5 Things the agent can share with the appraiser to help with the appraisal
Often times during the appraisal process the real estate agent feels helpless with regard to how the appraisal will turn out. There are things however that they can do to help the appraiser provide the most complete and accurate appraisal and to make the process smoother. Let’s take a look at some things the agent can share with the appraiser to help with the appraisal.
Don’t be stingy with the information
When it comes to providing information to the appraiser it is better to provide more than less. It’s better to provide this information up front because if you don’t, and the appraisal comes in low, then you’ll have to go through the loan officer to get any additional information to the appraiser along with a reconsideration of value, which can slow down the loan process. You don’t want that to happen so knowing these 5 things the agent can share with the appraiser to help with the appraisal will help you have more control over the situation than you think.
Contract activity
One criticism appraisers get is that they only measure past activity, and their value opinions lag behind in an appreciating market. One way to combat this is to provide information on all contract activity with the property being appraised. During an appreciating market it is not uncommon for supply to be low while demand is increasing.
This can result in numerous buyers being interested in the same property and multiple contracts at the same time. If this is the case then the appraiser needs to know. If the contract amount is at the upper end of the price range the appraiser can include this information in the appraisal to provide support for the higher opinion of value that they arrive at. This should also be supported by other value indicators as well such as pending sales.
Updates and renovations
As an agent, do you provide a complete list of updates and renovations to the appraiser? Appraisers DO consider this in their value opinions. We look at a home’s real age and then after considering the extent of updates and remodeling we estimate an “effective age“.
Things such as painting and replacing cabinet hardware won’t have too much of an impact on effective age, however replacing the roof, HVAC, or an extensive kitchen or bath remodel will. In fact, the appraiser is required to note in the appraisal if and when any bath or kitchen remodels have occurred. With this information we are able to pick the most appropriate sales to include in the appraisal report. The best sale will be another home of similar age that has had similar updates, however if none are available then we can use a younger home with a similar effective age. This will give the most accurate opinion of value.
CMA sales
I tell agents that if they have been diligent in putting together a CMA (Competitive Market Analysis) to arrive at a list price then by all means share this with the appraiser. With that being said, please know that some appraisers welcome this information while others don’t. Some may think that you are trying to influence their value opinion, however the way you present it to them can go a long way. I suggest that you provide it in an information packet and say something like “this is information on the home and some sales I used to price it”, rather than “here are sales you can use, you shouldn’t have a problem with the value”.
Knowing what sales you used in your CMA will assist the appraiser in understanding why you priced the home where you did. I also let agents know that the sales you provide may or may not be used in the appraisal report. They may not qualify as “comps” if they don’t meet appraisal or underwriter guidelines. It’s important for agents to know what guidelines appraisers use when choosing comps. If they can follow these same guidelines the comps they choose will be similar to what the appraiser uses and the likelihood of a home under appraising will be decreased.
Property features
Providing the appraiser with a “features” sheet like the one you give potential buyers can be helpful. Most of the time the appraiser is able to observe the features of the home during the appraisal inspection, however if a home has special features that are not readily visible then this can be helpful. If an appraiser doesn’t see a feature then they cannot consider it in their value opinion, so it’s important that they are aware of all the features. This can also be true for the land that the home is on. If there is more than one parcel, and it is being included in the sale, then the appraiser must know so it can be considered.
Sales contract
The sales contract is a very important part of the information packet that an appraiser gets. The appraiser is required to review and analyze any sales contract or listing on the property they are appraising. The contract will be reviewed to see what the loan interest rate is, down payment, seller contributions, or any other property included in the sale.
If the interest rate is lower than market rate then this could have resulted in a higher price for the home. I’ve also seen instances where personal property was included in the sale, however an appraisal on the property should not include this so an adjustment for this would need to be made. One other thing I have seen is the seller contributing more to closing costs than what is typical, which can also result in the contract price being higher. If the appraiser did not review and analyze these terms of the contract, and compare them to what is typical for the area, then the appraisal may give an inaccurate indication of value for the property being appraised.
Question
Do you have any questions about the items I have listed? If you are an appraiser, can you think of anything I left out? If you’re an agent I hope this post is helpful to you, and if you have any additional questions feel free to leave them in the comments sections below.
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Hi,
My seller has listed a house in an area near Chicago- only a 5 minutes drive away. The area is newly booming so prices have ofcourse climbed up by 3x in recent years. My client has done a complete gut rehab- everything in the house minus the front exterior and foundation is brand new-he has even made new extensions to the structure. Ofcourse brand new means architect designed, city approved new floor plans, new roof, new water service lines etc. his appliances are high end and everything in the house is all top of the the range.
The problem is his street-not even his location i would say as its terrific near restaurants, shopping and behind a police station. Homes 5 blocks away are priced at $650+ for new constructions but on his side of town his price range is only till $500k. He has priced it at $600k. What can I do at the time of appraisal to justify all the features in the house? Will a mile radius be good to show recent sales or do I need to stick within a few blocks? Suggestions and advice would be much appreciated.
Fantastic article by the way!
Some neighborhoods are very specific and it might be necessary to pull sales just from that street. If there are sales within several blocks that are recent and have had updates like your seller then I would use them because they reflect the local market. If there are no nearby sales then it would be acceptable to go a little further but only if the neighborhood you go to would be considered a reasonable substitute for your sellers. It would be easy to justify a higher price by going to a more desirable area but is that reasonable? There can be huge differences in neighborhoods that are right next to each other depending on a lot of different factors. The best thing to do to help the appraiser is to give them as much information as you can on all the updates and renovations.
Memphis TN My Broker told me that I could not talk to the appraiser about the value of the property I have listed, IT is against CFBP rules.
That is correct. You cannot talk about value but there are a lot of things you can do to assist them in the appraisal process.
Nice job, Tom. I find many agents don’t know what to provide to the appraiser, or some think they cannot talk to the appraiser. I always want to hear facts, data, and get a better understanding of the market. If I can leave the conversation with a better understanding of the property as well has how the market responded to the property, that’s good stuff. This post also reminds us that statements such as “You shouldn’t have any problem meeting ‘value'”, or “This house is the best one in the neighborhood” are actually not very meaningful for the appraiser. Why? Because they don’t provide the appraiser with any further context for the property, and there is no further data to consider.
Great points Ryan. The comments the agent makes must be supported by market evidence in the form of true comparables that are similar to the subject. Thanks for your insight.
All great tips Tom. Not all appraisers know what questions to ask or might forget to ask. Agents know the property better than anyone and following your suggestions could start the conversation that give the appraiser the information that is necessary to get the value right.
I agree Gary. In order for us to give the most accurate opinion of value we have to have the most accurate data about the property.
Great list! What info to provide appraisers is a constant conversation of agents. Nice to get it straight from the appraiser’s mouth.
On the final point, say you have two molecularly identical homes under contract but in one of the two contracts, the seller contributes 3% more to the buyer’s closing costs. Would that impact the appraised value?
Great question John. From what I have seen is that if the seller contributes more money than usual they will increase the contract price to account for that. The increase in contract price may not be reflected in appraised value based on comps that have closing costs more typical of the market. If the comps have typical closing costs they more than likely sold for a lower amount, at least in my experience they do.