Agents, are you preventing appraisers from doing their job?

Is preventing appraisers from doing their job on the rise?

preventing appraisers from doing their jobIn a recent episode of Phil Crawford’s “Voice of Appraisal” podcast show on Youtube (he starts talking about it at around the 27:30 marker), the host reported that some appraisers are being denied access by agents to homes they have been asked to appraise. It seems like these agents may have harsh feelings toward the appraiser because a previous appraisal may have come in low and in retribution they are preventing appraisers from doing their job.

This could be a potential ethics violation and should be avoided at all costs. It is not appropriate for a real estate agent to deny an appraiser access to a listing that the appraiser has been hired to appraise by a lender for a mortgage transaction.

The bottom line reason for this occurring is that the agent probably thinks that the appraiser is going to “kill their deal” by giving them a low appraisal. What the agent needs to remember is that the appraiser has nothing to gain by providing low appraisals. In fact there is more trouble involved in answering questions and addressing a reconsideration of value for an appraisal that the agent is contesting.

Don’t get me wrong, I myself do not mind answering legitimate questions, but the bottom line is that the appraiser’s job is to accurately report their opinion of the market value of the home using verifiable market data. Sometimes the appraiser’s opinion of value does not line up with the agents.

I believe that there are numerous reasons for this and if the agent and appraiser can get on the same page about what constitutes market value then a lot of this can be avoided.

Today I want to discuss some reasons I have seen in my 25+ years as a real estate appraiser that these differences exist and what can be done about them to avoid differences between agents and appraisers.

3 Major reasons for differences in contract price and appraised value

Appraisers are required to provide tangible support derived from verifiable market data for the opinion of value in their appraisal reports. In contrast, this type of work is not a requirement for agents to set a price for their listing.

I do not think that agents need to go through the exact process appraisers do but there needs to be a middle ground where agents understand what appraisers look at when developing a value estimate. Whenever this occurs I believe there will be less problems with contracts and appraisals lining up and there will not be instances where agents deny appraisers access to homes.

The 3 major reasons I have seen for variations between contract and appraisal include:

  1. Homeowners are allowed to set their list price- Whenever a list price is based on anything but market data there is probably going to be a problem with value. Over the years I have spoken to countless agents who told me that they felt a home was listed too high but that is what the owner wanted. There are many reasons for this and they include wanting to pay off existing mortgages or getting money back that was spent on home improvements.  As a homeowner I can understand that we all want to get the most out our home but is that realistic?
    Sometimes what a homeowner wants and what the market is willing to pay do not line up. When this occurs there is a big chance that the home will not appraise after it goes under contract. As I have said in the past this type of deal is dead before it ever got started. The solution to this problem is educating the homeowner on the state of the market for homes in their area. A complete and thorough CMA will show the owner what they can realistically expect to get for their home. This is not always pleasant but if the issue is addressed up front there will not be any unrealistic expectations.
  2. Agents are not familiar with the area and/or choose the wrong comps- Being knowledgeable about the market area you are working in can make a big difference when setting a list price. The oldest phrase in real estate is “location, location, location”. This implies that in addition to the physical characteristics of the home its value is determined by where it is located. Homes located in areas with favorable schools or municipalities can make a big difference in its value and if the wrong comps are chosen the list price can be wrong. This can result in the home either not selling or in the deal falling through because the contract price did not match the appraised value.
    It is said that choosing the right comps is 90% of the battle when developing either a list price or opinion of value for a home. Adjustments are important but real estate agents typically do not have the time or knowledge to determine adjustments for everyone of their listings. That is why is it important to choose the right comps because if you do that then most of the work is already done. The more similar a comp is the less adjustments need to be made and the value estimate is going to be more accurate and reflect true market value.
  3. Agents are working with the wrong information- The square footage of a house is important when attempting to determine its value. If you have the wrong square footage it can result in the wrong value estimate and the wrong asking price. I know a lot of the agents in the Birmingham area use county record data for square footage information, however they can be very inaccurate.
    If you’re relying on county records for your square footage information you may want to reconsider. A 100 square foot error on a home selling for $100 per square foot can cause you to be off by $10,000. There are various ways to obtain accurate square footage information, some which are free. If you find that you have no reliable source for square footage you may want to consider getting a floor plan sketch done. This will provide you with accurate square footage that will help you come up with an accurate list price.

By addressing these three scenarios that contribute to differences in contract price and appraised value the likelihood of deals falling through is reduced. When this happens there will be less hard feelings between agents and appraisers and we can all get back to doing the jobs we were hired to do.

Question

If you’re an agent or appraiser do you have anything else to add about this new trend? If so leave a comment below or give me a call.

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Comments

  1. Interesting story. It is my experience that the agents in our market (not Birmingham), are overwhelmingly helpful toward appraisers. That is not to say that I have not ran across a bad apple, but they are few and far between.

    • I have never had this happen to me either Gary but I think it is worth starting a discussion about. Phil has mentioned it a couple of times on his show so I know that there are some appraisers who are running into this problem

  2. It’s a bit iffy to get in the way of an appraiser inspecting a property. I don’t have anything in writing to say that is not okay, but it does seem to violate appraiser selection (which is a no-no according to Dodd-Frank). I understand why access could be denied, but that doesn’t mean it ought to happen. Thanks Tom.

    • I haven’t actually experienced this in my area, however I agree that it should not happen. I think that there are better ways to discuss issues rather than preventing an appraiser from doing their job. This is one of the main reasons I work with agents so much because the more they know about the appraisal process the more they will understand what we do. I think that this understanding between agents and appraisers will go a long way in opening up communication and preventing these types of things from happening.

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