6 Reasons Appraisers Are NOT Needed

What Do Appraisers Know Anyway?

What Do Appraisers Know AnywayYou can buy a car in little to no time so why not a house? Over the years I have heard that the home buying process is too long. There are too many headaches for buyers and the process should be easier.

We are in a microwave society and everybody wants things instantly. This should, of course, carry over to the home buying process, right?

A house is probably the most expensive purchase people will ever make but that doesn’t mean that the process needs to consume your entire life, right? The appraiser just adds to the stumbling block that most home buyers face in getting into the house of their dreams. Today I am going to discuss 6 reasons that appraisers are not needed (wink, wink) in the home buying process.

1) Appraisals cost too much – Closing costs can vary on a home loan but the appraisal fee is typically less than 1% of the price of the home and less than 10% of the buyer’s overall closing costs on average for a $300,000 home. Who would want to pay that much to know that you’re not underwater with your mortgage?

Your peace of mind shouldn’t cost that much, right? After all, an appraisal costs less than 6 months’ worth of a daily Starbucks coffee. Can you imagine opting out of the home inspection or title? I didn’t think so.

2) You don’t need an unbiased party because they’ll throw a monkey wrench into the deal – When an appraiser participates in a home sale they are the ONLY unbiased person in the transaction so you may not want them involved. Because they are trained to be neutral they may render a value that is less than an unrealistically high sale price.

3) Buyers are smart enough to know a good deal, right? –  If there is no appraiser to get in the way the buyer can use their own extensive market knowledge to determine whether it is a good deal or not. Since most buyers can separate their emotions from the buying process they can make more rational buying decisions.

Part of knowing what a good deal is includes having extensive sales data and knowing intricate details about each sales transaction. With this information, you can then compare it to the home you want to purchase to determine how good of a deal it is.

4) No one would ever overprice a listing, right? – Since no sellers would ever overprice their home there is no need for the services of an appraiser. I know this because most home sellers would never attach sentimental feelings to their home because this could get in the way of pricing it objectively.

Overpricing is typically the number one reason for a home not selling. If you can be assured that sellers have access to the most recent sales comparables and the physical information about them (square footage) to help them price accurately then you can feel confident that it is not overpriced.

5) We’ve got Zillow, we don’t need appraisers – I have read many stories about how much confidence homeowners place on the Zillow Zestimate. With nothing more than this popular online tool you can be assured that the value is as accurate as possible.

It is so accurate in fact that the CEO of the company sold his house for $700,000 less than what the Zestimate said it was worth. If the CEO of the company can rely on their Zestimate then you should too.

If you’re curious about what Zillow does so much better than appraisers check out this previous article I wrote.

6) Banks don’t need protection-the market will never go south – Up until the real estate crash of 2007-2008, most people thought that real estate values only went up. Boy did we learn otherwise?

Banks were foreclosing on properties right and left after the crash and many of these homes stayed on their books longer than they would like to admit. Good thing they’ve got things under control now.

Many banks have realized that there is no need for appraisers and they are now accepting property inspection waivers (PIW) instead of getting an appraisal. This is good because they can now save what is typically one of the lowest cost items in a loan transaction. Let’s just hope this doesn’t come back to bite them.

Question

Can you list any more reasons why appraisers are not needed? If so leave a comment below. In case you couldn’t tell this week’s post was my attempt at a little satire.

I hope that you have picked up that I believe appraisers are indeed very necessary in the financial markets in our country. If I can answer any questions for you feel free to contact me and as always thanks for reading.

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Comments

  1. We recently sold a house and the first thing I did before we even started preparing to list was get an appraisal. Some of my real estate friends raised their eyebrows when I told them that. As a professional appraiser didn’t I know what the house was worth? Actually there were several reasons for this decision, I was not familiar with the market area where the house was located, I am really not independent and unbiased when it comes to that house, I wanted to know if a new set of eyes would see something I was not seeing, and I wanted referral to a good real estate agent (a discussion for another day). After working with the agent the appraiser recommended, spending some time making preparations, and doing what the agent told us concerning staging and list price, we finally put it on the market. The agent played the market like a fiddle and in one day after listing we got three offers. Short story, the house sold $5k above listing price and ding. ding. ding. right at the appraised value. For this sale we had two appraisals, my pre-listing and the buyer’s lending appraisal. Good appraisals lead to no questions.

