Home : Blogs : John Mattsson First Lenders Mortgage : John Mattsson's Blog

Questions about Agents paying for Appraisals for their listings?

I had a question that I hope I can get answered from the real estate professionals here on Active Rain. With the many overpriced listings out there, and to try to price a home accurately from the start, I have this question:

When a real estate agent takes a new listing, If they wanted to have an certified appraisal done ( at their expense) to price the home right from the start, are they allowed? An agent friend of mine has been staying away from listings because most sellers as we know are unrealistic with their asking price. Not to mention, many homes that receive contracts are not comping out when an appraisal is done at that time.

I wouldn't see why there would be a problem if an agent is willing to pay for an appraisal to price his listing right from the beginning?? This is New Jersey of course.

Any help would be greatly appreciated

Posted by John Mattsson First Lenders Mortgage on 07/27/2008 12:59 PM

Comments (13)

Post is included in group: Realtors®
Post is included in group: New Jersey & Pennsylvania -- Realtors/Loan Officers/Title Clerks/Real Estate Lawyers
Post is included in group: RE/MAX Active Rain Bloggers
Post is included in group: Dedicated Bloggers
Post is included in group: Garden State Real Estate

13 Comments on Questions about Agents paying for Appraisals for their listings?

JUL

2008

If you really know an area, then it seems like it wouldn't be necessary. The other issue I see is with the new laws coming down (at least around California). Appraisers are not necessarily going to be hired by the broker - the lender will be doing it to avoid any hint of collusion. They will generally draw from a list of appraisers who could be from anywhere in the region. Thus...you could get an appraiser who won't know anything about the area they are appraising. I don't like this, but this is what was told to us at a regional meeting by an appraiser. Ugly, huh?

John, very interesting post. I am in Florida and several months ago I had two appraisals done on vacant deep water lots before taking the listings. I have an investor who has several waterfront lots and two of them seemed overpriced. I could not find comps due to the lack of recent sales in the area. I contacted a well known local appraiser and he did the appraisals. I paid for them,the seller was happy and we priced them according to the appraisals. One at $895K and the other at $999K. They were previously listed at $1.2M. However, with a declining market the listing prices have been adjusted several times over the past few months. We are now at about 60% of the original list price. I see no reason for an agent not to have an appraisal completed before investing big $$$$ in marketing.

John, I would have to say-sure you could pay for an appraisal but why would you? The information in any areas MLs is as acurate as any appraiser is going to use and as Paula said in the earlier response we know more about the comps than most appeasers coming from somewhere else. Steve

Diane,

I agree with you 100%. I would rather pay for an appraisal and have it priced right ( like with your 2 previous scenarios) and have a much better chance of receiving offers and selling. But I know agents that will spend $150 for a virtual tour,$100-200 for food at their Broker Open, not to mention any other marketing expenses,gas, etc. and their property is so overpriced and most often times, EXPIRES. They won't spend the money upfront for an appraisal but wind up spending more than that in other areas anyway AND the house never sells. But to each is own!

John
Isn't the reason the sellers retain us is to price the home correctly? And aren't the appraisers using the same information as we are? And how many times have you had an appraiser call you to describe a house and help them with an appraisal. Most appraisers haven't seen the comparables. If the agent has been doing their job, then they have seen the comparables. I'm not saying you shouldn't hire an appraiser...I just would never spend my dollars that way. If I am in doublt at all, I ask fellow agents who work the area to tour the home and give me their thoughts. It works.

JUL

2008

I do not pay for any item because of conflict of interest issues.

In PA that is fine. I have recommended some sellers to get independent appraisals done ahead of time for planning purposes so they would have another source of info to go by. I think it is a smart strategy.

Philadelphia Real Estate Our Blog

AUG

2008

In NJ (and I would guess anywhere else) a seller's agent can pay for an appraisal if they think it would help them do their job. The appraisal is very unlikely to be used by a buyer but even if it would be the agent wouldn't know that in advance. The seller could accomplish the same thing if they had sense enough to do it.

