I'm certainly not an appraiser or an expert on home values, but being in the biz as long as I have, I do have a fairly good understanding of appraised home values and the ever restrictive lending requirements behind it.

For many who have had an appraisal done in the past year or so, may be able to attest to this blog's title. The appraisal was done and you were shocked that the value came in so low.

"But I just spent $25,000 for this beautiful landscaping!" In this day and age, that is called over-improved. You just spent a lot of money that did not increase the value of your home.

"But there was a home just like mine that just sold last April 2009 and you're telling me that my home is $75,000 less than that one?" Umm, yep! That home that sold just like yours almost a year ago is not even a viable comparable at this point.

So, what gives? How is a value determined?

Let's get the predominating factor out right away:

Your home's value is PRIMARILY DICTATED by like style homes that have sold within the last 6 months, within a 1 mile radius of yours. Period.

(Now, obviously, if you are in a rural area or have very unique characteristics, that guideline is stretched. But for the typical suburban area, this holds true.)

Let's break this down a bit further: The homes that have sold in your area are what the industry calls "Comparables". Your home's value is dictated by these comparables. And it cannot be just any comparable, rather it has to "fit" within guidelines. When looking at comparables to a subject property (your home), the basic criteria need to be met:

• Comparable homes must be the same style of home as yours. You cannot compare ramblers with two stories.
• The comparable homes need to be within a 1 mile radius of your home (some lee-way for extenuating circumstances)
• Those comparables should have the same number of total rooms that yours does. oThe comparables must be similar in square footage and age (with some wiggle room for adjustments)
• The comparables must have been sold within the last 6 months. Homes that are older in sales are not viable comparables. Lenders take this a bit further and also require that at least one of the comparables be sold within the last 3 months.
• The appraisal report is required to have a minimum of THREE comparables to your home and TWO comparables that are active/pending listings for a TOTAL OF FIVE. Of those, your home's value rests somewhere between. In other words, your value cannot be the highest number of all comparables. The comparables MUST bracket your value.

Whew! Did you take all that in? Here is my message...before you decide to spend major dollars on renovations to sell your home or refinance, first understand your immediate, neighborhood housing market. You may want to ask your local RE agent to assist you with a comparative market analysis. You don't want to spend your hard earned money for a dismal ROI. And personally, I do not want to be making that call only to hear, "What! My home is only worth what? Are you crazy??" Why yes I am, but that just made the MN Mortgage Mom a little more crazier.