Understanding appraisals — communication is vital
On April 2, 2013
By Durk Reese, Certified Residential Appraiser, Metro Appraisal Group, Columbus
Typically, for every home sale, requiring a mortgage, an appraisal is needed. REALTORS and appraisers are then brought together in the process. This relationship should never be adversarial since both really need each other.
It is important that agents understand the role of the appraiser. It is that of an unbiased third party usually offering an “opinion” of market value based on current market data. The appraiser is required to analyze market trends, as they relate to declining or improving markets, values and sales.
This process has become more comprehensive with the advent of Dodd-Frank, and the use of Appraisal Management Companies. Each appraisal report is reviewed by the AMC, (if used by lender), the lender and the investor. Each one is seemingly trying to find flaws in the reports, with each having different “hoops” for the appraiser to jump through. The worst is probably the dreaded review appraisal. Many times, it seems that no professional group is more willing to find fault with each other’s work, than appraisers themselves. Therefore, it becomes even more important for REALTORS and appraisers to work together to ascertain the correct data.
Agents can help in several ways. Responding to an appraiser’s inquiry regarding a listing promptly, insures a quicker turn time of the appraisal report. The appraiser has to indicate and analyze any seller concessions in each comparable sale used. Typically, that is why an appraiser calls an agent. Additionally an appraiser needs to know any unusual circumstances relating to the sale (i.e. distressed, divorce, etc.) These are all relative to the sale price of the comparable, and must be factored in by the appraiser to see if it truly is a “comparable sale.”
In this current market with not only more sales, but refinances, most appraisers are extremely busy. When an appraiser calls to set up a time for the inspection, it is crucial to inform the seller at once and make every possible effort to accommodate the appraiser’s time frame. It is also vital that the sellers prepare the property, as if it were a showing. Although cleanliness is not a condition of the appraisal, it is hard to overlook filthy kitchens and baths.
It is always a good idea to offer the comparables used to price the subject to the appraiser. Keeping in mind that a “comparable” is defined as a property, should the subject become unavailable, be a suitable substitute. Appraisers will always pull their own comparables, however, a really good comparable may be inadvertently overlooked.
It is important for the appraiser to know what updates and upgrades have been made to the property. Make sure the appraiser has a comprehensive list to put in his/her file. It is also important for the appraiser to know what the market activity for the subject was. Were there allot of showings, or multiple offers?
Today’s lending standards require appraisal reports to use comparable sales that “bracket” the appraiser’s opinion of value. That is, a comparable higher priced, and a comparable lower priced. When the subject property’s sale price is at the high of the neighborhood range, lenders may take issue.
Remember, an appraiser has to “prove” the opinion of value, based on market data. If an appraiser’s opinion of value is below contract price, it is typically because there is no market date available to support the property’s contract price. No appraiser intends to “kill a sale,” however appraisers are bound by the lender and investor guidelines and the subject’s neighborhood. Subject neighborhood is defined as a group of similar uses and market influences, i.e., same tax base, school district, etc. The neighborhood is typically bound in 4 directions by main streets, freeways, rivers and railroad tracks.
From within the neighborhood, the appraiser chooses only those comparable sales and listings, which demonstrate the most similar in condition, style, and quality. Rarely does an appraiser select comparable sales just by square footage, as that is only one component of the overall value of the property.
The exchange of information between agents and appraisers is vital to both. The more information the appraiser has, the more accurate the report. The more accurate the report, the less time the appraiser spends responding to questions from lenders regarding the report. That equates to quicker closings.
Agents should also not hesitate to contact an appraiser for their guidance on matters pertaining to appraisal type questions. Most are glad to help.