DETERMINING MARKET VALUE ISN'T ROCKET SCIENCE. WHY TRY TO RE-INVENT THE WHEEL?

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DETERMINING MARKET VALUE ISN'T ROCKET SCIENCE. WHY TRY TO RE-INVENT THE WHEEL?

READ ON INMAN THIS MORNING, an article by Matt Carter about the recent complaints by real estate agents about appraisals needs some clarity from the perspective of a real estate industry representative, me.

Freddie Mac issues appraisal bulletin Appraisers must have local expertise, choose 'appropriate' comps.

Requiring local expertise????

Choose 'appropriate' comps????

With few closed transactions in an area, an out of the area appraiser may select a comp for a home 2 miles away that would have a much higher or lower market value.

. Home in Charles County Home in La Plata

The difference in market value for a subject home and a comp just 1 mile away could be as much as 1-5% depending on the location, the community, the floor plan, the condition, the amenities, additions, etc. Out of the area appraisers are not going to understand local community features, schools, attractions. Only experienced agents can help.

Does Freddie Mac mean that an appraisal company should only accept an appraisal order if they have a local appraiser?

WHAT A CONCEPT!

Well, of course, an appraiser should have local expertise. What is local??? When a buyer insists on using a mortgage company from 2,000 miles away simply because they have "quoted" the lowest interest rate, getting a report of appraised value from an appraisal company 100 miles away isn't anything new.

WARNING! THE LOW INTEREST RATE QUOTE may bring unintended consequences. Over the past 10 years, since the Internet has permitted home buyers to shop for interest rates on line, we've gotten appraisals by appraisal companies selected by that out of the area mortgage company with absolutely no knowledge of the town, community, house type, general market conditions, etc. of the subject home. This problem didn't begin with HVCC. HVCC simply exacerbated a problem that began with Internet advertising and the sense of "empowerment" by home buyers.

AGENTS NOT DOING THEIR JOB? How often when the question is asked, "should the listing agent meet the appraiser?", the answer from many ActiveRain members is NO. We read about many agents who find one excuse after another for not meeting the appraiser and defending their list price? They claim "liability". That liability is never explained.

WHAT IS THE LIABILITY? Meeting an appraiser who may be from 50-100 miles away, presenting the comps used to price the property, explaining the features that distinguish that property from others in the area would seem to be a useful thing for the appraiser and part of a listing agents responsibliity to the home owner who has hired that listing agent. Too often the listing agent acts as though they have done their job when they have a listing, or a contract of sale. Our goal is to get to settlement and transfer title. Only then is our job as listing or selling agents fullfilled.

Listing agent meets with seller.
Listing agent recommends price based on comparitive market value of similar properties.
Listing agent enters into contract to list property for sale.
Listing agent represents seller in negotiating a Contract of Sale.

What comes with that Contract of Sale is usually buyer financing including an appraisal. How can a listing agent divorce themselves from the appraisal process when they have been involved in the transaction since the beginning, including recommending a list price and negotiating the contract price?

OUT OF AREA APPRAISERS ARE NOT NEW!

SHORT SALES ARE NOT NEW!

FORECLOSURE SALES ARE NOW NEW!

LOW APPRAISALS ARE NOT NEW!

What is new is that, now that the government is involved in our business to an extent never seen before, real estate agents need to understand the basics of their job and better protect their buyers and sellers.

DON'T BLAME THE GOVERNMENT FOR LOW APPRAISALS!

Let's take our business back and do our jobs. Learn the basics of property valuation. We are not appraisers but we must understand how to estimate market value. We must learn how to compare recent sales to the subject property. We must understand market trends. Seek local course offerings by your local associations about appraisal basics for agents. These courses will give you a foundation on which to build solid price valuations. Get copies of your buyers' appraisals and study them. If you don't understand something about the appraisal, talk to your broker. Learn your job.

PROVIDE YOUR SELLER WITH ACCURATE PRICE OPINIONS. Don't recommend a high price to get the listing. If you're representing a bank, let them know the market trends in the area in addition to present day comps.

IF YOU'RE IN AN AREA WHERE THE APPRAISERS ADMIT THEMSELVES TO THE PROPERTIES, LEAVE A PACKAGE ON THE KITCHEN COUNTER "FOR APPRAISER" including the comps you used to price the property with distinguishing features highlighted. OR, remove the key box following inspections and have the appraiser call you for entry. You can give them your package at that time. Don't be late. Appraisers work on a very tight schedule. They make very little money for each property and have to keep moving.

MEET THAT APPRAISER AND HELP HIM/HER UNDERSTAND HOW YOU PRICED THE PROPERTY.

