What's Your Home Really Worth?
Do you know what your home is worth? Mickey Campagna joins us to share insights on how appraisals are conducted, the reliability of metrics like property tax assessments and Zillow, and offers some advice for home sellers when interviewing agents to list their home.
The joke in appraising is, the best house you can appraise has been owned by a retired Lieutenant Colonel.
Welcome to Episode Nine of Keepin' It Real. I'm your host, Adam Tabaka. Today we'll explore the world of residential appraisals with Mickey Campagna. A native of Alexandria, Mickey studied at both UVA and American University. He's a certified general real estate appraiser with 53 years of experience, serving clients from the Blue Ridge to the Potomac.
Mickey's a master at appraising residential, multifamily, commercial, and industrial properties, as well as, vacant land and condemnations, and is a highly respected expert witness. Mickey comes from a long line of spiritual over-achievers, is currently on his third trophy wife, has two great children and five amazing grandchildren.
A sailboat racer for two and a half decades, Mickey has delivered boats from Jamaica to Maine, fly fished the Yellowstone and Rapidan rivers, hiked a portion of the Appalachian Trail. And amazingly enough, he's never been sued, at least not yet. It's my honor to introduce the one and the only, Mickey Campagna. Mickey, thanks so much for joining us.
Thank you very much, Adam. I really appreciate that. I wonder who wrote that? That was a pretty good introduction. You did hit all the high points, I must say.
Excellent. Excellent. No, no. It's all true. At least-
It is. It has the benefit of being all true, yep.
So, thanks for being here, and before we dig into the nitty gritty of appraisals, give us a little background on how you got started in the line of work that you're in right now with appraising property.
Well, I worked for the post office, the US Post Office when I first got married and it was a good job. It was in Alexandria. I carried mail all over Alexandria, but my mother, god bless her, thought I was destined for bigger things. And, she got me a job with a real estate company in Alexandria called Jacob and Warwick, and this was in 1967, and they were located at the corner of Queen, I mean, Prince and Pitt Street. And it was a very small firm, only five or six people. And I was the junior property manager, I was the guy with the plunger. So, I learned an incredible amount about real estate being a property manager. We had 200 houses and about 1500 apartment units. That was the bottom, you really learned about real estate from the bottom.
And a few years later, three years later, Mr. Jacob died and I needed to find another job. And I went to Scott Humphrey, who at the time was running RL Kane Incorporated, which is still a company on South Washington Street and he needed somebody. He needed a junior assistant appraiser because he had just gotten the contract from the City of Alexandria to appraise the DIP urban renewal project, which was the last urban renewal project in the United States where they bulldozed all of the houses.
And it was basically the neighborhood in Alexandria, west of Washington Street over to Route One, south of Duke to Franklin. And basically, the city leveled all of the houses in that neighborhood, which was in retrospect, was a complete and utter disaster because it was already being fixed up at the time. Anyway, so he needed somebody. It was 183 properties and he needed somebody to go out and hold the stupid end of the tape for him, so that was me.
And again, I learned how to go to the courthouse and read deeds. I learned how to talk to people, who let me into their house. It was an amazing education. It really, really was, and I got to testify in some of the trials. The city condemned these houses and people objected, and I got to testify, which I got qualified as an expert witness.
It was a wonderful experience. And in addition to that, Scott did a lot of mortgage work for Northern Virginia Savings and Loan, First Commonwealth Savings and Loan, both local lenders. And I got, from Bell Haven to Gunston Manor to Fairfax, just a huge amount of experience working for him.
One of the projects we did, he was an expert witness. We worked on the widening of Route Seven from Leesburg to Winchester. We appraised all of the properties on both sides of the road from Leesburg to Winchester, which was a huge job. So anyway, I worked for him for eight years, and then I followed the typical appraiser career path. I took a couple of his clients and went out on my own, and I've been pretty much on my own ever since.
