distance from the office to the property being appraised. I would recommend it to be no more than 30 miles. Limiting to a few counties is the best way to become geographically competent. There are some towns that have particular neighborhoods that are more sought after and desirable and knowing those intricacies is an important part of valuation.
Once you obtain a copy of the appraisal report, where are the areas to focus? Typically, the report begins with a description about the “subject” property, or home being appraised. Have the homeowner review that to make sure it is consistent with what is actually there.
Sales Comparison Approach
Following the subject description is often the sales comparison approach or what looks like a grid comparing the subject property to recent selected sales. Know that the top half of this grid is far more important than the bottom half.
The top half shows significant features like:
The bottom half shows less significant features like:
Reconciliation of Value
Appraising is an art, not a science. There is not a standard formula used, this is why you see different values on sites like Zillow, Trulia, Refin, etc.
After quantitative adjustments are made for differing features between the subject property and comparable sales, an adjusted value will be given for each comparable. At the bottom of each comparable, there will be percentages for the net and gross adjustments. Know that the lower these numbers are, the more similar and stronger the comparable is for this report. The appraiser takes into consideration many factors and the percentage of these gross and net adjustments should certainly be one of them as it measures the strength of the comparable.
There are several parts to look for when reviewing an appraisal. Here are a few:
Bracketing – Bracketing means that a feature the subject property has should be bracketed by the comparable sales features. For example, if the subject property has a gross living area of 2,000 sq ft, the comparable sales should have at least one that is lower and one that is higher. If you see all of the comparables at 2,500 sq ft or above, it may be worth questioning the opposing appraiser. Bracketing all features is often not possible. As stated earlier, the more important features are on the top half of the appraisal.
Consistency – Adjustments are made for differing features and sometimes mistakes can happen. For example, if a fireplace is adjusted at $1,500, make sure that it is consistent throughout and one isn’t mistakenly $15,000. While this wouldn’t cause a dramatic change in value, this would clearly be a mistake. Also make sure that if the comparables feature is superior, the adjustment is negative, and if inferior, it is positive.
Adjustment support – How did the appraiser support the adjustments? Quality and condition adjustments are more of a professional opinion. When it comes to gross living area, lot size, location, market condition, and age – market support is imperative. This data should be included in the report. If it is not, the appraiser should be asked how they derived them. A professional opinion for these items will not uphold in court. Adjustments based on market data is necessary.
Location Map – Take a look at the location of the subject vs. the comparables on the map. Are they all in a tight cluster? Are comparables located on the other side of a major road in a different neighborhood? Are they located next to train tracks or high tension wires? The location of the comparables can certainly impact value and location adjustments may be necessary.
NU Codes – NU or Non-Usable codes indicate if a property is deemed usable or a non-usable deed transaction in determining assessment-sales ratio pursuant to Chapter 86, Laws of 1954. The NU Code can be found on the online tax records. There are a total of 33 codes. A comparable can come into question if it has a code and should be confirmed as an arm’s length transaction if it does have one. If it is marked with a 26 or 31, for example, this is a short sale or foreclosure and will likely be an ineligible comparable to use. Make sure all comparables are arm’s length transactions and deemed good sales to use for the appraisal.
Divorce attorneys will always look better when they recommend the better expert. For a reliable, professional and market supported appraisal, please contact American Realty Appraisals at 908-233-1337 today.
908-233-1337
908-233-1337