READ ON INMAN THIS MORNING, an article by Matt Carter about the recent complaints by real estate agents about appraisals needs some clarity from the perspective of a real estate industry representative, me.
Freddie Mac issues appraisal bulletin Appraisers must have local expertise, choose 'appropriate' comps.
Requiring local expertise????
Choose 'appropriate' comps????
With few closed transactions in an area, an out of the area appraiser may select a comp for a home 2 miles away that would have a much higher or lower market value.
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The difference in market value for a subject home and a comp just 1 mile away could be as much as 1-5% depending on the location, the community, the floor plan, the condition, the amenities, additions, etc. Out of the area appraisers are not going to understand local community features, schools, attractions. Only experienced agents can help.
Does Freddie Mac mean that an appraisal company should only accept an appraisal order if they have a local appraiser?
WHAT A CONCEPT!
Well, of course, an appraiser should have local expertise. What is local??? When a buyer insists on using a mortgage company from 2,000 miles away simply because they have "quoted" the lowest interest rate, getting a report of appraised value from an appraisal company 100 miles away isn't anything new.
WARNING! THE LOW INTEREST RATE QUOTE may bring unintended consequences. Over the past 10 years, since the Internet has permitted home buyers to shop for interest rates on line, we've gotten appraisals by appraisal companies selected by that out of the area mortgage company with absolutely knowledge of the town, community, house type, general market conditions, etc. of the subject home. This problem didn't begin with HVCC. HVCC simply exacerbated a problem that began with Internet advertising and the sense of "empowerment" by home buyers.
AGENTS NOT DOING THEIR JOB? How often when the question is asked, "should the listing agent meet the appraiser?", the answer from many ActiveRain members is NO. We read about many agent who find one excuse after another for not meeting the appraiser and defending their list price? They claim "liability". That liability is never explained.
WHAT IS THE LIABILITY? Meeting an appraiser who may be from 50-100 miles away, presenting the comps used to price the property, explaining the features that distinguish that property from others in the area would seem to be a useful thing for the appraiser and part of a listing agents responsibliity to the home owner who has hired that listing agent. Too often the listing agent acts as though they have done their job when they have a listing, or a contract of sale. Our goal is to get to settlement and transfer title. Only then is our job as listing or selling agents fullfilled.
- Listing agent meets with seller.
- Listing agent recommends price based on comparitive market value of similar properties.
- Listing agent enters into contract to list property for sale.
- Listing agent represents seller in negotiating a Contract of Sale.
What comes with that Contract of Sale is usually buyer financing including an appraisal. How can a listing agent divorce themselves from the appraisal process when they have been involved in the transaction since the beginning, including recommending a list price and negotiating the contract price?
OUT OF AREA APPRAISERS ARE NOT NEW!
SHORT SALES ARE NOT NEW!
FORECLOSURE SALES ARE NOW NEW!
LOW APPRAISALS ARE NOT NEW!
What is new is that, now that the government is involved in our business to an extent never seen before, real estate agents need to understand the basics of their job and better protect their buyers and sellers.
DON'T BLAME THE GOVERNMENT FOR LOW APPRAISALS!
Let's take our business back and do our jobs. Learn the basics of property valuation. We are not appraisers but we must understand how to estimate market value. We must learn how to compare recent sales to the subject property. We must understand market trends. Seek local course offerings by your local associations about appraisal basics for agents. These courses will give you a foundation on which to build solid price valuations. Get copies of your buyers' appraisals and study them. If you don't understand something about the appraisal, talk to your broker. Learn your job.
PROVIDE YOUR SELLER WITH ACCURATE PRICE OPINIONS. Don't recommend a high price to get the listing. If you're representing a bank, let them know the market trends in the area in addition to present day comps.
IF YOU'RE IN AN AREA WHERE THE APPRAISERS ADMIT THEMSELVES TO THE PROPERTIES, LEAVE A PACKAGE ON THE KITCHEN COUNTER "FOR APPRAISER" including the comps you used to price the property with distinguishing features highlighted.
MEET THAT APPRAISER AND HELP HIM/HER UNDERSTAND HOW YOU PRICED THE PROPERTY.
The result will be fewer appraisal problems and smoother transactions for the buyes and sellers.
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FROM THE FREDDIE MAC GUIDELINES
44.5: Information supplied to the appraiser (10/06/06)
| (a) |
Information for appraisals
The Seller warrants that the Mortgage originator provided the following information on the subject property, as applicable, to the appraiser in conjunction with all appraisal requests:
| 1. |
The complete legal description (see Section 40.1 for legal description requirements)
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| 2. |
Current condominium association budgets
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| 3. |
The complete sales contract (A sales contract on a new home should state the base price of the house and itemize each option.)
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| 4. |
All financing terms, financing and sales concessions granted by anyone associated with transaction, and any gifts, buydowns and down payment assistance provided by anyone on behalf of the Borrowers, whether for purchase or refinance transactions
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| 5. |
Income and expense statements, property leases and a list of nonrealty items that are included in the transaction, and
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| 6. |
Any other information that the Seller knows that may affect the value or marketability of the property. This information includes an affiliation between the property seller and purchaser, proposed changes to the use of the property, and the presence of any Contaminated Site or Hazardous Substance affecting the property or the neighborhood in which the property is located.
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I don't see anything in this section that precludes the seller, through their agent, providing comps to an appraiser.
Courtesy, Lenn Harley, Broker, Homefinders.com, 800-711-7988.
