How appraisers and real estate agents can work together

Appraisers: The Detectives Of Real Estate

After speaking with some real estate agents at their office recently during a presentation I left knowing that many agents now understand that itquestions appraisers ask agents is o.k. for agents and appraisers to talk. In the past many were under the impression that there could be no communication between the two. I try to emphasize that interaction between agent and appraiser is necessary to doing business because there are things that each side needs to know from the other. I sometimes feel like a detective uncovering information about a sale in order to solve a case.

Real estate appraisers must research and verify information with each assignment they do and being able to speak with a party to the transaction helps to clear up any confusion there may be. Most of the time the “party to the transaction” ends up being either the selling or listing agent. If you’re an agent you may have gotten a call from an appraiser asking about details of a sale or similar topic. By answering the appraiser’s questions you are helping them to provide the most accurate appraisal possible and this helps the whole process go smoother for everyone. Just so agents will know I thought I would share what types of questions appraisers ask agents and why we need to ask them.

Condition Of The Home And Updating/Renovation

Some of the adjustments that appraisers make are for differences in age and condition between the subject and comparables. By knowing the condition of the comparable and whether it has had any updating or renovation the appraiser is better able to make more accurate adjustments, which produces a better appraisal. The condition of the comparable, which includes any updating or renovation, will affect it’s effective age. So if a home is 50 years old but it has had extensive renovations then it may have an effective age of 25, which will help increase its value. If a comparable sold at the top of the price range for the neighborhood, and it had significant renovations then this would explain the price and help the appraiser better understand why it sold for what it did. This would of course help the appraiser make adjustments when comparing the subject and that particular comp.

Motivation Behind The Sale

When we talk about the motivation for a sale we are referring to sales that may have been influenced by things such as divorce, foreclosure, and job changes to name a few. This type of information is usually included in the MLS description but not always. When looking for comparables the appraiser attempts to find “arms length” sales, meaning that both buyer and seller were typically motivated. Knowing the motivation for a sale can explain a lower than typical sale price and also help in the final value reconciliation by providing support for the appraiser to place more emphasis on other sales that are more appropriate.

 Terms of Sale and Financing Information

The terms of a sale can result in a home selling for more or less than what is typical. Examples of this include owner financing with an interest rate different that what normal bank financing may offer, inclusion of personal property in the contract, higher than typical sales concessions, sales from one family member to another, or other types of financing that may be atypical. It is important for the appraiser to know the terms of sale so that adjustments can be made to the comparables in order to get an accurate indication of value that lines up with the definition of market value which states that:

Payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto and the price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale.

These are all reasons that it is important for the appraiser to speak with the Realtor in order to get the details on a sale.

Number of Offers, Contracts, Etc.

In a real estate market that has low inventory and a lot of buyers it’s possible for there to me multiple offers on a home. This can result in the price being increased due to a “bidding war”. Like I mentioned previously, knowing this can help the appraiser understand the motivation of the buyer and explain why a home sold for a higher amount than other sales. This higher price may be indicative of the climate of the market at the time of its sale.

On the flip side, if the market is slow, there is higher than normal inventory and few buyers, then this may explain why the subject property has had frequent price reductions. The bottom line is that knowing information about the number of offers and/or contracts on a property can give the appraiser insight into buyer and seller motivation which is what the appraiser is ultimately trying to measure and reflect in the appraisal report.

Features And Characteristics Of The Home

Multiple listing services have gotten really good about including as much information as possible about a property in the online description, including numerous photos that help the appraiser get an accurate knowledge of the property. Even with this great information appraisers may ask for additional information on what types of features a home has or detail about the quality of construction and features. In addition to the house itself the home may be located in a highly desirable area of the subdivision or the subdivision may have a feature that is not present in others. If there is a feature of the home or neighborhood that a sale is in that influences value then the appraiser will need to know about it so that it can be adjusted for in the appraisal.

I hope this gives you a better understanding of the types of things an appraiser may ask an agent and why they need to know. If you are a real estate agent and I can help you in any way please let me know or if you have a question leave it below and I will do my best to answer it.

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Comments

  1. It’s so important for communication to flow readily between agents and appraisers. Sometimes the information I get from agents regarding comps can drastically impact my perception of value.

    • That is so true Ryan. I’ve had times when I thought I had a good comp but then after speaking with the agent and getting the back story I decided not to use it.

Trackbacks

  1. […] How can Real Estate Agents and appraisers work together?  Some home appraisers think they can’t work with real estate agents at all. But this is simply not true! Real estate agents can help appraisers make and accurate and fair appraisal right up until the appraisal is written up and given to the client. Tom Horn, an appraiser and blogger in Alabama, discusses ways in which real estate agents and appraisers can and should work together. […]

  2. […] is written up and given to the client. Tom Horn, an appraiser and blogger in Alabama, discusses ways in which real estate agents and appraisers can and should work together. These […]

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