If they could get an FHA appraisal of course (I don't know if they could) it would stick with the property for 6 months.

Go for it - if it helps get the property sold do it for more.

AUG

2008

Hello,

I happened on to this site and am amazed at the last comment by Paul Howard. This highlights what most of us lowly buyers think about the arrogance of the real estate industry. Paul, buyers ABSOLUTELY depend on the appraisal, we have a right to a copy and in Arizona it is often a contingency that if the home does not meet appraisal the contract may be cancelled. A huge contributing factor in the problem with bad loans were shifty real estate agents, brokers, and harried appraisers who are hired by the shifty brokers.

I really hope your clients who know the difference don't see your post.

Hi Mia!

I read Paul's post a little differently from you. The appraisal he is talking about is paid for by the seller or the listing agent and is strictly used to price the house. It is a kind of insurance policy that the property will appraise at the listed price.

Most buyers lenders wouldn't use that appraisal as they have their own list of approved appraisers that they require be used. The appraisal done by the buyers lender is paid for by the buyer and given to the buyer...in some states they have to ask for it and in others it is required to be given to them. I think you are right...in most contracts the property has to appraise or the contract can be cancelled or renegotiated.

I think this was just a misunderstanding of purposes.

Mia,

There are certain rules we must follow. If a seller orders an appraisel that appraisel belongs to them and as REALTORS we cannot share that information without their consent. On the other hand it is in the sellers' best interest to share that appraisel if they priced their home based on the results. In our area we are in a declining market so an appraisel done in May would be too high in August. When the buyer enters into a contract their lender will order a new appraisel on their behalf. That appraisel is what will determine how the transaction goes.

To the original question, an agent in my state can certainly choose to order an appraisel with the sellers' permission. Personally I prefer to have the seller order and pay for the appraisel if the property is somewhat unique. That way there is no apparent conflict of interest. If the property is not particularly unique I would tend to rely on my own research.

Mia, Paula is correct regarding the appraisal from the seller. Your lender almost certainly would not use it. Further, it is unlikely I would want the lender to use it even if it would save the buyer money. Buyers want to be sure they get a fair appraisal the same as a fair home inspection. I would advise a buyer to get their own home inspection even if the seller had one done and gave it to the buyer, and for similar reasons.

The difference with an FHA appraisal is that if it is done FHA, it is the only one for that property for 6 months.

Regarding the contingency: On all FHA contracts, as a condition for an FHA loan, an appraisal contingency is included. On conventional contracts, (at least in NJ) there usually is not an appraisal contingency. If the appraisal were to come in low that would likely only be a legal out for a buyer if it resulted in the mortgage being denied. That would not always happen.

In my years in the industry I have had 3 buyers that had appraisals come in low. In all three cases I had already advised them that I didn't think the property would appraise for the sales price but they wanted it anyway and settled. It is quite common for an appraisal (in my experience) to come in high. I had one last month that came in $45,000 over the sales price but the seller never found out.

Buyers almost never see the actual appraisal until after settlement - but their lenders do. The buyer should always request it.

OCT

2008

I have been reading your blog with interest. I have sent a deposit for a home in Florida about a year ago and the builder has kept same because he said he had mortgage preapproval and went ahead and used the deposit (40% of the purchase price) to built the house. However despite filling out 4 different applications to 4 different banks, we have not been able to secure a mortgage and the builder says we cannot retrieve our deposit. We received an appraisal 6months ago (purely by accident much to the builder's annoyance) which values the house at $177k less then the builder valued it and also the appraisal states that all of the houses are being sold at overinflated prices to overseas buyers. (I am one such overseas buyer). Does anyone know if the law in Florida has provision to withdraw from the Contract under such terms as set out here?

Leave a response…

Name:

Email:
(optional)

Comment:

What does the graphic say?