Breaking Down an Appraisal Report Part 1: Q4/C3 or Q3/C3?

I am determined to make the appraisal process more transparent for homeowners. Understanding what appraisers look for when they are determining the quality and condition of the subject and comparable properties is as good a starting point as any.

So, what are you exactly – a Q4/C4, Q3/C3 or Q4/C3? Or more appropriately – what is your home?

These alpha numeric pairings are the Quality and Condition ratings appraisers assign to the subject and comparable properties within most appraisal reports. The difference between a Q4/C4 versus a Q3/C3 rated home often triggers upward or downward adjustments in the report. Upward adjustments favor the subject property, while downward adjustments – you got it – DO NOT favor the subject property. And these adjustments can range from a few thousand to several thousand dollars. See the highlighted areas in example below:

The yellow highlighted fields show the quality and condition ratings for the subject property (column 1), and three comparable properties (columns 2, 3, and 4)

The quality and condition adjustments, combined with other common adjustments – like size differences, bathroom and/or bedroom count, finished or unfinished basements – play a primary role in an appraiser’s final opinion of value of your home. In fact, in some cases, the quality and condition of your home could make or break the transaction you’re trying to close, whether you’re purchasing or refinancing a home, or hiring an appraiser to determine market value for other reasons including asset division (divorce appraisals), estate settlement, or other valuation needs.

The above image might be familiar to those of you who have either bought or refinanced a home. It is the Sales Grid (or page 2) of an appraisal report. The quality and condition ratings are defined on the Uniform Appraisal Definitions (or UAD) page of the report. These standardized definitions guide appraisers in determining the quality and condition rating of all properties in the report. I use this guidance for non-lender-based appraisals as well.

The following are definitions from the UAD page for the ratings I utilize most in the appraisal reports I write (Quality: Q4, Q3, Q2 and Condition: C4, C3, and C2). I’ve added my own notes in bold and in parentheses to further clarify some of the definitions.

UAD Quality Ratings:

Q4

Dwellings with this quality rating meet or exceed the requirements of applicable building codes. Standard or modified standard building plans are utilized and the design includes adequate fenestration and some exterior ornamentation and interior refinements. Materials, workmanship, finish, and equipment are of stock or builder grade and may feature some upgrades.

(‘Fenestration’ refers to openings in a building as in windows, doors, skylights, etc. with ‘adequate,’ meaning ‘the minimum needed to provide adequate lighting and/or ventilation’. Exterior ornamentation refers to features like siding with brick or stonework.)

Q3

Dwellings with this quality rating are residences of higher quality built from individual or readily available designer plans in above-standard residential tract developments or on an individual property owner’s site. The design includes significant exterior ornamentation and interiors that are well finished. The workmanship exceeds acceptable standards and many materials and finishes throughout the dwelling have been upgraded from “stock” standards.

(‘Significant exterior ornamentation’ would be upgrades like extensive exterior masonry, stucco, or stonework.)

Q2

Dwellings with this quality rating are often custom designed for construction on an individual property owner’s site. However, dwellings in this quality grade are also found in high-quality tract developments featuring residence constructed from individual plans or from highly modified or upgraded plans. The design features detailed, high quality exterior ornamentation, high-quality interior refinements, and detail. The workmanship, materials, and finishes throughout the dwelling are generally of high or very high quality.

UAD Condition Ratings:

C4

The improvements feature some minor deferred maintenance and physical deterioration due to normal wear and tear. The dwelling has been adequately maintained and requires only minimal repairs to building components/mechanical systems and cosmetic repairs. All major building components have been adequately maintained and are functionally adequate.

Note: The estimated effective age may be close to or equal to its actual age. It reflects a property in which some of the short-lived building components have been replaced, and some short-lived building components are at or near the end of their physical life expectancy; however, they still function adequately. Most minor repairs have been addressed on an ongoing basis resulting in an adequately maintained property.

(Deferred maintenance could include a small hole in a wall or stained and/or worn carpet.)

C3

The improvements are well maintained and feature limited physical depreciation due to normal wear and tear. Some components, but not every major building component, may be updated or recently rehabilitated. The structure has been well maintained.

Note: The improvement is in its first cycle of replacing short-lived building components (appliances, floor coverings, HVAC, etc.) and is being well maintained. Its estimated effective age is less than its actual age. It also may reflect a property in which the majority of short-lived building components have been replaced but not to the level of a complete renovation.