The result will be fewer appraisal problems and smoother transactions for the buyes and sellers.

~~~~~~~~~~~~~~~~~~~~~~`

FROM THE FREDDIE MAC GUIDELINES

44.5: Information supplied to the appraiser (10/06/06)

(a)

Information for appraisals

The Seller warrants that the Mortgage originator provided the following information on the subject property, as applicable, to the appraiser in conjunction with all appraisal requests:

1.	The complete legal description (see Section 40.1 for legal description requirements)

2.	Current condominium association budgets

3.	The complete sales contract (A sales contract on a new home should state the base price of the house and itemize each option.)

4.	All financing terms, financing and sales concessions granted by anyone associated with transaction, and any gifts, buydowns and down payment assistance provided by anyone on behalf of the Borrowers, whether for purchase or refinance transactions

5.	Income and expense statements, property leases and a list of nonrealty items that are included in the transaction, and

Any other information that the Seller knows that may affect the value or marketability of the property. This information includes an affiliation between the property seller and purchaser, proposed changes to the use of the property, and the presence of any Contaminated Site or Hazardous Substance affecting the property or the neighborhood in which the property is located.

I don't see anything in this section that precludes the seller, through their agent, providing comps to an appraiser.

Courtesy, Lenn Harley, Broker, Homefinders.com, 800-711-7988.

_______________________________________________________________________________________________________

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Posted by Lenn Harley, Real Estate Broker, Virginia & Maryland on 07/18/2009 07:12 AM

Comments (138)

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138 Comments on DETERMINING MARKET VALUE ISN'T ROCKET SCIENCE. WHY TRY TO RE-INVENT THE WHEEL?

JUL

2009

Thanks for the insight.

I haven't had an appraisal not appraise on one of my listings for a LONG time. My issue is the out of area appraisers. Looks like that might be changing. I hope so, an appraiser that many miles away hasn't a clue.Listing agents over pricing is also a problem.

Lets take our country business back so we'll have a job. Good points Lynn, while I don't meet the appraiser I call and talk to him before so that when I may have to call him after he will not be surprised. Although I must say that they for the most part they seem to be nice and helpful.

Lenn - Interesting post. Meet the appraiser huh? It feels like here in our part of the world that appraisers do not like us meddling in their business. To me they've kind of been this shadowy group of people who usually pop by the house after inspections when no one is around and do their thing. Only twice have I had to call them to discuss why the appraisal came in the way it did. And both times I was told that they knew how to do their job and why was I all up in their business, etc. But I do like the idea of fighting for the price. Thanks

Lenn...

As you know, in Georgia we live in a different world of obligations and expectations, and due to the nature of our written relationships with clients, I would not advise an agent to interact with an appraiser unless an error in fact occurred. However, this only applies to our state as far as I know, because we are not fiduciaries by law.

Lenn - Great Post! We all can use a refresher now and then!

This market will seek and find It's own course of lease resistance. Those tha adapt and "go with the flow" will be standing in the end. We diid it in the late 70's and the early 90's, we can do this again!

Lenn,

MEET THAT APPRAISER AND HELP HIM/HER UNDERSTAND HOW YOU PRICED THE PROPERTY.

We're hearing from our correspondent lenders that this is a violation of HVCC guidelines, so the REALTORS are running for cover. Having the listing agent meet the appraiser to discuss the value makes all the sense in the world, and I appreciate your post. Without HVCC amended legislation, though, we're whistling past the graveyard.

Mike in Tucson

A recent trend we are seeing in our market is that we aren't even being notified of when the appraiser is going to the property. They have an ekey and just let themselves in without any notice to listing or selling agents or even the loan officer. Just this past month we had one such beneath-the-radar appraisal who "couldn't complete the appraisal because the water and electricity were not on."

Fact is that both were on but turned off at the main. All he needed to do was flip a switch and open a valve - both very easily accessible to anyone who could bend at the waste and who stood at least 4 feet tall.

Yes, "timing" was crucial for this closing but the appraisor took his own sweet time getting back to the property after being informed that the utilities were on. His delay caused numerous problems. Fortunately we did manage to get to closing yesterday (after 5pm which made it a dry closing) but we could have closed much sooner and without the additional problems had the appraisor simply notified someone that he was going to the property in the first place.

... you may ask "Why didn't he just call someone from the property when he found the utilities were not on?" We asked but never got an answer... seems he has "no obligation to the agents" involved in the transaction.

Sigh...

Lenn,

The appraisers in our area often call me to ak why I got a certain price for one of my sold listings and why another property did not get the same price. I meet the appraiser on my listings and hand them a packet. I give them the floor plan, my flier (with all the upgrades and details on the property), the survey, the map of the neighborhood with my listing hi-lighted and 3 comparable sold properties hi-lighted. The appraisers always thank me for making their job easier. They are in our business and when treated with respect for what they do are very appreciative! I have many appraisers I can call when I have a question. If you price your properties right with good solid comparable properties and are not buying a listing with price you will have no problem with appraisals!

You're right Lenn and we should all join the 912 Coalition too to get the government out of our business.

Your right ,it's probably never been more important to interact w/ appraisers as today !

When you consider that about 57% of NAR members in 2006 were in the business 5 years or less you can see part of the problem. They only sold real estate when appraisers were more like enablers. Pricing a home? Don't complain about Zillow when you're 15% off what most would see as market value. Letting our clients having the say about a mortgage company that has a "better rate" without our input, get proactive. We can't always control every detail, but we can use our experience to counsel our clients. We do have problems with the over tightening of the screws of finance and the unintended consequences. I don't like being in a damage control mode, but that is the hand that has been dealt to us until as you rightly put, we take back our jobs.

Lenn - I dont necessarily blame the government except the fact is that the appraiser does not even contact the listing or buyer's agents to inform them of the upcoming appraisal. Sure enough, the appraisers owe us nothing. But based on your post, they dont even let us know when.

We use a showing system. They can get in and out by making an appointment.

Hence, working together is tough especially since this HVCC, they are glad they make no human contact.

Lenn,

I always meet the appraiser. I'll bring additional comps and just tell them that if they need any to let me know...never force them. I'll also supply them with a floor plan if it's available. It saves them time from doing the artists rendering. I also feel by using an appraiser who has never worked in that specific area could screw up the appraisal either up or down. It makes no sense if they comp the wrong places. I once had an appraiser take a comp way out of the area the home was in. They refused to use the same exact model that just closed in less than 90 days. For some reason used something in a neighborhood that was actually way out of the mile range. But hey...I'm just a stupid Realtor who has sold that neighborhood.

Jennifer. My pleasure.

Missy. I know you're a hands on practitioner. You'll have fewer problems than most.

Charles. I believe the appraisers to have one of the hardest jobs in this business.

Bob. Once the appraisal is prepared, it might be too late.

Richard. I don't see this as a fiduciary matter. For me, it's simply routine.

Lisa. Those were hard time, but we've never had the government in our business as we do now.

In defence of appraisors, why would they take info from real estate agents when they can clearly see by checking the history of listings that agents OFTEN price a property much, much higher than market value resulting in numerous expired listings and/or large reductions in price before obtaining an offer?

I've lost count of the number of listings we've turned down because the seller refused to price at market value only to see another agent price it 30% - 40% - 50% over market value and then let it expire six months later after no reductions or only minor reductions that never even approach reality.

It does't take a math genius to run the numbers and see that a lot of agents seem to know little about assessing market value.

It is true that many of the agents taking the grossly overpriced listings have their "reasons" for doing so (just want their sign in the yard; think they can persuade the seller to come down to reality later; want to hold open house there to attract buyers or other sellers, etc. ---- all reasons that go against my personal ethics but that's just me). HOWEVER, from an outsider's perspective, without knowing the agent's motives, it just looks as if they don't have a clue as to how to assess real estate property values.

It isn't the listing price that needs to be supported it is the selling price. If a buyer is paying for the appraisal is it not their agent who should "educate" the appraiser? If the listing agent, who represents the sellers wants to attend should the person paying not make that decision. If the seller wants an appraisal they are always welcome to pay for one. Recently I had this discussion with a listing agent. Properties are on the market for a very long time now in some cases and the comparables that she used to list were 7 months old and no longer valid. The comps I used with my buyer were recent and supported the sales price.

Yep. Right on the mark. Oh, and I know an agent whose clients had an appraisal ordered before the listing - and that appraisal came in at the same price as the agent's cma suggested price. It's something that i will be advising all of my clients to do from now on - and you better believe that i will meet with the appraisers.

Mike. I've read the HVCC guidelines from every source I can find and I cannot find anything that precludes a listing agent from doing their job. Those involved in processing a loan, loan officer, underwriter, et al., are covered, but I don't believe the "STOVEPIPING" applies to listing agents.

I advise agents in my network to remove the keybox once the inspections are done. That way, the appraiser has to contact the listing agent for access.

Tim and Susan. I believe that the listing agent can make sure that utilities are on for the appraiser. The reason he probably didn't call is because all he'd get would be voice mail. We know that utilities need to be on for inspections and appraisers.

Dorie. That is the way I was trained many years ago and it works quite well today. You're doing a very professional job and I'm sure you're not complaining about appraisals.

I had a sellers agent ask me if I would attend the appraisal appointment. (I was representing the buyer) Of course I said no. I want the appraisal to be in the best interest of my client and not the seller.

We didn't have an appraisal issue at all because I did my homework and the offer was soundly based upon the last 90 days and within 1 mile. I guess I was just floored that a sellers agent would ask that I attend.

BTW, the listing agent didn't meet the appraisor at the house.

Read again, Lenn. The utilities were on... just off at the main which is very common in our area for vacant short sales and REO's.

As for getting just voicemail, this listing agent is one the best we've ever worked with. He was always johnny on the spot returning calls and everything else related to the transaction.

Furthermore, you appear to be contradicting your own position. You suggest that listing agents should meet the appraisor and offer comps, etc. and now suggest it is understandable that the appraiser didn't even let ANYONE know he was going out to do the appraisal.

