At the June Fuel Your Business Luncheon, Donna Jacobsen of Silvercreek Realty Group and Appraise It Now, Jon Nishikawa of 24 Hour Appraisals, and Eric Thornfeldt of Thornfeldt Appraisal Services, Inc., explained the appraisal process, shared their experiences and discussed how agents might help prepare their clients for the appraisal.
The following is a summary of the discussion in a Q&A format; the content has been edited for length and clarity.
You can also watch the Facebook Live recording of this event.
Are there different types of appraisals? How are they different?
There are various types of appraisals — appraisals for loans, or for collateral management. For example, some lenders do quick drive-by appraisals for home equity lines. There are also differences between commercial and residential appraisals. Appraisals can also be done for consulting, pricing, estates, and liquidation, etc., the differences are based on the intended use.
Most appraisals are for conventional, FHA, VA, purchases, and refinances. FHA requires an inspection.
A common misconception is that the value of a property is the price at which a seller is willing to sell. Keep in mind, that is not the figure the lender is asking the appraiser to determine. The lender needs to make certain the loan is secure, based on history and comparables. An agent simply saying, “the market is hot,” doesn’t cut it as a valid comparable.
The appraiser has a lockbox key and can let themselves into the property. Should the listing agent attend the appraisal?
The preference about meeting an appraiser at the property varies by appraiser. They do value an agent’s input and would like to see comparables (and info about the listing, like if there were multiple offers) PRIOR to the appraisal, do so either by meeting at the property, leaving info on the counter, or emailing it to them ahead of time.
Here are some tips if you do decide to meet for the appraisal:
- Feel free to be there during the appraisal, just don’t hang out with them the entire time. It can be difficult to work quickly if the listing agent is there, talking a lot and/or trying to help with measurements.
- Appraisers prefer if the listing agent (or an assistant) doesn’t tell them how to appraise a property.
- Don’t rush the appraiser to finish because you need to leave, you don’t have to present through the whole process.
- Allow them room to work and don’t distract them when they are trying to focus.
- TIP: If the listing is vacant and you want the appraiser to contact you before going to the property, change the showing instructions to “See LA.”
What kind of information should real estate agents be providing the appraiser?
Confirm the final purchase price with the appraiser—they may not be aware of counter offers. They don’t appraise to contract price, but it’s good to let them know what the final price is.
Share your logic behind pricing with the appraiser as they don’t want to be “deal killers.”
Provide a list of improvements and/or upgrades. Providing good comparables and any inside information you know about comparables. Once the appraisal is done, it isn’t likely to be changed. Provide your input upfront, not afterward.
How should agents prepare their clients – buyers and sellers – for the appraisal?
Appraisers aren’t there to inspect a home for cleanliness, but the nicer it is, the easier it is to appraise. Put away dogs, repair anything that’s damaged, pick up clutter, and flush toilets, to make it as presentable as possible. Remember, they will take pictures of all the rooms. If it’s an FHA loan, make sure there is access to the crawlspace and attic. Also for FHA, if the house was built before 1978, advise your seller to fix any peeling paint. Get rid of anything that could cause safety issues, for example, hazardous waste.
What is one thing you wish REALTORS® knew about appraisals?
Appraisers are looking for the most similar, recent, closest sales as comps. They are not trying to prove your purchase price. On pricing, Jon made this analogy, “It’s kinda like a murder scene, appraisers show up, look at the evidence and we come up with a suspect. Agents already have their suspect (or price) in mind, so they look at the evidence, and how to frame who they want to.”
Understand that appraisers have rules they must follow and forms they have to fill out. Forms are “interesting gadgets” that find a way to prove the value of the property, and they require a high comp, low comp, and one comp in between. If they can’t meet that requirement, something is wrong with the appraisal. Appraisers can’t arbitrarily use comparables. Properties need to have “similar utility.”
