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Should You Price to Ward off Appraisal Problems?

Sellers want more for their homes than the market is likely to pay. That's a fact; it's been a fact forever, during boom times and busts, and will continue to be a fact long after the Recession of 2009 is behind us.

Nothing wrong with it; it's human nature and we're all guilty of putting a higher value on our own precious for sale stuff than anyone else is going to. But part of our job as listing agents is to gently persuade our seller clients that we need to price properly in order to get their home sold.

But should that "proper price" take in to account what the house might appraise for?

In my opinion, no.

WHAT???? Jennifer, are you out of your mind?? What if you overprice the house and it sells at that price and the appraisal comes in low?? What then?

Indeed.

I take great care in pricing my listings - I want to get my seller the highest possible price in the shortest amount of time, assuming that's his goal, too. And I've been doing this long enough to understand that pricing it RIGHT is best way to get the highest price, as opposed to pricing it high and hoping a bigger idiot comes along and pays that price. So, before I continue, let me assure you that I know how to price a house to sell quickly, without giving away my seller's money. (Read more about that here).

If I feel a house will sell for more than the market data indicates, I'll not hesitate to price it accordingly. If a particular house shows so well and feels so good that it blows away the similar competition and recent sales... even if "on paper" it's not "worth" more, I'll put that higher price on it. My seller deserves the opportunity to see her hard work or design-sense or whatever pay off for her.

(Again, remember, I'm not stupid and I'm not inexperienced. I know what I'm doing.)

So, back to the original question. "What if it sells at full price and then doesn't appraise?"

Frankly, I'll deal with that when and if the problem arises. If I get my seller "too much money" for his house, and the appraiser or underwriter doesn't agree with me and the buyer, then we'll go to Plan B. Which, yes, may include the seller coming down on his price to meet the appraisal. Or getting a second appraisal. Or whatever other solutions we can come up with.

And yeah, it might suck and everyone might get mad. But I'll deal with that at the time!

I'd much rather take the chance of getting top dollar for my seller and then scrambling to justify it, then to pro-actively risk leaving my seller's money on the table when we could have gotten more. In other words, I don't believe in underpricing a home in order to avoid appraisal issues, and I don't believe it's a good tactic to use when discussing price with a seller prospect.

How do you feel about it?

www.SellwithSoul.com

Posted by Jennifer Allan-Hagedorn, Author of Sell with Soul on 07/29/2009 10:01 AM

Comments (117)

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117 Comments on Should You Price to Ward off Appraisal Problems?

JUL

2009

I have seen buyers get mad when the appraisal comes in at contract price. It is not rational but with this "Steal" market mentality it is reality. An appraisal under contract price in my opinion could kill a deal even if the seller is willing to come down. The buyer may think he is being had and his realtor knows nothing about the market. So I am not in total agreement with you on this. But your market may not be the same as ours and so for you it may be ok to deal with this potential problem

I agree. A CMA is based on "sold" property and NOT on what an appraiser thinks. The numbers speak for themself. If we take into account what the appraiser thinks we would never have a baseline to work from.

Good thoughts! If the seller has done a lot then it's possible to justify the higher price to both the seller and the public. However, I'm hearing of more deals falling through locally b/c of appraisals so if you want to put your seller out then this might be the route to go.

Jennifer, have you heard of the new appraisal rules that are coming? We're hearing here that the buyers will have a three day right of refusal where they can just walk away if the appraisal isn't high enough. This may indeed already be the case with low appraisals, but this has something to do with a bunch of new rules...

Also, are you back in Alabama now? I thought you were a Denver girl!

Charlie - I guess my point is that in an imperfect world, I'll err on the side of getting my client more money, rather than trying to second-guess what an appraiser might do. If it doesn't work out quite right, I'll deal with it at the time. Can't control everything!

Edward - Great point!

Dave - I've heard that too, although I actually dealt with appraisal problems much more during the boom. However, I'm not in a declining market, so that's not something I've had to worry about.

I can't say that I agree or disagree with your mentality and approach. I do know that this HVCC is the biggest pain in the butt. I'm having loans that closed 3 months ago, being asked for a recertification of value 3 months after the closing. I don't get it and am hoping that this moratorium comes for 1.5 years as legislated for. In the interim, we'll see where it takes us. Always insightful as always though J.

Bob - I don't pay nearly as much attention to new rules as I should - I figure when I need to know, someone will tell me (yipes!). But are you saying that the buyer has the right to back out if the appraisal doesn't suit him? Surely not!

Larry - Thanks for your neutrality! I'm not trying to address HVCC, just an overall philosophy of pricing. There's just so much we can control or plan for, so if it feels like the right thing to do, I'll do it. And hope for the best. And most of the time, it works out.

Everyone has an opinion, so does the listing agent, the appraiser and the buyer. In the end, realtors use market value to bring a probable market value, so does an appraiser.

In the end, it should fall within similar boundaries, dont you think (if they had used the same data)?

We have always had issues with low appraisals on our waterfront and river access properties--in up or down markets--especially when the appraiser is from out of area and does not recognize the premium buyers place on The River.

The ones that do have a helluva time convincing the underwriter of that value. It's practically intangible.

Buyers and sellers in our area often have to split the difference. And they know it.

One of the first things we're taught about real property is that each is UNIQUE. And appraisal isn't always equal to value in the buyer's perception.

If I feel the property may not appraise despite that perceived value, seller is informed, alternatives discussed in the event of a low appraisal and seller signs off on that in the listing contract.

Jennifer one way to make sure your appraiser is local and knows values in your area is to use FHA financing.

Great discussion, Jennifer! The salient point is clearly that you know what you are doing when pricing! Absolutely, we need to bring our experience to bear when pricing and that includes knowing when to 'kick it up a notch' because there is monetary value there!

It is still extremely important to explain to our sellers what the realities of the market may mean in terms of appraisals and this strategy needs to be a million miles away from 'buying a listing.' The better informed our clients are as to what to expect going forward, the more valuable we are as a trusted advisor.

And of course, to beat the drum some more...we need to meet the appraiser with our work in order to defend our price! May or may not work but it is the professional thing to do!

Thanks for a great post!

I think you are on the right track. If the house doesn't appraise, you go with option 1A or option 2. With that being said, I think you still want to do a thorough market analysis and look for comparables with the correct criteria (similar square footage, within a mile, similar construction, sold in the last 180 days, etc). Good Post.

I agree with you. My measure to set up the price is based on the basic rules of how long the seller wants to wait to have his home sold and in what type of market, a seller's or buyer's market.

I agree in principal, but in our market we are battling supply and demand. 72% of our sales y.t.d. have been under $200,000 ! Propertys over that are in a tug of war for buyers. Those Buyers feel like celebraties and are lookin for a deal ! It really comes down to - WHY do you want to sell now(above the 200k range)?

I would agree with Loreena above . The agent brings the information on the market value to determine price. I would think that that is how the appraisers do it as well.

