“Potential Cures For Appraisal Headaches” by Ken Harney
Yes, appraisals are a challenge these days. We have a relatively simple solution that somewhat echoes Harney’s suggestions, but from the sellers’ perspective. His is aimed at buyers.
I’ll start with the most relevent/helpful info first, then explain why this process has become problematic.
Out of area appraisers aka low bidder. The quick fix here is to thoroughly vet an appraiser assigned to our listing. We do not allow appraisers access to our listings until we have a serious conversation about who they are and where they are from. We haven’t turned away a lot of appraisers but it has likely saved the deal when we did. It is the marketing broker’s responsibility, more than anyone else, to carry out this function. I’ll explain why in a moment.
In today’s market the marketing broker should counsel their sellers regarding the current issues with appraisals, what has caused this issue, and how to best avoid problems. List price is important, of course. A buyer may be willing to pay what a seller is asking, but it won’t matter if they can’t get a loan because the lender’s appraisal comes in low. So list it right.
The seller needs to know that it may be necessary to turn away the first appraiser assigned by the lender’s appraisal management company. The issue here is that the buyer’s loan processing may be delayed waiting for another appraiser. The closing date may have to be extended a week or two as a result, and sellers need to know that is a possibility. It may compromise their moving plans, future purchase, etc. But believe me, it beats the alternative.
If you have doubts, do not let them in the property! Most folks don’t realize that once an appraiser gets into your property there is nothing you can do about their price opinion. Many appraisers belong to the Northwest Multiple Listing Service and have the same “key” that realtors use to access keyboxes. We always remove the keybox and keys as soon as the buyer has completed their home inspection contingency i.e., we do not provide appraisers the opportunity to get in without our tacit permission. This forces the appraiser to call us to gain access. This is a crucial conversation wherein we ask a lot of questions: (1) how long have they been in the business? (2) have they appraised houses in the same neighborhood before? (3) what is their preliminary price opinion? (4) where do they do most of their work? (5) where do they live?
Our research doesn’t stop there. We check online resources to learn all that we can before granting access. Two weeks ago I got a call requesting access from a sort of “know-it-all” appraiser regarding our seller’s property. Not liking his tone, and reluctance to answer my questions, I checked his name online. I learned that he was from Mill Creek. The subject property is in Redmond. Right there I knew there was a potential problem. A similar house in Mill Creek could likely be had for about $100,000 less. It is against human nature to expect an appraiser from a different county to fully respect the values in a different county. It was on this basis that I informed the buyer’s agent that this appraiser would not be allowed in the property, the lender has to come up with someone at least from King County. It cost some time, but it was well worth the wait.
Harney’s View/Recommendations. The Times article appears to be focused on buyers. Experience tells me that in most cases the buyer will walk away as soon as they learn the appraisal is low, and that is their right. Often they come to distrust all involved, even their own agent and the home-buying process itself. Sellers and their brokers have to take charge when it comes to appraisals.
Can’t I get another appraisal if the first comes in low? Sure you can. But the fact is that the first appraisal will still be factored into the lender’s decision-making. Usually the second appraisal will be averaged with the first. There is no getting rid of that low first appraisal. The average will likely end up less than the agreed sale price, leaving the only solutions: (1) seller agrees to reduce the sale price to the average of two appraisals and/or (2) buyer comes up with the additional cash to make up the difference between the appraisal average and the sale price. Neither are appealing.
How did we get here? Excellent question. Harney touches on this, but a little more detail/insight might be appreciated. The Feds, in their infinite wisdom, and as an almost direct result of the lawsuit filed by New York State against Washington Mutual awhile back regarding appraisals, decided that lenders are no longer allowed direct contact with appraisers. Instead, lenders work with appraisal management companies who in turn select appraisers from a pool of those available.
I’ve known some great local appraisers over many years, specifically Alan Pope and Scott Mahon. They explained to me what the Fed mandated. More importantly, they explained how it actually works. Alan and Scott customarily charged $400-500 for residential appraisals. It’s been the going rate for many, many years, and it still is. However, we now have this “management company” entity in the middle. That’s right, a new middle man. The management company, in order to be profitable, takes a portion of what the lender, and thus the buyer, will pay for an appraisal. This leaves the appraiser with…..less. Professionals like Scott and Alan will not participate in this type of arrangement. As established pros, they are not willing to take a 30% pay cut. They keep plenty busy working for estates, attorneys, etc. So we get what may be termed the “low-bidders”, those willing to travel farther and do the job for less. Often this means that the appraisers resides in a less affluent city, county, even state where their cost of living is less and/or they are hungry enough to work at steep discounts. This is how we end up with unqualified, out-of-area appraisers.
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