The Thing About Appraisals
The Denninger Report - by Gini Denninger
Sometimes REALTORS® meet with potential clients who ask them to do an “appraisal” of their home, since they are thinking of selling and are not sure what the house is worth. The Realtor then has to explain to their potential customer why they can’t do it. In most cases, real estate agents are not licensed appraisers! There are a few who hold both Realtors and appraiser licenses, like John LaScala of “OnTime Appraisals” and “ListToSell Real Estate”, but these individuals are in the minority. What a Realtor can do is a Comparative Market Analysis (CMA). To get an appraisal, they have to hire an appraiser.
Appraisers are a necessary part of every real estate transaction where a bank loan is involved. Most don’t give too much thought to what appraisers do. They are so behind the scenes the buyer and seller rarely talk to them. Buyers pay for the appraisal of the home they want but surprisingly, the actual information is owned by the bank. Appraisals are required by banks not to protect the buyer from paying too much, but to prevent the bank from loaning more than then property is actually worth. In most cases this works, but… there are problems in the air in regards to appraisers and fees.
When Realtors and real estate sales people are at a function, inevitably talk comes around to horror story appraisals; some of which killed deals and others resulting in deals that were able to be salvaged by a savvy Realtor who found a way to make a deal work. There isn’t a home seller or real estate agent that should not hold their breath until the appraisal is in, because they don’t know if the appraiser knows the local market. The common consensus lately among Realtors is that when an appraisal is “off”, it generally is too low, sometimes too low for the deal to go through. How is it possible that a home sold on the open market appraises low in comparison to other like properties?
It’s nothing personal when appraisals go awry. John LaScala explains his job simply, he provides “an objective third party opinion of market value.” Despite that, there are some issues that have resulted from the years of crazy appraisals when the banks were busy lending to almost anyone.
Realtors have expressed the belief that appraisers have a fear of being wrong. According to Christine Weisen, a loan originator with Guaranteed Home Mortgage Company: “Due to the previous housing market, most appraisers are afraid to be responsible for over-pricing a house”, this results in some undervaluation of properties by appraisers who try to play it safe. The second most common issue blamed for “off” appraisals is out-of-town appraisers. While some are on the mark, others are way off and can give disastrous results. How is this possible? Not all out-of-town appraisers thoroughly understand the local market and all its nuances.
Read Part 2 >>