It happened again this week.... Got an appraisal that came in $10,000 short. I wonder where this will lead?!?!?!
Now, to be fair.... there was some seller paid closing costs(just under 3%). BUT..... The contract was BELOW the list price of ~ $232,000!!!
Typical deal. Realtor writes up contract close to list price with seller paids.... All is good in approval land until the appraisal comes in really low. Then, yep, you guessed it, the listing agent calls me to tell me they have another appraiser who will be able to come in higher. They found some comps that were priced higher. Seems that the builder in town is putting out some killer incentives and driving down the existing sales market for the time being.... But they really feel like the property supports the higher price as it has upgrades itself.
But, it seems that this appraiser was willing to build an appraisal out of a deck of playing cards.... because these new comps are NEW CONSTRUCTION.
Now, lets not even get into the discussion about why you can't use new construction for an appraisal comp on existing sales. I am sure that Meg Stewart can discuss all the ins and outs of that. But for ANY Realtor, regardless of which side of the transaction you are on, to suggest that we 'need a new appraiser' is absolutely ridiculous.
I blogged about this a while back.... "Don't Be That Realtor" actually got all of 3 comments(one of them was my own comment). It seems that either this topic is a sore subject... or maybe it is just so darn ridiculous that no one thinks it is necessary to mention. But it seems that it IS worthy of mention.... Because it keeps happening!!!!
My first notice of this was when the appraiser left me a message. 30 minutes later I get a phone call from listing agent wanting to use new appraiser. My first phone call was to the referring Buyer's Agent and she was rolling on the floor laughing. She would NEVER agree to a new appraiser. Besides, the current appraiser is very well respected around town and unless there are some FSBO comps they missed the Listing Agent will have to explain himself to the sellers.
So, we all agreed to have the Seller Agent submit any new comps to the appraiser for reconsideration as they do have a right to challenge the appraisal. And it seems that the Seller Paid Closing Costs will have to be amended out of the contract as the buyer wants to proceed. But myself and the Buyer's Agent undoubtedly have counseled the borrower/buyer on the ramifications of paying full list price and have encouraged them to resist any thoughts of re-appraising the property so they can roll in the seller paids. Although it would be nice to keep that extra cash free for curtains and appliances, they do qualify with paying those expenses out of pocket.
How do YOU respond when the appraisal comes in low?
Or, for that matter.... how do you respond when an appraiser is willing to fabricate an appraisal out of thin air?
Tom Burris
DallasLoanGuy.com
Dallas, TX
"Cartoon credit: Andy White. Contact for rates."
Hip Shot Cartoons
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Edited to add: I thought I made my point that the listing agent has the right to challenge an appraisal. But I wanted to clarify that in this case since it has been commented on. The listing agent found an appraiser that would use New Construction for comps(you can't do that). And there are NO MORE comps in the area. Everyone knows this. The listing was over priced, plain and simple. The buyer in this case can pay the difference, so this will not drag out several days before getting re-listed. The point of my article is not that it is ridiculuos for a realtor to challenge an appraiser's value. What is ridiculuous is for a realtor to go appraiser shoping or suggest a new appraiser when everyone involved knows that the appraisal is sound. Read my other article..... the first words out of the mouth of the listing agent was: "We just need a new appraiser". <= this is the problem. And THAT realtor got busted by me(think that realtor gets any referrals from me or that client?). I have been told that I should stay out of the real estate side and focus on mortgages. That goes for those who think they know more than an appraiser. It is one thing to find a couple of comps the appraiser missed because of faulty MLS data or FSBO. It is another thing to suggest that that we can find an appriser to hit the number.
Regardless of what value the appraiser comes in with..... the lender CAN and WILL bust down the value if they feel that the appraisal was pushed.
I don't have any appraisers that will "fudge" anything!!
In fact, every appraiser that I have spoken to is very afraid to do so....especially with the way that the market is right now!!
Tom... I agree, this is a very good topic.... it doesn't happen much to me. I deall with very good to great appraisers that are well respected in the area. But for a realtor to use New construction homes when it is a resale? It all depends on how far it is from the purchase property.... that you really can't use one, if that. Sometimes as an extra comp, not as one of the 3 or 4 major comps....
I agree... this needs to be talked about. I don't find this subject as boring as many others. I rated this post a 5, because it was short, direct, great cartoon... I loved it.... and it brings up some major concerns.
What do I do when this happens? Basically what you did.... ask for more comps.... stick by my appraiser.... and point out the fact the seller is paying closing costs, which will affect the dollar amount. For some reason, so many realtors don't pay attention to this one. thanks for sharing this...
