Demystifying The Appraisal Process: A Q&A With Dana Grubb

Whether you’re looking to buy, sell, or refinance your home, a key step is getting an appraisal — an independent, unbiased assessment of how much your property is worth.

But for new and veteran homeowners alike, the process can be a confusing one.

Here to lift the veil is real estate appraiser Dana Grubb, president of Springs Appraisal Co., which serves the East End and beyond, to explain why appraisals are critical and what to expect, how Hamptons home values have shifted during the pandemic, and what happens if the appraisal is higher, or lower, than the contract price.

Why are appraisals important?

Dana Grubb: Appraisals are ordered by clients for a variety of reasons. Most people think of appraisals when homes are purchased, or the existing mortgage is refinanced. The client, for me, is the bank, as they order the appraisal to help determine collateral that backs the mortgage, home equity line of credit, or home equity loan.

How do appraisals work?

Grubb: For many lender appraisals, I will go to the subject property, physically inspect both the interior and exterior, take measurements for the square footage of the house and other improvements, and develop an opinion of market value based upon recent comparable sales in the subject market area. We also research the entire market area for possible comparable sales, market trends and economic activity in that area that has an impact on the housing market.

How is that information then used?

Grubb: The lender will use the appraisal to make loan decisions. There are many non-lender appraisals ordered by homeowners, attorneys, accountants, trusts, government entities, insurance companies and other clients. Some of these appraisals are used for condemnation, divorce, estate planning, tax planning, replacement costs — the list goes on and on.

Appraisals are important because they usually create some sort of benchmark of value related to the overall transaction and purpose of ordering the appraisal.

Generally speaking, how have East End homes appreciated during the pandemic?

Grubb: East End homes appear to have generally increased in value since the pandemic began in March of 2020. However, it is important to note that the East End has a heterogeneous set of housing stock, and land and home sales have a wide range of sales prices depending on location, lot size, age of houses in the neighborhood, zoning, proximity to the beach, et cetera.

It is important to determine submarkets within larger markets to help identify market forces affecting and impacting buyers’ and sellers’ decisions within those areas, as well as builder activity. Some areas show stronger demand and price appreciation compared to other areas that may be close by, or adjacent to that area — could be “A Tale of Two Cities”-type analogy.

If the sale prices of nearby homes seem to be rising, would the value of my home increase, too?

Grubb: Nearby homes may be in a market area that is much different than the subject’s market area, due to factors mentioned above.

What if an appraisal price is higher than the contract price? What if it’s lower?

Grubb: This can happen due to a variety of factors. The real estate market is not a science, although there are many attempts to mathematically quantify every facet of a property’s market value. The human factor between buyers and sellers, the imperfect science of making an offer in relation to the asking price, bidding wars in strong markets, or declining values combined with rising inventory can affect values and prices.

If an appraisal is higher or lower than the contract price, sometimes the lender will send the appraiser additional comparable properties to analyze at the request of certain parties. Sometimes the seller or listing agent has incorrect information on the subject listing. Sometimes the contract price is not in line with sales prices of comparable properties in the area.

How long is an appraisal good for before I would need a new one?

Grubb: This depends on the real estate conditions in the subject market area, the client, the client’s needs, as well as certain guidelines that need to be followed — for instance, Fannie Mae, Veterans Affairs and Federal Housing Administration guidelines.