In this particular case the listing agent actually had the utilities on in his own name - he was footing the bill because the seller refused to do so.

Lenn, I try to stay acutely aware of market conditions for areas and communities. Some have had an adjustment and some others need to (i.e. days on market & sales price). In some cases they are right next to each other. There are hot spots and soft spots, this I try to relay to a seller or prospective buyer. Perhaps I may need to show these results to an appraiser, has not happened yet, but.....

Pocono. Indeed. Everything the government touches turnes into crap.

Michael. Agreed. For listing agents that is.

Joe P. You understand. You're right about new agents not having the experience to price properly.

Loreena. Take the keybox off when the inspections are done. Instruct the showing service that the listing agent will admit the appraiser. That's all it takes. Get there on time and give him/her a package including comps.

Neal. You get the message. Meet them, give them the info, shucks, give them cookies if you have any. For me, when I meet an appraiser, I usually genuflect.

Lenn,

So far so good on my listing appraisals coming in on our negotiated sales price! I do list my properties right and talk extensively to my sellers about pricing in todays market. You must have good recent comparable sold properties to use for validation on your price. Anything else will not fly!

Lenn- Wow ! What a way to start a Sat morning with a great thought-provoking post. Fortunately for us, we have had very few issues with low appraisals but it has come up here and there and would not be surprised if it comes up more. I think it is a great idea to meet the appraisal person or at least leave a package on the counter. Sometimes I worry though that if I meet the person there that might plant a seed in his/her mind that I am worried about the value coming in or not. We are certainly in interesting times here ! With all these changes, it is a wonder as many deals are closing as there are. But also in reading blogs many are blowing up, some always for good cause, but my guess many that are not. Even if a listing agent meets that out-of-state appraisal, there is still no guarantee that an incompetent deal breaking report is issued !

Tim and Susan. The agents may TAKE overpriced listings, but the contract will usually reflect market value. Buyer's agents have access to comps too.

Kris. As a buyer's agent I WOULD NEVER MEET AN APPRAISER. Smart thinking. We don't have to defend the pricing. The listing agents do. You're smarter than the average bear.

Frank and Jodi. All I'm saying is that agents can't necessarily put all the blame on appraisers for the mess going on today. The system is steering these appraisals to big appraisal companies and I'm not sure how that happened since it removes the local appraiser with experience in his/her market place. It's the system that wacked, not the appraisers.

Lenn - I haven't had a problem with supplying comps to appraisers under the new rules. I even supply them with the 50+ comps they need for the Market Trends addendum. In my market the same type of house can sell for $1 million and a mile away for $150,000 in the same municipality. Lenders can pick low end comps to justify a low appraisal or they can select a high end comp and still stay within a one mile radius of the subject property, so I've been providing comps to appraisers since I began in this business. Appraisers are now overworked and underpaid. They appreciate the the info more than ever. The key to not getting in trouble is to not tell them, "I need the appraisal to be higher than X". You can't put any pressure on the appraiser, you simply provide factual info that support a higher appraisal for your listing and let the appraiser make the decision on the value.

Question:

If the listing agent should meet the appraiser to try and justify a higher appraisal, should not the buyer's agent also meet the appraiser to try and justify an even lower than agreed upon price in order to save the buyer even more money?

Just a thought....

Good Morning Lenn,

Another interesting and informative post today.

I haven't had any issues with appraisals lately in seacoast nh area.

I like the idea about moving the key box after the inspections are done. Makes sense to me!

Patricia Aulson/portsmouth nh real estate

Lenn, another very educational post. I cringe everytime we have an appraiser come from the Nashville area. Too far away from Clarksville and a totally different market.

In reference to listing agents being present for the appraisal - I believe it is a neccessity to ensure that something is not overlooked.

Tim and Pam. Indeed. It's our job.

Patricia. I've done that for 15 years.

Gail. You have a wonderful handle on your job. This isn't rocket science. Of course we give them comps and trends when we have the info.

I agree that appraisers are overworked and underpaid. Have you ever looked at the hours of training and supervised jobs they have to complete for their license, not to mention the CE.

Lenn-I second Gail's comments concerning providing comps. Thanks for the thought provoking blog!

Lenn you've been up early & busy this morning providing us with a thought provoking post! Good comments followed as well. We've been fortunate in that we've not had a problem with our listings/sales appraising. But my question is why do they always seem to come in exactly for the sales price?

I have always made it a habit to remove the lockbox after inspections so that any and all access to my listings must be done through me. It requires the appraiser to make contact with me, and then I can politely plead my case on why it sold where it did, and ask them if they would like to know the comps we used to arrive at our price. More often than not, even after HVCC, they are saying yes.

We've even had buyers and sellers use an appraisal to determine the sales price, and simply leaving a copy in a folder on the kitchen table with the appraiser's name on it helps a lot too.

Thanks for the eye opening appraisal class. This is very timely for me as I have a situation currently. There is a misconception then, here in Akron Ohio that it was against the new govt rules to even talk to the appraiser. Thank you so much for sharing your expertise!

Hallelujah! I was thinking about writing on this subject because I AGREE 100%! Meet the appraiser at your listing, shake his/her hand, hand them comps and tell them you would be happy to answer any questions they have about your market area. THAT'S working for your client!

Yes, I have heard stories about appraisers saying "I can't talk to you." They are confused...not shocking since SO many of US are confused. Simply explain that while that may be their choice, which you will respect, it isn't illegal and you would simply like to offer the comps that you used to price the property. Then smile and wave goodbye. If they don't use them it isn't because you didn't try. If they don't use them, maybe it's because they don't meet their guidelines. Now what's wrong with learning a thing or two about the appraisal process!

Anyway, I'll not hijack your post...simply know I am standing behind you nodding...VIGOROUSLY! ;-P

HVCC doesn't allow the mortgage originator to speak with an appraiser, but what about giving your information/comps to the home owner. The home owner can present this to the appraiser if you are unable by law or otherwise to attend.

Lynn, I started my real estate career eleven years ago - before all this appraisal hoopla!

I have always met the appraisers at my listings and have started the conversation, after introducing myself, with "I don't know how familiar you are with this area, but I thought you might find it helpful to look over the comps that I used when listing this property".

That's it, I give them the materials and I leave them alone. After they are finished I hand them my business card and tell them, if you have any questions, please feel free to give me a call.

In all these years, all but one of my listings have appraised (and that one was worked out between the buyer and seller).

I have never hesitated to discuss homes with an appraiser. I've even had them call me on various communities. What I have to offer is my analysis, observations, etc. based on criteria that I've been taught. I explain all that.

Some of these ideas are "confusing" to read because like you say, they are SOOO obvious such as using a LOCAL, EXPERIENCED appraiser. (No, wait, can we use the unexperienced appraiser from 40 miles away on this one? I REALLY want a nightmare of a time!) Regarding HVCC - primarily we are still moving fast (2 weeks from start to finish on FHA), but if there is an issue, who knows what timeframe we are looking at.

Lenn,

You really nailed it. Make someone's job easier, share information freely, facilitate the flow of information.

Sellers really ought to get appraisals done these days, not to question the CMA from their listing agents, but to avoid nasty surprises.

Interior finish and special touches, while cherished by the seller, don't really affect appraisals as much as location, size, and condition.

Appraisers have admitted to being human, and a clean, uncluttered home with visual appeal can affect the outcome in positive ways, just as it affects showings.

However, with so many distress sales these days, perhaps that's asking too much of the seller.

If your potential buyer will be using an FHA or VA loan, the seller should also address safety, cosmetic and deterioration issues before the appraiser shows up.

Once again you nailed it. It is our job to represent our sellers - and meeting the appraisor at the property with 'correct' comps in hand is part of our job. Everybody has been acting like sheep beng 'afraid' of being to close to the situation or 'intervering' with the appraisor. Merci beaucoup for getting the conversation going again. Yes.

This is exactly what I would expect out of our federal govt

No, they aren't GSEs anymore.... Not when the Fed tells them what to do. They are the Fed govt

Requiring local expertise? I wish we could require mortgage expertise from the clowns making the laws that affect our business

Lenn, Another good post!!

Yep I meet the appraiser! We are in this together. I have a packet to show how the pricing was arrived. I have notes on the comps and explanations on actives and pending sales, DOM, condition, and other surrounding circumstances.

It is not unusual that appraisers frequently call me when they have questions about other agent's listins. I ALWAYS make time to speak with an appraiser. We need to help make everyone's job easier if it helps our clients.

Lenn: The whole appraiser issue is of huge concern presently. The changes recently made regarding appraisals/appraisers have caused real problems and carry real issues for everyone involved in a transaction. Although I understand why the changes were made and what problems were trying to be addressed and resolved ... the way it is presently set-up, we just exchanged one group of problems for another and those problems can have big negative results ... that being un-writable loans and cancelled deals.

As an ex-appraiser I can offer this, I always valued the input of the realtors. The information and comparable sales realtors could offer me were of great assistance. The info offered was a great place to start for me. Sometimes it ended-up being useful, other times not (that had to be determined) ... but it was always welcome.

Appraising is an opinion, but should be an opinion based upon hard evidence and opinion that can be substantiated. If writing an appraisal properly, appraisers utilize their expertise, intelligence, and many talents .. ranging from math and writing skills, to investigative method. When rumors of "drive-bys" started to surface, I chose to leave my appraisal licensing behind and return to concentrating solely on lending. Being asked to determine the value of a home without entering it just made me really nervous and I didn't want to put my name on an appraisal done in that manner. I never felt it in the best interest of the buyer or healthy for the lender either. I also thought that the request for drive-bys sent the wrong (and disrepectful) message to appraisers that you didn't have to approach the profession as a professional.

The problems that exist in today's appraising system have been a long time coming and will not be corrected quickly, but the changes must come. As you have pointed out time and time again Lenn, our industry needs those within it to approach their duties as true professionals. Common sense must prevail.

