I know, nobody actually reads appraisal reports. Well, except for one thing – the value. But let’s talk about a critical place to look in an appraisal that can make all the difference. I have a story to share too about why this even matters.
BONUS: Check out the new new sales volume graphs below.
Look for these boxes: The bottom of page two in the appraisal has a few important boxes the appraiser can check, and these boxes help show if the value is “as is” or if there are required repairs, inspections, or other conditions. My advice? Be sure to look at these boxes carefully as well as any commentary listed in the space below (or the addendum if it says “See Addendum”).
If the value is “as is”, the appraiser is saying the property is worth that amount without any required repairs or further inspections needed.
If a “subject to” box is checked that likely means the value has already taken into consideration certain repairs or that the property will pass a future inspection (maybe a pest inspection, foundation inspection, two-year roof certification, etc…). So if an owner does the repairs listed, it doesn’t increase the value because the value was already based on the repairs being made.
In short, if you see a box checked besides “as is”, that’s a clue there is more to understand about the value.
An example of why this matters: A real estate agent uploaded an appraisal I did into MLS. This appraisal was completed for a lawyer and the value was not “as is”. In fact, this property had extensive damage, but the attorney asked me to value the property as if it was in average condition. This was spelled out blatantly in my report by using the boxes above (and in other places).
The problem here is the selling agent may not have realized the appraisal was not “as is” because the listing said something like, “Appraised at $670,000 in August 2018.” Yet the property was listed for $100,000 less because it was being sold “as is.” So the question becomes, could this be a liability for the agent? What if an out-of-town buyer bought based on thinking he/she was getting a discount because of the attached appraisal? Also, does this expose the appraiser to liability or reputation damage if people are reading the report and not understanding the value isn’t “as is”? I’m not a lawyer, but something doesn’t quite smell right here.
I’m not trying to make a big deal out of this, but sometimes details matter, so I caution real estate friends to look closely at the appraisal to understand the value. By the way, the agent was cool about removing the appraisal when I reached out about this.
The Big Point: Please read the bottom of page two to understand if the value is “as is” or if there are repairs built into the value. That can make all the difference.
I hope this was interesting or helpful.
SALES VOLUME SLUMPING: On a different note, here are some graphs I made yesterday to tell the story of sales volume slumping 11% in the Sacramento Region. I included a graph from 2005 also in case you’re wondering what volume did when the housing market imploded.
Questions: Any stories to share? Do you look at the boxes I mentioned above? When is it okay and not okay to upload appraisals in MLS?
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Mr. Lunduist, if I didn’t know better I’d think you snuck those ominous sales volume charts in at the end of the post on purpose with no mention in the title. Almost like you didn’t want it to be ‘the shot heard round the world’ and cause the buffalos to stampede the exit?
Much like your post about reading the whole appraisal form to look for the ‘as is’ box, one must read the entire Sacramento Appraisal Blog post lest the miss some very critical charts buried in there! HAHA.
Thanks for the post Ryan. Good stuff as always.
Haha. No, I just didn’t want to do a post on hardcore stats since I did that last week. Not everyone is a big-time numbers person. And you know, I have to keep the non-numbers people happy around here too. I did debate on whether to just do one post dedicated to these images because they’re telling, but this other topic was burning on my mind, so that was the trump card.
On a side note I’m anxious to see January and February sales stats. I’m guessing the numbers are going to be pretty low because pendings in both November and December were down from last year. What I’m really wanting to see though are the listings that hit the market in January and February. Those ones will be really telling as to what the market is up to right now in the new year.
Thanks Mr. Miyagi. I appreciate it.
Good point Ryan about “as is” versus appraisals with conditions. I’ve also seen the flip side of this where an appraiser does a report with a major condition, explains it hidden somewhere in the report but forgets to check the box and make a note near the value conclusion. Also misleading. I think the lesson here is that if an appraisal is important to a user, then the user should read it.
Thank you Gary. Well said. I think that’s a fair point too that what the appraiser does can obviously influence clarity or confusion.
Great post Ryan! It is so true that there are things in an appraisal that are extremely important to understand above and beyond the value. Great information! I love it “as-is”.?
Thanks Jamie. Yep, understanding what we’re reading is key. I realize appraisals can feel like the instruction manual when we buy an appliance, but reading is still key. I don’t think people need to pour a glass of wine and read through 40 pages. But there are certainly different places readers ought to look to become informed.
Great post Ryan, as always.
I don’t understand why an agent would attach an appraisal to a listing unless it offered glowing support of the price. An appraisal with conditions does not do that; it emphasizes the “warts”.
The written appraisal can be confusing for the uneducated eye. Hopefully, agents and loan officers, new to the business, will study them closely and often; certainly the underwriter will!
No way “valuations” should EVER replace appraisals, specially where there are conditions. Fannie/Freddie may like them but the lenders won’t. Can you say, “Over-ride”?
Keep the good stuff coming,
Tom Caruthers
Thanks Tom. It’s hard to say what happened here, but I’m guessing the agent may not have known it was not “as is” condition. I think your’e right that people may not know how to read appraisals as they can be full of information, long, and/or confusing to the untrained eye. Case-in-point. An agent friend saw this appraisal and called me to ask why the value was so high. This friend didn’t check the “subject to” box because my friend may not have known to do that. Hence this blog post was born.
Appraisers do play an important role, and I hope we get to keep playing that role in mortgage transactions as well as private work.
I would also note-if the appraisal was done for a lawyer, why did the agent have it?
Was the agent the intended user?
Was the overall MLS market the intended user?
Exactly. This report was geared toward litigation – not a real estate transaction. It was definitely not designed to be used to help buyers make decisions about purchasing or not.
I have an email in to MLS actually to see if they can speak into this issue. No appraiser ever likes to have any report uploaded into MLS. I get it when there is a pre-list appraisal of course, but something like this is a totally different story in my book. I hope MLS gets back to me. I will update this post when they do.
Great article! These are all critical aspects of a sale that cash investors need to be made aware of. However, a bank is not going to lend over true market value, and I will assume they will be looking at all details of the appraisal, including page two. If investors don’t choose their real estate agent wisely, they may be in for a big surprise down the road.
Thanks Lisa. The bank will definitely scrutinize the appraisal for sure. You are right about that. They actually do read it. I think the real estate community and others tend to not look at the right parts though and sometimes that’s due to not knowing how to really digest the report. It’s critical to be able to read appraisals that happen during a transaction, but I think it’s equally important to think through an appraisal that is brought in from the past.
Agreed on choosing the right agent too. For sure.
Thanks Lisa.
Great tips on reading the entirety of the appraisal report. That’s like reading only part of a doctors diagnosis of a patient. If you don’t get the whole story it can really affect how the ailment is treated (not sure if that’s a good analogy but we’ll go with it). On another note, I’m really surprised at the drop off in sales volume for the second part of last year. Those numbers seem pretty drastic. How does this compare to past years and what do you think is causing it?
Thanks Tom. Yeah, sometimes the fine print matters… So true.