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What’s the Secret to Increasing Appraised Value?

A Conversation with Dustin Harris


Let’s put in a pool. Remodel the kitchen. Upgrade the bathroom hardware. Throughout the pandemic especially, people have been putting in some serious elbow grease into home renovation–but how much does this make a difference when selling a house?

In this episode, host Maiclaire Bolton Smith is joined by the Appraiser Coach, Dustin Harris. He discusses the value of truth, the impact of appraisal bias and reveals the secret to increasing the appraised value of a home.

MAICLAIRE BOLTON SMITH: Welcome back to Core Conversations, a CoreLogic podcast. I am your host Maiclaire Bolton Smith, and I’m the senior leader of research and content strategy with CoreLogic. In this podcast, we’ll have conversations with industry experts about key topics from housing affordability to the impacts of natural disasters on property. There are many mission critical parts of the journey to home ownership and one of these is the appraisal process. Appraisers are given the grave responsibility to find the truth, the value of the property. With market research and keen eyes, they are the on the ground source of property data, inspecting a home and weighing it against comparable properties in the area. With this determination in hand, they supply lenders with a sense of value for the homes.

So this information is ultimately then used to determine how large a loan a homeowner could get. So for our episode today, we’re going to dive into appraisals with the renowned Dustin Harris, who is the appraiser coach and active mentor and coach in the appraisal business. So Dustin, welcome to Core Conversations.

DUSTIN HARRIS: Thank you, Maiclaire. So good to be here. I really appreciate the opportunity.

MBS: Awesome. So let’s start by telling our listeners a little bit about yourself and your background. I understand you have a long background as an appraiser before you went into more of the teaching business. So why don’t you tell us a little bit about that?

DH: Are you trying to say I’m old? Is that what you’re trying to say?

MBS: Oh, no, no, no. Not at all.

DH: I’ve been an active appraiser for about 25 years now. I started in 1996. I spent the first about 12 years doing things like everybody else did it, meaning I was somebody that owned my job. I wanted to really call myself a business owner, but the honest truth was I was basically trading time for money and it was stressful. I was working 60, 70, sometimes 80 hours a week making enough to get by, living paycheck to paycheck. And I decided about a dozen years into it that I wanted to do things differently. So I spent some time really studying success principles and starting to apply them, failing miserably, but finally figuring things out to where now I would say that I would call our appraisal office the most successful appraisal office that I know of.

We truly try to service our client’s needs and stay on top of the industry and keep our quality high. But we also do high volume. I’m currently employing about 13 different individuals within our office here in rural Idaho. Then we started doing coaching and mentoring and helping other appraiser business owners do similar things.

MBS: That’s so great. I love the mentoring aspect of what you’re doing. And so before we get too much into today, I want to do a bit of a recap. At the beginning of this year, we had our chief appraiser Sean Telford on the show, but can you maybe just as a refresher, what is an appraisal? How is it conducted? And something else we’ve talked about on this podcast as well too is the difference between appraised value and market value. So can you just give a little bit of a background to get us started?

DH: You bet. Yeah. Great questions. And man, I just enjoyed having the talk to Sean. Sean and I go way back and it’s awesome to see the position he’s in and talk to him about some changes in the industry, but no, these are great questions, Maiclaire. Really what it comes down to is the appraisal is really two parts. Sometimes we conflate those, but it really comes down to the process or the ability to be able to figure out what the market value is, and then of course the report.

Often we talk about an appraisal as being that piece of paper, if you will, or a digital version of really the process and really all the report is, is to tell the story of what the appraisal process looked like. You asked a question about the difference between an appraisal and market value. Often they are the same thing in the sense that very frequently in appraisal reports what the market value is. Of course the market value is the most probable price that a willing buyer, willing seller, both educated in the marketplace, would agree upon would be the natural price for that property.

But appraisal can be so many other things. So many different types of values, retrospective value, futuristic value, insurable value. A lot can go into this, but the appraiser’s job mainly is to report value, is to help the reader of that report understand what this particular property would go for in a typical market.

