Want to see a real estate professional or seller really sweat?
Mention the word APPRAISAL to them these days ...
As a Mortgage Banker and former professional Appraiser, I can tell you ... APPRAISALS are the number one reason loans are currently being scrutinized so closely by Lenders, Fannie Mae/Freddie Mac, and FHA ... and then eventually deemed "unacceptable files" for repurchase in the secondary market.
This concern regarding repurchase, accounts for many of the delays, analysis, and scrutiny by Underwriters of appraisals that real estate professionals are experiencing today.
How can an agent or broker help alleviate some of this angst?
Perhaps the most significant help is simply found in the provision of legitimate COMPARABLES (sold and closed, pending, and active) on every listing that has sold and is being appraised.
What is the definition of "Legitimate Comparable"?
"Legitimate Comparables" are found within a mile of the Subject Property. If a property such as this does not exist, a comparable could be utilized that is found within: Similar school districts, municipalities, or service districts ... with an attached explanation as to WHY the property is worth consideration.
In real estate markets deemed as "declining in value", comparables should be sold within the last 3 months. Stable markets are allowed use of comparables within the last 6 months.
In unusually slow or stable markets with limited market activity, provision of sold comparables found within the last 12 months can be utilized, but they should be accompanied by a study (Multiple Listing Service/MLSstatistics) on the "stability of values" in that particular market.
Consideration should be given to the "motivation" of every sold comparable.
Was the comparable bank owned and sold below market value? If so, provide the Appraiser the sales history of that comparable.
What do you conclude about the "accuracy or legitimacy" of the LAST sale? Is it fair to use now as a comparable? What if the property is just one block away from the Subject Property and sold just one month ago? Also, what if this property is identical to the Subject Property being appraised? What if nothing else has sold?
THIS is the dilemma facing Appraisers, Underwriters, and quality control personnel today. What do you say? Can the above sale be considered a good indication of market value?
Providing back-up statistics and information for properties is sometimes very hard work and very tedious, no doubt. But the MLS statistics must accompany every listing in every market for the Appraiser. The risk to your transaction is too high not to do so.
And, if possible, a Survey, Plat of Subdivision, or at minimum ... an estimate of the lot size for the property must be provided to the Appraiser.
For a CONDO or TOWNHOUSE: Agents should provide a Legal Description, Declarations or By-Laws of the Association from the Seller, and Contact Name and telephone number of any/all Association or Management Company to expedite the turn-around-time of the Appraisal Report.
Providing a 5-year history of the Subject Property being appraised (available from your local MLS or Public Records Data Base) is extremely helpful and will give the Appraiser a more complete understanding of how the Subject Property got to the Sales Price listed at a certain point in time.
Making sure that the Appraiser has a legible, signed, and complete copy of the Sales Contract is imperative. It should accompany the MLS Listing provided, as well as the Knowledge of Seller Concessions, Tax Bill, Survey/Subdivision Plat, MLS statistics of the area, and Subject Property's 5-year history. The inclusion of all this information and documentation should ensure you and the Seller a fair appraisal ... and that is what we seek and prize most in this difficult market.
Do NOT omit Short Sales, Foreclosures, and other distressed sales from your information submissions. Underwriters have access to more data than ever before. Pretending that these properties and transactions do not exist will not work in your favor. Appraisers will end-up having to explain WHY these sales were NOT considered within their report and that definitely slows the process down.
My last suggestion? Agents should educate and prepare their Sellers at Contract Acceptance ... and loan originators should support the theory ... "it ain't over 'til it's over" when speaking of appraisals and appraisal issues. They ARE a hurdle in today's lending approvals.
Appraisals, and their surrounding issues, do cause delays and transaction problems. Sellers need to be aware that this can happen and be prepared, so no one is taken by surprise or walking on eggshells.
Agents now work harder than ever to get properties sold. They CAN support and benefit their Seller's cause, as well as their own, by leaving nothing to chance. That means taking the time to provide the needed support information, materials, and documentation to the Appraiser that will clear much of the way towards appraisal/file approval.
With a more thorough understanding of what Appraisers are seeking and need to work-up a beneficial report ... and follow-through in providing that information ... agents, brokers, and loan originators can see more fluid and timely appraisal approvals and transaction stress levels come down.
Note: Gene Mundt held an Illinois appraising license for over 20+ years and was one of Chicagoland's most prolific and statistically accurate professional real estate Appraisers during that time.
This appraising background works hand-in-hand with his mortgage lending and financial planning expertise, and provides his customers and referral partners the complete and thorough lending services they need and desire.
Should you be in need of mortgage lending, financial planning, or credit repair information and services, please feel free to contact Gene. He will be happy to provide you the best and most complete assistance possible. Contact Gene at: gene@chicagobancorp.com.
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