If we wish changes to occur regarding this issue, we must be willing to demand it and work for it. We must all make calls, write, email and talk to our representatives ... both in government and within our professional organizations. They (and we) must work together to correct the problems and issues that are currently being faced. Until we are heard collectively, loudly, and clearly those changes will not be forthcoming and the real estate/financial turnaround we seek will elude us.

As always, Lenn ... thank you for the thought-provoking post.

Lenn - You are absolutely right. I see too many people defend inaction and not doing their job based on the unspecified "liability" issue. First, I absolutely agree with the meet the appraiser approach. Second, I provide a packet that includes the floor plan, list of builder upgrades and other home features, and condo related documents such as original sales certification, declaration, plat, etc. Third, I provide a packet with recent sales from the development, sales of same floor plan, and sales from competing developments as well median prices, average price and absorption data. However, after I have provided this information, I provide access to the unit and get out of the way. I come back at the end of appraisal inspection to clarify any open issues.

We see two fundamental errors from non-local appraisers. First, they pick comparable sales from other neighborhoods. For example, we are less than 1/2 mile from Downtown St. Louis and 1/4 mile from McKinley Heights or Fox Park. These are distinctly different neighborhoods and have different market dynamics so our job is to educate them about the area. Second, they often get the project info wrong. Wrong information on completion of common areas, phasing, % sold, etc.

If it is an inexperienced agent, we keep them away from the appraiser as they can do more harm than good.

Lenn- I'm also in Georgia where Richard is and I DO meet the appraiser if they are from out of the area, otherwise they can't obtain entry to our listings. But recently when this did occur the appraiser would not accept any comps from me. She claimed such "communication" was a violation of HVCC regs. Her appraisal stunk to high heaven. We had a second appraisal from a local guy. Appraised with him for $20,000. above contract price instead of out of area $20,000. below. Our buyer had and chose to pay the additional $20,000. and close. Wellsfargo would not even look at the second appraisal and defended their choice. But over the years this was my ONLY experience where an appraiser would not consider comps from me.

I would definitely meet the appraiser, given the opportunity - sometimes they've come/gone and I don't even know about it. I like your idea of leaving a book for the appraiser. We are having a lot of problems with out of town appraisers who don't understand our midtown area. If you cross 15th Street, prices increase by a minimum of $20K. So, a house at 1607 Florence is likely $20K MORE than a house at 1407 Florence.

Thanks for great post!

I've never heard of an agent meeting the appraiser. That's an interesting concept. Most of the time, I'm not notified of the appraisal order until it's been done. I haven't had any out of town appraisers either, although we do have some in town appraisers that have annointed themselves as "deal killers".

I do not like the fact that appraisers are hired by the bank now. Although I do agree that appraisers were extremely easy to buy off before, It eliminates the laws of supply and demand...

Rick Watson

Myloannightmare.com

Savemyhome@myloannightmare.com

Lenn, I like your idea of leaving a packet at the property for the appraiser. Perhaps this would save some time later.

Lenn,

This is one of the best post that I have seen on this subject. For that I thank you and I have book marked it for future reference.

You make wonderful points and great sense in your point and I agree with you fully. There is much and great confusion on this matter enhanced by HVCC.

It should be noted that while HVCC is in effect for Fannie Mae and Freddie Mac "to be" bought loans, it does not affect FHA or other secondary mortgage market buyers at this point. The first thing a buyer broker/agent should do is communicate with the buyer's lender to see what loan package they are going with and if they are sellers of loan packages and who do they sell the package too. This information should then be passed on to the listing broker and listing agents.

Part of the problem is that everyone has tried to "supersede" their process by making all transactions to the level in compliance as needed for HVCC. While the merit is appreciated, the truth is that real estate and mortgage professionals need to have policy and procedure in place for both product types. This does complicate things but it should not be any more difficult to intergrade into an office operation then say an office doing short sales and regular listings... both have their own process including paper work and requirements (process routine).

Under appraisal requirements by rights, the appraiser is required to do "due diligent" including interview all parties involved in the transaction primarily to seek out concession information and items that may be effecting the sale directly (i.e. inter family sale... etc.). This information should be coming from the listing agent or shared with the loan broker via the buyer's agent.

As appraisers who are contracted by the lender in most cases they can not disclose any information to any party other then the party that has ordered the appraisal so with this said listing brokers and agents cannot pry information from the appraiser without violating the appraisers "agency".

From the start my company Apella has promoted listing agents to get appraisals for the homeowner upon listing that goes hand in hand with the CMA that the listing agent provides the client. There are many reasons for this with the main being to prevent other brokers/agents the opportunity to "steal" a listing with a "list high - sell low" tactic.

As for listing agents providing information there is a need to the appraiser and as long as there is no "persuasion" to meet value there is no problems with meeting the appraiser and sharing data and trends.

As far as "Out Of the Area" appraisers this is a serious concern, as an Appraisal Management Company, Apella established a plan to counter this very problem. Being appraisers we ran into this issue years ago through review appraisals. To counter this when Apella was created we set the standard that we would not market an area unless we already had an appraiser vendor located there to service the client. This step was put into place to ensure "Geographical Competency". Upon visiting our coverage area page you will notice that while a nationwide company Apella only covers high-lighted counties in the states listed. If there is no appraiser vendor then there is no coverage or marketing for the non-covered areas.

Furthermore, Apella is in the process of enacting policy inspired by recent laws put into place by the State of Utah that will discourage the use of "Out of the Area" appraisers. More information on this event can be viewed at the Table Talk With Apella Blog Post - Apella Discontinues Utah.

Last but not least, Apella established a discount with McKissock Real Estate and Appraisal School in order to encourage all parties in real estate educational opportunity. McKissock is a great resource for real estate brokers and agents to receive online education on HVCC and other appraisal courses. Education is the first step and discounts can be received by accessing the Apella Resource Page on Apella's main web site then clicking the smaller McKissock Logo.

Sorry for the long reply and I hope it helped, but you have touched on a subject close to my heart.

Thanks again and please let me know if there is anything I can do to help.

Lenn --- excellent post --- thank you --- I tell my agent-owners all the time that it is their job to meet the appraiser, but unfortunately not all of them do and then they complain. I'm going to re-blog this and also bookmark it for later use. Thanks.

Mama Liz's Signature

Lenn... Thank you for another great post.. this is great information

Shane. Thanks for your thoughtful comment and insight. You wrote:

"From the start my company Apella has promoted listing agents to get appraisals for the homeowner upon listing that goes hand in hand with the CMA that the listing agent provides the client. There are many reasons for this with the main being to prevent other brokers/agents the opportunity to "steal" a listing with a "list high - sell low" tactic."

When a thing just isn't going to happen, it just isn't going to happen. Sellers are committed to the "contingency fee" for listing agreements. Trying to get a seller to pay $400-450 for an appraisal these days just isn't going to happen.

I appreciate all of your comments. This is one of the real values of ActiveRAin.

You should have made your comment a post. Although, you might get more traffic here (joke). We've already got 5 reblogs here.

Lenn - Thanks for your very insightful blog. There are two things that I agree with most. One is in your article, and the other is in one of your comments. (1) Don't take an overpriced listing. (2) As a Buyer's agent you would never meet an appraiser.

Lenn--excellent advice. I think all listing agents should take appraisal classes, as well. I have completed all the classes required to be an appraiser (but not done the apprenticeship). It is eye opening.

This year I also opened an appraisal company as an arm of my real estate firm, and hired a licensed appraiser to run it. She is already busy with appraisals and it is amazing what she has to deal with these days with HVCC.

I know she would WELCOME having a packet of info/comps handed to her by any listing agent, to see where the "numbers" came from to start with. That of course does not guarantee she'll "hit the number" needed but it is a starting point, and she could learn where the smart listing agent got their pricing info.

Robert. Thanks. Providing comps is the least we can do for our sellers.

Lee and Pamela. Because they can. That was a joke and I know it can be vexing when you know you have a good buy for your buyer and would like to show them a great appraisal. Those days may be over. The appraiser needs only to come in at contract to show the lender that they are protected, based on the contract.

However, lately, the new underwriter guidelines can call for an appraisal review OR EVEN A DENIAL of approval if the value comes in significantly over contract. The new underwriter guidelines are on a quest to squeeze out those insider deals including lenders, agents, appraisers, etc. Also the underwriter wants to make sure that there's no money passing outside the HUD-1, or, under the table from the seller to the buyer, etc.

I've gotten two appraisals this year one with $35K over on a contract of $505,000 and one of $8,000 on a $457 price. My buyers weren't properly impressed.

I couldn't agree more. It takes so little effort to show up with some comps as compared to starting the marketing process all over.

Christianne. Great practices and very similar to what I train agents to do. I'm a hands on broker and train agents to be the same. It helps.

David. It's the folks processing the loans that aren't supposed to communicate with Fannie/Freddie appraisers. I guess if an agent was also doing a loan, it would apply to them, but that wouldn't include a listing agent, usually.

SarahGray. Indeed. You've got a good handle on it.

Darin. There are nuances about comps I wouldn't burden a seller to convey. Asking a seller to do our job isn't a good idea. That's why we make the big bucks.

Marie. Your experience mirrors my own. We're helping, we're not pressuring.

Great post Lenn.

I think there is a lot to be said about being pro-active and allowing for open communication with all of the parties involved.

Typically it is when communication fails that a transaction will fail as well.

I find that most appraiser to whom I've provided comps appraisers are glad for them and find them useful.

Miriam. Thanks. I understand the difference between list and comps and contract. What I would say is that meeting an appraiser to show him/her the comps used to price, then the lower contract price can only help the seller's case for an appraisal coming in at contract. Having a list higher isn't a problem. But, it lets the appraiser know the thinking behind the list.

Of course, now with buyer representation, we buyers' reps do our own comps and what I've often found is that the listing agent has not included critical comps in order to justify a high list price. HA! That doesn't influence our offer.

Janice. Same here. I get calls from appraisers about homes we sold often. They are usually looking for details about the incentives, financing, etc. I'm happy to help them out.

Steve. 2 weeks for FHA is excellent. Good for you.