Patricia Aulson/portsmouth nh real estate

Jennifer, as ALWAYS, I love your posts. And I agree wholeheartedly with you. One of my biggest fears as a newer agent is leaving my sellers' money on the table. I do a very thorough CMA, and I always discuss appraisal issues with the sellers at listing.

But I don't stop there. To combat some shoddy appraisals conducted by appraisers who are not familiar with my market, I prepare a bound booklet that I leave on the counter of my listing being appraised. If I can meet the appraiser at the door, say hello, and give him/her my contact information in case of questions, I do that. But my booklet is what I'm really proud of. I include a spreadsheet CMA with all the salient points. I include my property sketch. I include a one-pager about all the attributes of my listing that make it stand out among the competition. Finally, I print out all the listing sheets of comparable actives, pendings and solds, and make notes on each one as to how it compares to my listing. Just last week some buyers for my listing had an appraisal. I did all of the above. I knew my listing ROCKED, as evidenced by the 34 showings and a contract in 48 days. However, just two weeks before, some VERY comparable homes closed for over $100,000 less than our contract price. I was worried that the appraiser wouldn't take the time to find out why those properties sold for so much less, so I painstakingly explained it to her in my documents. The home appraised at $20,000 over contract price.

Was my seller angry? No, because she saw my data, and we knew that an inexperienced or lazy appraiser might not delve into the details. She still got the price she wanted.

Sorry to be long-winded, but I want to add another point. One worry that I had on this deal (because it's happened to me before) was that the buyer agent was "gaming me," agreeing to a contract price because he didn't think the home would appraise. I agree with you Jennifer, I'd rather cross that bridge if/when it appears. But warning to gamers - if an agent counsels his clients to accept a higher price because surely it won't appraise - then he's doing his clients a disservice, because if it DOES appraise for the contract price, the buyers are stuck paying that amount!

I've had a lot of success with my appraiser booklets - it just makes sense to be prepared!

Jennifer - I discuss this with my sellers the importance of appraisals. I do not know of many buyers who want to pay over the appraisal.

Buyers and Sellers set the market the appraiser just gives his opinion based on data to justify it to the lender.. these days everything is upside down and somehow because the lenders are being pushed and bullied by the new regs and their investors and being audited and then found to have done something wrong for completely stupid reasons...everyone is being pushed into a corner and they have to scratch to get out...

I dont have the answers but I will continue to price my listings based on the market, the condition of the property the location and the time frame and motivation or reasons of the seller to sell.. we can only do what we can do but we have to keep doing the right thing as we know it...even though our government is in truth trying to regulate us to a grinding halt.

Hi Jennifer. Very interesting.

I just had this experience. My listing will sell more than the appraised value...

I think your advice is spot on.

Ken

Jennifer - this goes hand in hand with a post I read the other day about not taking overpriced listings. One side of the argument was to not take them, and the other was to take them and work the seller down later. Lots of agents fulfill Seller's expectations but testing the market at the higher price. I can't say it's a bad strategy - and I feel the same way about this too!

I'm glad you linked to your "Any Idiot" post on how to price a home because I think these two issues are completely intertwined.

The key is in pricing it properly - including the "je ne sais quoi" price components.

If however, a Realtor is willing to take an overpriced listing for whatever reason, he had darn well better make sure that the seller understands about appraisals. If a properly prepared CMA (plus Realtor's market knowledge) doesn't support the listed price, it's a reasonable bet that an appraisal won't support that price either so it's better, imo, to prepare the client for that eventuality as early in the game as you can.

I'll even go so far as to say that explaining about appraisals and the new guidelines could help your seller to understand the importance of pricing it properly instead of basing the price on those pesky irrelevancies like "what he wants, needs, paid or owes".

Your point that dealing with it if and when it comes up is a good one - it's always possible to lower the price in the death throes of losing a deal. You can't really bring the price up if you find you could have made more money though.

Hi Jennifer

I do agree with you to some point,but I'll be nervous to put my seller through that process. I want to make sure that their is no money left on the table, but I also want to make sure that my seller's close at the end. I wouldn't want my seller's emotion to be upsetting knowing that their home is going to be sold, but because of the appraisal we loose the buyer and then we have to re-list the property again.

During my listing presentation, I make sure that I explain to the seller about the Bank Appraisal and then I present to them what's on the market and then we come to an agreeable price. The property sometimes sells at the listed price and thank God that the appraisals comes in with the same price.

have to agree with you here, our job isn't to be all of the pieces of the real estate puzzle...just the most visible and important from a momentum standpoint. in order for "us" to recover from the current or recent bottom we can't bend to the perceived desires of the banks, underwriters and appraisers whom in my opinion are looking back towards the bottom to calculate today values. in pricing new listings I feel it important to share my recent experiences with low appraisals as a recurring theme to prepare the sellers in advance while still advocating for top dollar.

I am in total agreement with you and glad that I read this before my listing appointment in an hour. My Seller will fall into this category -- amazing home improvements that warrant a higher price than the neighborhood average. My plan is to DOCUMENT everything for the appraiser and meet him/her personally when the time comes.

Great timing for me to read this!! Thank you for a great post!

Jennifer, I believe that you are correct as long as you set the expectations with your sellers that they might have to reduce their price if the appraisal comes in low. It also never hurts to put it in writing so taht you can remind them later of the discussion...

Larry & others - I agree - and I should have mentioned that it might be nice to have the discussion with the sellers about the possibilities, even if you aren't worried about the potential of under-appraising. I have had had that conversation - something like "this price is higher than the comparables and there's a possibility that an appraiser might not approve it. If that happens, be aware that you might be required to come off your price. I hope it doesn't, and I'll do my best, but in this crazy market, you never know..."

Lori - I'm so superstitious about appraisals. I MUST be there!!! Besides, if I'm not and something goes wrong, y'think my seller might think it's my fault for not attending??

Andy - agreed. And it makes us look a bit wimpy to our sellers, too.

Donna - I know, I know. It's an imperfect world... so which side is best to err on???

Rick - that's EXACTLY what I was trying to say. I'd rather have to come off a price than try to raise it, fer sure! Good luck tonight!

Christianne - I think it's almost criminal to take an overpriced listing with the intention of "beating the seller down" later. It's so incredibly unprofessional.

Ken - So, whatcha' gonna do 'bout it?

Debra - Yep - that's the best we can do...

Sharon - I haven't seen any lately, although I have seen it in the past during boom times.

Melissa - That is a fantastic idea. I usually come to appraisals with my handy-dandy upgrade list in hand, but your idea blows mine away. Not only does it impress the appraiser, but I'll bet the sellers are pretty tickled too.

