Home Valuation, Appraisal Process = Snooze Fest... Not Really, Here's Why!Mar 03, 2021
I know what you are thinking...home valuation, appraisal process, blah, blah, snooze fest, boring! Not so fast! Have you ever thought about what the term "valuation" means? Let's break this down. "Valuation" means setting the "value" of something. The word "value" means worth, as in "monetary" worth. "Monetary" is money. Money is an intriguing topic and people are always looking for ways to make more money. Hmm...now looking at home valuation and the process as "the amount of money" a home is worth it doesn't seem quite as boring and you might even want to learn more!
In the early years of being married to a certified residential real estate appraiser I would hear words like "valuation", "comparable sales", "adjustments", "quality rating", "home sketch", "gross living area", "gross building area", "ARV" and "site visit". These words sounded like Charlie Brown's teacher saying, "Mwaa, mwaa, mwaa," to me! I had been investing in real estate for over 5 years before marrying an appraiser, yet I did not see the importance of really understanding these terms or how applying this knowledge could help me make smart decisions and avoid costly mistakes.
In 2012 we remodeled our first home. During the planning of the renovations John would say things like, "You know we won't get much return if we do that." and "Changing the shower door might bring this bathroom up to a Q3." After asking, "Why won't we get much return and what is heck is a Q3?" I began to realize and understand that he looked at the renovation project through the eyes of an appraiser and I did not.
That's when it clicked for me. If our goal was to increase the value of the home so we could make money and the value would be determined by an appraiser then we needed to "think like an appraiser" to decide how and where to use our renovation dollars. We started creating spread sheets to
- analyze comparable sales for buying
- determine the quality rating of remodeled homes in the area
- determine the ARV (after repaired value) of a home
- determine the amount to spend on a renovation
These spread sheets helped John show me how to "think like an appraiser" and we had a concrete evidence to support our renovation decisions. We made our decisions based on our comparable sales research. If the research did not support one of my crazy ideas then we did not do it. This helped us avoid many costly mistakes!
We do a lot of research before finding a home to renovate. We are cautious and rely on the research. As a result, we do not do a high volume of value-add projects. If the numbers don't make sense then we just will not do the deal, even with a value-add rental.
We have streamlined our methods through the years and now have a great "blueprint" that we use to analyze the buy, the quality, the ARV, and the renovation amount. I no longer think of the valuation process as boring. I now understand that for a renovated home to receive a higher value without overspending and make money, you must "think like an appraiser".
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