Kabir. Funny thing. I sold a $457K homes this year and I just knew the VA appraiser was going to order a hand rail from the main level to the basement. He didn't and I was shocked.

Anna. Sadly, agents are looking for excuses to not do a lot of things these days, inspections, appraisals, etc. Sad.

Tom B. There's a lot in what you say. That's another post.

Margaret R. I couldn't have said it better. You're a pro and performing your duty with the appraiser is one of the reasons why.

Gene. Thanks for your comments. You have a good handle on the problems appraisers face.

Ryan. You wrote: Second, I provide a packet that includes the floor plan, list of builder upgrades and other home features, and condo related documents such as original sales certification, declaration, plat, etc.

Excellent.

Tammy. I don't believe that the appraiser knew what they were doing. Wells Fargo is extremely difficult when it comes to appraisals. They were stovepiping their loan officers months before HVCC took effect.

Lori. Take the lock box off. If you have to admit, they will call.

Scotti. Perhaps because the listing agents aren't helping out. Take the keybox off and meet them.

Rick. I don't understand your message. The banks have always ordered the appraisers.

Liz. Give them some training and make it a broker policy that the listing agents meet the appraisers. That's my style.

Roland. Thanks for dropping by.

Myrl. Right, as a buyer's agent we don't meet appraisers, but we do CMAs for our buyers.

Erica. Great comment. I have taken many appraisal courses over the years and have a health respect for what they do. I've never had one refuse comps or any other info I could give them. Listings are not in my market plan now but I train agents and they need this info.

Bob. Agreed. It's good practice and helps the transaction go smoothly.

Mark. There's no reason a listing agent can't communicate with the appraiser. It's good business.

Christine. Me too. In fact, as a buyer's agent, over many years, when I hear of a low appraisal, the listing agent usually didn't meet the appraiser. That should say something.

Lenn:

Excellent post (as usual). Determining market value should not be rocket science except in very unusual circumstances. As far as utilizing out of area comparable sales (if necessary), an experienced appraiser familiar with the local markets should make appropriate location adjustments which must be supported by the available data.

I always welcome valid comparable sales and listing data from experienced, knowledgeable agents, as two pairs of eyes are better than one.

I have seen many comments from agents who apparently do not understand the HVCC - a document that does not mention the relationship between appraisers and agents. In fact, the only mention I see of this relationship is in the HVCC Frequently Asked Questions (quoted verbatim below):

Q10. Does the Code specifically prohibit communication with an appraiser by a real estate agent?

No.

This is the ONLY single word answer in the fifty-five question FAQ document. I don't think it can be any simpler than that.

Lenn, well said!! I loved this, especially the part about agents doing their job. What a concept.

Jesse. THANK YOU, THANK YOU, THANK YOU. I read enough of the HVCC to understand that the purpose was not to put a barrier between agents and appraisers.

The NAR briefing states:

Are real estate agents prohibited from communicating with appraisers?

No. As mentioned above, Individual REALTORS and licensed real estate agents cannot serve as a third party between a lender and appraiser. This includes selection, retention, and compensation of an appraiser. A third party, including REALTORS and real estate agents, can still ask appraisers for additional information, provide additional information to an appraiser, or ask for corrections of factual errors.

HVCC, as I understand it, IS NOT LAW. It's the result of an agreement between NY AG Cuomo and the GSEs, Fannie and Freddie, who instituted the guidelines pursuant to that agreement.

The goal of the Cuomo suit was interesting, but as so often happens, Fannie and Freddie reacted with OVERKILL.

Real estate brokers need to train their agents about this matter. It's very important.

San Diego. Thanks. One thing for sure. If the listing agent doesn't meet the appraiser, they surely can't complain about the appraisal.

LENN- GREAT BLOG! This was extremely well done & said! I can sense the I TOLD YOU SO, in your tone too! :) You remember my undue influence blog by chance?? Well, that is exactly what everyone said that I interviewed! Almost word for word! In the last 10 purchase transactions I have done in the last 2 months, NOT ONE appraiser was met by EITHER Realtor with the EXCEPTION of David & Sally Hanson! Sad really. Every time you tell the world what YOU DO for your buyers, I am amazed at the differences out there!

You said: DON'T BLAME THE GOVERNMENT FOR LOW APPRAISALS!

I just said the SAME thing on Missy Caulks blog comments!

I would also add to your readers that MAKING SURE YOU PERSONALLY look over the property for "issues" or pitfalls concerning condition, and NOT WAITING for the home inspection to tell you, would be ONE MORE BIG THING that will help as well! - Thanks! Darin

OH, and the hVCC is NOT a law! RULE/GUideline yes, NOT a law!

We had an out of area agent do a BPO for one of our short sales.
When she called to get the lock box combo and I saw her area code, I started shaking. How the heck could she possibly know what our market is like? She wasn't even from within the same county! 40 miles away!!! Luckily, she asked me "How much do you need?" I told her it was a short sale and the offer we're having is pretty darn good and that's exactly how the BPO came in. Pretty darn close! We had a second BPO from a local agent, which did confirm the first BPO. Unfortunately, the deal didn't close because the buyer went and charged $10,000 to his credit card for furniture (and please, don't ask). Second offer two days later, BPO three weeks after that and we were still within the ballpark. Sale was approved. Back to the subject, out of the area agents and appraisers know just as much about my market as I know about their: not a darn thing!

Ooops, I forgot: I did have a set of A+ comps for the out of area agent and was prepared to meet her on location to hand them to her.

More and more of the FHA Appraisals are coming in with no repairs or inspections. They seem to adjust them to an as is price. Helping the appraiser with comps and info on the property should be normal business practice.

Oh, this post is a bookmark for safe keeping -- for sure!!

Darin. Indeed. It isn't necessary to wait for a home inspection to make repairs.

Darrin and Andrea. Out of area appraisals are not new. The out of the area lender is selecting them.

Darrin and Andrea. Take the keybox off and you have control.

Terry. I've noticed that too. I'm still shocked that the VA appraiser didn't "condition" my last house with no railing on the stairway.

Carla. Thanks. We aim to help.

Another good idea gone wrong. Lets have congress do a study and spend a couple of million to tell us what we already know...

Lenn as a Loan Officer I have never understood why a Listing Agent would want any Appraiser local or non-local to go into the house without them being there, they have nothing to lose and everything to gain. I put the Listing Agents contact information on every appraisal order that I do, In this day and age when every appraisal seems to be in doubt, Listing Agents to try to remove as much of that doubt as possible by taking every opportunity to have as much input as possible.

Hi Lenn! OMG--how is NOT attending the appraisal NOT a liability? Especially when you're representing the Seller whose home is appraised lower than value and the appraiser if from 50 miles away! I have to say that if you DON'T meet the appraiser and show him your comparables, you're doing your seller a HUGE injustice and causing yourself far more grief in the long run.

I'm glad to see that Jesse confirmed that this practice is acceptable as well. I can understand them not being allowed to have conversations with the lenders but, NOT the agents involved.

Of course, I'm a control freak when it comes to these things so, I may not be so objective on this matter!!

Have a great Sunday...

Hi Lenn -- As a former real estate appraiser who took many classes from The Appraisal Institute, this, plus my practical residential real estate experience as an agent, has given me insight that I would have found hard to obtain otherwise. The combination has proven over and over to be very beneficial in pricing properties -- for sellers that choose to listen. Moreover, today, it's much more than just comparing properties. Home staging, re-design and even renovation makeovers can have a dramatic impact on days on the market and sales prices -- I speak from experience as someone who also does this for sellers.

Great post and solid advice!

JUL

2009

Paul. Indeed. The reason everything that Congress touches turns into crap is because the only thing they do well is feather their own nest and perpetuate the election of incumbents.

George. Yes. It sounds like you clearly understand the synergy between the appraiser and the listing agent. Since the listing agents do NOT select the appraiser, as does the mortgge company, there's no reason for us to not be there and help. They key word is help.

Debe. Mmmm. You might have inspired a new post from Lenn. Errors and OMISSIONS insurance. For the past few years, some agents and brokers have been practicing avoiding their responsibilities. Makes no sense to me. I'm paid good money to represent and advocate for my buyer or seller client. That includes doing what is right and necessary with every facet of the transaction.

Chris. Great comment. Yes, experience in different sectors of our industry gives us insight. I have folks try to explain to me how they reached a certain price estimate for a property, yet when examining the details, they have done a very superficial job. Appraisers do not do superficial valuations. The Devil is often in the details, i.e., the redesign, the addition, etc.

curious what you would say. I recently had a conversation with a buyer and explained how an appraisal works. My buyer aboslutely did not want an agent not representing her interests discussin comparables with the appraser that she is paying for. She didn't want influences from an agent not representing her to influence the appraisal as she wanted the true value and didn't want to overpay. THis property had been on the market for seven months. What would you say to that buyer.....how would you explain that her buyer's agent would not be there to defend the price she paid.

Miriam. I would explain the purpose of the appraisal, which is to protect the lender's interest, not the buyer's. The buyer is paying for it simply because all cost of home acquisition is a cost to the buyer, appraisal, credit report, title insurance, etc. The buyer pays because it's a condition of the mortgage loan, not because they "own it".

If a buyer wants their agent to attend the appraisal, they are asking for trouble. They apparently want their agent to advocate for a lower appraisal. If they want a lower contract price, they should try to negotiate one, not influence the appraiser.

Whether the buyer likes or understands it or not, the appraiser doesn't have to meet with or speak with the buyer or their agent. It was the seller with their listing agent who priced the property and it is they, if anyone, who should provide the appraiser with the documentation to support that pricing.

A buyer who would expect their agent to meet with the appraiser sounds like one who wishes to control the home buying process more than is possible.

THEN ON THE OTHER HAND, if the buyer makes it a condition of the contract that the buyer's agent be present during the appraisal, I suppose it could be arranged with the agreement of the seller, between the parties. That said, there is no requirement that the appraiser cooperate since they are not a party to the contract.

This is too complicated and simply reflects how buyers or sellers can cause a lot of unnecessary problems when they seek to control everything without understanding the dynamics of a real estate transactions and the various responsibilities and roles of the parties involved.

BTW, how does that buyer believing that "he who pays controls" justify buyer's representation when the money to pay the buyer's agent comes from the co-op and eventually from the seller's net proceeds.

Our services to our buyers are virtually FREE or most wouldn't even use our services. Of course, the buyer brings the money to the table to fund the process, but if they had to pay much or anything from their own funds for representation, they would not. The contingent fee is FREE to home buyers, yet we not only represent their interests, many of us owe them a duty of fiduciary, all FREE.

