Appraisals can be a real problem these days. We're all struggling with it. I'm sure there are a lot of different reasons in different areas, but here in the North Georgia and Western North Carolina Mountains our biggest problem is a lack of comparables. Not enough is selling, we are in a rural area, and our Northeast Georgia Board of Realtors (NegBoard) covers 3 states and 8 counties. The other problem we have here I'm sure is universal: foreclosures and short sales.
I went to a CE class addressing the issue. It was called "Oh No! The Appraisal Came Back Low!", taught by Wade Gaddy and Sponsored by the GAR Partners in Education Program. Our local board put it on. It was the most informative and interesting CE class I've been to. I thought I would just touch on a few of the things I learned that I think every Realtor and home seller should be aware of. Please realize this is by no means complete and some is my interpretation.
I'll address the foreclosure and short sale issue first, this will be quick! Comparables are supposed to be arms length transactions. In normal times that would eliminate these kind of sales. The problem is that foreclosures are becoming an indication of market value in areas where there are a lot of them, and they are effecting real estate prices in a big way. Many appraisers would rather not use them but it's often necessary because they can be the closest comparables and for the reason stated, are no longer automatically dismissed.
Lack of comparables is a huge problem here too. Not enough is selling, and in our rural area the houses are so different they often aren't comparable. The banks also don't much like the appraisers going over county lines, much less state lines, even if the neighborhood is similar and only a mile or 2 away. They do have their reasons for this, different schools, for one thing.
So what can we, as Realtors, do about it, nothing? Not Really. We've been getting a lot of misinformation about the new Home Valuation Code of Conduct (HVCC) rules. Two that I've heard and find disturbing are that lenders have to use an Appraisal Management Company (AMC) and that Realtors can't talk with appraisers. This isn't true. AMC's have a list of their approved appraisers. They take a fee from the lender, say $400, then hire an appraiser from their own approved appraiser list. They pay that appraiser a small part of that fee, maybe $150 or $200, so I've heard, and keep the rest. That's why the good appraisers in our area won't work for them (earning half as much money for the same amount or even more work) and we're ending up with appraisers from further away that don't know our market. When you're helping your client to apply for the financing, you might mention that you know you can't request a particular appraiser but you really need someone who knows the local market.
As to who can talk to the appraiser, the only people prohibited from communicating with the appraisers are the folks working closely on processing the loan. The HVCC guidelines have a pretty specific list of whom these people are. I found the most readable information about this on Fannie Mae's website, the HVCC FAQ's page. If you don't want to read it all, question 64 specifically states that a Realtor can speak with the appraiser, provide them with comps and generally help them do their job. Question 35 states that the lender doesn't have to use an AMC. Question 20 addresses the requirement that the appraiser needs to know the local market.
The best things we can do is treat the appraisers with respect, help them to do their job and make that house look (and smell) GREAT!!!
That house has to look better than it did for any showing. Talk to your client. It must be neat, clean, yard done, smelling good, soft music, flowers, cookies right out of the oven and on the counter, whatever. Appraisers are human too, and appraisals are subjective. First impressions really count! A clean house gives the impression that it's in better condition and lowers the effective age.
Help the appraiser with the comparables. Do you really want them to pick them or would you rather do it yourself? They don't have to use yours but they probably will if they'll work. Do you really think, when you give them comparables, that they'll say "no, I'd rather look them up myself"? Meet the appraiser at the house so you're there to point out the positive features that they may not notice. Put them in writing if you can. Hand the appraiser your comps, or better yet, e-mail them ahead of time. I've been told lately that the HVCC guidelines require that comparables are no more than 1 mile away and the closing date is no more than 90 days earlier. These are lender rules, not Fannie Mae guidelines. Fannie Mae says 1 year, and remember...they are guidelines, not set in stone. The comps you pick should be as close and recent as possible, but if they need to be further away to be more like the subject, explain that to the appraiser. Try to get at least one with the major value driver of your house, i.e. killer mountain or lake view. Try to have comps above and below the contract price. They have to use 3, but bring extras if they'll help. They can use more as supplementals. They also have a spot to explain why they've maybe used a comp that doesn't fit the guidelines.
Show the appraiser respect! Other than being a nice and helpful person, try to speak their language. Using just a few of the correct terms will help them to respect you and take you seriously. There are several different appraisal report forms, but the most common and complete is the FNMA 1004. That's the "Fannie Mae ten-oh-four" not "the appraisal". The house they're appraising is "the subject" not "the house" or "the property". If you want to know about their license, they are classified, not licensed. You ask "what classification" they carry. The classifications have to do with education and experience. Please also realize that they are bound by the same law of agency as we are and they can't disclose the appraised value to anyone but the buyer and the lender, without permission.
So you do all of this and the "subject" appraises low. If you're the listing agent, you'll need to get the "FNMA 1004" from the buyers agent to review it. There's not much arguing you can do with values at this point it's a little late for that. You're looking for mistakes. Look over the first page. Don't waste much time here, just make sure it's correct. Appraisers sometimes clone the information from another report. Page 2 (the subject and the comparables) is where you want to spend your time. This is where mistakes are easy to make. You probably can't argue amounts but look at the plusses and minuses. Think CIA (Comparable Inferior Add) and CBS (Comparable Better Subtract) in other words, if the feature of the comparable is worse, there should be a plus sign, etc. Next, look at the comments page. If you've seen something weird in the report, it should be explained here.
If you don't find any obvious mistakes, you probably won't get too far arguing the report. You can try arguing if you want, you can try getting another appraisal, you can try to get the seller to lower the contract price. You won't get any advice from me about that, but I'd sure love to hear your stories!!!
P.S. I sent this to Wade Gaddy to get his opinion, check for any misinformation I may have given, and be sure he wanted to be associated with it. I also wanted to see if he approved of it enough for me to post it on Active Rain and Trulia. I got a very prompt and lovely note back from him, so I guess I got it right. Thanks Wade!!!
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