The latest word from the National Association of Realtors confirms what many hard working agents are also seeing. The present system by major banks of assigning appraisers is causing many solid home sales to fall apart, due to low appraisals. The 05 19 11 story by Walter Molony quotes NAR Chief Economist Lawrence Yun: “… a steady level of low appraisals that result in contract cancellations”.
Appraisals are not just crunched numbers, they truly are as much art as science, just like the buyers’ emotional response to the market supply. Any agent can tell you of the many times a client hated the house that looked good via the specifications, but then loved the home that, on paper, appeared to be all wrong for their family’s needs.
The major national banks' model for their Appraisal Management Companies, is based on offering orders to the lowest-priced appraisers first, for best profit. The major banks own or co-own the AMC’s, and take their commission off each appraisal fee. And who gets these orders first? It is often the newer appraiser from 40 miles away, who doesn’t know the local market, yet will cram two appraisals into the day. He will take every short cut he can, and will just grab the first 3-4 sales nearby. He doesn’t care about the purchase price, even with three similar back-up offers.
But there are several good steps to “work-around” the shortcomings of this system. It takes a bit more commitment by both of the realtors handling the sale. Remember, after the appraisal is delivered, it is too late to try to change it.
Five steps to “side step” a low appraisal:
1. Be Pro-Active: When the appraiser first calls for the appointment, verify where the appraiser is coming from, and if they know enough about the local market. If not, this is the best time to have the bank send out a better appraiser. Just politely share that you need a local expert. Then notify the bank to send someone qualified.
2. Be sure to email the appraiser a complete list of all the features, upgrades, and location amenities that you found when you first researched the home. Send this right away, as a word doc, so it can be a good reference.
3. Share which comps you used to set the pricing on this home. Make a pdf copy of the full print out with the legal record, of those 3-4 sales and similar actives, and email them when the appraiser first calls. Include the very best supporting sales within 90 days, a new requirement by almost all lenders.
4. Develop your contingency plan. After the appraisal inspection, start to work immediately on “PLAN B”. This is the most important part. If the appraisal comes back low, what will you do? You cannot fight it, that takes two months, and is not effective. Talk to your buyer NOW. Be sure they have an extra 3-5% or more, that they can add to the down payment, to “buy it down” and allow the deal to happen. Do the same with the seller. Can they offer a slight discount, or maybe a non recurring credit, that would “seal the deal”?
5. Remember to share with buyers that the appraisal process these days, is different than it was a few years ago, & it may be more like an insurance policy for the bank. It may not necessarily be the real market value. Share that when unqualified appraisers accept these orders, values often come back low, yet the real market value was determined between the buyer and seller.
Confirm with the buyer that this is really the right home for their family. Confirm with the seller that this is the right time to sell the home, and to be able to move on. Get slight accommodations from each side, and be ready. When the appraisal comes back slightly low, inform everyone, and then confirm it is time to implement “PLAN B”. Buy it down, implement the concessions, and close the sale.
For more good tips, be sure to check out our website at www.eas2.org. Let me know if these ideas are helpful.