9 Things Appraisers Wish Agents Knew
Appraisers and agents work together all of the time so you would think that there would be no confusion about what the other party does but unfortunately there sometimes is. There are certain things appraisers wish agents knew so today I’m going to discuss some of the most common I’ve run across.
If you are an agent and have your own list of things you wish appraisers knew please share them. I am all for clearing up confusion in order to make things run as smoothly as possible.
Agents, do you know that…
1) We don’t want to kill deals- Sometimes appraisers are known as “deal killers” but that’s the last thing on our minds when we go into an assignment because it’s more trouble for us in the long run. Appraisers do not set the value of homes, but I guess if this is your understanding then you might also believe that we can be deal killers.
In reality, appraisers analyze market data and then see how the subject property fits into the parameters set by buyers and sellers. The subject property is measured against the market to see how it compares.
If the subject property is not priced to the market through an accurate CMA or pre-listing appraisal then the contract price and mortgage appraisal may not be similar. If a sale is going to be killed it most likely began its death when it was priced too high before the appraiser even entered the picture.
Accurate pricing up front is 90% of a successful sales transaction.
2) We cannot give an appraisal by casually observing a house- I wish I was that good but I’m not. There are a lot of moving parts to an appraisal and appraisers have to dig into the data to see what it says.
Data on the property has to be collected first. This includes finding out about the physical characteristics of the home such as its size, quality of construction, features, and floor plan layout among other things.
After we have collected the data on the subject property then we have to analyze the market data to see what trends are occurring. Many factors affect value including where the property is located, the school system it is in, as well as supply and demand characteristics of the area.
Only after all of this work is done can we then get a better understanding of the value of the property.
3) We are required to analyze sales contracts- I once was told by a real estate agent that in her 30+ years as an agent I was the first appraiser that ever asked her for a copy of the sales contract. I have a hard time believing that because every appraiser is required to do this but I was not going to argue.
In federally regulated transactions appraisers are required to observe and analyze the sales contract if it is available. If it is not available then we have to describe what steps we took in our attempt to obtain it.
One of the main reasons we are required to do this is so that we can see if there is anything in the contract that would affect the sales price. Sometimes personal property is included with the sale that the appraiser cannot include in the appraisal. If this is the case we would have to determine its impact on the sales price and account for it.
Knowing the details of a contract can help appraisers compare the true contract price to the sales comparables.
4) What you see us do at the house is only the tip of the iceberg- As I stated previously there are
many parts to an appraisal assignment. The visit to the property is the most visible part of our job.
The bulk of the work on an appraisal happens after the property observation. This is when all of the research and analysis is completed.
You’ve probably been contacted by an appraiser verifying the details of a home you sold that they are using as a sales comparable. We appreciate all that you can tell us about the sale because it gives us a better understanding of the motivations of the buyer and seller.
The work done behind the scenes is some of the most important in the valuation process.
5) Not all sales are comps- Just because a home sold next door to the one being appraised does not mean that it is a good comparable. I always say that a comp is a sale but a sale is not always a comp.
Sales have to go through a qualification process to see how comparable they are to the subject. Some of the criteria we look at include size, age, quality, condition, and terms of sale.
Sometimes the best comps are not the ones in the immediate neighborhood. While this should be the first place you start looking it may turn out that more similar sales are located a mile away.
The important thing to remember when searching for comps is to look in a competitive market area. This is an area that a buyer would also look at if a home was not available in the subject neighborhood.
If you have any questions about sales, comps, and where you can look for them give me a call and we can talk.
6) It’s important to communicate with the appraiser up front before the appraisal is finished- Providing as much information up front is one of the most important things an agent can do during the appraisal process. While we cannot talk about the value there is still plenty of information you can share to help the appraiser.
Some agents may still believe that they cannot talk to the appraiser but that is not true. Agents can share any information they have that they feel is relevant to how they priced the home.
If you performed a CMA you can share this along with any information about recent improvements or renovations. I always recommend having an information packet available to the appraiser that you may have already put together for potential buyers.