Jennifer -

On the surface most sellers want the best price and the shortest amount of timem but each seller will have a priority. I'm sure you discuss with your seller's their priorities and their situation...the sellers can decide between their need to be elsewhere by the end of [month] or pricing their house $X above appraisal value due.
If the seller's priority is the possibility of more $$ vs the risk of delaying a closing, the seller may be okay to list higher...if the seller needs to close and move with an absolute deadline, the seller may be more comfortable with a list price that won't have issues appraising so they have a clean closing and can move quickly.

Just an added note...an appraiser friend of mine just sent along the results of an NAR survey on the impact of HVCC on appraisals and consumers. Interesting reading...

http://www.realtor.org/HVCC

I agree Jennifer. I take pride in pricing a property for sale. So much so that I have walked away from listings when the seller insisted that the home be priced way above the market. And you know what?; the house was still sitting until it expired after another agent listed it at the sellers price.

The operative phrase is -- price it right the first time. Easy to say sometimes hard to do.

And the appraisal? You're right I'll deal with that when and if I need to.

I like your approach Jennifer. Good conversation. All good points.

The steps taken to complete a CMA or an appraisal are relatively the same. So if the property is priced correctly, in realistic terms, and based on current market conditions, the appraisal should be a non-issue. "Should" is the key word. At the very least we should be pretty close.

The problem exists when uneducated, inexperienced, and geographically incompetent people fill the ranks on both sides of the industry. The best agent in the world could never price in agreement with an inexperienced appraiser that lacks knowledge of the area much like I have a hard time appraising high enough on a home where the agent used comps from three years ago in their CMA and just happened to find a buyer from out of state!

I also must add that many of the problems with appraisals, may not be the appraisers fault. Lenders have put so much pressure on appraisers to abide by ridiculous guidelines which may push values down. Appraisers are no longer allowed to develop their own opinions anymore much like you do when pricing the property. It used to be that some flexibility could be exercised to match our opinions and interpretations of the market, but not as much anymore. What if you had constraints such as only sales within three months and within 1/2 mile to develop a listing price regardless if they are comparable or even "arm's length". I know what you are thinking, in some areas that would be totally ridiculous or even impossible, but welcome to the wonderful world of the appraiser.

I still believe in pricing a property within about 2% of its value and letting the buyers negotiate some.

Jennifer - I agree with you, to a point. We should not try to "outsmart" the appraisers by pricing the house where we "think" it will appraise at, but use the relevant comps to price the property. However, I do think that one way to avoid that issue altogether is for the seller to have an appraisal done at the time of the listing. You can probably guess how many times I've had people tell me that they wanted so much for their house, based on an appraisal done for refinancing purposes, over 6 months prior to attempting to place it on the market. It was a point I tried to make in Negating the Twin Evils Of Appraisals and Home Inspections.

Jennifer, There is nothing wrong with your approach as long as the sellers understand that the appraisal may be an issue AND they put it in writing. Seller have short memories and nothing can blow a deal quicker than a low appraisal.

I've gotten scolded in the past for arguing the point that appraisers and real estate agents have very different roles in the pricing pickle... but I still think I'm right (go figure). I think real estate agents (good ones anyway) are far better at pricing a home for market than an appraiser is, which is no disdain toward appraisers. They have a job to do and we have a job to do. Those jobs are different. I'll bet you'll see a blog post from me on this soon...

Jennifer:

I applaud you for sticking to your principles - a property is worth whatever a buyer and seller agree to. An appraisal is an opinion of value at a point in time for a particular purpose (in this case a mortgage finance transaction) which represents the MOST LIKELY price a property will sell for. What a property is worth to one person is not necessarily what it is worth to someone else - they just can't borrow money to set a price above market value.

@ Ben Smith (#32) - I have seen some of the constraints that you mention - and I have at times disregarded those constraints (and explained why) or declined the appraisal order, as such conditions would cause misleading results.

Jennifer,

This information makes me believe we can have something to say about the result of the appraisal. But what if the appraiser wants nothing to do with you? And claims he know the area well and doesn't need your help? AND uses distressed run down foreclosures in the comps? How can you fight that before the trainwreck happens? I lose listings because sellers don't wnat to be compared to the vacant falling apart properties here in South Florida.

Great listing tip . . . and as long as the sellers know this is the pricing objective . . . and if they're okay with reducing or renegotiaing if the appraisals don't come out right, it's a no harm, no foul.

I've listed a property that the seller had just gotten an appraisal on it. I felt that I knew the market better than the appriaser and listed the house for 50% more than the appraisal price. Sold it for my full list price. Everything went fine.

Jennifer, We are operating under the new appraisal guidelines. The appraisers come out of a pool. The bank has no idea who will be up in the rotation nor do they have any control. Two recent appraisers came from other counties - not local. We are not permitted to give them comps nor talk to them. There is no such thing as a second appraisal in my market anymore.

From what other agents in my area tell me they are experiencing the same problems.

I think expectation setting is key and proactively telling sellers what "may" happen can diffuse or reduce the emotions when it has already been put into context.

Few buyers will pay more than appraisal value for a home.

It seems to me that fair market value is what an able and willing buyer will pay an able and willing seller, but this is not always the way it works.

In my market, where there are multiple offers on every home, we are countering some buyers back to see if they are willing to waive their appraisal contingency. If they are, then their offer is the one that will most likely be selected, and were all good to go. Easy solution to the problem of appraisals.

JUL

2009

Andrew - that's very interesting. In CT a buyer cannot waive the appraisal. It is a requirement of the lender - unless they are putting down more than 20%. So unless they waive they're mortgage contingency, the appraisal is mandatory. If it doesn't come in at sale price, the lender won't grant the mortgage.

due to the finger pointing of the bubble, many of our local appraisers are uberconservative now when appraising, so it has become quite normal for properties to appriase less than an offer. It is something we have to unfortunatley deal with on a frequent basis...

Jennifer,

Whats interesting in my area is that I've been researching different properties that were my listings and after the sale I've noticed that the appraised value is not always close to the market or assessed value our property appraisers are estimating them at. For example...I just closed on a listing last week...the sale was originally at 295K..buyers put 20% down. The property appraised for 280K...the buyers were given 2500 back towards their closing costs but that was originally 12k for closing costs...after 5 days of renegotiating it closed at 280K gross yet technically it was 277,500 net. I then looked up the reported sale at the 280K and the county appraiser shows the market value at 260K...go figure...and now the new taxes will be at 280k instead of 260K. Although I try to get the best possible price for my clients...my last two deals fell short on the appriasals so I'm coming to the conclusion that its becoming more difficult for us to price a property and then have it appriase. The least issues is when there is more than 20% down. FHA is even worse over here but they do close if you can come to the agreement at the new price. The sellers have to be aware that we can ask anything we want but if it doens't appraise and they walk.....then they take the chance of having the next deal come in even lower because the values here are still decreasing...maybe not as much as before but they are. Getting an independent appraisal first or a second one is irrelavant as the lender for the buyers will not accept a private appraisal. They should let us apprase the properties first so this way there isn't an issue.

