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talking to appraisers

Does it help appraisers when agents increase the pending price in MLS?

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Does it help appraisers when agents increase the pending price in MLS for the subject property? In other words, if a house was listed at $400,000, but gets into contract at $415,000, does it help if the pending price is changed to $415,000 in MLS? This might seem like a silly topic, but I get asked this question all the time, and it seems like many believe this makes a difference for value. Here’s my opinion, and I welcome your two cents also.

Quick Answer: First off, sometimes agents think appraisers only look at the pending price, but appraisers make it a point to view the entire listing history. If you didn’t know, the Fannie Mae appraisal form actually asks appraisers to input the complete pricing history of the subject property into the appraisal. The appraisal report therefore records the original list price, any price changes, and the pending price. So it’s not like the appraiser or lender is blind to the fact the subject property was originally listed for less and is now in contract for more. In short, upping the list price for the subject property doesn’t help the appraisal come in higher or do anything for value. We have to remember the proof of value is found in the comps instead of whether the list price in MLS was increased or not for the subject property. However, on a different but related note it can be useful when appraisers are choosing comps and they see other pendings in the neighborhood getting into contract at higher levels. After all, pending sales showing higher prices might help us see the market is increasing or even help us make upward time adjustments. So while this practice of changing the list price in MLS for the subject property doesn’t do anything for value, in my mind it can be useful when looking at other pending sales in the neighborhood to see if everything is getting bid up or in contract at higher levels.

Three questions:

  1. What is the goal of this practice?
  2. If this practice is not done when the property is in contract for less, why should it be done when the property is in contract for more?
  3. If this happens in mass could it screw up data in any way?

I hope this was interesting or helpful.

Questions: What is your opinion on this practice? Is it a good idea or not? I’d love to hear your take.

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How do you get an appraiser to value vintage features?

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It can be nerve-wracking to have an appraiser come out. So I wasn’t surprised to receive an email from someone worried about his vintage home. Will the appraiser give value to the vintage features? How can an owner ensure the appraiser will give proper value? Let’s talk about that.

Question: How do I get an appraiser to value these vintage features?

Answer: That’s a great question. I’m not trying to be frustrating by not answering directly in the way you might wish, but the most important thing to remember here is that value is found in the market. What do buyers prefer? Are buyers paying more for homes with vintage features or are they paying more for homes that have a vintage vibe but with modern upgrades? I find sometimes in the vintage world an owner will restore a property to its original state. I get that, but just because so much time and money was spent on a restoration does not mean the market is going to pay the same amount as a house that has been remodeled with current upgrades. In some cases buyers definitely pay for older era elements, but at the same time they tend to pay more when the kitchen is modern (and not original). I don’t say this to be offensive, but only to highlight the reality that the proof of value is found in the comps. In other words, if there is more value for being totally vintage, then an appraiser ought to be able to find similar homes that show higher prices. At the same time I get your concern because it’s easy to see blue and pink tile from the 1950s and immediately ding value because it’s outdated. This is why it’s going to be important for the appraiser to be in tune with the local market and be objective by letting the market speak rather than being shaped by his/her personal preferences. To be honest I remember in my early days coming across a Mid-Century Modern home and making the mistake of assuming the original condition was worth less when in fact it was something desirable for the market. Doh!!

Restoring a house can be very expensive, so I recommend making a detailed list for the appraiser about what has been done. This can help the appraiser understand the quality and cost of the improvements. Keep in mind if restoration is a trend in the neighborhood, it might help to mention that or even share specific examples you have seen. I’m not saying to pressure the appraiser to “hit” a certain price point (please don’t), but only highlight what is happening in the neighborhood. Personally I love hearing about what’s happening in a neighborhood from someone who lives there because it’s data for me to consider. Just remember not all the money spent on a restoration or remodel will show up in the value (it always shows up on HGTV remodels though). On a practical note you can use my appraiser information sheet if you wish.