Lenn (regarding your comment #84),

As an agent who works about 50/50 with sellers and buyers and recognizing that you are the Queen Bee of Active Rain, (genuflect) I feel I must express with all due respect that I think your comments show all the signs of listing agent biased hooey.

Determining market value is not an exact science by any stretch of the imagination and to suggest that the listing agent's opinion of value carries more weight, accuracy or lack of bias than the appraiser's or buyer's agent is simply unfounded.

To in any way suggest or imply that the listing agent should be allowed to influence the opinion of the appraiser to the exclusion of the buyer's agent, lender or anyone else serves only to amplify an already tainted image that many consumers already have of our industry.

Why not simply allow the appraiser to reach his own conclusion of value and then have some mechanism in place whereby affected parties can challenge that conclusion if there is disagreement after the fact.

This would help reduce the perception that we are strictly a "commission driven" industry with no real concern for the well-being of the parties involved in the transaction who must carry future potential consequences of a potentially bad appraisal. (Those parties being the lender, buyer... if the appraisal comes in grossly inflated, the seller will collect his net profit and the agents will collect their commission check and move on without consequences while the buyer and lender are left holding the bag of hooey).

Tim and Susan. Hopefully, my wonderful readers will read all of your posts and recognize an attempt to substitute snide for reason.

Your repeated display of "point or AR position envy" speaks volumes.

I think it's amazing how little CE is available when it comes to appraisal education for agents -- especially in comparison to the number of junk classes that are available.

The 15 hours I had to take for my Illinois Brokers License was extremely beneficial..

Paul. I agree completely. Considering the critical nature of the CMA for sellers and buyers, I have always believed that mandatory CE in appraisal basics should be required, not just for an elective.

I can honestly say that I have never had an agent come on board who could do accurate valuations, until I trained them.

I believe that valuation skills are as important for buyer's agents as listing agents. We don't have the burden of obtaining the listing which leads to so much overpricing. When we do a CMA for our buyers, it's to give them a handle on value and help with negotiation. It's an invaluable skill for all agents who list and sell.

Lenn - Very thought provoking post and comments as well. One of the problems I have is the lack of comps for most horse properties. In order to reach an accurate price you often have to comp the house and land seperately and then add in the horse amenities. Most appraisers do not have a clue regarding the cost of putting in a properly constructed riding ring with a crowned base and all weather footing. It is amazing how they often will not use horse properties as comps even when they do happen to be available. Like anyone else some are happy to be educated and some do not want any information from the listing agent. I have gotten calls in the past from appraisers wanting to know about a property that I sold in the past 6 months that they are using as a comp. In the past few months I have not received any such calls, may just be coincidence.

Pam.

Great comment. I have the same problem here with waterfront.

What I've done over the years is develop a knowledge of the "waterfront premium" for a variety of bodies of water, amenities, docks, marinas, and other features that add value to waterfront/water oriented/ water access, etc. features.

I suspect that you have to do the same thing with horse properties.

I recently sold a small horse property and found that, while the appraiser could value the house, the barn, the acreage, etc. he couldn't get a handle on the wonderful pond on the property.

These all fall into the category of "unique" properties and all I look for in an appraiser or appraisal is experience. That is what it takes to appraise them.

Does the Code specifically prohibit communication with an appraiser by a real estate agent?

No.

Barry.

If it does, I can't find it.

I don't even know what "point or AR envy means" so I can't respond to that, however there are many sides to the problem and I don't agree with your position or solution. In a blog community there is room for disagreement and discussion.

Perhaps I have misunderstood some of your posts and comments and if so you can correct my understanding. It seems that you are suggesting that the listing agent always has the right value assigned to every listing and that every appraisal should come in at or above contract price. This line of reasoning leaves a massive gap in the process for fraud to enter in as it has often in the past and no doubt continues to be the case.

If the listing agent and/or contract price is the absolute correct assessment of market value then what is the need for appraisers and appraisals at all?

In our market, investors are taking advantage of a short sale driven market. They have obtained real estate agent licenses and are engaging in some unsavory tactics and practices that many folks have written about on AR recently. Appraisals and the influence the investor has on the appraiser when they purchase and again when they sell at a much higher price are key to reaching their goal of a turning a quick profit on the backs of the lenders and distressed sellers.

I think that there needs to be a mechanism in place that allows for unbiased, third party appraisals and a method to challenge the results if warranted.

EDIT: Just realized what your comment about "points and AR position envy" meant. Cute! LOL No... I suppose my attempt at humor was misunderstood (my bad). As for points or position, I don't post enough on AR to care one way or the other... unless the points are redeemable for air miles or something else of value.

An appraisal is supposed to be objective and fair. However, like it or not, it is still one person's OPINION of value. The comps you use will affect this OPINION. No the listing agent is not always 100% "on the money" in value, but she/he should be damn close if they intend to sell the house these days.

Put 2 experienced, LOCAL apppraisers on the same job at the same time and they should be very very close in value.

What I am seeing in my market is the plethora of NON LOCAL appraisers who do not understand that 2 developments can be 3 miles apart, yet in 2 different school districts and "worth" 2 very different values. Or 2 houses within blocks of each other could actually have something local affecting their value that the appraiser has no clue about (such as one will be required to hook up to the sewer system in 3 months and the other is not).

Erica. Your comments support the belief of all agents I know that appraisers should be local. Anything less is, IMO, malpractice by the entity ordering the appraisal or the GSE writing the guideline that permitted it. Freddie posted a letter this week that refuted that. They clearly state that the appraiser

Requiring local expertise????

Choose 'appropriate' comps????

WOW! Like I said before, "what a gal" Thanks

You're right. We need to get involved in this process. It's part of giving our client great customer service.

Hi Lenn, Great blog. I do worry when an outside appraiser comes in. thanks for sharing all this wonderful info!

Kenneth. Thank you for dropping by. Always welcome.

Fran. I'm a hands on agent. A listing agent not meeting an appraiser is incomprehensible to me.

Ginger. Perhaps with the new Freddie letter, we'll see less of them.

Lenn, this is excellent!! Excellent!!! I meet the appraiser for every last one of my listings. I have the subject comparables in hand with letters from the Realtors describing the modernization, defects, terms of the sale (arms-length or ...), I have the true square footage of each of the subject comparables with interior and exterior photos from the listing Realtor. Yes, it is a lot of work but it is the best way to support what I was supposed to do when I listed the property. I do a lot of two flats here in Chicago and so I know that the appraiser has to give three comparables for market rent with information on all three comps as well. I have the leases in hand for the subject property, along with similar buildings in the neighborhood with a letter from the owner stating what the terms of their leases are. If the unit is vacant, then I get copies of the most recent within the last two years leases of the building so that the rental figures won't be pushed to the bottom of market rents in the variable range of rents for the number of bedrooms, baths and size. Maybe overboard but the multi-units are being based off of leases and if the subject building is vacant with no leases then the appraisers and the underwriters will review the building with the lowest market rents versus current market rents.

Appraisers were and always should have made any comments about health and safety issues, to take photos and let the bank take it from there. If there is structural, broken steps, weak porches, photos will be taken. Exposed electrical wiring - photos will be taken. This is how I was raised in a family business of real estate appraisers that began in 1911. My grandfather had his MAI, SRA, and was the President of the GR Association of Realtors (3 times), My father, S.R.A. (President of GRAR), my brother, S.R.A., M.A.I., (President of GRAR). What I grew up under was what The Appraisal Institute enforced and then the State of Michigan. The appraisers in my family didn't know the selling price of a home and it was appraised without the knowledge of the selling price but they were given the terms of the contract (motivation). My father kept track of his valuations and was off $37.51 per appraisal. To read the ignorance or lack of understanding of the appraisal process, what it takes to be an appraiser just like it should be as a real estate agent or Realtor, this is serious business. The practices of disclosing to the banks were there all along, some just overlooked it.

The best thing we can do for our clients, the sellers, is to get rid of any code violations, exposed wiring, replace broken steps, cracked board, weak porches, remove peeling paint and making sure that the property is safe, the sooner we as real estate agents do it, the less complaining and finger point around the arena. The appraiser is the eyes for the bank and some appraisers were either not taught that or didn't know that. They are the eyes. Bottom. The bank is not rejecting the buyer but the condition of the subject property. You want to get closed? Then look at how the bank looks at your property because I don't think you would buy a lemon of a car, now would you?

Sorry, Lenn. I just think we as real estate agents need to do our job just a tad better. Oh, and btw, wait until you see the new things that are happening. And it is already beginning. If there is an addition to a house and there is no permit for the addition, the appraiser will not include that in the square footage.

I'd like to respond to One Source Mortgage and they are correct the new guidelines are just that but what One Source may not understand that the appraisers must follow USAP and there is to be no variance. USAP isn't a guideline because if you violate, you can loose your license.

Lenn

I live in a small island between San Francisco and Oakland. The largest concentration of homes are on the part that is approximately 5.5 miles long and 1.5 miles wide. Just one street separation makes a huge difference in property values. So an out-of-town appraiser would be hard-pressed to find appropriate comps without knowing the nuances of west versus east, etc.

Yes...realtors and their clients worry whenever we have lenders and appraisers from out of area. We try to explain the value of local experts.

Barb. You should post this as an article. There's so much good info here.

BTW, in one county in my area, the appraiser can call for a code inspection and the owner may have to tear out the illegal modication, fence, deck, basement, etc.

Pacita. HA. That's worse than our areas where the value can change block to block.

Wellsfargo would not even look at the second appraisal and defended their choice.

I just hope that a seller closes one of the stinky appraisals an sues WellsFargo,BofA etc for forcing an incompetent appraiser into the transaction. Trial lawyers: put a case like this in front of a jury. Bailout money banks screwing poor hoemowners=massive settlements. The sellers are being screwed by these incompetent appraisers. We ahd one where the Wells Fargo appraiser was unlicensed and teh appraiser that signed the appraisal never set foot in the house. The appraisal was missing 800 sqft. We had the original appraisal from when the house was built, and the blueprints.