I did a stint with a company called Metropolitan Appraisal Group back in, I guess it was the late '80s when the first mortgage boom was happening. And my own personal record is looking at eight houses in one day. So, the last house we're shining bright headlights on the house, so we could take the pictures. It was an unbelievable time. The money was just fantastic, but I got tired of doing that. Plus, I had other things I was doing.
So I went back into business for myself, and had another stint working for an MAI in Maryland and that was good. He sent me all over the country doing appraisals. I was doing shopping centers in Florida and motels in Mobile, Alabama, an office building on Staten Island. That was another incredible experience working for that company.
But again, the urge to be your own boss is so strong, I went back working for myself and I've been doing that ever since. So, that's the short version of how I got where I am now. And I like to say, appraising is the only thing I can do legally to support my lifestyle. It's why I can't ever retire.
I won't ask you any other questions about that.
No, let's not.
So to kick things off, help us understand how price and value may not always be the same thing here.
What's interesting about that in real estate appraising is, I use the example, people say, "Well, my house is worth such and such, and somebody comes along and they offer me more money for it than this or less money." The buyer may be living in a motel with his two kids and his Golden Retriever because he's been transferred to the Washington area and he's got to find a place for his family ASAP. He'll pay anything that meets his needs. Conversely, there's a lawyer who took his secretary out to lunch, got a little bit indiscreet and his wife is going to sell his house. So, she may just dump it.
So, there's the relationship between value and cost is not very well connected. The definition of fair market value, the short version is, a willing buyer selling to a willing purchaser. I mean, a willing seller selling to a willing purchaser, and they arrive at a cost between the two of them. That's the value.
Does that make sense? Does that-
Oh, it makes sense. Absolutely.
Okay. But you have one extreme, you have a guy that has to buy because he's been transferred here, and you have a guy that has to sell because his wife is divorcing him.
And, I've seen them both. That's the way the market is. Not everybody just goes, "Hortense, I think we should live in Wayne Wood." No, it doesn't work that way all the time. So usually, there's a reason on both sides of the deal.
No, that's an excellent point. Excellent point that sometimes I think gets overlooked. So for you, when you're conducting an appraisal, an appraisal's not a simple task. I can only imagine. I'm not an appraiser, but I've seen the paperwork, and I've done one of these broker price opinions before that looks kind of, sort of in the same ballpark. A very, very detailed analysis that you're doing. Tell us about all the work that goes into completing a residential real estate appraisal.
Okay. All right. So I get an assignment from whomever, a bank, a lawyer, a homeowner, agent. First thing I do is I look up the factual data. I go to MRAS, go to the tax records. I get the lot size. I get the zoning. I get what the city or the county thinks is the size of the building. I get the legal description. I get all that, print all that out so I have an idea of what I'm doing, dealing with.
Sometimes, I hate to confess this, but sometimes I go to Zillow if it's for sale by owner and it hasn't been listed before, and just see what it looks like so that I can see what I have, a rambler, contemporary, or whatever. So I've got that data, sort of the factual data. I make an appointment. I go look at the property. I go through the house from bottom to the top, make notes.
And what I'm looking for when I'm going through the house, two things, the condition that the house is in, and I don't make any judgements. I just say, this is what the condition is, and the functionality of the house. And that means, what are the sizes of the closets? Are there enough electrical outlets? How old is the kitchen equipment? How old is the furnace?
The joke in appraising is the best house you can appraise has been owned by a retired Lieutenant Colonel because they have all the manuals. They've changed the filters. If there's ever a problem, they take care of it, or have it taken care of. So, I'm looking for those sorts of things, and there's a distinction that an appraiser makes between normal wear and tear.
If you had a house with little kids in it, you can have fingerprints on the wall. If you have a house with a dog, you're going to have scratched floors. And deferred maintenance, deferred maintenance is when you haven't had the outside trim painted in 10 years and it's beginning to rot and it's going to cost more money to have that fixed than it would've if you had originally had it done at the right time.