BIG POINT: Just because something is done to a house does not mean the market is willing to pay for it. When it comes to a full vintage restoration, we have to ask if that’s something the market is willing to pay for or if it’s just one owner’s passion for yesteryear. I think of restored cars as a good example of one owner dumping a ton of money into a vehicle only to have the market pay less. I’m not saying that’s the way it always works in real estate in every case, but restoring something to its original state can be very costly and the market might not absorb that cost. The proof is in the comps though. 

I hope this was interesting or helpful. Thanks Luis Sumpter for the first photo.

Questions: Have you seen the market pay more for homes that are restored to their original condition? What examples can you think of where the market did NOT pay for certain upgrades? I’d love to hear your take.

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3 ways price per sq ft is valuable in real estate (even for appraisers)

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My name is Ryan and I use price per sq ft in real estate. There it is. My confession. Are you surprised? I know you’ve heard me talk about how price per sq ft is one of the most abused metrics out there. I still believe that. Yet there are several ways price per sq ft is actually valuable and useful for real estate professionals (even appraisers). So let’s kick around some ideas together below. I’d love to hear your take in the comments. Any thoughts?

price per sq ft value in real estate - image purchased and used with permission by sacramento appraisal blog

1) Price Per Sq Ft Helps Us See the Entire Market: What have buyers been willing to pay in a neighborhood? It’s valuable to see the price per sq ft spectrum to help answer this question. What is the high, the low, and the average? I ran a CMA of sales over the past 90 days in the Mather neighborhood in Sacramento County (a tract subdivision), and the price per sq ft range is $112 to $206.

Mather all sales past 90 days - sacramento appraisal blog

2) Price Per Sq Ft Helps Us See The Competitive Market: Imagine we’re valuing a home that is 1569 sq ft. The question becomes, where does the 1569 model fall on the price per sq ft spectrum that we see above? After running a CMA for model match sales, the price per sq ft range is $184 to $193. That’s a much more narrow range compared to the overall neighborhood, right? Ideally it would be nice to have many more sales, but that doesn’t always happen as we know. This is why sometimes it might be best to look at more than just 90 days of sales and obviously expand the square footage range to maybe 1400 to 1800 or so. Whatever you do, just make sure you have enough data to produce meaningful results.

1569 model in mather - price per sq ft - sacramento appraisal blog

3) Price Per Sq Ft Helps us Talk to Clients About the Market: Some clients are so stuck on price per sq ft that they struggle to think about real estate in any other terms. Here’s how it usually goes. A home owner sees a figure of $206 from a different sale in the neighborhood, fixates on that number, and then expects a value for his own property based on that number (even though no similar sales have commanded a price per sq ft close to $206). After talking through Points 1 & 2, hopefully the client can understand that hijacking a random price per sq ft from the neighborhood isn’t a good valuation methodology. Lastly, it’s critical to actually completely set aside price per sq ft and ask two questions: What have similar properties actually sold for? (sales price) & What are similar listings actually getting into contract for?

price per sq ft in real estate - image purchased and used with permission by sacramento appraisal blog

Application:

  1. Real Estate Agents: Be sure to study the price per sq ft spectrum for the entire neighborhood AND competitive properties in the neighborhood. But make sure you spend a good amount of time finding similar sales and listings. Sometimes agents say to appraisers, “I used a price per sq ft of $215 to price the property”. Okay, but where did you get $215 from? Why not $208, $214, or $225? Remember, appraisers like myself can find value in using price per sq ft to see the context of the market, but at the end of the day we are fishing for comparable sales to tell us what the market has been willing to pay for something similar. So when you communicate with appraisers, I recommend talking about actual sales you used to price the property rather than price per sq ft figures. This helps you speak the language appraisers use, and your initial research with price per sq ft vs. actual sales might even help convince sellers to not get hung up on a list price that is far too high (based on a hijacked price per sq ft).
  2. Appraisers: Sometimes appraisers mock price per sq ft and treat it like a meaningless metric, but there is actually some real value in using it. Not only can we get a more detailed sense of the market, but we can also communicate well with clients. Consider paying close attention to competitive price per sq ft figures (I know, this may not work in rural markets). If you are coming in lower or higher than the competitive range in the neighborhood, just be sure you know why and can explain why. Also, consider using price per sq ft figures in your final reconciliation. For instance, along with statements about comps, I regularly find myself saying things like: “The final value is also supported by trend graphs as well as competitive price per sq ft figures in the neighborhood.”

