Appraiser and Agent Collaboration is a Good Thing
The importance of collaboration between real estate agents and appraisers can be a touchy subject. On one hand, the real estate agent’s main goal is to advocate for their client while the appraiser must be an impartial and non-biased third party.
You might ask yourself how they can collaborate given two different goals, however, I believe it can be done. It’s important to understand that collaboration does not mean that both parties must work together so that the deal closes at the contract price no matter what.
I believe that collaboration between these two real estate professionals means that they share information that promotes a transparent and open transaction. It’s about sharing information when possible and working together through good communication.
I am not a real estate agent so I do not know what they can or cannot share, however through effective communication we can find out. From an appraiser’s perspective, I know that we work with agents to make sure the appraisal is done in a timely manner with the most accurate information possible.
While agents and appraisers cannot discuss value we can talk about the property and why they may have priced it at what they did. One tool the agent uses to price the property is the Comparative Market Analysis or CMA, and by sharing this with the appraiser they can better understand what went into the agent’s pricing strategy.
Understanding the Role of the Real Estate Appraiser
When a home buyer finds a home they would like to purchase and have the need to obtain financing they will work with a lender. The lender, whether it be a bank, mortgage company, credit union, or other financial institution will provide the buyer with the funds through a mortgage to pay for the house.
The lender then obtains an appraisal to make sure that the property they are lending on, which is the collateral for the loan, is worth what they are paying for it. This aids in loss mitigation because if the bank must foreclose on the house they want to make sure that they can sell it for the amount of money they loaned the buyer to purchase the home.
The appraiser must make sure that they are providing an impartial valuation so that the market value shown in the appraisal is as accurate as possible. If the appraiser were to appraise the property for the contract price, even if it were not worth that amount, this could undermine the whole process and jeopardize the stability of the financial institution.
If a bank had enough loans on homes being used as collateral that were not worth the amount they gave the borrower then the loans could not be paid off when homes were taken back and sold. This could result in the bank becoming insolvent which could affect the financial systems of the country if this became widespread.
For the above reasons, it is very important for accurate valuations during the home-buying process. While the agent acts on behalf of their seller, it is important for their pricing strategy to also be based on the most up-to-date and accurate market data.
The Purpose and Components of a Comparative Market Analysis (CMA)
The CMA is a tool that real estate agents use to develop a list price for the house they are selling. It is the agent’s version of an appraisal and while it may appear to be the same thing it is different in many ways.
A Comparative Market Analysis aids in determining the value of a property by comparing it to similar properties in the same area that have recently been sold, are currently on the market, or were listed but did not sell. The goal of a CMA is to provide sellers with an accurate estimate of their property’s worth based on its characteristics and the current market conditions. By analyzing factors such as location, size, age, condition, and amenities, a CMA helps the agent make informed decisions regarding pricing so that they can sell the property in the shortest amount of time for the highest price.
Key components of a CMA include gathering data on comparable properties, analyzing recent sales and listings, adjusting for differences between properties, and determining an appropriate price range or value for the subject property. Real estate professionals typically use multiple listing services (MLS), public records, and their local market knowledge to compile relevant data for the CMA.
They then carefully assess each comparable property’s similarities and differences to the subject property, making adjustments as needed to ensure accuracy in the pricing process. The final CMA report presents findings and recommendations to clients, allowing them to make well-informed decisions in their real estate transactions.
Like an appraisal, it is important that the CMA reflects the latest and most accurate market data. If it does not, and the property is overpriced, then the property may sit on the market for an extended period of time. If it is underpriced the seller will leave money on the table, both not good outcomes.
Benefits of Sharing the CMA with the Appraiser
During the appraisal process, the appraiser will conduct their own market research to locate the most recent and similar comparables to the property they are appraising. I have discussed the process appraisers go through when choosing comparables and you can read about it HERE if you are interested.
Even though we do our own research it is helpful to understand how the agent arrived at their list price. By providing the CMA to the appraiser, the appraiser can see the agent’s thought process when developing the asking price.