All houses need to be completely rebuilt over the life of the mortgage. If you think about it over 30 years, you're going to have a new roof, new furnace, new kitchen, new bathroom, new toilet seats. It's going to be repainted. The floors are going to be refinished. The carpet's going to be replaced. Literally everything inside the house and outside the house is going to be replaced over a 30 year period. So the appraiser's position is, at what point in that 30 year continuum am I? And so, I'm making notes about all this as I'm going through the house.
The worst thing the homeowner can do is walk around with me and jabber in my ear. I'm looking at things and I'm trying to make notes. I'm trying to identify these things that I'm talking about and make notes about it, and I can't do that if somebody's telling me, "Well, the door used to be over here and we moved it. Hortense and I moved it." I don't want to know that. I don't want to know what it used to be like. I want to know what it's like right now, this minute because that's the data value.
So if you're a homeowner, let the guy in, pat him on the back, give him the check, and then leave because what happens is when I go through the house, I have questions when I'm finished. I write down the questions. When was the kitchen replaced? Is that a new furnace? That's when I want the information from the homeowner, not when I'm walking through the house.
After I've walked through the house, then I go onto the outside, because I don't want to track mud into the house. So, I walk around the back looking at the deck, looking at the patio, looking to see if there's fencing, which is I mean, I just make a note of it. It's not a mandatory thing. What does the lot back up to? Is it a busy street? Is it Fairfax County Parkway back there? Or, is it Burke Lake Park? There's a big difference.
One of the things that I'm attuned to, and I'm not a home inspector, but one of the things that I'm attuned to when I look at a house is I look at the four corners on the outside very carefully, especially if the lot slopes from the street down towards the back because a lot of times, for whatever reason, the land washes away from the gutters, I mean the downspouts. When the downspouts [inaudible 00:12:31], it washes the dirt away from corners of the house and that's where the house is going to sag and that's why you have cracks in the basement.
So anyway, so if I see that on the outside, then I may go back inside and look and see if I move a box, I can see whether there's a crack in the foundation or a crack in the wall. So, I've got that. I've got the factual data. Now I have the physical data of the house. I get in my car and I write her in, and I look at the comparable sales that I pulled up before I went to look at the house. I didn't really know what I was looking for with comparable sales until I've looked at the house.
So now, I look at them and I go, "Okay, does this work or does this not work?" And if they don't work, then when I go back to the office, I'll find more comparable sales. And now, we have the advantage of having such great photographs in Bright inside, outside that that's a huge help to an appraiser. One thing I would like to say to agents out there, please label the pictures, please. A bedroom picture, is it upstairs? Is it on the main floor. Is it at the basement? Please, let us know where those things are, which where is the bathroom. Is it a hall bathroom? Is it the master bath? Whatever. That's very, very helpful.
Another footnote I would say is that in many jurisdictions, the definition of a bedroom in the basement has changed. It used to be that you had to have a window in the bedroom, in the basement for access. Now, you have to have a window big enough for a firefighter to get in and out with an air pack on his back. That's a whole bigger window than just the normal subdivision size window, and if it isn't big enough, then it can't be called a bedroom. Now, it can be called a den, an exercise room, a computer room. There's a lot of uses for finished things in the basement, but the bedroom count it may not be allowable as a bedroom if it doesn't have the proper window.
One other thing about bedrooms, most houses have between three and four bedrooms, detached houses on the second floor. A five or six bedroom house, which used to be popular in the '80s is not so popular anymore. Of course, you may know more about that than I do, but families are smaller. People don't have the need for a lot of bedrooms in the basement anymore. So, as I say, there's still uses for them, but it's not a huge deal. "Well, I got six bedrooms." Well, okay. Who cares?
