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If you've ever wondered why some home sell like hot cakes and other languish on the market for months, it's usually because the listing agent of the sold home did an excellent job of setting the home's listing price.

Finding comps is not rocket science, but it is still a skill that can be honed.  Experienced Good real estate agents have that skill.  Unfortunately, there are far too many agents that don't. 

"Proximity" does not a comp make -- a home's comps should have similar characteristics to the home itself.

Unless you live in a townhome complex, or a condominium, it's unlikely that you will find two properties that are exactly the same in a neighborhood, so an appraiser takes similar properties and lists their features on a spreadsheet-like form called a grid.

Then, feature-by-feature, he will make adjustments to each home's relative worth.  A finished basement may add $10,000 of value to a home; a new roof may add $10,000; a higher floor number may add $7,000; a detached garage may decrease a home's value by $15,000.

This adjustment process is called "gridding" and it's all up to the opinion of the appraiser. 

Even as uninterested experts on home valuation, however, the work of an appraiser is almost always reviewed by mortgage underwriters for fraud.  Any one of the following comp-related issues can be red flags that doom an appraisal:

• The comps listed have different number of bedrooms or bathrooms from the subject
• A recent sale that should have been a comp is ignored in the gridding process
• Local market conditions are unaccounted for (i.e. declining values)

When an appraisal is flagged by a mortgage lender, it enter "Appraisal Review" which is a euphemistic way of saying that your appraised value will be cut by some to-be-determined percentage.

Regardless if you are buyer or seller, this is an unwelcome event.  As a buyer, the new value set by the lender may reveal that you paid more for a home than what other similar homes have sold for in the neighborhood. 

More importantly, the lender will base their loan-to-value (LTV) calculations on the appraised value and not the sale price.  This can increase the amount of cash required at closing. 

A $400,000 sale price with 20% downpayment requires $80,000 for a down stroke.  If the home appraises at $385,000, that payment increases to $92,000 ($400,000 - ($385,000 * 0.20) ).

As a seller, if your home doesn't appraise for the purchase price, your buyer may walk away from the deal because they feel "cheated". 

Worse, they may be unable to make their downpayment as in the example above.

The best way to avoid appraisal issues is to value a home appropriately at the start.  If you don't think your agent is doing a good job in determining a price, hire an appraiser on your own to help you.  It may cost $200-500, but that is relatively cheap compared to a home's sale price. 

The peace of mind goes a long way, too, because homes that are priced right sell fastest.

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Dan Green is an active loan officer. Email or call 513-443-2020. Dan is on Twitter at @mortgagereports.