MBS: Okay, well, that’s super helpful. And I want to think now of what are the kinds of things that can change the appraised value of the home? So let’s say I’m looking to sell my house. Should I think to remodel something? Bathrooms and kitchens are always what sells houses is what we hear. So if I remodel my bathroom, let’s say if I add in a pool, maybe is it just painting the walls? Is that going to change the value? And what if the appraiser were to come to my house and I didn’t clean up and it was all messy? Is that going to change the value?

DH: That never happens.

MBS: No, I’m sure never. Is that going to change? What kind of things go into understanding the appraised value of a home and how can it fluctuate?

DH: Maiclaire, this is probably the most asked question that an appraiser has when they walk through and do the inspection or the observation side of the appraisal. Remember an appraisal is both gathering data, which often includes a walkthrough for an appraiser, but it also includes the computer work. What I find is appraisers are often educators, teachers, if you will, because when we’re walking through the property, whether we are meeting with an agent or the homeowner or someone else, there’s often these types of questions. What can I do to improve the value of my home? I’m thinking about adding a pool. Will that improve the value of my home? Well, typically the answer to that is yes, it will.

But the thing that they’ve got to look at is the cost versus value. So for example, in Idaho, let’s just hypothetically say it would cost $100,000 to put a pool, a backyard open air pool. Well, keep in mind, our swimming season is about two months out of the year, right? And you’ve got to maintain the pool for the other 10 months. We found in our area that very rarely does an outdoor in-ground pool add any value at all. Therefore, you’ve got to look at that $100,000 you’re going to put into that pool. You better really enjoy swimming for two months out of the year in order to do that.

But to answer your question directly, I do talk to homeowners often about the difference between cost versus value. If it costs you $6,000 to build a deck and it’s worth $4,000, obviously your cost is going to exceed the value increase, but that doesn’t necessarily negate your reasoning for doing so, meaning you may just really want that deck or maybe every other home in the neighborhood has a deck and/or a patio, and you’re the one that doesn’t have it. There’s going to be probably a difference in value between that and just an extra amenity.

So again, to answer your question directly, most of the time the best way to increase the value of a home is to overall increase the look and feel of the home. Meaning you want to decrease the effective age. You want to increase the remaining economic life. And that often includes wall coverings, floor coverings, yes, bathrooms and kitchens. But again, you’ve got to look at costs, the overall cost of adding granite. Is that going to truly add value? Good question. Now to answer your question about the messy house, it’s very, very, very rare that we see dirty socks on the floor. And of course that’s it. We expect homes to be lived in. An appraiser’s job is to look at the overall picture and imagine that house as if it’s vacant and ready to sell.

MBS: You did use the term effective age, effective age versus actual age. Can you talk just a little bit about what effective age is?

DH: You bet. Let’s say a home is built in 2000. Well, as of this recording, the actual age of that home is going to be 21 years. Effective age goes to the idea of upkeep, right? 21 years would mean I have done nothing to this home but live in it. And obviously your remaining economic life on a typical home, if you never do anything to update it, might be 50, 60 years, right? At that point, it’s going to be obsolete because everything is worn out and not working anymore. That is not typical.

Most homeowners, most investors will put money into a home. They’ll replace the carpets when they need to be replaced. They’ll update the appliances, they’ll update the furnace when it goes out. And those types of things will increase the effective age of the home, meaning it will allow to be able to say it may be 21 years old, but effectively it really looks and feels like 15.

MBS: Okay. That’s super helpful. I appreciate that context. Thank you. I guess then if we’re thinking bang for your buck, maybe that pool, I live in California, so maybe it could be a little bit better here compared to you and a bunch of people across the central and Eastern part of the country, it is just a shorter season so it may not be. But if we’re looking for bang for your buck, if a homeowner is listening right now and it’s like, “Okay, what do I need to do to get up that effective age?” Is it things like paint and appliances? And is that going to make a big difference?