C2

The improvements feature no deferred maintenance, little or no physical depreciation, and require no repairs. Virtually all building components are new or have been recently repaired, refinished, or rehabilitated. All outdated components and finishes have been updated and/or replaced with components that meet current standards. Dwellings in this category are either almost new or have been recently completely renovated and are similar in condition to new construction.

Note: The improvements represent a relatively new property that is well maintained with no deferred maintenance and little or no physical depreciation, or an older property that has been recently completely renovated.

So now that you have a decent idea of the quality and condition definitions appraisers use to guide them when appraising homes, what exactly does a Q4/C3 home look like? Or a Q2/C2? How about a Q4/C4? What follows are examples of the type of commentary I include in my appraisal reports describing the exterior and interior features of homes. Quality and condition ratings are dictated by these features. The images accompanying the commentary are stock photos to support the descriptions.

My hope is that as you read the examples and view the images you will consider what quality and condition rating an appraiser might assign to your own home.

Example of a Q4/C4 home:

The exterior of this home has vinyl and brick siding, asphalt shingle roof, 1-car garage, and covered front stoop. Interior of the home has original dated carpet, parquet wood, and tile flooring; living room carpet is slightly worn and wood paneling is somewhat outdated; kitchen with laminate countertops, older appliances, and original wood cabinets; and primary bedroom featuring 3-piece primary bath with 1-sink vanity, laminate countertop, and tub/shower with ceramic tile wainscot.

Example of a Q4/C3 home:

Exterior has hardboard and brick siding, asphalt shingle roof, and 1-car garage. Interior has carpet, tile, and newer wood flooring; living room with older but clean carpet; kitchen with laminate countertops, newer stainless steel appliances, and refinished wood cabinets; and primary bath with newer vanity and countertop.

Example of a Q3/C3 home:

Exterior has hardboard and brick siding; high-pitch asphalt shingle roof; 2-car garage; and covered front porch. Interior has newer LVP, vinyl tile, and carpet flooring; high ceilings and walls with rounded corners; wrought iron stair balusters; kitchen with granite countertops, subway tile back splash, center island with granite countertops, seating for 4, and pendant lighting, soft close cabinets with handles and pulls, and newer stainless steel appliances; primary bedroom with tray ceilings; and 5-piece primary bath with 2-sink vanity with granite countertops, freestanding soaker tub, and oversized shower with infinity glass door and enclosure; and finished basement with recreation room, gas fireplace, and wet bar.

Example of a Q2/C2 home:

Exterior of the home has gray stone and hardboard siding; concrete tile roof; 2-story turret; living room with coffered ceiling; kitchen with tray ceilings, marble countertops, marble back splash, oversized center island with marble countertop and built-in prep-sink, white soft-close cabinets with handles and pulls, stainless steel appliances including 6-burner Wolf gas range, and custom vent hood; primary bedroom with ciruclar tray ceiling and French door access to private patio; 5-piece primary bathroom with marble floors, dual white vanities with marble countertops, freestanding porcelain soaker tub, and oversized step-in shower with infinity glass door and enclosure, dual rainfall shower heads, and marble plank tile wainscot; and finished walkout basement with coffered ceilings, with rooms including recreation room, wet bar with dining area, billiard area, additional bedroom, and additional bath.

There is an important caveat I should add regarding the quality and condition examples I provided above. These are examples of how I would define quality and condition. Please understand that we appraisers do not always think alike. Yes, we have uniform definitions to guide us, but Appraiser A’s interpretation of a Q4/C3 might be different from Appraiser B’s for the simple reason that … wait for it … we appraisers are only humans after all.

Still, recognizing where your home lies within the framework of these quality and condition definitions before getting an appraisal will help you better understand what, in general, an appraiser will be considering when evaluating your property.

Want to learn more about the appraisal process and the importance of always knowing the value position of your home? Make sure to check out the Breaking Down an Appraisal Report blog series Part 2, “The ‘Sweet Spot’ of Data.” And want to be notified when new posts are added? Subscribe here!

And, of course, if you’re thinking about updating your home or upsizing … or downsizing … call TSR Appraisals LLC at 720-984-0199 and schedule your appraisal today!