Rick - I think Andrew means that the buyer will cough up the additional money if the appraisal comes in low and he has to make up the difference.

Andrew - Isn't that funny - here we are in a recession, using boom-time strategies!

Christine - Yeah, it really should be that simple.

Chris - Yep, agreed.

Bonnie - That may be true, and the rules are changing all the time, of course. But, most problems ARE solvable... but the darned solutions keep changing!

Judi - Whew! Good for you. I do think real estate agents have a far better understanding of local markets than appraisers do.

Carla - well, it's not as if they're going to be happy about it, but if they understand the "risk" upfront at least they won't be AS upset!

Appraisals have become a 'sticky wicket' in the process with all the new rules guaranteed to maintain neutrality. Who is doing that appraisal and do they really understand the nuances of your local market?

I have always been proud of my ability to price accuratly (quick sale with good return to the seller), but with prices spiking up and down, you never know what comp is going to settle and mess up your numbers.

I agree wholeheartedly that you need to price for the market you are in based on the features and quality of the home...problems will have to be dealt with later. Great post! Congratulations on the feature!!!

Well written article. Makes sense, though if I were a seller, my approach might be to price where I thought we were going to end up, and be able to do a deal as quickly as possible. BTW, I put a link to this article on Twitter.

What is unfortunate in this market right now, is the lenders (in most FHA scenarios) cannot choose their appraisers anymore, due to HVCC guidelines. Now..there is the 3rd party...This leads to out-of-area appraisers, not understanding specific geographical markets, desk reviews of these appraisals (very commonplace now!), etc..etc.........All adding MUCH MUCH more additional time to the process!! And..not to mention the cost of these appraisals to the buyer client, and..they are not transferrable to another lender!! THIS REGULATION, so to speak...has NOT helped, but HINDER...HOPE WE CAN GET to a better solution soon!!

Yes..I am a believer in Market Analysis in determining fair pricing...How is it that the appraisers can be so "OFF" lately?

Jennifer - I'd certainly agree. Having educated your seller of the possibility (I've had that converstion more than once with a seller, and a buyer for that matter.....you know, the appraisal industry - and what to expect), when it comes time to face the music, you and your client is prepared to "deal with that when and if the problem arises".

By the way, having been through there a few times during my Maxwekk AFB days ('92-97) is Dothan still that nice, convenient stop on the way down to the Florida coast?

As an appraiser and also a past Realtor, I do not believe in UNDER pricing a home either. But it should be priced or should I say listed according to the market or it will sit on the market period. If the seller does not care how long it sits and the Realtor does not care that they are spending more money marketing an OVER priced home then everything is fine.

Remember one thing the appraised value is what we expect to see on the sales contract, therefore the listing price is higher to take into consideration the typical list to sales price ratio.

The parties involved do have recourse to rebut the appraisal if they feel it is flawed. If the appraiser lives 40-60 miles from the property in question and has not performed MANY appraisals in the area of the subject property then you have basis for saying hey, this appraiser has no clue about this area. Ideally the appraiser should live and work in the same area as the subject, but we all know this does not happen. So I agree deal with the problem IF it comes up, but be prepared for a mess or a deal that dies on the vine. Just so you know, if the property has all those nice extras that you discuss in your blog they ARE taken into consideration and given value, how much, well that certainly depends!

I think Realtors should list homes that will sell within a reasonable time for their market and within the range that homes that are similar are selling for. Not Under, Not Over, but AT market. Remember the competition most of all, what is your house going to be compared against by other BUYERS, does your home have a chance against the competition.

HVCC has caused lots of issues no question, but one think I do like about it...We are finally left alone to properly appraise the property without pressure from Banks, Realtors, Buyers, Sellers to REACH or HIT a magic number.l

If an appraiser knows how to appraise, they do not need a number, they can figure it out all on their own....Again, you must be dealing with an appraiser who knows the area and knows the principles of substitution and knows how to ANALYZE the market now more than ever.

Good post for discussion, for sure!

Mary Thompson

I agree to a point, but there is such a thing as over improvement for the neighborhood and/or sellers being out of touch with the market. I just had a deal almost fall through over this very thing. The home had some nice updates and was in good condition but was smaller than other homes in the area. There were absolutely NO comparables sales that even came close the supporting the original list price. Many of the comparable homes had similar updates as well as more square footage.

My buyers were well aware of the possibility that the home might very well not appraise but if it did they could be assured that it was worth the negotiated contract price. I hate to say that I don't believe the list agent had the same "come to Jesus" discussion with their sellers. Needless to say the home did not appraise and I believe it was a fair appraisal (I know shocking), the sellers blew a gasket, the list agent tried to blame me and "my appraiser" for robbing her client his due. I never want a seller not to get what they deserve but I also don't want my buyer to overpay because they fall in love with relatively inexpensive cosmetic updates either.

Clearly discussing current market conditions, presenting all the data and explaining the different scenarios is vital to not only establishing credibility with your clients, setting appropriate expectations and allowing them to make informed decisions but it also helps prevent grief and agony for the parties on the opposite side of the deal :)

Jennifer,

If a listing is premium priced with the expectation( and roll of the dice) that the appraisal will be satisfactory does not make sense to me. Buyers are educated and are informed on market value in their desired locations of interest. Premium(Over) pricing a listing will reduce exposure and activity on that home. As days on market add up the perceived value of the home will diminish I don't see this approach as being beneficial to the seller but "More power to you" if it works

RE/MAX Allegiance, Greater Metro D.C. Steve Wisemiller,CRS www.soldbysteve.net

Great post! One clear distinction I make, as an appraiser, is the difference between price and value. I have had many occasions where two parties agree on the price of a property - and the value may be something completely different.

I have had occasions where the Realtor priced the home too low, and the data clearly showed the value of the home to be higher (and in today's world this doesn't happen as often - but has happened on occasion).

Most cases, however, are the scenarios your lay out. The price of the home reflects the seller's anticipation of value. The price may even be agreeable to the buyer - but the value may be lower. So yes, you can lower the price, you can have the buyer come with the extra cash, or even get another appraisal.

On that note - if you are inclined to get a second opinion appraisal, be sure to hire a quality appraiser you can trust. There certainly are "form fillers" and "number hitters" in our market. The "number hitters" often got that sales price during the boom...but are now running scared and hiding from underwriter reviews. So these tend to have "overly conservative" figures for no reason.

I perform reviews on many local appraisers. I cannot tell you how many pull numbers out of the air with no viable justification! These are often appraisers who are more than 100 miles from the subject property. They don't really now the market. I can always tell when I see the sales at $200 per sf, and the adjustments for the gross living area are at $20 per sf. Really? GLA contributes only 10% of the total sales price? C'mon!

But there are QUALITY appraisers out there too - with years of experience who actually measure things like substitution, contribution, market statistics, etc. THESE are the appraiser you want to hire for that second appraisal! No sense messing around with another form filler - look for quality, experience, and don't be afraid to ask "how did you come up with that adjustment?"