DH: Right. I walked through a home recently that after I walked through it, I realized that the actual age was 75 years. Blew my mind. The entire time I’m walking through this, I’m thinking this is a 10-year old home. Well, the reason it looked and felt like a 10-year-old home was because they completely stripped it down to the studs and rebuilt it from the ground up. Really, the only thing that was left after they were done was the foundation and the studs itself. Maybe the top end as well. But the bottom line is, is you need to increase that look and feel, meaning when someone walks through, like I did with a 75 year old home and thought it was a 10-year-old home, those are the types of things that are going to increase the overall value of your home.

I often see homeowners do little things here and there, meaning they will remodel their bathroom and say, “Well, what did that do for my value?” Well, unfortunately, that’s the only thing in your home that’s updated. Therefore, it’s hard to say that it really did anything. The idea of overall, and I want to stress that word overall increasing the newness, if you will, of the home is truly what’s probably going to add most value. Now, the other thing you brought up, and I think it’s important to punctuate, is the idea of location.

You’ve heard the old saying that market value is all about location, location, location. It’s so true. When I talk about a pool in Idaho, that’s a totally different situation than a pool in Southern California. I think that across the board increasing the condition, if you will, of the home is going to increase the value probably more significantly than anything else. On the other hand, when you’re in specific areas, doing certain things may just overall increase the value a lot more than they would in say other areas. And that’s why it’s so important for appraisers to be geographically competent, to truly understand their local market.

MBS: Really, really important parts and I’m glad you pointed that out, Dustin. Thank you. So, okay let’s look at it this from now a buyer’s perspective. I mean, it’s no surprise to anyone that the market has been incredibly hot recently everywhere. We’re used to traditionally there’ll be some hot markets, but it’s everywhere right now. It’s so hot and we’re hearing more and more of these stories about how the market is exceeding the appraised value leading to an appraisal gap. I know when we bought our home, I was exactly in this situation. We had to bid a couple hundred thousand dollars over the asking price … Bay area. I remember our agent saying to us, he’s like, “It’s really likely this house will not appraise for this value and as a buyer, you’ll be responsible for that difference.”

That’s really scary. So can we talk about that a little bit? We didn’t get that house. Somebody, believe it or not, we were outbid on that house by quite substantially as well too. So let’s just talk about this appraisal gap concept a little bit and what it actually means for somebody buying a home, if they’re in that situation where the house does not appraise for the market value of the property.

DH: Yeah. And we’re seeing, as you pointed out, Maiclaire, we’re seeing this all across the country. It’s especially poignant where I live. Idaho is the number one move-in state across the nation right now. I think unfortunately California is number two of move out. So I think they’re all coming here, but yeah, we are seeing this appraisal gap as you coined the term. And really what we’re looking at is the difference between appraised value, which in some cases may be lower than the agreed upon contract price. Okay? Sometimes individuals will use the term the appraisal “came in low.” I like to use some education at that point and help them to understand, well maybe the appraisal isn’t low, maybe the contract price is too high, at least as far as the market goes.

Now, some individuals say, “Listen, we’ve got a willing buyer and a willing seller. They’ve come together and this is their agreed upon price. Therefore, that should be the value, right?” Well, if that were the case, why do we have appraisals? Meaning you could come with a contract, give it to the lender and say, “Listen, this is what we’re agreeing upon. Therefore, you should loan on this.” Well, appraisal is all about risk mitigation, meaning we’re there on behalf of our client, which often is the lender. And the lender wants to know the answer to the question, “Should I loan X amount on this property? Is it worth it if it had to go into foreclosure and I had to sell it on the open market, at least according to the effective date of the appraisal?”

And often right now, I shouldn’t say often, sometimes right now there is a gap between the appraised value and of course the purchase price. Why is that happening? Well, you pointed it out. It’s lack of inventory. It’s a sellers’ market right now big time, really across the country. Notice something that you said, Maiclaire, when you said, “When I offered a couple of hundred thousand dollars more on this house, I was told,” at least I’m restating what you said, “I was told that it may not appraise.” Meaning you went into that knowing this situation, knowing that there’s a possibility, yet you still made the offer.

MBS: We did.