Any appraiser that is biased or influenced by any outside factor foreign to the property that he or she is appraising should not be appraising property. They should remain impartial and objective. They should also be able to prove reasonably the steps that they took to arrive at their opinion of value and support it.
TOM>.... CONGRATS...... after 49 blogs, you get your 1st feature....... just for that, I introduce you to the doublemint stars.... ;o)
and
I disagree with you.
I had a listing that had 7 offers on it, at or above list price, with various things paid for by the seller, included items, etc. The appraiser ordered by the bank brought in a value of less than 60% of list price.
I ordered an appraisal on my own and sold it buyer #2 instead.
Sometimes the appraisers have a chip on their shoulders too. And they work to protect the banks, not our clients. And we have a duty to our clients. And the buyers and sellers are the ones who set the value.
Also, in my area, our Finance contingency specifically allows the seller to bring in a new appraisal, as long as it is acceptable to the lender.
But for ANY Realtor, regardless of which side of the transaction you are on, to suggest that we 'need a new appraiser' is absolutely ridiculous.
That statement is incorrect. I have demanded new appraisers on several occasions as a listing agent. You can tout the worthiness of your appraisers all you want, but some of them are as crooked as some of the lenders out there. As a listing agent it is my job to protect my client "the seller". If your appraisal comes in low and I can, I will fight it. I will demand an appraisal review, and if I found the comps to justify that price, you can be certain that they are viable comps and they will be used to determine price. I have been known to write 17 page dissertations to appraisers justifying price and supplying sound reasons and have won every time.
So, we all agreed to have the Seller Agent submit any new comps to the appraiser for reconsideration as they do have a right to challenge the appraisal.
That would happen whether you agreed or not. It is not your call, the listing agent has every right to supply the appraiser with viable comps if the appraiser has not found them on their own.
I once had a lender fire an appraiser on his way to appraise one of my properties. I was the listing agent, the appraiser was hired by the buyer's lender. The appraiser called me on the way to the appraisal and made comments that were out of line without having even seen the property. I called the lender directly, recanted the conversation, the lender agreed with me, called the appraiser and fired them before they even arrived.
Don't ever discount the power of a good listing agent.
I agree with some points by Sarah and Laurie., but that would only be if you were using a poor appraiser to begin with. I am sure we could go on with many different stories and or reasons. It was mentioned that this appraiser is well respected, hence the comment that this would be ridiculous. That's at least how I see this and my opinion. I do agree with how both Sarah and Laurie stated their side.... but I read it as the appraiser being a very good appraiser. Just my .02
What should be mentioned is if the appraisal is WAY off.... $1,000? That can be worked out.... $15,000 to $20,000.... let's specifically look at all comps used. How much do they compare wto the subject property... distance from the subject property, age, # of rooms, and so much more. "condition of property" is one forgotten by many.
Today in Inman News:
The Painful Appraisal
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Thanks Wayne/Linda
Ann, I have seen banks bust down appraisals too. Especially the higher LTV deals.
Jeff, thanks
Thomas, very well said. A good appraiser will listen if new comps are found. An arguement for value, otherwise, will be laughed at.
Jeff, thanks again. Whoooo Nelly, the 'Double Mint Stars' LOL
Sarah, bank hired appraisers are a whole other story. Does not apply in this case. I always suggest a finance contingency for things like this. And believe me, MY BORROWER will be protected.
Laurie, you made my point for me. And I edited for clarity since I could have made my point better the first time. Buyer's Agent and myself put this listing agent in their place on this one.... they were wrong. And don't ever underestimate the power of a good loan officer. ;-)
Heidi, a home is NOT worth what one person is willing to pay if they get stuck with the property and have to sell the thing to someone else.
Jeff again, The article clearly states that this is a respected appraiser. I chatted with him and he regretted having to cut the value. And although he was open to new comps... he wasn't going to be swayed. A good appraiser will put his/her reputation ahead of satisfying interested parties.
Kaushik, we had that problem for a while on the west side of Austin, TX.
Greg, appraiser do make mistakes. It is usually because several comps are not listed properly, or they do not know about FSBOs.
Diane, I have actually had appraiser tell me that they "strive to hit the number'. I trashed their card.
Laurie again, thanks for the link.
