The industry needs to change IMMEDIATELY in ..................

When I first bought my own house many years ago, we did not get pre-qualified.  We searched for homes (prior to the MLS) by going to different real estate companies and checking their inventory.  Once we found a home then we started our financing.  When I started selling real estate some years later, I still felt it was backwards.  Pre-qualifications still weren't popular and IMO we did things backwards by finding a house first and then hoping buyers were qualified to buy.  I was happy to see pre-quals finally becoming popular and pretty much mandatory if a buyer wanted a seller to accept an offer.  They're not failsafe but it's better than nothing (and I also feel the LO needs to accept some kind of responsibility for a pre-qual/pre-approval if it doesn't end up going through).

I also think getting a home appraised after the fact is backwards.  I've always thought that a seller should pay for the appraisal - a cost of selling, which would help all of us in properly pricing a home and setting seller expectations.  Of course, this appraisal would have to be accepted by whatever bank/mortgage broker a buyer would go to and the appraisal would be good for a certain length of time (like FHA appraisals are good for 6 months).  If the home doesn't sell then a new appraisal would need to be purchased and pricing for location or condition would have to be scrutinized further.  I had a seller get an appraisal prior to selling and we could not sell it for that price, probably because the house was located next door to a gas station or some kind of auto shop.

I feel the banks and appraisers need to keep a distance so there is no coercion.  I think if the correct price of a home was established in the beginning then the place should sell before the appraisal expires.  I don't see this ever happening, but I've thought about this many times.

The system definitely needs to be fixed lenders are basing a market value solely on an appraisers report.  Appraisers are increasingly all over the place on appraisals.  I've had appraisals done on the same property within a few short months and had a $95K value swing.   The market hasn't by any means changed that much and in the last couple of months in the Seattle area values are not going down. 

Having worked at an appraisers office I was often amazed at how widely opinions could vary on what qualifies as a comp and even how much the adjustments should be.  The appraisal process is far from a science and at best it is an opinion of value based on incomplete facts and often includes transactions that were distressed sales.

Lenders that believe that appraisals are always a true reflection of market value need to get out more.  I'm sure that sellers believe there homes are gold mines.  I'm sure there are real estate agents that use inappropriate comps.  All in all though I think real estate agents and buyers have a better feel what market value is having seen available homes inside and out in a market area and looked at what homes are selling for in a specific configuration they are looking for.

An appraiser that comes in substantially different is not necessarily the better guess at market value.  I don't believe for one minute that the buyer has necessarily been better served by the appraisal.  I don't even believe that the lender has been better served.  The end result though often is the buyer is out the appraisal fee, the lender moves on to other business and the RE agent finds another buyer.

Hi Antoine, I could remember when the big banks paid for the appraisal.  They used their in-house appraisers and boy were they conservative.  They owned the appraisal and a copy wasn't given to the buyer.

Now that the buyer pays for the appraisal, they can get a copy of the appraisal.  They can also get that appraisal assigned to another lender for a small fee instead of paying for a new appraisal.  

Actually, I like things just the way they are because when the buyer has some skin the game, they have a tendency to think twice about backing out to the transaction.

My struggle with appraisals is on the extras, like pools, finished basements, and especially farm setups like four board fencing, riding arenas, and barns.  If appraisers only allow pennies on the dollar, how do we move the market forward?  Cash sales?????

I agree.  At the very least they should pay for it and have the buyer reimburse them at closing in the closing costs.  That way the buyer is not out a bunch of money only to be told so sad too bad. 

This has been happening a lot in our area and with one appraiser in particular.  This appraiser seems to have appointed himself the local God of Values and because he is angry and resentful of the Real Estate market as a whole, he is taking it out on the buyers via their appraisals.  He is killing deals right and left.  He is claiming it is because the banks are limiting the comps he can use to the worst, not the best, but I don't buy it.  I think he is just angry at the world and is taking it out on everyone else.  

Dear Antoine,

Why not negotiate some more? The next appraisal will probably come in similar, so unless the buyer wants to wait a good time longer for another buyer, maybe something can be worked out. When this seller turns around to buy, they will be in the same boat.

Agree!  Banks should shoulder the cost of appraisals since it benefits them and THEY are the ones requring it. I had an appraiser at one of my listings this morning where I handed him SIXTEEN offers above the asking price. He knows that means something and yet the bank wants to see sold comps in the area. From one extreme to the other....

Dear Antoine:

I have to concur with post#108-(Sharon). I will leave the way it is. Even if the appraisers are looking out for the lender's interest, it does protect the buyers as well from overpaying.

In conjuction with this, I would like to add post#91's suggestion. However, if I am the listing agent, especially if it s unique property, e.g. waterfront, I have to ensure that the appraiser has my comps to justify the value.

The appraisers are the referrees of the real estate business.  Much like the replacement NFL refs, a lot of the folks remaining in the residential business are inexperienced and lack the education of the competent and more well-paid residential appraisers they replaced.  You want the NFL refs back in the game?  Start yelling and screaming about these lenders and AMC's massively skimming the appraisal fees and putting a large portion of that into their pocket.  