Thomas. I had trouble with WF on a property early this year.

We had an appraisal contingency date and I couldn't get the blankity blank loan officer on the phone for 4 days as the time ran out. The appraisal came in two days late.

Fortunately the seller didn't do anything because they didn't have anything else.

The appraisal came in about $35,000 over contract, so we closed.

The problem was the lack of contact from the WF loan officer.

Wonderful info on the nuts and bolts of our responsibilities. I appreciate it.

One thing I do has proved invaluable:

Whenever an appraiser calls me to verify the facts of a comp sale in which I've been involved, I ask that appraiser two or three questions about how he or she is going about their work. I find most ready to share -- even glad to help educate me.

Jim. I have always found appraisers quite helpful when addressing one of our sales. They appreciate the insight into how we got to where we are.

Hi Lenn,

Well, as the only appraiser willing to speak up...here goes. I was an agent before I was an appraiser, so I have a healthy respect for the agent's job as well. There are times when I still put that hat back on and it reminds me how hard the job can be. I appreciate the info from the listing agent, and do often refer to the Seller's Disclosures, survey, covenants, etc. in their professionally completed listing presentations. They really do help. The floorplan? Yes. I'll never turn down information, but please don't be offended as I still cruise around the perimeter walls with my Disto shooting measurements. My name and my license goes on the line with each report.

That said, let me explain why I dearly love 'Vacant on Lock Box' or 'LBCF' when no one is present. You see, I also take on a huge liability with each report. Just as you, I have E & O insurance and am one of those deep pockets (cough, spew!) that some remorseful soul could go after should I miss that crack in the foundation or the patched drywall that the seller was attempting to hide a defect. Maybe it is just patched drywall, or maybe it's that the den addition is sliding down the hill. I need the opportunity to observe without interference. Additionally, there are some very, very tight scheduling requirements with this job, and it never fails that some underwriter issue or something that requires an immediate response and 30 minutes more out of the day prior to getting out to do my inspections takes place. Those properties which I can actually view at my own schedule are an absolute blessing. I'm headed out to do one of those shortly after I complete this post.

As for the nuances in the markets from block to block, it's sad to say that an appraiser 'misses' those trends. Very sad. You see, we all have access to the same sales information. We appraisers are trained (or supposed to be) to spot and analyze those trends. It's part of the process of developing the report - understanding the market. I'm sad to say there are a legion of what we refer to as 'form fillers' rather than appraisers. An above poster noted that 57% of the NAR membership was less than 5 years in the biz in 2006, well, we have a similar issue in the appraisal field. The market was lucrative and the entry for new opportunists was too easy. I pray that if nothing else comes from this down time and rough phase, that attrition takes care of those who weren't meant to be in it.

We appraisers need to communicate with and work with the agents on several levels. If I see something that befuddles me, I'm not afraid to pick up the phone and discuss the issue with a seasoned agent whose name shows up in that market quite a bit. I can't be afraid to seek the opinion of other area professionals. You agents are the ones with the buyers in the car with you hearing the low down, and that information is vital. I haven't had that buyer one to one for about 12 years, and a refresher albeit, secondhand, is priceless. As for the safety of your contract price, well, I c an't blame you for your defense mechanisms against the hapless form filler from miles away, but as a true professional, it pains me to read that these measures have become necessary. When the home inspector doesn't need an escort, why praytell do I? :)

To answer the question as to why the appraisal often comes in at contract price: in a perfect world, it's because it was priced and negotiated properly. I appraise with the attitude of 'it is what it is'. If it's worth 20K more, I'm stating so. The seller's agent may take some heat from the seller in that case. Some appraisers don't want that to take place and 'justify the contract'. My personal take is that the lender asked for the market value and I'm telling them the truth. I have no deathwish for the seller's agent, nor am I looking for kudos from the buyer or their agent. Just telling it like I see it. If it's $15K under, believe me, I'm double and triple checking every possible angle before I deliver the bad news. I'm not afraid to pick up the phone again in that instance. 'Mr/Ms Agent, can you share with me which sales you used when you did your CMA?' Just want to make sure I'm not missing something.

Caterina.

Thank you so much. I loved these experiences from the appraiser's experience. Comment #68 is also an appraiser.

You guys are great.

I suppose one reason why I insist on agents being present when the appraiser is because, if the appraisal is low and the appraiser hasn't had the benefit of the comps or contract, etc. it's just too late. There's too much riding on the appraisal and I'm not willing to wait and try to get someone to change their report.

As for the scheduling matter, an agent who is late for an appointment with an appraiser and if it has to be rescheduled, the agent should pay for the appraiser's time. That is something that should just never happen.

The reason I mentioned the appraisal coming in at contract price is because of the recent underwriter guidelines that requires several additional verifications be produced for some high appraisals. Fortunately, I've had two high ones this year and no ramifications. Our new home sale almost always come in way over contract. I personally haven't had a low appraisal in 15 years. A few of our agents have had them a $1000-$5000 or so under but they always worked it out.

You should make this comment a post and, considering the timeliness, it just might be featured and would get some traffic.

Thanks again. I appreciate the time you spend for this comment.

William. Good luck getting sellers to get an appraisal before listing/pricing.

In a world of contingency fees, most buyers and sellers don't want to risk the money in case the house doesn't sell.

When they find that their pre-listing appraisal can't be used for the contract, they just won't pay.

IMO, any agent who knows his business should be able to recommend an accurate price. That's not the problem in our industry. The problem is overpriced CMAs that agents use to get listings.

Appraisal are "not rocket science". They just take about 1500 practice runs to get a handle on it.

It also helps to read a lot of appraisals.

Appraisals are a big challenge in our area, and it's getting worse. To find a enough comps, you might have to look 15, 30 or 45 miles! Needless to say, many out-of-state lenders who are not familiar with our geography don't like that kind of appraisal.

Another great post. It's our job as agents to get the deal closed and if that means meeting the appraiser or making their job easier. Then that is what we should do.

Kevin. This is terrible. Our of area lenders and out of area appraisers. We'll all going to Hell in a handbasket.

Mike. Agreed. It's getting harder but we'll figure it out.

If you consider the source of the story, it reminds us that all that glitters is not gold. There's only a few sources of real estate news that I trust and they aren't one of them.

With that said I can tell you that we don't want people in NY or anywhere else for that matter to tell us Oklahomans how we need to do business. It does not work that way.

The old system was not broke but it did need to be fine tuned to a degree. I cannot even begin to imagine how homes in hot markets like CA, FL, NV, etc were able to appraise when values were raising daily.

Every time I see a post like this I have to kneel and thank the good Lord for being in Oklahoma!

I think it was better when the loan originator could order the appraisal from a local appraiser whom they trust, don't you?

John Yocca,

www.southcoastanswering.com

www.centralcomm.com

JUL

2009

Russell. I'm not sure to whom you're referring when you say "source of the story". Do you mean my post, Inman or Fannie Mae? No matter what the source of the story, it's news that real estate agents need to be aware.

It may not be effecting your market, but national stats to influence consumers since that's most of what's in the news.

True that areas like OK, MS, etc. were not so hurt because they didn't have the rapid rise in prices during he boom. But, the "fixes" the federal governments "keep trying" cost us all.

John. YES! I do indeed. The entire appraisal system has been turned into apple vinegar by the government because they found a few bad apples in the barrel.

Terrific summary Lenn about what we as Realtors should be doing. It all starts with pricing the thing correctly to begin with.

Well I guess Missy is blessed with no appraisal problems. I've given comps, explanations, etc. just short of doing the appraisal for the idiot and have still had it not appraise. Lenn is correct in pointing out that we have to take back our responsibility. But if you provide solid comps and the appraiser still doesn't use them? What to do? We should be able to appeal but that process is not possible. I've had an appraiser just recently give $2000 for a fireplace. Anyone out there give that number to a seller?

I agree Len...there are a lot of things Realtors can do to help the situation, however at the end of the day if an appraisal is assigned to an inexerienced, incompetant realtor becasue of HVCC you're going to have problems.

I think it is a really good idea to meet the appraiser. We do not do the appraisal we provide information. The guide lines issues such as "Local" etc are stupid. It is an art not a science and those terms are very subjective. Perhaps we ought to have a free market system where lenders decide how they want to do it and live with the consequences of their decision.

Bill. Price is everything. Or, at least the first step.

Lyn. I'm sure Missy has problems, but she's experienced. I'm sure she prepared for the inevitable problem.

Dan. We can help avoid the problems.

Gene. LOL! Do you mean "THE WAY IT WAS"?

I liked this one in particular today:

Lenn Harley said, "I advise agents in my network to remove the keybox once the inspections are done. That way, the appraiser has to contact the listing agent for access."

San Diege Short Sales.

HA! That's just fundamental. Of course, the appraisers will contact the listing agents for an appointment and if the agent is late, they should pay for the revisit.

Lenn, what a great post and the comments were well worth the long read! I think one reason some agents don't meet the appraiser, the inspector, etc., in other words, do their job, is because they are discounting their fees so much they aren't making enough money to make it worth their while to really do their job. Now that's another topic, but you are 100% right. No wonder the public doesn't respect our profession - many of us don't act very professional!

Sharon

JUL

2009

Sharon. When we're dealing with a fee for service or "limited service" brokerage, we don't expect the listing agent to be there unless the seller has agreed to pay for that service, which most are not although they should.

However, most of our listings are with traditional brokerages. It's just a trend that started about 5 years ago of agents doing less and less for their fee. Yet they profess fiduciary. I suspect that, if they were selling their own home that they'd meet the appraiser. The duty of fiduciary demands that the listing agent provide the same level of representation to their clients that they would expect of themselves for themselves.

That was rather convoluted, but you get the message. This is becoming routine here.

I was at a short sale listing recently for a home inspection and the appraiser appeared and asked for comps. I explained that I was not the listing agent and he just shook his head and said, he rarely sees them any more. I knew from conversations with the listing agent that she was making the same commission as was I. Yet, on a short sale that had been on the market for 7 months through two contracts, she couldn't find the time to show up for an appraisal. Fortunately, the appraisal came in at contract price. Whew!