I hope this was helpful.

reaa-north-bayClass I’m Teaching Next Week: By the way, I’m teaching a class next week in the North Bay to a group of appraisers. It’s called How to Tell the Story of Value in Appraisal Reports (good for 2 hours CE). Come on by if it’s relevant.

Questions: How do you use price per sq ft in real estate? Anything else you’d add to the points above? Did I miss something? I’d love to hear your take.

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Thoughts on real estate agents influencing the appraised value

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I wish every agent would be proactive about talking with appraisers, yet not everyone is on board with that. In fact, someone recently told me he thinks using my appraiser information sheet is a violation of Dodd-Frank. So I’d like to unpack two thoughts when it comes to influencing appraisers, and then give a helpful statement that might be useful for agents when sharing information with appraisers. I’d love to hear your take in the comments.

providing comps to the appraiser - sacramento appraisal blog

Two Things About Influencing Appraisers:

  1. Providing Data: As an appraiser I want as much information about the property as possible. I want to hear how the market responded to the home. How many offers were there? What price levels? What type of feedback was given from buyers and other agents? What recent upgrades have been made? The answers to these questions can be helpful since my end goal is to figure out how the subject property fits into the context of the market. Sometimes these insider details really can help paint context, so I need to be in tune with the details. I definitely prefer agents to share any sales, listings and data that were used to price the property too if possible because I want to understand the mindset of the agent or seller. Yet I am not a lawyer, so I cannot tell anyone for sure that providing sales is okay in the eyes of Dodd-Frank. I recommend each agent and brokerage to figure that out. However, on a practical level as an appraiser I know I want to get as much information as possible about the property, so I am in the habit of asking many questions. This is one of the reasons why I developed an appraiser information sheet so agents can be proactive about answering questions appraisers tend to ask.
  2. Hiding Stuff: Sometimes I hear the real estate community say, “It’s not okay to give appraisers comps because it’s an attempt to influence the value.” I get that because trying to pressure or coerce for a certain value is off-limits. That’s so 2005, right? Yet is giving appraisers “comps” the only way influence can happen? What about all the documents that are hidden on purpose from the appraiser? Pest reports, agent visual disclosures, contract addendums, repairs negotiated between the seller and buyer not mentioned on purpose in the contract, documents uploaded to MLS during the listing but then removed before the appraisal is ordered, etc… I’m not pointing fingers or sitting on a moral high horse by any means, but only saying influencing an appraiser can show up in many different ways. Sometimes it’s about what is said, but can it also be about what is not said or disclosed? Thus the conversation about influence seems to be about more than just giving an appraiser “comps”.

Agents need to take Dodd-Frank very seriously because it is professional and ethical to give appraisers space to be an unbiased neutral party in the transaction. Bottom line. Yet in my mind it is also professional for agents to serve their clients well and be proactive and prepared to answer questions appraisers tend to ask. Bottom line. Thus if you use my info sheet or something like it, I recommend using a statement like the following to explain why you are providing this type of information to the appraiser during the appraisal inspection.

A Statement I Recommend Agents to Use:

“Appraisers normally ask me questions like this, so I answered them for you to be proactive and professional. Would you like this information?”

information-to-give-to-the-appraiser

I hope this was helpful.

Action Steps: 

  1. Consider using the statement I mentioned above to help clarify and describe your actions as being proactive about answering questions rather than trying to steer a value. If an appraiser doesn’t want to take your information, respect that decision and move on.
  2. Feel free to use the “information sheet” I developed. If you think any portion of it could potentially improperly pressure an appraiser, then edit or change that portion. You be the judge.

A Quick Year in Review to Use: Here is a quick year in review graphic for the Sacramento housing market. Feel free to use it unaltered on your blog, on Facebook, Twitter, etc… I always appreciate a link back.

year in review - sacramento real estate market - 2015

Questions: Agents, what do you tend to hear in your office about what is okay and not okay to share with appraisers? Appraisers, in what ways are you being pressured right now to “hit the number”?

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