    • Wow Steve, that’s a great story. I think it says a lot about you that you recognized that you were not familiar with the market and rather than come up with a number yourself that may include some bias you left it up to someone with a fresh set of eyes. It sounds like your plan worked very well. Thanks for sharing.

  2. Joseph Stachow Jr says

    Listing agents have a “fiduciary relationship” with the homeowner; that means the agent is under obligation to try to get as much for the home as they can. Many buyers mistakenly think an agent who shows them a house is “their agent”, not so unless the buyer has put that agent under contract as a “buyer’s agent”. We as appraiser’s have the responsibility to provide an unbiased estimated fair market value, based on discovered data according to the scope of work. If that means”killing a deal”, so be it. I have only come across 2 buyers in 15 years that were upset the contracted sales price didn’t coincide with the results of the appraisal; they fell in love with the home, got emotionally attached to it when they first saw it, they bought it anyway, putting more money into the deal to make it work.

    • Great story and thanks for sharing Joseph. I understand that listing agents are trying to get as much as they can for the seller but I have heard that agents may list a home for a seller and feel pressured to list it higher than is reasonable. I think they should try to get as much for the seller, however it should be supportable by the market. If they list it at an unreasonably high price and find a buyer that is not familiar with the market then the appraiser will end up looking like the bad guy. If the agent had listed it at a market supported price then the likelihood of the appraisal coming up short is minimized.

  3. Hmmmm, if Appraisers are not needed then certainly Home Inspectors fall closely behind that.

    Funny story: I am a Certified Residential Appraiser in a rural area in South Mississippi. One of the local civic clubs that I am a member of was throwing an afternoon crawfish boil for its members. Members are comprised of lending professionals, REALTORS, home inspectors, appraisers, insurance agents, etc. We, meaning myself and a male friend, arrived about an hour after the event began. As we walked up, this comment was (politely) shouted by a REALTOR ” look its an appraiser and a home inspector, if she doesn’t kill your deal, he will” .

    I say this because it is simply the “unspoken attitude” of individuals that do not fully comprehend the magnitude of the TRUE service that we (appraisers) provide. Unfortunately, that attitude is echoed in many lending professionals and REALTORS; hard as it is to believe, even in the potential purchasers who receive a great benefit from our valuable services to our Client.

    Appraisers remain the genuine, unbiased equalizer in a real estate transaction.

    Tom, as always, I absolutely love this weeks blog !

    • Disturbing but funny story, Melissa. I agree with you 100%. Most people see us as a roadblock to the sale of a house but we are the only unbiased party as you mentioned and when we produce a thorough and fully supported appraisal showing that a house may be overpriced that should be welcomed by buyers. Just this week I did an appraisal that showed the home was overpriced by more than $10,000. In this instance, the sellers dropped their contract price to the appraisal value which saved the buyers a lot of money. There are many reasons that properties are overpriced, one of which is inaccurate square footage information. An agent’s unfamiliarity with area or a buyer’s unrealistic expectation can also cause this. This is why appraisers are in fact necessary to prevent these types of things from happening and to protect the lender’s position in the loan transaction.

  4. Appraisers do have an important role to play in the housing market. It’s easy to downplay their role because it’s not a perfect system. There are bad appraisers, bad appraisals, and it can be a headache in other ways too. But that doesn’t mean the appraisal process is not valuable. A credible appraisal is absolutely an asset during real estate transactions. I am consulting with a client right now doing an estate appraisal and I feel honored because they are needing an appraisal to help make a decision on what to do. Sell now? Keep the house to rent? Rehab and then sell? There are many layers here and I’m grateful to get to help them find an answer.

    • I agree, Ryan. I think that consumers still see value in appraisals more so than the lending side of the business. That is great that you are able to provide consulting services to your client. I think as appraisers these are the types of jobs we probably need to purse. Thanks for sharing.

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