Tim and Suan I agree with you. Lenn where I always certainly learn from you and yours posts here I disagree. A buyer's agent to an appraisal would appear to be trying to influence the price but a sellers agents would not???? It is the buyer who will be paying the mortgage based on the appraisal for many years to come.

Miriam. I'm not sure that Tim and Susan agree with me at all about anything.

I do not believe that buyers agents should attend appraisals. They have negotiated their contract price, terms and conditions.

To attend the appraisal and try to influence the appraiser doesn't seem correct to me.

I remember a listing that we had whereby the apprasal came in at $5,000 over contract. The BUYER'S agent asked for a review. She believed it should have been lower than contract. I didn't believe that was at all helpful. If she wanted a lower price, the time to get that would have been to negotiate one, not force a lower price on the seller by way of influencing the appraiser. She didn't even have comps. The price was very good based on existing current comps.

We closed but her demands made the rest of the transaction very difficult.

I advised our seller to give them a release and we'd just sell it again. I was that confident about the pricing. The buyers finally told their agent to let it go and we closed.

Great blog Lenn. I will always provide comps for appraisers whether I am listing or sale agent, since most appraisals now are coming from folks that are out of our area and they can't get into our closed MLS. I haven't tried to influence anyone unfairly, I've simply tried to point out(after their appraisal is junk) that the comps they used had this and this, and I showed it three times and it stank and needed a new fireplace or more parking or whatever.

I've asked for a review on an appraisal that came in too high for a new house with no supporting comps, when the contract price was agreed on 8 months earlier in a market that lost about 30% of it's value. Buyers wanted to buy it anyways.

Amy. Why be concerned when an appraisal comes in high on new construction?? I'm pleased when that happens and it usually does.

I guess we disagree Lenn. I believe that the appraisal is paid for by the buyer (not out of proceeds) to determine the value of an asset they will be financing. What concerns me is when you say that when a buyer's agent attends an appraisal they are trying to influence the price but when a seller's agent attends they are not trying to influence the price. Don't get that. In your example why not a review if you were so sure of your pricing since it needs to be correct for all. The buyer's agent is entitled to a differing opinion on value.

Uh oh. In comes the appraiser again, and hopefully not to ruffle feathers, but here goes. In the appraisal speak world we have terms similar to what we use in Realtor/agent speak, however they are different parties than those we serve as agents.

Client: in a mortgage transaction, the appraiser's client is nearly always the lender.

Intended User: in a mortgage transaction, this may be one or more parties including the lender, FHA, VA, future secondary market investors (such as Fannie Mae)

Neither the Buyer or the Seller are either Intended Users or Clients to an appraisal in an mortgage transaction. They may certainly refer to the report and rely on the information, but they are not the appraiser's client, nor are they the intended user unless the lender specifically deems them so in the appraiser's engagement letter.

Now another term: Purpose

The purpose of the appraisal is to inform the lender/intended user(s)/client of the market value of the property to be utilized as the collateral to secure a mortgage and to aid the lender/client in a lending decision. The purpose is not to justify the contract in place. It often inadvertantly does so, but it is not the purpose of the appraisal.

When I do appraisals for private parties, or say in a cash transaction with an appraisal contingency, the purpose of the report is to aid the buyer in determining the market value of the property.

Doesn't really matter whether it's the Buyer's Agent or Seller's Agent to the appraiser. Simply offer the information, discuss whatever is truly pertinent, and leave them to do their jobs.

The appraised value should be independent of the contract. We have to review the terms of each contract and discuss it in the body of the report to ensure that the pricing isn't affected by say, a BMW left in the garage, the washer/dryer/refrigerator or the builder paying the first year of HOA fees. That little bit of craziness and convalusion (sp?) was added thanks to Fannie, but regardless the market value is based on the market indications, not the contract. Are they often in line with each other? Well, we all hope so, but not always. Further, the appraiser should be an independent, nuetral party free from influence of any party personally involved in the transaction. Buyer's Agent, Seller's Agent, Loan Officer, Mortgage Broker, Seller, or Buyer's Mother-in-law. Doesn't matter, none of them is in the right to influence.

There is a fine line between 'influence' and offering helpful information, which I'm sure we're all aware. As I said before, I'm glad to have additional information, but I also need to be left to do my own fact finding observations of the property and to form my own opinions. Granted, this is all assuming a knowledgable appraiser playing in the areas he/she should be. The bloody HVCC and 'what's your fee and turn time' Appraisal Management Companies have thrown us all off kilter and again, I certainly understand an agent's defense mechanisms necessary against the hapless form filler who shouldn't be working as far from home as he/she is. When fee and turn time is the only concern, Jughead from Riverside gets an assignment for a place in Santa Barbara and accepts it for $200 and God help the parties depending on him.

The proper mechanisms to refute Jughead when he really louses it up is often called a Reconsideration of Value. Any appraisal management company worth their salt should have this policy in place. The agents and/or borrowers complete a rebuttal and offer information that supports the more likely market value. The agents and the borrowers MUST have a copy of the original report to adequately complete this task. Tear it apart line by line if you need to, as discrediting the report (not the appraiser) is the key to getting the lender to listen. Lenders are used to hearing the old 'he only spent 5 minutes at the house, he showed up late, had his dog in the car, and didn't look at my ......' Sad to say, it isn't always untrue, but just be prepared with other substantial items from the report that are inaccurate.

I should have line itemed a few of those 'substantial' items to offer.

More pertinent sales comparables. Be sure to compare apples to apples. Don't pull the 1,000 Sf house down the block that sold at $150/SF and claim it's useful information (based on price per SF) if your subject is an 1,800 Sf.

If the transactions of the comparables were all REO's and the market is currently experiencing the classic two tiered value trend (arm's length are high, and lender sales are the lows), then fire away at those comparables used. If there are distress factors involved in the sales comparables, state so in terms like, 'Sale 2 experienced an extended marketing time due to initial overpricing, then finally sold far below market to avoid foreclosure. It needed carpet, interior painting, new appliances, and a septic system.' Be factual and offer a more reasonable comparable in it's place.

Hope this helps.

JUL

2009

Miriam. You wrote: "The buyer's agent is entitled to a differing opinion on value."

Of course they are. Or, at least the buyer is. However, the time to push that "opinion" is not at the appraisal phase, it's at the contract and negotiation phase.

The seller doesn't call for the appraisal. Neither does the buyer. It's the lender that requires the appraisal to protect the mortgage company. They couldn't care less about the buyer or seller.

The fact that it's charged to the buyer is simply because all costs associated with the purchase of real estate is a cost to the buyer. The seller can agree to credit certain sums to the buyers costs, but all costs are still to the buyer, at least in my area. Certain exceptions are state transfer fees for first time home buyers, but that is about it.

Appraisals are not necessary for a real estate transfer to take place. Never were. Parties with cash sales waive appraisals regularly. It's the lender who's requiring them and passing the cost on to the buyer as a "condition of the loan".

Buyer's agents swarming all over an appraiser to try to get them to force a renegotiation of the contract price would be a disaster. The listing agent is simply advising the appraiser of how they arrived at the original list price. If the buyer's agent and buyer didn't like that list price, they could make offers after reviewing they own comps, which is what we do.

I can't make a connection to the seller's agent attending an appraisal visit and a buyer's agent doing the same.

Yep. We can just disagree.

Lenn, who says that the time to push is at the contract and negotiation phase. Buyers agents don't swarm. Nor do buyers agents try to force a renegotiation. Just try to determine a fair price, not a fair price determined by the listing agent. It is not the seller who will be paying that mortgage for the next 30 years.

Leave the package of your comps in a packet inside the house.....Now that is a great idea...ty

Appraiser beating her head on desk. I told you all early on that sometimes I put on my agent hat. Yes, indeed and today is one of those very days. I have two pending deals with friends in which I'm the Buyer's representative.

Just got off the phone with the appraiser assigned to one of these deals and it's a toughie. Complex assignment, no doubt. I, the Buyer's agent, will let this 'gentleman' into the property and will be there with bells on, comps, and any other ammo I can dig up. Even though we both have access to the same data, it appears he has his own ideas and doesn't quite see things the way I do. I have been very clearly reminded why my agent/Realtor friends hate appraisers. Arrogance and self inflating egos, anyone? <sigh> I'm so sorry folks. I pray that my own demeanor as an appraiser never ventures into his realm.

Caterina. I'm not sure of your task in these appraisals. Your profile doesn't say what you do and I don't see any posts.

If you're the buyer's agent on this property where you're meeting the appraiser, where is the dispute???

Hi Lenn,

In this particular instance, I am not the appraiser, I'm the Buyer's representative. I'm meeting the appraiser at the property for his inspection Monday and he's from out of the area. There is no dispute....yet. My last post (note there are several on this very page where I told you I'm an appraiser and also a Realtor) is an instance where I'm wearing my agent hat and feeling for the agents in this very blog about dealing with appraisers.

99% of my business volume is as a Certified Residential Appraiser. I try to be a human, humble, and give the benefit of the doubt to all situations I approach as an appraiser. I simply posted the last entry after getting off the phone with one of my bretheren that didn't quite come across that way. About once or twice a year on average, I end up with my agent hat on rather than my appraiser hat. Keeps me humble and human hopefully when the shoe is on the other foot.

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Lenn Harley, Real Estate Broker, Virginia & Maryland

Leesburg, VA

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Lenn Harley, Homefinders.com, MD & VA Homes and Real Estate

Address: Lovettsville, Fairfax, Arlington, Alexandria, Stafford, Woodbridge, King George, Fredericksburg, Leesburg in VA., Rockville, Laurel, Columbia, Baltimore, Waldorf, Frederick, Eastern Shore, Bowie, Harford, Annapolis in MD. , Maryland, Virginia

Office Phone: (800) 711-7988

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Maryland and Virginia real estate agents and brokers serving buyers and sellers with experience. Search listings in Maryland and Northern Virginia and get daily updates of new homes for sale by e-mail. Contact Lenn for a tour of homes. REALTORS available every day for home tours. Homefinders network of experienced agents and brokers includes new home specialists, resale specialists and luxury home experts. We can help you with your home buying needs. Homefinders offers discounted 5% listings for Maryland, Northern Virginia home owners. Experienced agents helping buyers and sellers in the Washington Metro area since 1985.

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