If you do not communicate with the appraiser up front you will not be able to after the assignment is complete if you want a reconsideration of value. This must be done through the bank or appraisal management company which takes a lot longer.
7) Appraisers don’t have a little black book of adjustments- There is no list of adjustments for the various features of a home because adjustments vary based on the property and where it is located.
If there was only one adjustment for a pool that would mean that a pool that costs $50,000 to install in a million dollar home would be the same for a $20,000 pool installed in a $250,000 home.
The adjustments that appraisers make reflect the contributory value of a feature. In other words, it is the amount that a buyer is willing to pay for that feature. Buyers in one neighborhood may be willing to pay more for a feature compared to the same feature in another neighborhood.
We cannot generalize about adjustments because not all neighborhoods are the same and buyers are willing to pay more or less depending on where the property is located.
8) Agents can talk to the appraiser just not about value- As I noted above, agents and appraisers can talk but not about value. When a home is under contract I think it is pretty evident what value the agent wants.
It is important to keep the lines of communication open during the appraisal process because when the appraisal is finished it becomes nearly impossible to have a one on one discussion.
9) It’s okay if you need to get a pre-listing appraisal- Agents may believe that they are not doing their job if they do not price the home themselves but this could not be farther from the truth.
There are homes that are located in areas where sales are scarce or it is difficult to zero in on the value. In other instances, you may have a unique home that makes it harder to determine what to list it at.
If you have done your job as an agent in pricing the home and the seller does not like what you came up with a pre-listing appraisal can possibly provide support for your conclusions. In situations like these, a pre-listing appraisal makes sense.
The cost of a pre-listing appraisal is minimal when you compare it to the additional marketing expense and carrying costs of having a home on the market for an extended period of time because it will not sell due to it being priced too high.
Questions?
Do you have any other questions about the topics I discussed here? I believe that keeping the channels of communication open can help identify and minimize misunderstandings between appraisers and agents. If you have any appraisal related questions feel free to contact me and I will do my best to answer them for you. As always, thanks for reading.
Per this item #9 in your writings – you state per item #9 in having a real estate agent call an appraiser if ….”There are homes that are located in areas where “sales are scarce” or it is difficult to zero in on the value.
My Response to this suggestion you made: If the real estate agent cannot find suitable comps due to such comps not being available, where would we appraisers get them from? We appraisers cannot magically make comps appear. Please elaborate on this point for me. I have sadly observed and reviewed many an appraiser completed appraisals with unsuitable comps. Per our strict appraisal laws, we appraisers are not to perform a noncredible report. In my opinion and interpretation of our strict laws that in such cases a reputable appraiser must turn the appraisal down if the data is not available to justify a suitable comp. I do like all the other parts of your writings and I would like very much to send to folks who need to know a bit about the process that appraisers must work under. But I must hesitate to use this writing because of this one item. Can you address this so I can use this tool. Thank you.
Thanks for the question, Lawerence. I have found that some agents use comparable search parameters that are too restrictive. When they do this they cannot find comps. I tell them that if they cannot find sales within the immediate subdivision, which is preferable, then they can expand search parameters. It is okay to go beyond a mile if necessary as long as the area you are looking in would be considered a competitive market area. You are right, we cannot make up comps and I have turned down some assignments in the past when I could not find any sales that would provide a reputable appraisal.
54 years in the business and I still remember what the guy who drug me into this profession said, always, ALLways, ALLWAYS thank the homeowner or agent for allowing me to visit and tell them, ” Now that we know what we have, its’ time to find comparable sales”. That tells the agent or home owner you have no preconceived ideas about value. This has worked time after time for thousands and thousands of assignments.
Dan, that is an excellent suggestion. I might have to start using it. Thanks for sharing.
Great Blog Tom! You made so many great points that many are clearly not aware of. Thanks for pointing these out the way you did. Keep up the great work! While I don’t comment on every blog, I always love every post you make!
Thanks, Jamie. I appreciate your comments. I hope that in sharing what I have in this post it will open up communication between agents and appraisers so that there will be less mystery in what we do.