Danny, I agree with you, almost. I didn't make my point well and have edited. Thing is this: Comps are comps and lenders review appraisals. You cannot ignore the sluggish local comps just because a builder is in town and use farther comps, they will catch that. 99.9% of the time it is NOT a problem with the APPRAISER, but rather a problem with 'opinion of value'.
Hi Tom, shopping for an appraiser is only provoking fraud. of course the realtor(r) is going to suggest an appraiser that will hit the mark.. they only want to get paid. seems like the reeeeeeltors have no liability in all this.
no appraiser i know wants to prepare a bogus appraisal so everyone gets paid and we get a measily $300 and risk ou license. the system is broke Tom.
if it didn't appraise, then lower the price or move on. Listing agents need to look at solds along with what is actively for sale to decide on a listing price. most just list above the highest listed property.. you know, the one that has been on the market for 300 days.
i see all kinds of crazy stuff here is Florida. last week some guy said the bank didn't like the appraiser that prepared the report and it bounced. so he asked if that appraiser could send me the report and if i could sign it and collect the money from the prior appraiser!! WTF!? he was a NY broker. i told him where to stick his order.
i'm starting to rant now, so i'll stop. but i will be putting out a post or an entire new blog/website about all this. the system is broke. period.
ps. i think that if its like you say, and depending on the age of the subject property.. and if there are absolutely NO comps within a 2-3 mile radius, i would use some new construction comps and make some (effective) age adjustments. this is all assuming that the subject is 5 years old or newer.
welcome to my world Tom. some professional just ain't so professional, buddy. :)
Gary, I too stay neutral in these issues. But an appraiser can make a mistake. They might not drive by all of the sales in an area because they don't look like comps on MLS.
Hey Nick, My problem is not with realtors in general. My problem is with Knee-Jerk realtors who assume the appraisal is bad because they did a quick calculation based on price per sq. ft. and try to cover their 'assets' by appraiser shopping. You should REALLY start your own blog related to these issues. Like Ed Rybczynski's Title-opoly. You could do some good.
I have had different experiences as I am sure we all have had. One time a home appraised $20,000 less than contract price. Why? Because the listed square feet was really off. When we presented this to the LA, he admitted he never measured the home but took the amount off the previous MLS sheet. My buyers got a nice readjustment to contract price.
I also had an appraisal come in low on one of my listings, when I asked the appraiser why his comps were low, he admitted he never went into the house but just did a drive by. I told him he needed to go inside and see all the rehab work as the home was brand new on the inside. He apologized, went back, and agreed he had made a mistake, thus readjusting he appraisal to show the updates.
So, it is in everybody's best interest to question an appraisal if you think you have a legitimate reason. Just do it in a nice manner and don't be that bullish agent everyone hates. :)
Tom, i see your response to Gary when you responded to my comment. Inaccurate and empty MLS sheets without data or pictures dont help much either. an appraiser could easily overlook something because the info simply isn't there. you would be surprised how many deals got saved because i could see a stairway in the background in a photo and that clued me into the unit being a townhouse style condo, rather than a 1 level condo. weak MLS sheets is an issue that affect appraisals also.
there is no excuse not to have a photo around here.. you just check a box when you submit the listing and the MLS will photograph it for you!!
Jenifer, your scenario about the appraiser just driving by sounds odd. either the lender ordered a full 1004 (interior/exterior) or a 2055 (exterior).. its not the appraiser's job to decide. i wouldn't apoligize, and i would charge another fee to measure and for the trip back out there and make it a new file.
am i missing something?
Jennifer, it is inexcusable for the appraiser to not do their job.
Paul, why pay for a new appraisal? Have another appraiser review the existing one first. Save your seller some money. The appraisers usually don't miss comps unless they MLS data is incorrect.
Renee, They did renegotiate. LOL. But the seller paids going away made it work. Thanks!!
Nick - this appraiser was taking the easy way out, as he had just appraised another home in the neighborhood the week before and "felt" he knew what this home would look like on the inside as well. Trust me, even though the bank can order a certain type of appraisal, appraisers can get around it if they really want to. It's not like the bank is shadowing them to make sure they do their job right. If he would have tried charging me another fee, you better bet I would be calling that lender and letting them know what kind of appraiser they hired. Just because an appraiser might have to go back out to a home to reassess, doesn't mean another fee should be charged. And people call real estate agents greedy when they try to collect their fees, geez. :)
Jennifer, I believe both Nick & Myself stated..... ""that it looks like a drive-by was ordered"". If so, then you better believe that the additional fee would be assessed. Who pays it isn't up to the appraiser..... just that it is paid.