DH: And I think that is key in today’s market to understand that people are going into this their eyes wide open, knowing that it may not … Now, they’re always hoping and praying that it’s going to come in at the agreed upon price, but they know that there a chance because appraisal has to do with comps, appraisal has to do with what the current market is. And an appraiser’s job is to be unbiased and not rubber stamp that contract, but truly tell the client what it should … Again, it’s not the buyer, it’s not the seller. It’s the lender in this case, really tell the client what that home is worth.

MBS: It’s such an important part of this buying a home process. And for me, those were a very stressful couple of hours. I don’t even think it was a couple of days. I think it was within hours that we found out we didn’t get the house, but I remember thinking of what the impact that would be. And now looking at a broader market perspective of how frequently that’s happening and a home buyer maybe not even being educated on it and not being told that this could happen and go into it and say, “Well, you need to come forward with $50,000 more cash on your down payment to make up the difference.”

That could [inaudible] some of these homes in some markets that are really expensive. It could be a substantial difference too. So yeah, it’s something I’m glad that we’re bringing attention to because it’s becoming more and more common. So yeah. That leads to a little bit off topic, but something that I think is really important is does this lead into more of the conversation on affordability and making homes affordable in today’s day and age with the market being so hot? Do you have any thoughts on that?

DH: Right. So the idea, and by the way, years ago, I read a very boring book. I would not recommend it to anybody. It was Adam Smith’s Wealth of Nations, but I will tell you this, even though it was a hard book to get through, I learned a great deal from that book and various studies in how markets work, how the economy works. But this idea of the invisible hand, this idea of supply and demand and the gist of it is again, I want to go back to your example. You went into that knowing that there may not be … let’s say that they had accepted the offer, and let’s say you went through the process and the appraiser came in $100,000 less than you had bid. Well, then what? You have to have that contingency in place.

As long as buyers and sellers go into this with eyes wide open, I think that it’s important for everyone to understand that the appraiser’s job in the end is to remain that unbiased third party, to truly tell the client what that home is worth in the current market, regardless of what decisions have been made on the price side of things. Now, to your question about affordability, it’s an issue, right? You’ve got a lack of inventory, but it’s caused directly by this increased demand. And I think that’s the big difference between what we saw in 2007 leading up to the housing crisis of 2008 through 2010 is we saw a lot of speculation.

People were buying just based on the fact that they wanted to buy low, if you will, and sell high. And they saw this market increasing at such a rapid rate. I knew many people who were jumping into the market, not because they needed a home, but because they wanted to get in on the investment side of things. That’s the difference between then and now. There may be some speculation going on right now, but it’s very little as compared to actual people who are buying homes based on housing need. So I do think that there is a big difference in why those prices are going up, but it’s an issue for sure.

MBS: Definitely. And so there was a couple of things you touched on there and one of the words you mentioned was bias. I do want to talk about that because there’s been a lot of buzz in the media and about appraisal bias recently. I know I’ve heard that there’s trainings and regulations that are being created to solve an issue because it’s complicated though, because people are human and you do have this job to be unbiased, but humans are inherently flawed. Even if you are not flawed, your opinion and view on something could be very different than the person next to you, opinion and view on something. So as an appraiser, you’re tasked to be impartial and really the arbitrator of truth with this value. How do you think we can tackle this concern of bias that comes into appraisals?

DH: Yeah, by being an impartial and arbitrator of truth. I mean, really you’ve said it in the question. An appraiser’s job is to be impartial. An appraiser’s job is to be an arbitrator of truth. And I want to emphasize that word truth. What is truth? Well, truth has got to be based on data and not opinion. Now, sometimes people get confused a little bit because an appraisal’s definition, an appraiser will often use the definition of a “opinion of value,” right? And many people will stop with that. And they’ll say, “Oh, so your opinion of value might be different than appraiser B’s opinion of value.” Well, maybe, but the bottom line is, is that doesn’t stop. There’s not a period at the end of appraisal is an opinion of value. There is a continuation that says based on market data, right?

