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What Does Quality Mean To You?

By Tom Horn

Real Estate Appraiser with Thomas Horn, Real Estate Appraiser

June 14, 2008 02:01 PM

To be specific, what does a quality appraisal mean to you? I read something one time that pointed out that quality means different things to different people. I am a real estate appraiser by profession and take great pride in my work, which would consist of the appraisal report being clear, concise, accurate, and complete. I’ve seen some reports where people do as little as possible, maybe by hitting the F3 key (an inside appraiser joke referring to canned comments assigned to one of the function keys on your computer keyboard), give as little explanation as possible, slap a value on it and call it a day. Others spend hours on market research, including detailed neighborhood analysis, write complete narrative reports and end with a final value that the reader of the report can understand because the writer made everything understandable.

I’m sure there are many other report quality variations between these two extremes but my main point revolves around the question of whether all this means anything to the person ordering/reading/using the report. What if the report that received the least amount of time and effort came in right on the money (the contract sales price), or what if the report that was well written, complete, and supported came in low and “killed” the deal. Which report would you say was a quality report? Would it be the one that made the deal work out or would it be the one that revealed that the buyer may not have been getting a good deal (which could open a door for negotiation and possibly save the buyer thousands of dollars)? I would be interested in reading peoples thoughts in addition to seeing whether the definition of quality is different for an appraiser, realtor, or mortgage loan officer, etc.

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Gary Woltal

Keller Williams Realty - Flower Mound, TX

Assoc. Broker Realtor SFR Dallas Ft. Worth

Tom, I think from a "market appraisal" Realtor perspective the appraisal number would be close to 3% of what the house would actually sell for. That would be quality to me. Loan appraisal has to satisfy loan underwriters of course.

Jun 14, 2008 03:54 PM

Sara Goodwin

Estimation Nation Corporation - Portland, OR

Portland, Oregon Appraiser

Tom -

It would seem as if the definition of 'good appraisal' is changing. Per the client/LO, it is still the appraisal that 'comes into value' and gets through the system quickly. Two or three years ago this could mean a sloppy report with few details. In todays market it would seem that the more information in the report, the less room their is to question smaller details, thus the more complete the report, the faster it gets through the system and the happier everyone is.

Personally, I like the latter better. Years ago I would have lenders asking me to eliminate tax info, EMA sheets, additional photo pages, etc because the files were 'too big' and some of the information redundant as they had the EMA, tax info, etc. To me, excluding these pages does not give the full picture and does not isolate/consolidate all the information into one report.

Jun 15, 2008 05:17 AM

James Graner

Residential Services: http://appraisalmo.com - Saint Charles, MO

The more you include in your report, the less meaning your statements have. IMHO! Not to say anything should be omitted, within the Scope of Work or USPAP. Just do not overdo it with extras, unless they are needed.

Jun 17, 2008 07:57 AM

Sara Goodwin

Estimation Nation Corporation - Portland, OR

Portland, Oregon Appraiser

James - I concur (although it doesn't look like it from my previous statement). I just like to add all the backing documents to the report so that it is consolidated in to one piece of information.

Jun 17, 2008 08:47 AM

David Hintz

Accurate Appraisals & Consulting of AZ - Maricopa, AZ

AZAppraiser

Over doing to some just means more work, so many only do the minimum required or as little as possible to finish the report. Including "extras" can support your statements and visa versa, and gives a lot more credibility to the overall report and conclusion then one without.

Jun 17, 2008 09:16 AM

Tom Horn

Thomas Horn, Real Estate Appraiser - Alabaster, AL

Appraising The American Dream

I have come to the conclusion that it is a balancing act. We must weigh what the clients needs are with what USPAP requires us to do. I have a friend who does the quality of work that you would see in a demonstration report, however that type of report is time/cost prohibitive. If we are to make a living from what we do there has to be a middle ground. Finding that middle ground is what we must learn how to do.

Jun 17, 2008 02:31 PM

Anonymous

Rossie

Guys, I need your help. I am in the situation now. I have 5 days to closing and the apprisal of the house came $8,500 lower of the price of the agreement. The seller's agent ask the bank to make second apprisal and go up with this amount. It is nonsence for me because the apprisal is official, right? Also, the buyer is ready to go out of the deal if the seller doesn't agree to sell the house for the apprisal price. What is the usual practice from your experience? Any ideas will be appreciated. Please, let me know ASAP! THANKS!