If the appraiser shirked their duty and did a drive-by when a full appraisal was ordered, you would have a beef. And noone would blame you. The appraiser would go out again on his/her own dime.
I don't think I know many appraisers who do full appraisals when a drive-by is ordered at a discount.
The issue here with the fee is whether the appraiser did his/her job in the first place. In your case, he/she did not do their job. I hope you reported them!!!!
If the appraiser did a driveby when a full 1004 was ordered he/she is incompetent. period.
If the order says int/ext (1004) and they didn't go inside, they go back on their own dime, as Tom stated. now if i'm supposed to go inside, and no one is there, and i wait and call and no one show within 30 minutes max, its another $100 to come back.
If the order says exterior only (2055) and then you want an interior sketch with photos, its $100, $75 for the sketch and the $25 for gas money.
sorry if you got a knucklehead appraiser, but i can't agree with this statement..
"Trust me, even though the bank can order a certain type of appraisal, appraisers can get around it if they really want to."
the bank is shadowing anyone, but if it calls for an interior and you give them an exterior, then the underwriting will catch it, i'm sure. i have done a handful of exterior only appraisals. i like to measure and go inside to give them a more exact estimate. the driveby are for when the LTV is super low and there is a ton of equity.
i appreciate your thoughts Jennifer, and i'm sorry you had a bad experience. it does suck when deals get complicated due to incompetent people. i'm dealing with that right now on a purchase/sale
In my area of So Cal, it is common for the appraiser to call the listing agent for an appointment to appraise the property. I always offer to meet the appraiser to let him or her in to the property. I usually hold the "dumb" end of the tape, and bring the comps with me that I used to price the property. I am not an appraiser, but am analytical enough to know when we are pushing the limits of what can be supported. If it looks like there will be a problem with the value, I discuss it with my sellers before the lender and buyer's even know about it so we are (hopefully) prepared to deal with it.
Nick
Thanks for your expert help!!!
Tom,
Appraisers that play it straight are the appraisers to use. If they allow to be influenced by anyone during the process it'll just cause problems somewhere down the line. Switching appraisers to get the right number is funny.
I get one of these every now and again
that is why WE as mortgage brokers control who we use on appraisals. Then we know we're getting someone consistent and ethical.
My good appraisers would not have used those new construction because there is no real way to call them good comps when existing home comps exist.
Likely this is a case of the listing agent using those as comps in their listing price presentation and now he's embarassed that he was so off the mark!
I was helping someone once (pro bono) that had this happen to her as the seller of a property ... the problem came when the broker submitted the appraisal immediately on receipt. Had a real challenge to value come in, it was too late because underwriters can't unsee something.
This is why I review all my appraisals and so does my processor.
IMLOHO (in my little ol' humble opinion), David makes some very good statements above. when you know who you use, you know what you get. period. dont call some knuckle head from Miami to do Port Saint Lucie (which is 2 hours north)... unless they know the area. As an agent, you should write something along the lines of this in your contracts.. 'seller to approve appraisal company being used', so you have the right to hit the brakes on nonsense right away.
i dont know the age of the home in question, so i'll move on to the other statement that David makes that is right on and is how it should be... LO's, mortgage brokers, REVIEW the appraisals before you send them. it only makes sense to. My addendums and neighborhood comments are actually developed, rather than some template junk, and i've had some mort. brokers comment on that. that is how i know their caliber and professionalism AND vice versa.
2 great points David! right on dude! ;)
as far as switching appraisers to hit a number. i think that if 2 appraisers come and do their job, and the values re close to each other but not making the number, then the deal needs to be renegotiated. its called a HINT!! there should be some law that would make it illegal to keep 'shopping for a value' to make a bogus deal work. poor unsuspecting consumers.
oh no, i'm getting riled up again. i'll get back to work now. :)
ps. i do cover Miami to Port Saint Lucie, but i lived in Miami 25 yrs, did a ton of work in Broward (next county up), did bird-dog/tax lien work in Palm Beach (where i live) and Martin County, and i know Port Saint Lucie pretty good. so i'm the exception. ... and my mom says i'm special :)) haha am i rambling.. ?
later gators!
Christy, they will not be putting up the difference. All was ironed out. They still get a great deal, because the builder being active in the area has seemed to drive prices down short term.
David, so true about driving the appraisal. Especially when the buyer is a real estate investor. I learned the hard way many moons ago.
Nick, I am surprised that any appraiser would play games right now. They have already been hit hard by the feds.
Thanks to the AR mods or the gold star.