One clear sign that an appraiser is just filling the form is when they cannot in a simple sentence, explain to you how adjustments are derived in a market. I have often answered these simple questions for nervous sellers - only to see them reassured that they would get a fair dealing. Amazing to see people's guard go down once they know you are a professional!

Great post!

Ok everyone...as a real estate agent and an appraiser I must give my 2 cents. First of all selling real estate is my full-time job and working as an appraisal trainee is my part-time job (but it's my husband's business so I've been around it for a long time).

I completely agree about getting the highest price possible for my clients however, if there are no sales to support that value then it is a waste of everyone's time. An appraisal is simply an opinion of value based on the market. Appraiser's don't set the value (as so many think); the market sets the market. You can certainly have a second or even a third appraisal done but I can tell you not one of those values will be identical. Coming from a family of appraisers we can all appraise the same home and come up with a different value because it is an opinion...one that MUST be backed my complete data. Sure realtors get upset when a value doesn't meet the sale price but do not point the finger at appraisers. Appraisers are the ones that must answer to the underwriters and defend every single adjustment. Up until the last year appraisers pulled sales from the last 12 months but now lenders want sales within the last 6 months and at least 2 must be within the last 90 days. In addition to that lenders are also asking for pending sales and active sales. The days of a straight forward appraisal are LONG GONE!!! With the new HVCC in effect and the new Market Conditions form that must be supplied with EVERY appraisal the appraisal business has gotten much more difficult and time consuming.

I get very frustrated by real estate agents and appraisers. I walk into a real estate class and they are always jumping on the appraisers. I walk into an appraisal class and they all think real estate agents are idiots. We are on the same side and really need to work together. Appraisers need agents to sell homes...otherwise they have no business since an appraisal is based on similar sales in the area. And without appraisers loans for those sales would not take place.

EVERYONE involved in the real estate business (agents, appraisers, lenders, etc) need to work together and everyone needs to stop playing the "blame" game. It is going to take everyone to turn this market around.

Jennifer:

Good post. Last time I checked, Listing Agent’s responsibility is to get the best possible deal for their client that is also acceptable to a qualified buyer. We then hope the appraiser isn’t from out-of-the-area. It is not our job to fix or accommodate a currently mis-firing part of the lending process. Of course as Listing Agents, we need to attempt to meet the appraiser (on time), bring good comps and provide any local insight we may have.

I agree that you have to price the property based on the comparable sales, keeping in mind that appraisers are only going to use the MOST recent comps. If you do that correctly your price and the appraisers price SHOULD be about the same.

What we are finding in my market is that long term, experienced agents consider that they are "LUCKY" when the appraisal comes in at or close to the selling price. Some appraisals do, even when it is difficult to find good comparbles. Some properties are being appraised way below the selling price, even when there are multiple good comps to support the number. We are hearing that the appraisals are being cut because the statistics show that prices in the neighborhood are declining. So, if you price to the appraisal, your sales price can still be cut to an even lower number.

We have no way to out guess the appraisers, and not much of a way to challege them after the fact. We have to continues to be professional in our approach, and be able to support our pricing with comparable sales.

If the home is priced off recent solds in that area, there should be no problem with the appraisal, since appraisers use recent solds in there evaluation too.

Now with HVCC in place, I have found many aprpaisers are being completed by out of area appraisers who are not as experinced in the area. To make matters worse, HVCC prohibits a Lender from ordering a new appraisal just because they don't agree with the first appraisal if it came in low.

It is an interesting concept...I won't even pretend to understand how appraisals are working these days...I actually had one a couple of months ago that came in to high....because of this the bank who was acting as a trustee as it was an estate and there are 5 kids would not accept our offer. And the Realtor and the bank both thought the list price was to high and wanted to accept our offer. It is crazy!!! Had another that was a short sale and we offered full price of $119,900 and asked for closign costs...they wouldn't pay closing costs but said the offer was to high (it really wasn't to high at all....was under value actually....Realtor had 3 back up offers that were very similar to our!!!????!!!) and ultimately we got the property for $102k and she paid her own closing costs. So as I said....i don't understand the rationale or thinking on appraisals any more! LOL

Deborah Byron-Leffler

Nampa Idaho

Jennifer,

I have to disagree with you for one major reason. The SELLER makes the final decision as to the listing price of the home. I feel that my job, as their agent, is to provide as much information as possible about the market, comparable sales, their active competition, the risks of overpricing and how appraisers determine value. Then I counsel the sellers based on their needs and goals as to how I think they should position their property in the market to get the most out of it and still meet all their goals. Sometimes, getting the absolute most money out of the property is not their top priority. But, at the end of the day, the final decision on price rests with the home owner. Will I still take a listing if the client has overpriced, in my opinion? Most likely, yes. But if the price is just outrageous, then I will have to pass and wait for it to expire.

It's all good as long as a price is included with a listing. I get really frustrated when I'm looking for RE and there's no price with the listing. When that happens I don't even F/U on it as a rule unless it's in an area I'm really interested in. In California you can't always go by the appraisal in several geographical area especially long the coast. It's all about location.

Jennifer - We are existing in such interesting times! In a market where we are hoping for recovery, we have appraisers actually assisting in driving prices downward. These sales act as comps that affect the entire market. The concept of the "willing seller-willing buyer" is apparently on the decline.

Great article... It appears you know your market and I'm glad to see that someone is brave with the current Real Estate market. Thanks for sharing

As longer as the seller is educated about all the possible scenerios, I agree.

I am having this very issue this week, appraisal came in way low, comps used were the low end of sales, where there were comps to match the price of our contract,but not used? We had to go through alot of loops but the appraisal company is reconsidering the comps, from our requests to the mtg lender, and we wait. and wait.

The 3rd party system sounds good on paper, but in reality they are getting business, without having to earn the reputation, from good solid work.

we are a 2nd home market, river and mtn properties, and the appraisor is on a approved list and not even in our mls, or the same type of housing market! so who to go to with these issues?

difficult to price a home according to the sold comps, and its value when the appraisors are on this list, even if they dont know the true value of a area, or river access etc.

nice post Jennifer, thanks for sharing! good info.

I feel like lately, what a house will appraise at is almost no more reliable than a roll of the dice. So go for it!

If this is a nice high end home and you can get a large down payment the appraisal may not matter. Make sure the buyer understands they may have to pay over appraised value.

Hello Everyone,

I must say that these comments are not only on the mark, but extremely professional in nature. I have been appraising real estate for 25 years, working as a Chief Appraiser during the last banking crisis and presenting a Market Analyst producing reports on the real estate market. I would like to add some comments that have been stated to some degree by everyone:

1. We must accept the fact that there are bad appraisers, bad real estate agents and bad loan officers. With that in mind, we should not classify all in the industry as being incompetent or horrible at what they do. Well over 90% of those in the industry are professionals. Time weeds out the bad ones.