If the agent and the appraiser use the same process, and there is no reason why they should not, then many of the comps used may be the same or similar. Agents and appraisers should be choosing comparables based on the physical attributes of the property and bracketing different features of the property when possible. When appraisers and agents use the same process there is less chance of there being major differences between contract price and appraisal value.
The appraiser will come up with their own set of comps but is very helpful to see what comps the agent used as well. If the agent has some comps that the appraiser did not have then the appraiser can consider them as well.
By making this information available to the appraiser upfront the appraisal process will go more smoothly. The sales can be considered during the development of the appraisal rather than after it is completed through a reconsideration of value which can delay the home buying process.
Agents may also have special insight into the condition of a comparable sale or its terms of sale. Appraisers are required to investigate each sale to determine if they qualify as an arms-length transaction and an agent’s input is invaluable for this.
Because of each professional’s specialized role, there will be some discrepancies between the CMA and the appraisal. Appraisers are trained to be able to develop specific adjustments for differences between the subject property and the comps whereas the agents do not typically provide this level of analysis, nor are they expected to.
Even though there may be differences in how each arrived at their value, the process and reasoning will be similar. Each will determine what features move the needle on value for buyers and this will be reflected in their opinion of value.
Agents have valuable insight into this aspect of the pricing process. They are constantly having discussions with buyers to find out what features are the most important to them and which ones they are willing to pay more or less for.
Even though agents may not make specific dollar adjustments, which are quantitative in nature, they can examine it from a qualitative perspective which does not require adjustments. I discussed this process in a previous blog post which you can read HERE.
As you can see, when appraisers and agents approach the issue of value in a similar way and then share their findings through collaboration the home-buying process can be more transparent and accurate.
Sharing CMAs Effectively with Appraisers
There are various ways that an agent can share their CMA with the appraiser. If you are an agent that likes to meet the appraiser at the home for the appraisal inspection you could provide it to them in an information packet.
While meeting the appraiser during the property is not always practical, the information can also be emailed. This is a more practical way because the appraiser will have it in digital form which makes it easier to add to the appraisal report if need be.
It’s helpful to appraisers for agents to be available to answer any questions the appraiser may have regarding the sales used in the CMA or their reasoning for how they came up with their list price given the comps they included in their CMA.
If the agent has helpful insight regarding a sale because they showed the home or through some other means then this may also help. If a comps sold for a lower price than normal because the house smelled of cigarette smoke (or some other similar scenario) this is helpful to the appraiser because this is not something that is typically shared in the MLS listings.
Conclusion
As you can see, collaboration and sharing of information can help facilitate the appraisal process. This can lead to a more thorough and accurate appraisal which aids in the home selling process. If you have any other questions about how agents and appraisers can work together please leave a comment below or contact me. As always, thanks for reading.
Tom can you speak more about the buyer’s agent sharing their CMA with the appraiser. I am having a very difficult time figuring out how the heck listing agents come up with their list price. I know a lot of agents use the RPR automated valuation. They use whatever number comes up with taking into consideration the condition of the property particular where major repairs are concerned.
Thanks for the question, Charita. I know we have been communicating about this on Facebook but I’ll respond here as well. I think it would be perfectly fine if the buyer’s agent provided their CMA as well. It seems, though, that if the buyer’s agent negotiated a contract lower than the list price (based on their CMA) that in and of itself would speak volumes for the listing agents list price, namely that it was too high. If they truly feel that the price is too high I’m sure they would not make an offer near the list price so in that situation they would not have an opportunity to present their CMA.
I’m a big fan of agents sharing how they came to price the property (without any pressure to hit that number). I like to see how value was justified. There are some really smart agents out there who know what they’re doing, and I like to hear from those folks especially.
Exactly, Ryan. I believe in collecting as much information as possible and sifting through it to see what is relevant. I agree that there are smart agents who are familiar with the market and many of the sales that have occurred and it is helpful to have their input to determine their reason for listing at the price they did.