7 January 2014

Staying Ahead of the Appraisals Game



Just the mere mention of the word makes some of us cringe. You can spend countless hours working on a deal, putting it together, getting through inspection issues, only to have the home under appraise.

Here are a few things you can do to be one step ahead on appraisals.

1) Pre-listing appraisal
As real estate professionals, we offer CMA or some sort of a price analysis for our clients before listing their home. These are not official appraisals, and the sellers can end up with an asking price much higher than what is recommended. If you feel that the price is too high, you should recommend the Seller hire a licensed appraiser to analyze the home. This way, they will receive an official price and not waste their time marketing the home in an unrealistic price range.

2) Meet the appraiser at the home.
I cannot emphasize enough how important it is to meet the appraiser at the home and offer comps. Be prepared to offer your local market knowledge if the appraiser is not familiar with local market conditions. You may know of similar homes that recently went under contract, or be able to explain why certain homes sold for lesser amounts. Perhaps there was a FSBO that sold and that data was not available on the MLS. You being there does make a difference.

3) Explain the appraisal process ahead of time.
Please take the time to read through the information on the following link about loan to value ratio:  http://en.wikipedia.org/wiki/Loan-to-value_ratio  Sellers, Buyers, and REALTORS® are all misinformed when it comes to appraisals. Just because the home does not appraise, it does not mean the buyer cannot get a mortgage. If there is enough money down, the loan to value ratio may work out where they can still move forward with the purchase. Talk to your buyers and sellers ahead of time to explain the appraisal process. Introduce the challenges so there are no surprises during the course of the transaction.

4) Take control during the appraisal negotiations.
You are the expert. Your expertise is why Buyers and Sellers hire you – not to just get them in the home, but to help guide them through the tough parts of  a real estate transaction. Appraisal issues are tough, and if you are not prepared, it could really end up hurting the success of the transaction.

Slow things down and talk to your clients. Explain that this is a renegotiation period, and one that you will work through together. Keep in constant communication with any additional parties that are involved (attorneys, other REALTORS®) as they may not be familiar or strong enough to control the situation on their side. Constantly offer various solutions but remember that ultimately, you represent your client, and need to focus on their best interests.

With the improving market, and cash buyers making up 42% of the market (as of November 2013), we should not be seeing as many appraisal issues as we have the past few years. However, they are a constant challenge in real estate, no matter which market you are selling in.

Be knowledgeable and take control.

One thought on “Staying Ahead of the Appraisals Game

  1. While I have been an appraiser for the last 23 years before that I was a Realtor, still have my sales license actually, and from all the seminars I attended way back when I remember the one thing that was taught in almost every sales seminar; “low appraisals occur at the time of listing”. Do your research and manage seller and buyer expectations. While the appraisal world has changed significantly this axiom still holds true to a certain extent. However, given the myriad number of changes, process and regulations appraisers have gone through over the past 4 – 5 years I can only offer this advice; find out who the lender uses for their third party appraisal management and assignment process. Many lenders use the cheapest and fastest appraisers they can find. Orders are routinely “broadcast” out to the lowest bidder in a 50 mile radius. (or more). If you find this happening over and over again it would be in your clients interest to find another lender. The best option would be to find a local lender who has a small panel or experienced LOCAL appraisers who they pay well and allow enough time to complete a quality report. With the current situation of “cheap and fast” appraisal assignment process many Realtors would be surprised to find the number of short cuts many appraisers take to try and make a living and meet the lenders expectations. Many appraisal reports are written offshore in India, Indonesia and the Phillipines for just a few dollars per. Not much quality in that scenario. The current appraiser make up is getting older and many are leaving the industry due to low pay and working conditions. Whats left is those younger appraisers that were trained and certified during the “boom” years. Their skill set level is much to be desired. Lastly, individual appraisers have little control over their reporting anymore. The AMC’s typically micro manage every portion of the report. For the appraiser it’s either comply with what they want or be removed from their approved panels for another appraiser who will. In the end the consumer suffers. While you may see consumers being charged $500 or more for an appraisal be aware the amount the actual appraiser receives is typically slightly over half that. Those fee’s were about what appraisers were paid 15 – 20 years ago. A sad situation.

    Stay local and insist on experience is the best advice I can offer. Best of luck to you all out there.

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