Monday, October 06, 2014

Influencing the Appraiser [No Baseball Bat Required]

by Osman Parvez

A few months ago, I attended a workshop for licensed real estate appraisers and real estate agents. 

"How many of you have dealt with low appraisals during the past year?" the instructor asked.

More than half the room raised their hands.  It was crowded, too.

Who here knows their job?
"How many of you have directly interacted with an appraiser in the last year?"

Only a few hands went up. 

Unbelievably, many Realtors still believe they aren't allowed to interact with the appraiser. This couldn't be further from the truth.  

Let me be clear.  

There are no rules that prohibit real estate agents from speaking appraisers during the appraisal process.  Smart listing agents talk with appraisers and provide additional property information, including a copy of the sales contract for purchase transactions.  

Low appraisals can cost a seller tens of thousands of dollars and frequently kill deals entirely.  Just like with Realtors, appraisal quality is all over the map. There's a reason industry insiders call it appraisal magic.

Low appraisal?  Fuhgettaboutit
Here's a copy of information I prepared and presented to an appraiser on a listing I sold recently.   I didn't just leave it on the counter. I handed it to her when we met in person.  I was pleasant, professional, and I made 100% sure she got the relevant information.   

No surprise, we didn't have a problem with the appraisal.    The previous month, I sold a different property at $17,000 over asking.  That deal involved a bidding war and came in well above where we expected.   The seller and I sweated the appraisal, but I carefully prepared the comps and highlighted the key value drivers for my listing (solar system, views, updates).  Again, there wasn't a problem.  

If your listing agent is not taking the time to prepare information and meet with the appraiser, they're not doing their job.  I can't be more blunt.    Hire a better Realtor, or at least find one who sucks less

More Points to Ponder
  • In a rapidly appreciating market, appraisals lag behind market value. This is because appraisers establish value based on recent historical sales. Realtors also review comparable sales but establish pricing based on the future trajectory of the market.   Smart Realtors price ahead of the trend (up or down).
  • Boulder has recently experienced both high appreciation and extremely low inventory.   This creates a problem.   Low appraisals are more common when sales data is lacking.
  • Cash buyers and those capable of putting down more than 20% have a competitive advantage.  In a bidding war, it's wise to show your financial capability (i.e. go cash).   If you're trying to negotiate a discount on a listing that has been on the market all summer, keep your cards close to your vest.
  • A low appraisal is not always a deal killer.  Buyers and sellers should expect to negotiate.
  • Savvy listing agents pre-negotiate a potential low appraisal, especially if there are multiple offers.    This means writing additional provisions into the contract and potentially removing appraisal contingencies entirely.  

Additional Reading
Understanding Appraisal Independence
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image:  Quinn Dombrosky

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