Don’t make these mistakes when choosing a real estate appraiser
There are numerous reasons that people have for obtaining the services of a real estate appraiser. Some of the main reasons are home purchases and refinances, however there are also non traditional uses for appraisals including marketing appraisals, tax appeal appraisals, estate planning appraisals, bankruptcy appraisals, foreclosure appraisals, and appraisals for PMI removal. The first two types of appraisals are typically ordered by the bank or mortgage company while the others are usually ordered by the individual homeowner.
What I am going to share with you today can certainly be used by banks or mortgage companies, however I hope that homeowners who needs to obtain an appraisal for a non-traditional use do not end up making these mistakes when choosing a real estate appraiser.
Only looking at the fee
The old saying that “you get what you pay for” applies here. A thorough and accurate appraisal requires the necessary time, effort, and knowledge by an experienced appraiser and this is not always the least expensive one. Rather that only looking at fee my suggestion is that you include the appraisers education and experience along with the fee in your final decision with who you choose.
Just as you might get several quotes for other services that you use, you should also speak to several appraisers to find out how much experience they have in the area you need the appraisal. This is commonly known as geographic competency and takes into consideration how many other appraisals they have done in the area. You probably would not want to hire someone who has never done an appraisal in the area you need one for.
Choosing an appraiser who has invested the time and money on his/her education is also important. Minimum state educational requirements for getting an appraisal license are typically very similar and give the appraiser adequate knowledge to complete and assignment. If an appraiser belongs to a national appraisal organization like the Appraisal Institute, which I belong to and hold the SRA designation from, they usually have higher standards and educational requirements. All appraisers are not the same so you should consider their experience and education along with the fee when making your final decision.
Only concerned with turn around time
Turn around time, or the time it will take to complete your appraisal, is important to an extent. Many times the need for an appraisal is time sensitive so you don’t want it taking forever, however because several steps are involved, including the cooperation of other real estate professionals, it cannot always be done quickly.
Most people only see the beginning part of the appraisal process when the appraiser visits their house for the appraisal inspection. This only accounts for about 70-80% of the process. After this is compete the appraiser must then spend time researching comparable sales and verifying information with real estate agents or the buyer and seller involved in the transaction. This can take varying amounts of time depending on how easy it is to get in contact with them.
Another step in the process involves analyzing sales data to come up with value trends as well as the correct adjustments to make in the report. This is one area that appraisers get asked about a lot. People will ask “how did you come up with adjustments”, or “how much is a pool worth”. We make adjustments based on what buyers are willing to pay for a certain feature, and this can vary from one area to another. There is no “one size fits all” adjustment that we can use for every appraisal so this process must be performed for each assignment. The availability of plentiful sales data can help this process, however in some rural areas, where sales do not occur as often,this can result in an appraisal taking longer than normal. Appraisals that are rushed to be completed in an unreasonable amount of time may not be as thorough as those that have had the necessary time invested in them to get the best results.
Choosing an appraiser who gives you the value you want
An accurate appraisal is based on market data and not what a seller needs to get out of their home to pay certain expenses or to pay off a mortgage. The appraiser measures the market to find out what a typical buyer would pay for your home, but if a home is appraised for a higher amount to satisfy the owner for something like a pre-listing appraisal, it may not sell for that amount and it defeats the reason the appraisal was ordered in the first place.
In a refinance appraisal the bank will only lend a certain percentage of the value of the home using a loan to value ratio. Appraising a home “high” would result in the bank loaning more money than the value of the collateral, which is your home. If it were necessary to sell your home after this type of loan you probably would be under water because you owe more than what it is worth. This type of situation has occurred less frequently in recent years because of legislation enacted several years ago as a result of the collapse in the real estate market, however I have heard of some appraisers that are still feeling pressure to hit a certain number in the appraisal assignment. This type of pressure is never acceptable.
While in the short term it may be nice to be able to borrow more money than the equity in your home will allow, it can come back to bite you in the scenario I just described.