Thanks Tom. Relating to your first point, appraisers really aren’t on the same page as agents. I spoke in a real estate office yesterday and made that point. I said, “We are not on the same team.” It’s just true because the appraiser doesn’t have skin in the game or any objective to help the deal close. This doesn’t mean appraisers want to kill deals though as you said. It just means appraisers are fundamentally operating on a different team. They are hired by the lender to manage risk instead of being in place to help enable deals. This is text book stuff, but it’s important to recognize appraisers have a different role to play in the transaction. On that note, appraisers can sometimes come across as impersonal or even combative at times, but I’d say just because we are playing on a different team does not mean we cannot be nice. 🙂
Great points, Ryan. As an appraiser, it’s easy to feel left out of the gang. The agent, loan officer, title person, etc. are all doing everything they can to get the loan closed but that is not our job like you said. We can do all we can to provide the best service and provide the best information we can, as well as being nice.
I have a question on an unrelated issue. Lets say you completed an appraisal and all the revisions that go with it about a week ago. All of a sudden, you are sent a new revised contract with the sales price changed and the seller credit modified. The lender wants you to update the appraisal. Now you have to read the new contract, upload your report, make the changes, save and download the report, open the lenders web page and upload the revised report. Do you think the appraiser should be compensated for this extra time and work? Is my time not worth something? My lender claims it’s all part of the assignment. Am I wrong here when I ask for more compensation? Not a lot but something?
While I agree with you that our time is worth something I think most lenders do feel that this is part of the assignment. If you signed a user agreement with the bank or AMC that you are using they may have it specified in there that this is expected. If they are a good client I look at it as just providing a good service to them and hopefully it does not happen all the time. If they are a bad client and it happens all the time then I might not want to do work for them anymore. In the end, I think it is a business decision that we have to make but if you do you might want to be prepared if they decide to use another appraiser that does not charge for it. Good luck.
10. If you know, or suspect, the Gross Living Area in tax records is wrong then please tell the appraiser before he comes out to see it so he can choose comps appropriately.
11. If you think GLA in tax records is wrong you might want a pre-appraisal or at least have an appraiser professionally measure and sketch it so you can let prospective buyers know (with some certainty and something to back you up, CYA). Once you have that appraiser provided sketch to back you up you can say in the listing that it is actually larger than tax records based on appraiser measurements. This should help you sell it higher and will help other appraisers later using it as a comp to be more accurate.
I just did one where the agent knew it was 500 sf larger than tax records because a fully permitted addition did not get added to the tax GLA like it should have but she did not tell me until I arrived at the property and did not say anything about it in the MLS listing. My comps were already selected so I could take pictures of them right after the inspection of the subject property but some were too small and bracketing the GLA was almost an issue.
12. If you get a pre-appraisal, you might want to take a glance at more than just the bottom line. That same agent had a pre-appraisal and told the appraiser about the extra 500 sf
but the appraiser just used tax GLA and did not measure it or provide a sketch at all.
It was a choppy contemporary cape cod and admittedly difficult to measure but it has to be done. If we start out with the wrong GLA it’s going to be tough to appraise it well, or defend it. I believe the seller was done a great disservice in this case. Upon arriving at the house the agent told me about the extra GLA, showed me the permits, and that tax GLA was never updated, then handed me the pre-appraisal. Within 60 seconds I was able to tell her the other appraiser ignored her information about the 500 sf addition and did not even bother to include a sketch in the appraisal. She was somewhat shocked and embarrassed, as she should be.
13. All appraisers and appraisals are not necessarily equal.
It’s not rocket science but we do have to take the time necessary to do a good job.
Thanks Tom. You provide a valuable service to us all.
Thanks, Albert. Those are very good additions to the list. I agree about square footage inaccuracies. It is one of the biggest problems I see because most agents price listings based on GLA and if that is not right then it is going to throw everything off. I try to educate agents in my area about the importance of having accurate square footage so that no one is surprised when the mortgage appraiser comes in low. Thanks for sharing your thoughts.