That money should be going to competent appraisal personnel.  More and more often it is not going to the appraiser in the residential business.  It is going to the AMC (Appraisal Management Company) or the lender or other service provider other than the appraiser themselves.  

Imagine what would happen to the agent / brokerage industry if some third party company was annointed with the power to "administer" your commissions and make you agents fight each other for commission scraps in some perverted government version of the "Hunger Games" for real estate agents.  If you can imagine this, you have just stumbled on the reality of the situation for many residential real estate appraiser that do residential work.  

Charles,

Lenders are in the same "Hunger Games" boat.

Realtors need to be thankful for their strong lobby.

Tom:

I hear you loud and clear.  

I am fortunate that I have seen a lot of this coming and have structured my commercial appraisal practice mostly away from lender work that has become a cattle call for low fees and quick turn times.  

I fret that many of the lenders out there have little they can do to compete with the Too Big to Fail banks.  I do feel and see your pain as well.  

Yes, Realtors are spoiled to a certain extent.  They have the advantages of numbers that appraisers do not have.  

Most of you guys should know that appraisers are the "pocket protector" crowd of the real estate business.    Having said this, I still can't believe some of the posts I'm reading here.

- "...killing deals"

- "appraisals are messing up our deals"

- "appraisals are a joke"

- "...deals being sabotaged by appraisers."

These kind of comments villifying appraisers made after the market has been through the worst experience in multiple generations is truly shocking.  If you don't think that there may be possibly a few deals that need to go away because they truly shock the conscience of the market, then I don't know what to tell some of you guys.  You may be hopeless. 

Remember, I am licensed as a broker/salesman and as an appraiser, so I can comment from having walked in both sets of shoes here.  

You have to come up with a solution folks.  Villifying appraisers that are out there isn't the answer.   

Sadly, NAR's Lawrence Yun came on this very platform (Active Rain) talking about appraisals "killing deals" like that is some sort of bad thing.  Sad and pathetic and makes me very irritated that I pay dues to this corrupt organization that thinks "everytime is the right time to buy a home".  

I personally am very glad some deals are being killed because it means that the market may be returning to sanity.  It's not all about our commissions folks.  Healthy, safe, and well-refereed markets matter, too.  Somebody has to throw the yellow flag and call a penalty every once in a while or we will just keep losing the confidence of the homebuying public which is already at remarkably historical lows.   

Where's the 'Like' button?

Wow!  I can see from all the comments that this is a hot topic, as it should be.  I am overwhelmed by all the various thoughts, here, but I have to say that I think it is unfair for a buyer to have to pay for an appraisal, if, in the end, they are good buyers and can't get a mortgage because the home did not appraise out.  I agree, I'd rather see the bank pay for it.  Good thought!

Ellen,

I would hate for the bank to have to pay for it if they are a good borrower and the sales price was inflated by a realtor using the wrong comps.

Can you see that side of the argument?

I kind of like the idea.  Of course I think the bank should have the right to do a quick on line review and reject the contract without a full fledged appraisal if they want.

Man, you are preaching to the choir. I have had this happen several times recently and the buyers ARE screwed. Your suggestion is awesome.

I did read your whole article, and I am also not placing blame, just giving my opinion.

I don't see how the solution can be for the lender to pay for it.

Although I'm not a lender, that's a horrible business model and a horrible risk position for the lender.  

Not every lender out there is one of the Too Big to Fail lenders. 

Perhaps the best I could see the lenders doing is putting in place some kind of credit to the buyer if it closes.  

I just don't see how the lender could afford to lose the appraisal fee and perhaps some other fees on every loan that doesn't close.  

And how about the other fee-based services that could "kill a deal"?

Should the lender also have to pay pest / termite, home inspection, roof inspection, structural inspection, if they fail?  

Where do we draw the line here?  Appraisals aren't the only up-front professional fee service that could cause a deal not to close.  

This reminds me of folks that want to tax the wealthy, because they are not a part of the cohort being targeted for taxes.  They always want to stick it to the other guy as long as that other guy is not them.

I can make a really good case that the entire transaction is ultimately paid by the buyer no matter who is  listed in the purchase agreement.  (I.E., ultimately, the price being paid by the purchaser is what allows the payments of fees, commissions, insurance, warranty, professional services, etc. no matter which party is listed as picking up the charge by contract.  The price is simply adjusted to account for these matters.) 

If paying the appraisal by the lender did become practice - you can dang well presume the lender is not going to just "eat" that fee.  Just like taxes, the consumer ultimately pays the freight.  

Antoine -- great topic!  Wanted to let Lenn (#14) know that there are still some of us in the lending profession that want to see the whites of our clients eyes. (at least once).  Scott's (#44) comment, as well as some others, point out the fact we all know, real estate is LOCAL - so should the appraisers be.  I would also agree with Gene (#25 and Rodney (#67) in their comments about the lender's side of the issue.  One thing I would mention, which I haven't yet seen noted, is that the VA appraisals are paid out of closing, and not up front.  Which for many of us is an outlier in the process.

http://rismedia.com/2012-10-13/low-valuation-in-appraisals-causing-contract-glitches/

Here's some more national discussion on the issue...