Don't let the appraisal derail the sale

Illinois REALTOR® Magazine | April 2013

Don't Let the Appraisal

Derail the Sale

By Stephanie Sievers | Associate Editor

picture money ball breaking through brick wall

You get a good offer on your listing only to have the appraisal come back below the contract price. As the real estate market recovers, tighter lending and appraisal standards can have an impact on the home’s valuation.

That impact, in some cases, can make or break the sale.

A survey last fall by the National Association of REALTORS® found that 11 percent of REALTORS® had a contract cancel because of a low appraisal, another 9 percent reported a delayed contract and 15 percent said a contract was renegotiated at a lower price due to a low appraisal.

Appraisers independently assess the property, but there are things REALTORS® can do on their end when it comes to helping the process go more smoothly. The most important is offering good, current information on the property, in person or through the MLS listing.

Bonnie Rossell, an appraiser for more than 30 years who owns Jack Carpenter REALTORS® with her husband in Oak Park, says ideally a real estate agent will meet her at the appraisal to offer information about the property.

“They’re always the eyes and ears of the community and they know the property inside and out,” she said. “If they meet me there, a lot of the questions that I have, they can answer right away.”

What kind of helpful information can an agent bring to an appraisal? A plat survey with the square footage, information on any known defects or inspection results, details about the neighborhood and a few recent comparables. Rossell said she reviews everything agents give her. She cautions if you go to the trouble of providing comparables, make sure they are current and are truly comparable to the property being appraised.

“Don’t throw a lot of stuff at me that has no meaning to my house,” she said. “Don’t give me a five bedroom when I’m looking at a three bedroom.”

Elizabeth KernIn recent years, lenders and regulators have been looking for more information in appraisals and under tighter timeframes. That has put a bigger burden on appraisers. Accuracy and detail in MLS listings are vital, says Elizabeth Kern, a 25-year appraiser with Frank McAtee and Associates in Alton.

Agents are limited in how much detail they can fit into an MLS listing, but the more information they can provide the better, she said. Include many interior photos and err on the side of detail. If an agent says there have been “general updates” that doesn’t tell Kern much, but if they say the roof has been replaced or the plumbing has been redone, it helps her get a better sense of how those updates have affected the home’s value.

“I’m aware that these MLS sheets are to help entice people to want to take a look at the property, but they serve two purposes because this is what we have to work off of as well,” Kern said. “You can’t read the mind of the person who wrote it. The more detail, the more specific it can be is very helpful.”

Another tip? If the appraiser calls you with a question about the property, promptly return the call, Rossell says.

“I call a lot of brokers and some never call me back,” she said. “If I call to ask a question, it’s because I’m on a deadline. If they don’t call me back in a week, that report is probably done and out.”

Regulations bring appraisal changes

The regulatory changes that followed the housing market downturn brought changes to the appraisal process, said REALTOR® Laura Reedy-Stukel, a broker with L.W. Reedy Real Estate in Elmhurst and a member of NAR’s Real Property Valuation Committee.

The Home Valuation Code of Conduct (HVCC) enacted in 2009 established stricter rules regarding appraiser independence and increased the use of third-party appraisal management companies, or AMCs. But the changes have not been without problems.

Complaints grew that appraisals were coming in too slow and low. The influx of large appraisal management companies meant that out-of-town appraisers were used who were unfamiliar with the local community and the lower number of sales meant that distressed properties were used as comparables. In general, the push was for more extensive appraisals done faster, for less money and sometimes without the benefit of local market knowledge.

Laura Reedy Stukel“The appraisal management companies, while they’ve created independence also basically created a commodity out of appraisers,” Reedy-Stukel said.

HVCC expired in 2010 to be replaced with the Dodd-Frank Wall Street Reform and Consumer Protection Act, which refined some of the initiatives created by HVCC including more regulation on how appraisers are chosen, competency guidelines and the requirement that appraisal management companies register with states.

Under an Illinois law that went into effect Jan. 1, 2012, appraisal management companies are required to register with the Illinois Department of Financial and Professional Regulation (IDFPR). With the administrative rules approved in February 2013, appraisal management companies could begin registering on March 4.

An estimated 150 appraisal management companies are expected to register in Illinois by year’s end, said Brian Weaver, IDFPR’s Appraisal Coordinator.

Reedy-Stukel said the use of appraisal management companies by large lenders is prevalent in her market and as a REALTOR® specializing in green or “high-performance” homes, she knows how important it is provide information on what makes the home unique. Some of the upgrades that make a home more efficient, such as insulation or durable building materials, aren’t necessarily visible but can affect the home’s value, she said.

Some MLSs allow for energy efficiency details and certifications to be added to the listing information. If you work with “high-performance” listings, the Appraisal Institute also has created the “Residential Green and Energy Efficient Addendum” requesting that appraisers be assigned who are competent in efficiency homes.

The National Association of REALTORS® (NAR) has long spoken out for an independent appraisal process done by licensed or certified professionals. In 2012 NAR adopted the Responsible Valuation Policy outlining the association’s policy position on valuing and pricing property. It can be found at www.realtor.org/appraisal/responsible-valuation-policy.

Neither Kern nor Rossell work with appraisal management companies, but the pressure to meet the new appraisal demands impacts the entire industry.

“I understand that AMCs can cause delays but most of us are trying as hard as we can to get things back as quickly as possible while still rendering a supportable and reasonable conclusion,” Kern said.

The housing market is complex and so too is the appraisal process. There are no easy appraisals today, Rossell says. With distressed properties affecting prices and tighter time constraints for turning appraisals around, the best defense for REALTORS® is to provide helpful information that pulls from their unique knowledge of the market.

“If they’ve got information that I don’t, I’m more than happy to take a second look,” Rossell said. “I don’t know of any appraisers who try to come in low. If the information is there, it’s there.”

 

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April 2013

April 2013 cover

State-licensed and certified appraisers make up 30,000 of the National Association of REALTORS® more than 1 million members.

Outline of a house made with dollars

Tips to help the appraisal run more smoothly:

  • Meet the appraiser at the property in case they have questions about the listing or neighborhood but give them space to do their job.
  • Be as descriptive as possible in MLS listings to cut down on follow-up phone calls later.
  • Be accurate with room count and only count above-grade, heated rooms.
  • If you don’t know the square footage of a property, don’t try to guess. An incorrect guess could have negative consequences in listings such as condominimums where the value is linked to footage.
  • Include as many photos of the listing and the comparables as possible.
  • Be responsive if the appraiser does contact you with questions.

What consumers need to know and expect when it comes to real estate appraisals.

  • Understand that the role of mortgage appraisals isn’t to confirm the sales price, but an independent assessment of the value of a property in a particular market.
  • REALTORS® and consumers can accompany the appraiser during the appraisal.
  • Ask for a copy of the appraisal and examine it for any potential errors.
  • If there are problems, consumers can appeal and ask the lender to order a second appraisal.

(Source: The Appraisal Institute, www.appraisalinstitute.org)

What’s Ahead: The Consumer Financial Protection Bureau (CFPB) in January adopted a rule that will give consumers greater access to appraisal reports. Lenders will have to provide a free copy of each appraisal and information about how the value was determined at least three days prior to closing. Currently, consumers must request the copy and they aren’t entitled to receive copies of all value estimates. The rule goes into effect January 2014 and applies only to first-lien mortgages.