2. The Real Estate Agent's job is to get the highest price for the seller (or if representing a buyer, the best price for the buyer). I have stated this for 25 years. The agent is on the leading edge of sales activity, having access to new listing, pending sales and closed sales in advance of the appraiser. If the agent is not seeking the best price for the seller, the agent is not doing the right job for the client. And let's not forget, your commission is also affected as it should be.

3. The appraiser should be a safety value. In good times real estate agents where happy that the appraiser agreed with the sale price; and in bad times the opposite is the case. Appraisers tend to trail the market because of regulatory constraints and the most important of all LACK OF DATA. Lorene is the only commentary that I saw that referred to Same Data. Appraisers have access to so much data today, but most of that data does not place the property being appraised in relative terms to the overall market or sales. Computer assisted Mass Appraisal or AVM's remove the subjectivity of analysis, but are biased based on the algorithms employed. Bad data leads to bad results.

Market value is what a willing buyer and a will seller agree to. The appraiser's job is to research the entire market, study that market and produce an opinion regarding the market and sale price. In over 90% of the cases this is done with little difficulty, but appraisers can be influenced. If two individuals agree on a price, say $300,000 for a 2,000 square foot home; the appraiser must determine by examining the entire market if that price is reasonable and supportive. It is the appraisers job to determine this, not the banks conservative underwriting. If the appraiser can reasonably conclude the value is reasonable, I personally do not think the appraiser should come in with an appraisal that is different than the purchase price.

What is reasonable? I would say no more than 5% of the purchase price. There simply are motivations we cannot measure. Appraisers are not forecasters, they are reporters. Much progress is being made for appraisers to gain access to statistical reports and appraisers need to spend resources to gain knowledge. Appraisers need to be educated into the overall market, not just one property at a time. Not every house is the best on the block, or best in the neighborhood.

Sellers, and more importantly buyers are more educated today than 20 years ago. And most importantly the purchase is a negotiation.

4. Loan Officers or better stated, Loan Requirements. I am appalled that an appraisal only has three sales and three listings as a minimum requirement. Why would an appraiser do more than the minimum? Many commentators referenced unique properties as being an issue and the lack of sales. We can go on and on about this issue. Simple fact is the loan officer needs to understand the overall market for the property being appraised. How can you rely on three sales from the past six months for a waterfront property, or house over 3,000 square feet. Let's face it loan requirements and overall mortgage standards are based on the average or typical property; not the atypical.

We all need to recognize that the new regulations are a quick band aide to a bigger problem. Just like in the late 80"s, FIRREA IX was created to put in place regulations to prevent banking problems that we are seeing today. Regulations are only good if monitored. Think of it this way, most states prohibit people from driving and talking on a cell phone, it must be hands free. So how many times a day do you pass someone talking on a cell phone and how many times have you done it? If we do not enforce laws and regulations they are meaningless and will be abused.

In the past how many times did the appraiser hurt you and help you? Markets change, but the blame game never does. I have worked with many real estate agents who know their market and are very professional. I have also been exposed to ones who are not. I have reviewed thousands of appraisals, and ask where is Enforcement? But what has disturbed me more than anything is the unwillingness or resistance to educate ones' self with better information. We are not all salespeople or statisticians, but we need to understand that the future will make more information and data available for use. Understanding how to use it can be the difference between getting the best price for your seller.

We all need to work together.

Jennifer, I agree, And it is also time for the listing agents to start questioning the appraisers when they call for an appointment to see the property. Listing agents should be asking out of area appraisers if they are familiar with the area, how many appraisals have they done in this area recently and are they qualified to perform the appraisal on this property. If they are not familiar with the area the agent can refuse to meet them and call the buyer's agent to have an appraiser that knows the area assigned. At least this way you know you have a fair chance of an accurate appraisal.

Jennifer,

You point out a challenge. I think you owe it to you client to get top dollar. If you don't push the limits, then prices will never increase.

Almost always, you should be pushing the limits.

In Toronto's hot neighbourhoods, multiple offers are commonplace, and the appraisers would lag behind.

Brian

I try to prepare my sellers/buyers for the appraisal results. We are seeing so many crazy appraisals that I try to fore-warn it may come up.

Around 30% of the housing stock is owned free and clear. So certain percentage of those sellers can potentially do owner-finance.

The rest should do wraps with their attorneys' blessings. In both situations the valuations will be high enough to balance the devestation which is brought on real estate by banks; through REOs, short sales, and even through regular sales.

As far as AMC's, my residential clients never had to pay more than $500 for appraisals. I just had an AMC charging one of clients $800 for a "rush" job. Ouch!

Hi Jennifer,

I just concluded a most difficult transaction, due in large part to the appraisal and HVCC. As a result, an appraiser brought in a ridiculous value. I spent several hours finding more relevant comps and was successful in pushing the value up $50,000. Despite this, my seller had to reduce his price by an additional $25,000 and carry back $25,000 and the buyer came in with an additional $50,000 out of pocket. In this scenario I represented both parties and it was precarious at best. I always try to get my seller the most money but in this case, even though buyer and seller were in agreement of the higher value, the appraisal ruled the day; but mad skills prevailed in the end!

100% totally agree - as agents we are out there in the field we know the market. For 20 plus years I watched appraisers simply match the sales price of the purchase agreement, then came the re-fi business and they over appraised matching only what the mortgage rep or owner wanted. The problem is neither knew the "real" market.

For the market to stabilize again we need agents pricing properties according to the "market" and not worrying about what an appraiser thinks, then letting the "Market" (buyers) tell us what the homes is worth. Appraisals have a purpose but we as agents see the inside of homes, we know what they need, we know what buyers are saying - something appraisers Never see or do.

As an appraiser and a realtor, I understand where you are coming from. Keep up the good work.

Whoa - when I wrote this blog, I didn't intend to start a new p*ssing contest between appraisers and real estate agents, although I'm almost always up for a good debate! Some FANTASTIC points made here, by the way.

My original goal in writing the blog was to caution agents against using the excuse of a potential appraisal when discussing price with a seller. We should be pricing our listings properly, according to our professional opinions of the house will sell for, knowing that it's possible we'll have to fight for that price down the road. But pro-actively warding off a "fight" that may not happen is probably not in the best interest of our client.

That's what I was trying to say.

But carry on with the debate - last summer I was involved in a rather spirited discussion between "us" and "them" - I'll see if I can find the link - it was great fun!

Hi, Jennifer,

Thanks for a great blog! Like you, I price my listings right and as they should be, for the benefit of my client. I don't worry about the appraisals, because, if I do my job right, the home should appraise right. My clients have been pleased and that makes us both feel good.