Conclusion
Choosing an appraiser is not difficult, however there are certain things you should consider including the items I discussed above. Do you have any other suggestions that would help others avoid mistakes when choosing a real estate appraiser? Leave a comment below, I’d appreciate hearing from you.
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– Be sure the appraiser doesn’t have any personal ties that may affect his assessment.
– Will the appraiser be including what they “project” the property will be worth later instead of the real current price?
Two great points! Appraisers are supposed to be unbiased no matter what and even if they are they must also consider how the public will perceive them. On your second point, what type of situation would you be working in where you project the value as a of a date in the future?
I would like to hear your thoughts about the difference between a county’s appraised
value of a property vs what a property is worth or eventually sells for. There is always
a wide spread between those numbers. Would like to hear how to interview an appraiser
who uses or doesn’t use the county’s base appraised value. Thank you.
Appraisers for the tax assessor’s office uses different appraisal methods to do their job. They use mass appraisal techniques where they look at overall sales in the area and then apply what they find to an individual home. They do not go in the home and the square footages they have may even be wrong. Compare this with what a fee appraiser does where they go into your home, measure it to get accurate square footage and make adjustments for updating and quality of construction. The later type of appraisal is going to be more accurate. Appraisers really don’t go by what the county has when coming up with their values.
How soon is it recommended to do a pre-listing appraisal ? And how long this appraisal is “good” for ?
Stephanie, I would have it done right before you decide to sell so that the most recent sales are used. This gives you the most accurate picture of the market compared to getting it done 6 months before. An appraisal can usually be turned around in days to weeks depending on where you are. Asking how long it is good for can be a loaded question. In reality, it is good for 1 day 🙂 but in a stable market, it would probably be good for several months or until some other more relevant sales because available.
Thank you
So how would someone be able to choose “an appraiser who gives you the value you want.”
I’m sure if you interviewed enough appraisers you may find at least one unethical one that would do it. But if you are going to do it in order to support a higher listing price then you’ll be found out in the end. Buyers will probably know it’s over priced and if you do get a contract on it then the mortgage appraisal will probably come up short, so in the end it wouldn’t be worth it. 😉
Your list of things not to do when selecting an appraiser reads like the to do list (or how to select an appraiser list) of a vast majority of appraisal management companies (AMCs). I do not do lender appraisal work, but I still receive countless phone calls and emails every day from AMCs asking only how fast can I do it and for what fee. They do not care about anything else as long as I have a license and a pulse, I must be qualified.
Great observation Gary. 🙂 I think we should do the exact opposite of what AMC’s are doing.
Well said Tom. I completely agree about fast and cheap. I’ve found in mostly any industry that I will rarely stick with the lowest price as a consumer. It’s suspicious, and I don’t want to have to buy something again because it was not right in the first place. I learned the hard way once by using an unlicensed contractor for a bathroom remodel……
Good points Ryan. I think appraisers need to price themselves like the professionals they are. You would never see accountants doing something like that, and I see the appraisal profession somewhat like accountants. Charging low fees can give the impression of low quality work or someone who is desperate.
That was an excellent post Tom. The only thing I would disagree with is that, in my experience, the home inspection is about 25% of the process. It may be different where you are located. I love it when the homeowner asks me ” what do you think it is worth?” when I get done with the inspection. People do not understand how much time and work goes into the valuation process. Your post does a good job at explaining what we do.
Now, the same education needs to be be presented to people in the mortgage business who expect to get a low price product and a 3 day turn time. Sure there are many appraisers who can meet those demands but often times the report is not worth the paper that it is written on. Using an experienced appraiser, who takes the time to work through the appraisal process, always results in a more reliable result. Thanks for taking the time to explain what we are paid to do Tom.
Thanks Tom. I can go with 25%. 😉 I just want people to know that the appraisal inspection is only the beginning. I have people look at home inspectors who can do all their work at the house and provide the report upon completion and compare us to them, but our work flow is different. We must do the bulk of the work back at the office. If you know Dave Towne, part of his email signature is the graphic about getting an appraisal done good, cheap, and fast: it’s not possible. Thanks for sharing your thoughts.