And, that brings up one final point about the bedroom. Years ago, Freddie Mac and Fannie Mae began having problems with appraisals of bi-levels, contemporary, split-foyer, split levels, because of the finish in the basement and the level of the finish. Walk out, completely below grade. So, they promulgated a rule, a very, very simple rule. If your feet are below grade, anywhere, that's a basement, period, end of story. So, it has to be treated differently from the upper floors.
It still has value, but from Freddie Mac and Fannie Mae's perspective, it costs less to build basement finish. It doesn't usually have as many windows. It doesn't have a roof. It doesn't have a kitchen, probably. So they're saying if the upper floor is worth $200 a foot, the basement's worth $150, a $125. So, all the time I'll send an appraisal out and the appraisal form has the number of bedrooms and baths, and it'll say three bedrooms, two and a half baths, and they'll go, "No, no, I've got a bedroom in the basement and a full bath." Yes, you do, but for Freddie Mac and Fannie Mae's purposes, it's not counted as gross living area above grade, which is their main concern.
So anyway, so all right. So, I've gotten all this data together. I've looked at the comps. I've got the factual data. I've got the personal data about the house. I go back to the office and I fill out the form, and that's a huge... The Freddie Mac, Fannie Mae residential mortgage form, everybody that's seen it, it's just a huge amount of work. But what's interesting to me is, and I see these a lot. I mean, I see a lot of appraisals and I see them at 15, 20, 25 pages long. There's only one page in the whole thing that makes any sense to the homeowner. And that's the back page, which has the value on it. Everything else is BS in my opinion. All of the scope of work, the fit use pap, have I done any appraisals of this property in the last three years, who gives a crap?
It's just ridiculous government BS in my opinion. So, the important thing is what's my house worth and how did he get to it, or she get to it? What are the comps he used or she used? What's the thought process here? And I should reiterate from an appraiser standpoint, all we give you is an opinion. It's just our opinion of value based on as much factual data as we can assemble.
The little secret in the appraisal business is a lot of it, a lot of the adjustments that we use... One house has got two and a half baths, one house has two baths. So, you have a half bath somewhere. Well, what's that worth? What's it worth to the buyer? Not how much it would cost to be put in. What's it worth to the buyer? Well, that's a SWAG as we call it, a scientific wild ass guess. [crosstalk 00:18:23].
So, having let the genie out of the bottle. So I go back to the office, I put the comparables in the grid. On the left side of the grid is all the factual data about the subject property. I put the comparables into the grid, and I make adjustments as I go down. At the end, there's the bottom line, after I've made all the adjustments to the three comparables, those three values should be within a fairly narrow range, say less than 10%. If they're not, either I've got the wrong comparable sale, maybe, or the adjustments are wrong.
So then, I go back and I fine tune everything. And, that's how I know that the adjustment for a powder room versus a full bath is $2,500. If I made an $18,000 adjustment, it would be all out of whack. So, it's sort of an analytical problem where the answer to the problem has to agree to the pieces that were put into the problem if that makes any sense. I'm not sure I'm explaining that very well.
So, I look at it. I look at the three numbers, and I look at the amount of adjustments. The best comp would be the house next door, which is the perfect replica of the subject property and it's in exactly the same condition. That would mean there were no adjustments to that sale. Not going to find that very often except in a brand new subdivision.
So, I look at the quantity and quality of the adjustments that I've made, and this used to be that Freddie Mac didn't like adjustments over 15%, gross adjustments over 15%. That told them that maybe that comparable wasn't as comparable as it ought to be. They've modified that through the years, and I'm actually not sure if they still even use that criteria anymore. But, I think it's still useful to me.
If I look at my three adjustments and one of them's been adjusted 5%, one's at 7%, or 8%, or 9%, one of them 15%, I really look at that 15%-er and say, "Hmm, maybe there's a better sale out here." I try not to go back more than 90 days. I try not to go back more than 60 days in this market or 30 days, but if I have to go back, in some areas, they're just not a lot of sales. So, I'll go back maybe eight or nine months, but then I explain why I did that.
