Appraisal Landmines for Second Homes

by Melanie McLane
Chair, 2012 Resort and Second Home Real Estate Forum

Often, one of the biggest issues for REALTORS® selling second homes is obtaining financing, including getting a satisfactory appraisal. To effectively value a second home, the appraiser must be aware of the “relevant characteristics” of the property and how they impact value. “Relevant characteristics” is a phrase right out of the Uniform Standards of Professional Appraisal Practice, known as USPAP, which is the ethical and legal code all licensed and certified appraisers must adhere to. USPAP is embedded into license/certification laws in all states in the US.

A relevant characteristic of a property is something that is quite simply, relevant to the value. Relevant characteristics can emerge overnight. My recreational market, which is hunting camps, cabins and fishing lodges in North Central Pennsylvania, has a new relevant characteristic—gas. Specifically, gas rights and gas leases are now a huge relevant characteristic as we are in the center of Marcellus Shale. Five years ago, most of our sellers did not know (or care) if they owned their gas rights. Today, it can make or break a sale.

Appraisers not familiar with second home markets can miss the importance of relevant characteristics. I have a REALTOR® friend who sells homes in the Poconos in Pennsylvania, and sold a property with lake frontage. Unbelievably, the first appraiser (who came from Philadelphia, about 3 hours away) used comparables not on the lake, and made no adjustment for frontage—despite extensive market data which supports the value of lake frontage.

In places like Aspen, ski in/ski out is a huge influence on value. In Lake Tahoe, a dock will add value. In your market, it may be a number of things. The important thing for you as an agent to find out is whether or not the appraiser is familiar with your market and its relevant characteristics. Do not hesitate to (nicely) educate the appraiser about what you consider to be relevant characteristics. Supply market data to support what you are telling the appraiser. Encourage your local lenders to insist that whoever orders appraisals for your market only assigns them to appraisers familiar with the relevant characteristics of your market.