I attended a talk by Alan Pope, a well respected appraiser in Washington state. He is also known for his charting of inventory and real estate predictions as he has been in the business for over forty years.
Many real estate brokers complain about low appraisals in this
market, but he asks “is it a low appraisal or an over zealous buyer”.
When the offer comes in above list – is it undo duress or is the buyer
forced to acquire above market so can have a piece of the pie.
He is not saying that the appraiser is correct or incorrect…but
appraisal and market value may not be the same.
He first goes in to define a neighborhood, looks at the MLS listing,
steps into the market place, and reviews the sold and pending listings.
Fannie Mae and Freddie Mac set up guidelines. If an appraiser steps
out of the guidelines they need to explain why.
What is a neighborhood? Most neighborhoods are defined by boundaries
but may also have similar features.
Condition of property. Unique Identification numbers UID and the Frank Dodd act come into play.
Here are some of the guidelines:
C1 – Research online.
C2 – A home can be up to 10 years old and be C2 – a home is always
staged for resale.
C3 – Does’t require repair but is older.
C4 – Deck and roof near end of life – carpets need cleaning
C5 – Bad – roof at end, deck rotting, dry rot, some appliances don’t
work – need repairs. Fix first then it will be a C4.
C6 – Really bad, no mortgage.
One can see comparables for gross and net adjustments.
There is an opportunity to tweak adjustments – guidelines are 15-20%.
Time adjustments need to be supported – for example, if a comparable
is over six months old, the appraiser needs to explain why they used
The average appraiser does not have a degree in literature…they are
required to support their adjustments but it may not be in flowery
Appraised value has an algorithm – real estate brokers see this in the
Realist report or the Zillow reports.
He pointed out that real estate brokers, fee appraiser and REALTORS®
inspect the subject property and then we present our marketing and show comparables.
He suggests asking a seller if they want a personal touch or a mass appraisal?
There is the impact of a rising market and multiple offers in
appraisals – appraisers need to see the data. He suggests taking the
lockbox off after an offer is accepted.
Be diligent with the appraiser (ask him what he drinks).
Give him the most recent Purchase and Sale agreement – this may be
after the roof was replaced.
Have the architect’s floor plan for him – roll them out in the table –
this will help with measuring the interior and exterior walls. This may work for
a 300k remodel.
If it is an exotic wood floor be sure to tell the appraiser.
Are there any other important site characteristics?
Call all the pending listings and trade Purchase and Sale agreements if possible.
Appraisers are running at ninety miles an hour as want to make money.
They have overhead and charge maybe fifty dollars an hour (the plumber gets more).
We are usually biased to the transaction.
Give accurate, truthful, but not misleading data for the appraisal – if
appraisal is off, ask for a new appraisal. If lender says no, don’t
use the lender again.
Let’s say there are eighteen offers – the highest is FHA with three
percent down – would you accept it? Highest isn’t the best – want it
at at least fifteen percent. The seller wants the buyer who has twenty
percent down and more money to pay equity down.
Are cash buyers hurting appraisals? The appraiser needs to do more work.
Was a listing sold off market? He has his appraisers go door knocking so they can
see the inside of the house.
For-sale-by-owners are hard as we don’t know condition inside.
Confirm the sale – look in the tax record – use it but explain what
happens. If can’t use it explain why.
What about appraiser pools? Larger banks have a firewall between them and the bank – Appraisal Management Companys (AMC).
AMC pleases client (the bank) by being cheap and low. They have a pool
of appraisers that they use.
In the eighties appraisals were needed for home equity loans. Then we
had the collapse in banking so everything is scrutinized more carefully.
Appraisals also go to a database and are cross checked.
While an appraisal seems fairly obvious up front, it was interesting to hear from Alan what goes on behind the scenes. We never know who is going to show up and so have to be prepared.
I have a great example from two listings I had over the summer. They were three doors down from each other and on a golf course.
The first listing went pending, the appraiser came over, was quite pleasant and returned a favorable appraisal above list.
The second listing went pending and the appraiser called me and began picking apart most everything he could find online (including that the clients had asked me to keep their contact information and names confidential). He came by and did his walk-through, I gave him my comparables and he left. A few days later I found out that underwriting was being held up and so called the lender. The buyer’s lender not helpful so I called the appraiser (as I had gotten his card) and he said that the backyard deck needed handrails. I suggested there was no deck, only a cement slab in the backyard. He disagreed.
I called my client and asked her to text me a picture of the 4’x6′ slab, which she did, and I texted it to him. He apologized for using a different listing’s image, fixed the error and we moved on to closing but with a one day extension. He appraised the home for less than when it was purchased by my clients the year before, but over list.
Adding Alan’s perspective into previous experience and knowledge will be a real asset. I’m grateful to the Womens’ Council of REALTORS® for sponsoring the talk!