And if I have to use a comp with god forbid a year ago, the way I make the adjustment for time is I look at the assessment. Did the assessment from '20 to '21 go up 8%? Did it go down? What did it do? And that gives me some guidance on how much the value has increased. The other way... I'm sorry to talk so much here. I'm trying to stop. The other way I do that is I will take all of the sales in the subdivision, I mean, I will take, yeah, all the sales in the subdivision from January 1st, 2020 to 1221, 1231, '20, so from the year 2020 and get an average, the median there, which we can do with Bright. And then, I'll do the same thing from January 1st of this year, through whatever I'm doing, the day, and I can see if there's been any movement, and which way the movement has been.
And, that helps me make a time adjustment if I need, and what appraisers always want to be able to do is to point to some support of their opinion. "Okay, well, why did you make this adjustment over here?" For instance, in the lots, in most PUDs, most subdivisions that have been built in the last 20 years, there's very little difference in the lot sizes. There's some corner lots that are bigger. There's some lots that are some bigger than others, but basically they're all the same. And so, the assessor treats them all the same.
So, if I've got a lot at 15,000 square foot and a lot at 11,000 square foot, I will look at the assessment. If they're both assessed the same, I figure, "Well, if it's good enough for Fairfax County, it's good enough for me." Now having said that, if the lot just drops off like a mountain in the back versus a flat lot, I will make an adjustment for that. I figure usability is something that buyers are looking for. Corners, busy corners, people generally don't like busy corners. And that's one of the scientific wild ass guess things because there's no data. You can't really isolate that. What's the premium for a cul-de-sac lot versus a busy corner lot? Because there's so many variables. It could be the condition of the houses could be wildly different, and that would make up the [inaudible 00:23:23].
So after I've assembled all that, filled out the form, I go over it. I print it out, go over it again, spell check it, make sure that I've got the pictures in and I get the map and everything, and then I do one final proof and I hit the little button and send it off to whomever it goes to. And, I'm always, always anxious for feedback. Most people never get past the value and that's the end of it, but if people have questions I'm genuinely interested in what the questions are and if I can help them, I really want to do that. So, that's- [crosstalk 00:24:04].
No, that's a great overview. I mean, it's an involved process. I mean, there's a lot of work that you're being asked to do in an appraisal, and so, I mean, I think it's worth covering what that looks like. You talked about when you were discussing this, talked about going into the home and taking a look and walking around. There are appraisals that are done in person. There are some that are done via drive by, or desktop. When a home owner, when they've got an appraisal that's being ordered by their lender as a condition of financing for their buyer, is there any way for the buyer or the seller to know in advance what method is being used by the appraiser, or is that simply at the discretion of the appraiser how they're going to conduct the full appraisal?
It's usually at the discretion of the lender. Drive buys are not as popular as they used to be back the original crash in 2010, just because of the volume of work. Now, most lenders want to have a physical inspection of the property. Now having said that, most lenders would rather not have an appraisal at all. Most lenders would like to just hit a button, go to Zillow, and that's it because the appraiser is the only independent person in the entire transaction, except for the termite inspector.
Think about that. I'm the only guy in the entire transaction, not the agent, not the lender, not the home inspector even. Potentially, the home inspector's independent, but me and the termite guy have to call it like we see it or we get sanctioned and lose our licenses. Everybody else has a financial interest in the deal.
So, it's the lender that calls the tune and we're the impediment. The appraisers are the impediment to the transaction. We're the ones that take the longest, so if they could get rid of us and they're trying very hard, they've been working on it for years. They, the American Bankers Association and the lending community in general. They're using hybrid appraisals, which are some fella in India is looking at his computer and he's looking at MRES and he can do it right there in wherever the heck India is, some town in India. And, they'll hire an appraiser to go and physically take pictures of the outside of the house and that's it.
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