And the market data is what it is. An appraisal is about location. We talked about it earlier, location, location, location. Race, gender, sexual preference, et cetera, should never, ever, ever play into an appraisal. In fact, there are federal laws called the housing law, the Fair Housing Act that’s plays into this, where it is against the law for race, gender, sexual preference, and other things to play into an appraisal. We truly are, if you think about it, we are truly the only unbiased third party in the whole process, right? The buyer is biased. The seller is biased. The lender is biased. The realtors on either side are biased. They have a built-in bias, right? That’s their job. It’s not a bad thing. They have, for example, a listing agent is supposed to be biased or an advocate for their client.

The appraiser is not an advocate for anyone. An appraiser’s job is to be unbiased, to be that third party individual who does not let any of that factor in. It goes down to location. It goes down to the ideas or the specifics about the particular property. For example, an appraiser may really personally loathe beige carpet, right? For some reason, he had a bad experience with beige carpet and just hates beige carpet. Well, that’s fine. Like you said, they’re human. We can have our own opinions about things, but here’s the difference. If they allow that opinion to play into their reporting and their appraisal process, that’s where the problem is.

We have to decide what the market says about beige carpet, not necessarily what our opinion is about beige carpet. An appraiser’s job is to analyze the land, the improvements, and then determine an opinion of value based on data and nothing else.

MBS: That’s great. And it really is that data is fundamental to decision-making and this is a perfect example of that. So yeah, I hadn’t really thought about how all other parties in the home selling and buying process do have bias because they are advocates for selling or buying their home from their own perspective. So yeah. No, thank you for that context. And I guess, Dustin, if I just think just in wrapping and thinking up here is what kind of wisdom would you give to all the appraisers out there with all of your knowledge and your mentorship and your coach over the years from being in the industry? If there’s an appraiser out there listening, what words of wisdom do you have for them?

DH: Well, I appreciate the question. In the end, it comes down to the data and the wisdom that I would give my fellow appraisers out there that more than ever we need to support our conclusions. We need to approach every process that we go through when it comes to appraisal as to what a peer, another appraiser, if that peer would make the same determinations based on the data that’s in front of us. And we need to tell the story. More than ever we need to make sure that the reader of the report is not confused. Now they may disagree. You may really have wanted that house and the appraiser comes in lower than your purchase price and you’re really upset at the appraiser. But when you look at the report and you see the data and it’s explained well, would you, again, you may not like it, but would you see where they came from? Would you understand the opinion?

That’s the difference, I think, in appraisal in the past, and I’ll freely admit years ago, I mean, I’ve been doing this 25 years and in the past, honestly, and when I talk in past, I’m talking way past, right, so way past the statute of limitations here, but the idea of loosey goosey, lick your finger, stick it in the air, making some determinations based on oh I think the shot might worth 30,000. That might’ve worked in the past. It doesn’t work anymore. The things that we do in an appraisal have to be supported, they have to have conclusions based on data.

And I would just encourage my peers to make sure that they’re supporting their conclusions because evermore if we’re accused of being biased, if we’re accused of being racist, we’re accused of being whatever, just fill in the blank, as long as we can point to the data and say, “Listen, this isn’t my personal opinion. You can see the data just like I can see the data. And here’s why I did what I did.” That’s what’s going to be protection in the future.

MBS: That is so good and such great clarity to add to this. So I think that’s a good place for us to end today and let the data be the foundation of truth through the appraisal process. So, Dustin, this has been so interesting and so great. Thank you for joining me today on Core Conversations at CoreLogic podcast.

DH: Maiclaire, it’s been a pleasure. Thank you. And I really appreciate the opportunity.

MBS: So for more information on the property market and the housing economy, please visit corelogic.com/intelligence. Thanks for listening. I hope you’ve enjoyed our latest episode. Please remember to leave us a review and let us know your thoughts and subscribe wherever you get your podcast to be notified when new episodes are released.

And thanks to the team for helping bring this podcast to life. Producer Rhea Turakhia, editor and sound engineer, Romie Aromin, and social media guru, Mike Wojcik. Tune in next time for another Core Conversation.

© 2021 CoreLogic, Inc., All rights reserved.

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