One of the main reasons that buyers are not closing escrow these days is because of poor appraisals. We all hear about out-of-area appraisers who don't know the local market, use of distressed-sale properties to appraise a property that is not being sold under distress, and lack of comparable sales. The key to a good appraisal is using accurate comparable sales to arrive at an appropriate price for the property in question. So here are some appraisal tips below for agents and sellers that will help protect the contract sales price!
34% of Transactions are Affected by Bad Appraisals
According to data from NAR in November, 34% of Realtors reported a problem with an appraisal in the past 3 months (same as in September). Approximately 10% of the respondents reported that appraisal problems led to contract cancellation; about 10% reported a delay as a result of an appraisal problem, and almost 15% reported that the appraisal problems led to lower prices.
This is becoming a big concern for everyone in the industry, especially when one considers the amount of hours that goes into a transaction for it not to close! Moe Veissi, president of the association, said recently that poor appraising “in markets that are no longer in decline is the single most important” valuation obstacle “to seeing a real recovery.”
New HVCC Rules have Created Appraisal Problems
We all know that Fannie Mae initiated changes in appraisal guidelines in 2009 with their new appraisal rules under HVCC (Home Valuation Code of Conduct) that prohibit mortgage brokers or real estate agents from selecting the appraiser to perform an appraisal on a purchase or refinance transaction.
However, even though the loan officer can’t have direct contact with the appraiser, a real estate agent can. Here are some tips for real estate agents that will help move the appraisal process along smoothly, and ensure the appraiser has all the available information needed to complete an appraisal report that is NOT left up to chance. Because let's face it, most of these appraisers probably do not really care what the final value comes in at!
1. Meet the appraiser at the property.
The buyers or sellers real estate agent should always plan to meet the appraiser at the property to offer relevant comparable sales information. Make sure you are the contact to schedule the appraisal and then go meet the appraiser at the property and find out if he knows the area, what data is he using etc, so you can ensure that you are giving every chance for the appraised value to come in at the purchase price.
2. Improvement list provided to appraiser
If improvements have been made to the property, or there are features that don’t meet the eye, a list should be provided to the appraiser so they can include this in their final report.
3. Public records are often wrong
The public record is often wrong, particularly regarding square footage. Any documentation to justify a different number should be made available. According to current appraisal guidelines, square footage added without a building permit usually won’t get credit as usable square feet. This can lower the appraised value.
4. When there aren’t enough comps for past 3 months
When there aren’t comps for the past three months, it’s critical the appraiser is provided with the data upon which to make an accurate evaluation, particularly if the appraiser is unfamiliar with the local market.
Preparing Sellers and Homeowners for the Appraisal!
We all know that appraisals are one of the major hurdles for sellers, buyers and lenders these days on a transaction. So here are some tips to share with your sellers that will help move the appraisal process along smoothly, and will ensure the appraiser has all the available info needed to complete an appraisal report that is NOT left up to chance.
1. Compile a list of recent improvements. If possible, include before and after pictures, and copies of paid receipts for the work completed. If major updates were done, provide a detailed copy of the contractor’s bid.
2. Make sure all areas are accessible, including the attic, basement and crawl spaces. This includes the garage.
3. Provide HOA information. If the home is part of a homeowner’s association, include a copy of the fees paid and name and phone number of the association president or association administrator.
4. If the appraisal is for an FHA loan, then the area leading to the attic will have to be cleared and made accessible-the appraiser is required to make at least a head and shoulders inspection of the attic area.
5. Install carbon monoxide detectors. This is now CA law (see below) that carbon monoxide detectors are installed on each level on a home. If these are not installed when an appraiser shows up to do the appraisal, the lender will ask that these are installed in the home and will ask the appraiser to go back out to the home again to take a picture to verify they were installed. This can cost up to $175 for a re-inspection, so installing these before the appraiser shows up will save you this money.
6. Straighten up each room. Appraisers are required to photograph each room, and while it may not make a difference to them if the room is messy, there is an underwriter who may be less objective.
7.Finish up any projects. If there are any unfinished projects, make sure the seller completes them before the appraiser’s inspection.
8.If there are any easements, encroachments or any unusual covenants associated with the title, provide a copy to the appraiser.
9.Provide For Sale By Owner information. If the seller knows of any recent “For Sale By Owner” sales in the surrounding neighborhood that will help support the value, ask them if they are able to get additional information from the home buyers living there now.
REFINANCE TIP. If you know anyone that is looking to refinance soon or is in the process of refinancing, share these tips with them above too, so they have every chance of getting the best possible value outcome on their appraisal.
Doing the necessary homework upfront on transactions is key
It is key these days that the necessary home work is done upfront on transactions before the appraiser comes to the home. Remember, as appraisers now work for the lenders and have no relationship with any parties on the transaction anymore, unfortunately there will be appraisers that do not care what the final value comes in, as they get paid regardless of the quality of their work! Therefore it is important to do what we can to improve the odds that the final appraised value is not left up to chance.
If you have any questions about appraisals, please feel free to contact me directly via email or at 858-200-9602.
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