Price per square foot may be good for marketing but is useless for valuations. Pricing a house per square foot is as relevant as pricing cars per pound. No one is going to trade a white Hyundai for a white Lexus even though they are both the same color, have four doors, and go 65 mph.
When it comes to the appraisal results, keep in mind that the definition of “market value” for Fannie Mae appraisals is the most probable price, not the highest price, not the lowest price, not the purchase price. Lenders want to be sure they are secure with the asset.
What are the consequences for appraisers if they don’t accurately value a property?
If these appraisals hit a certain Risk Score, it goes back out into the field to another appraiser to be reviewed. If the reviewer finds that good comps weren’t used, it can be labeled as fraudulent and/or incompetent, and a discipline process can be started.
How much value do you give to a home with a view, a 2nd or 3rd bay garage, or and RV garage?
It depends. Appraisers use match paired analysis, where they compare the same properties. For example, if the exact same homes are compared and one has the 3rd bay and one doesn’t, and the one with the 3rd bay sells for $8,000 more, then the market says that 3rd bay is worth about $8,000.
There isn’t a set number. Appraising is part science and part art, and the art is learning how the market reacts to different features. For example, construction value is important on the high-end homes and isn’t as important to starter homes.
Should you disclose the appliances to be included in the RE-21, if it’s not on the MLS?
Appliances that are built-in are “fixtures” (with the exception being a stove, which is considered a fixture). Refrigerators, washers, and dryers are considered “personal property” since they can be removed. If someone takes a stove, the value is adjusted because that fixture isn’t included. FHA requires appraisers to state which appliances are included.
What are appraisers required to do now versus three years ago?
Appraisers are now required to take photos of every room, fill out additional forms showing market trends, etc., which has doubled the time it takes to do an appraisal. Forms have been standardized, and they are limited to certain descriptions and ratings that they can use. Appraisers are more micromanaged now than in the past.
What are your hurdles, now that you’re hired by a third party?
There is less pressure from lenders and agents, which is nice.
How much of a challenge is it to add closing costs to the sale price? Does it push on value?
Yes, it does. With FHA, when comparing two of the same homes, and the subject home does not have any concessions, the appraisal will come in $4,000 low. With conventional, it’s a little easier. Just because you up the price for concessions, it doesn’t mean that the appraiser can value it higher. It does make it a riskier loan, and the bank will be sensitive to the value. It’s important to report concessions.
Do you ever look at previous appraisals on a property?
No.
What can a homeowner do to their yard to increase the value the most?
Curb appeal and landscaping helps marketability but doesn’t necessarily impact the value, since landscaping is a personal preference. However, sprinkler systems do add value. A really nice paver system and outdoor kitchen may be considered in reconciling final value, but not as a line item adjustment.
Are the fees for appraisals changing?
Nationally, our area is still inexpensive when it comes to appraisals. In Portland, they are paying $1,200 for an appraisal if they want to get it back in two weeks. For a standard appraisal in our area, the range is about $375-$600. VA is changing the appraisal fee to $600 on July 1, 2017.
If an agent has an appraisal come in low and knows of another comp that will close in the next few days, is there a reconsideration of the value that can be done with that comp closing?
If you’d like the appraisal to be reconsidered, the first thing you can do is read the appraisal. Look for mistakes — if there is a mistake, the odds are much better that you’ll get a reconsideration. Your comps need to be a good alternative to the comps the appraiser used.
They value the property based on the date of the appraisal. If you know a deal like that is coming up, tell the appraiser before, so they can deal with it.
They are required to use three to four comps on sold, one or so on active, and one or so for pending. FHA is now asking for two actives and two pendings.
At what point does a square footage discrepancy (between public record and what the appraiser measures) impact value?
Don’t rely on public records for square footage, assessors often get the square footage wrong. Measure your listing yourself and then correct the square footage in the MLS.
Any discrepancy from +/-50-100 square feet will make an adjustment, or if it’s a very large home, a difference of +/-200 square feet will be an adjustment to value. When looking for comps, look for ranges in square feet above and below the listed size.