Jun 18, 2008 01:38 PM

David Hintz

Accurate Appraisals & Consulting of AZ - Maricopa, AZ

AZAppraiser

The lender can request another appraisal - their choice - if they feel it may be necessary. The seller's agent appears to be requesting an inflated appraisal for the deal to work (and not take a reduction in commissions) by pressuring the lender to pressure the appraiser or find an appraiser who will falsely inflate the appraisal. I do not know where the transaction is taking place, but if it is in Arizona, the agent may be committing a felony and requesting the lender to committ a felony also (undue pressure on an appraiser to provide a misleading report).

It pretty much is up to the lender to accept the appraisal as it is, request another appraisal, request additional information to support the conclusion, or choose to accept the selling price. The appraisal is prepared to aid the lender in making a decision as to the collateral risk of the transaction.

Depending on the terms and conditions of the sales contract, concessions can be negotiated, or a compromise on the difference between the selling price and the appraised value by the seller and buyer if the lender agrees, or perhaps an additional down payment on the part of the buyer. There are actually a number of options to reach a meeting of the minds.

Jun 18, 2008 02:11 PM

Tom Horn

Thomas Horn, Real Estate Appraiser - Alabaster, AL

Appraising The American Dream

I would think twice about getting a second appraisal. As David Hintz said there are several options you can take. You can walk from the deal thankful that you did not pay too much for the home. You could also put more money down (to make up for the difference in sales price and market value). Or you can go back to the seller and renogiate the deal. Tell them that market data DOES NOT support the value they had on the house. This will probably rub some people the wrong way. The agent probably will not like it because their commission will be reduced; the loan officer may not be happy because the loan amount will be smaller; and the owner will not be making as much money. The appraisal needs to be viewed as a tool to use in this very important transaction (your home is usually the most expensive purchase you will ever make). It should not be viewed as an obstacle getting in the way of your dream home. You have to detach yourself emotionally and make the decision with your head not your hear. It could turn into a nightmare if for some reason you need to resell it in a short period of time after your purchase and cannot because its over priced. Good luck with your decision.

Jun 18, 2008 03:11 PM

Jen Olson

First Weber Group Realtors - Marshfield, WI

Tom- I would think that a quality appraisal would be an accurate picture of the value of the house, irregardless of whether the outcome upholds the purchase price or not. If the appraisal comes in lower than the purchase price, and upon reviewing it, it contains accurate info and similar comps, than at least the buyer and lender know that before getting into a 30 yr mortgage. I had a deal in the past that the appraiser did a "drive-by appraisal". I know that the first and last drive-by BPO I did was such a completely impossible task, that I have since decided that is not my cup of tea. Which makes me wonder how the appraisal in that case could even been close to accurate. The quality of that appraisal is questionable, at the least.

Jun 27, 2008 06:08 PM

JoEllen Stranger-Thorsen

Eustis, FL

Lake County, FL

Tom -- I am a detail person. As a consumer I want to know everything that affects the value of my house. Of course I would love the house to appraise at a certain value (especially if I am the seller with a solid contract) but not at the expense of what I would consider quality. For myself as an agent, I sweat every appraisal period even if I am absolutely positive the price is right. But I would rather know the true value even if I have to renegotiate.

Jun 28, 2008 12:20 AM

Tom Horn

Thomas Horn, Real Estate Appraiser - Alabaster, AL

Appraising The American Dream

Jen-Your comments are greatly appreciated. Before the housing boom bust it seems the appraisal was viewed as a necessary evil by some because it had the potential to be a deal killer but now we know that if they would have been done correctly alot of homes may not have appraised for what they were sellling for. I'm with you regarding drivebys. In theory they sound good but you never truly get the whole picture unless you see the home, inside and out.

JoEllen-Thank you for you comments. While we none like to hear bad news it at least helps us to make better informed decisions and opens up dialogue for negotiations to a lower price.

Jun 28, 2008 01:55 AM