Recently, there have been some problems with VA appraisals coming in lower than expected and challenges have been made, with mixed results. With no real explanation from the appraisers as to why the appraisals are coming in low, the challenge for us is to sharpen our skills and be more aware of the current atmosphere. I'm not sure if this is just a passing phase or a real shift in the VA appraisers for a reason. Anyone have an answer to this?

I've had several agents in my area come to me to do "pre listing" appraisals. One agent had 3 deals fall through because the houses would not appraise. It's also a good indicator for the seller, a "wake up call" so they know how much the house is really worth. I do the appraisal just like I would do it for the bank, so they have a good idea on where it will come in. It's up to the agent then to price the home.

I think it's good when the agent meets me at the door with comps, but most of the time they are comparables that I can't use. The banks have specific guidelines-- comps have to be within a mile radius, within 100 sq. ft. of living space, etc. I don't know how many times I've shown up to do an appraisal, the agent hands me comps that are 1,000 sq. feet difference, and 2 miles away! No wonder the house won't appraise. If those are the only comps available, that's where the adjustments come in. But, usually it's because the closer comps are lower in price and the agent doesn't want to use them. I understand their logic, but unfortunately, I operate under the bank's guidelines, and could lose my license by discounting the other properties. Unfortunately, when the appraisal goes into review and underwriting, the appraiser is the one called to the carpet to explain "why" these neighborhood comps weren't used.

Lately, it's the appraiser's fault too, that all of these appraisals "are too low". I find this is a strange phenomenon. All the appraisals can't be bad, so what is happening? I haven't changed the way I do appraisals. The market is changing and I think it's a bigger issue than just "low appraisals". We have to all work together, why all the finger pointing? Realtors can still talk to appraisers, so call me! Ask me if you think the property will appraise!

I totally agree with you, although i sometimes tell my sellers about the fact that the appraisal might come in too low. If I address problems before they happen I have a better chance of the seller not geting surprised and overreacting if ad when it happens.

We're all trying to accomplish the same goal aren't we? I would think the appraiser (one person's opinion) would rely on the same market data as we all do. Appraisers are there for the bank's protection, and rightfully so. If it were my money on the line, I would want my appraisals to come in lower than market value to protect my investment. As a real estate Broker, our job is to get top dollar!

Jennifer, sometimes a home can be priced right and for whatever reason the appraisal comes in a bit short and can be dealt with after the fact. but it sounds like your going in knowing the propertyis overpriced and will have appraisal problems, that is just wrong and while it may get you the listing it is still unfair to your seller. Educate your sellers on the realities of the market, their emotions do not add value to the home. Unless you have a lot of unknowing cash buyers it may be time for a new strategy

I totally agree! And I love the comments...this is better than a CE class (minus the free coffee!) Thank you for opening up this discussion. : )

Great topic and interesting ideas from everyone. Thanks for the post.

wow..i am in the middle of two right now, one buy side, one sell side, both lakeside! There are no comps in the price range, and in the sq ft etc range the comps are reo. When counseling the buyers, I have had to tell them there is a huge possibility they will not see an appraisal as high as their offer, but thankfully they do have enough down payment to get just below my anticipated appraisal with the comps I can muster. I also used these stats to clarify to the seller why this offer is stronger, as his listing agent should see the same sales data, and realize that only someone with a 20% downpayment will clear a very possible road block to the sales closing. I believe that every party to the transaction would agree that the offer is on the mark, the listing price very close to on the mark..but there is just not the data out there for the appraisor to prove it. Conventional loan.

On sell side, one of my active comps just pulled out and another just reduced 50K$, making my cma skewed a bit as they are within minutes of each other..and the selling stats areas above...we are holding our listing price, with the documentation for reasoning..but I hate what I feel is a wait and see position.

At first read, I wasn't sure, but you sold me!

I believe that one of the best resources for realtor's is an appraiser who is competent in their market. Realtors should have an active relationship with appraisers PRIOR to doing CMA's, Edward. You say that you wouldn't have a "baseline" if you listened to appraisers. WE should be your baseline!

Good appraisers with solid market knowledge can tell you pretty much what you should be marketing the home for. I offer such a service, in my Market Analysis Report that includes not only sales, but a multi-year market history and projected market reaction based on active listings and pending sales. This eliminates a reators time in doing CMA's if they don't want to.

I'm not saying that you need to start your listing where I think it will eventually go to. This is capitalism! "List high and Try", right? However, appraisers don't make a penny more if the home sells high or low so we are the ones who can give you an unbiased opinion. Wouldn't you rather know what an appraiser thinks before you stick your neck out to the client?

Hi Jennifer....

It depends on the situation.... I have been working in on complex where the prices are declining. The risks are there when you price too high. Many buyers in my area "walk" the minute the appraisal comes in high. If I'm dealing with a declining market - I've got a problem. I won't be able as much for them later as I can now...thus my concern. There are also condo complexes where banks are refusing to finance loans. This is a fire that could impact a couple of complexes where I list. So...I'm on the fence on this one. On single family homes - I'm with you - but on a sector that's showing real signs of big trouble...I'm not so sure.

Jennifer, great idea and you know what you are talking about don't you?

in your message you said I'd, I'm, I, I've or my 20 times. Does the seller want to

know about you or them?

Um, Ron, I'm not talking to my sellers here, am I?

Ruthmarie - I have not worked in a declining market, so I can't speak to that. Must be terribly frustrating though!

David - I don't think that appraisers and real estate agents have the same "goal" in mind when they are performing their duties, so no, I would not check with an appraiser about value before listing a house. But that's a blog for a different day probably! Thanks for your thoughts!

Victoria - you raise a good point - perhaps we should also be warning our buyers ahead of time that there may be appraisal issues and that they shouldn't panic if there are!

Sue - anytime, my friend. 3 Credits for YOU!

To the appraisers in the crowd... I have to ask... do you ever feel uncertain of the value you come up with? Pricing a home is not a science, and the "correct" price is a constantly moving target... I always wonder if I got it right. But I never hear appraisers saying that they are concerned with whether or not their analysis is correct...

Hi Jennifer - If only my crystal ball would stop fogging up!

No one is perfect but if we are analyzing the same data, skilled appraisers should come to a reasonably similar conclusion. (During appraisal reviews, I may ask the appraiser why this comp was selected or left out, did you pair sales to support the pool adjustment? etc.) But we all have a great respect for each others work if it is supported. It's very much like law.

I always feel confident of the value estimate once completed and hope I did a proper analysis but it is a "value estimate." New or missed data can certainly change the outcome. You have to understand that USPAP has a competency law. If an appraiser is in doubt of their conclusion, the law is violated. Hence, the appraiser either "gets competent" so they have little or no doubt or they are required by law to disclose that to the client and/or abort the assignment.

And, no dis Jennifer, but I don't really agree with you about the same goal. We are all professionals held to a higher public ethical standard and we should get values correct. Agreed, that some have more or less market appeal and appraisers need to take that into consideration also. It is our combined effort and responsibility to keep the real estate market stable over the long haul. ;)

Jennifer,

The roles of appraiser versus real estate broker come together in the basic use of data to formulate a value for real property, but that's where the similarity ends, in my opinion. I've taken the state-madated appraisal courses and have been an agent/broker for 25 years. The appraiser is tasked with reporting the sales "history" in the area, the properties that have sold recently while the agent is tasked with a much more difficult prospect, that of predicting what tomorrow will bring for the property. We are "market makers" using our real time marketing tools like web sites, to enhance the visibility of the property for sale, accentuate its best features, present financial options for the purchaser, basically build a virtual world of possibilities for the property and its new owners so a decision to buy or not to buy can be made. Low appraisals will plague us until the day lenders leave the arena and buyers go to an all cash buying process. In other words, forever. While the conflict between appraisers and brokers will always exist, it's actually a healthy, though maddening, check and balance system that needs to stay in place to keep the ship on course.

Hey, Jennifer. I see your point and it makes sense. Appraisals can be tricky topics. One of the contracts I've seen in this part of the country states that if a house doesn't appraise at or above contract price, the contract is void. Silly contract...

excellent take. I agree with you on this. I would say to address the appraisal issue if/when it comes up and get top dollar for your client, especially in this housing market.

Hello Jennifer, I agree with you that some homes may look like other comps on paper but, when you get inside you can instantly feel that their is more value in this home than the others. Thus, a higher marketing price is reasonable. Also, please don't forget the beloved Cash Buyers that know good value and often do pay for it. John

JUL

2009

Jennifer -

Great Post!

Although I generally agree with you, I think you have to understand the current reality of the market. Not only have prices fallen in many areas, but appraisers are having to build in future price trends to their appriasals.

I have seen appraisals not only using sold comps, but active and pending comps, indicating market trends, as well. In previously-price-stable areas where prices have only recently declined, appraisers will pick up on the trend and down-price their appraisals.

I am not saying you price low simply to satsify a possible lower appraiser. But you have to look into the future a bit and know it might be possible - hell, even likely - that a property when sold will underappraise, and advise the seller of this possibility, to avoid a fall-through later.

For many years, appraising a house at sale price was pretty automatic. Not so anymore, unfortunately.

I guess I am your 100th comment on this post, BTW! Congrats!

DEAN & DEAN'S TEAM CHICAGO

Wow ! Great post and a lot of insightful discussion. Jennifer, I agree with you. We need to price the property accordingly in the beginning and get the most we can for our sellers and deal with the appraisal later. The fact of the matter is is that it is so intangible and there can be so much uncertainty that we have no idea anyway of where the appraisal will be coming in for at that point we do not know who is going to do the appraisal. So, the good news is that I am always ready if an appraisal comes in low... I will deal with it as I have the data and I know the market inside and out. The fact of the matter is with all the properties that I have sold (both buyer and seller side) I think I only have had 2 appraisals come in lower than the sales price. One we worked out, the other was a shame as it scared the buyer and that appraisal report was one of the worst I have ever seen. I fought tooth and nail because that is what I do... Big picture, it has happened so seldom in my area. Knock on wood though, as we have about 10 or more deals under contract where the appraisal process has not begun... so will keep you posted ! Great discussion here !

I priced a property at $675K higher than what the market says. Received two offers for less, but still higher than what comps show.

Seller got an independent but local appraiser who came in at $630K.

Buyer wrote and seller accepted offer for $660K. Hurrah!

BUT: Buyer's lender's appraiser (also local) appraised property at $625K. Buyer still loves the place, decided to revise offer for $640K, $15K ABOVE his appraisal, but below offer.

Seller said no. Canceled escrow. Wants the $660K or nothing.

Totally agree. It doesn't matter what we do in my area lately nothing is appraising! Appraisers are so overly cautious they've gone braindead. Example in point - $2000 for a fireplace. Yeah right! But I feel that if a buyer thought the price was good in this 'I want a deal market' the hell with what the appraiser says! We'll get this all worked out because I'm still convinced they are really not a part of the transaction - just a big wrench that no one needs. What goes around comes around in life.

Wow Lyn! It sounds like you are a victim of the HVCC. Do you know what the HVCC is or are you braindead on what has happened over the last year?

Good appraisers don't intend to kill deals but Pacita's Lender's appraiser is typical of how the HVCC has screwed us all.

Jennifer,

Your blog sparked an interesting discussion. I totally agree with your opinion. It is my opinion that a property is worth what a willing and able buyer is willing to pay but when an appraisal comes in lower than the agreed upon price and the buyer is no longer able to purchase the property because he can't get enough financing we need to be looking for solutions.

We just closed a difficult sale: the property was well priced, on the golf course and in pristine condition and we had a willing and able buyer. However, the appraisal came in very low (about $160,000 lower). The lender used an out of area appraisal who was not familiar with the property or the area and used comps that really didn't compare with the property; an REO in bad condition and a short sale not even on the golf course or in the community. The sale was saved by a new appraisal and a buyer who understood the value of the property.

It just doesn't pay to overprice just to get the listing; both sellers and agents suffer.

AUG

2009

I love Melissa's idea of an Appraiser booklet! Beyond that, in this recent market, I've had sellers who became angry when their property didn't appraise and refuse to "give my property away" -- even though we had the "it might not appraise in this market" discussion. And I've seen buyers walk away when it didn't appraise on the basis that "you can't rust that agent or seller."

I think we're going to be dealing with the appraisal issue for some time to come because lenders are (understandably) "gun-shy." (In fact, sometimes I wonder why they are still accepting loan applications!) So while I don't want to leave $$ on the table, my goal is to sell the property -- and that means I have to take into account the probable appraised value.

Hence, my CMA is always carefully documented with an "adjustments" column for items where my seller's property was "better" or where it is "not as good." I use a local appraiser's "guidelines" for the plus and minus amounts, and so far have only had 1 of my listings under-appraise.

AUG

2009

Seems like a pre-listing appraisal, coupled with a pre-listing home inspection, would do wonders to help the agent know what s/he is trying to sell for the seller.

Thank you Russel! As spoken from an independant business consultant who doesn't have anything to gain.

AUG

2009

You are SO right! Thank you for sharing this - I have to admit, with the title of your post, I didn't expect your answer to be what it was!

AUG

2009

Jennifer,

I think your blog is great. I completely agree with you. As a real estate appraiser in the Virginia Beach area I run into this all the time. Currently we are seeing foreclosed properties being purchased by investors, renovated and re-sold below market. This is really affecting some markets in this area. If the investors would follow your train of thought not only would they help the market price, but they would put more money in their pocket and help the individual home owners maintain the values in their properties. I have started marketing to agents and investors a Pre-Pricing low cost appraisal to help maintain property values and make sure the home owner is getting what their house is truly worth.

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Jennifer Allan-Hagedorn, Author of Sell with Soul

Pensacola Beach, FL

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