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appraisers killing deals

10 things Realtors can say to pressure appraisers

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I know what some of you are thinking. Appraisers have been screwing up real estate deals, and now some appraiser has the nerve to tell Realtors how they need to talk to appraisers? No, that’s not where I’m coming from at all. My goal isn’t to talk at anyone, point my finger or wave a victim flag, but instead improve communication in the real estate industry. I’m passionate about that, especially since I regularly rely on my Realtor relationships to do my job.

Image purchased and used with permission from 123rtf dot com - by Sacramento Appraisal Blog smallToday I want to share 10 subtle (or not so subtle) statements that in a small way can come across as trying to influence an appraiser’s value. These statements are very normative in the real estate industry, aren’t they?

10 questions and phrases to pressure appraisers to “hit the number”

  1. I’ll be happy as long as it appraises for at least the sales price.
  2. Do your best to get the value as high as possible.
  3. The market has been “on fire”. You shouldn’t have any trouble with the appraisal.
  4. Is it going to come in at “value”?
  5. I never say this, but if you can just work some magic this time, you’ll be my hero.
  6. If this doesn’t “appraise”, the seller is going to go into foreclosure.
  7. I would be shocked if it didn’t “appraise”.
  8. I really hope this works out. No pressure or anything though.
  9. The son has cancer. It’s been really hard on the family. The last piece to wrapping up this transaction is the appraisal.
  10. I don’t want to ask you to do anything unethical, but just do your best.

Agents Laugh: Whenever I share these statements during classes I teach at real estate offices, agents always chuckle. Why? Because we all know how common they are. Of course I don’t think most Realtors are trying to overtly steer an appraiser to a certain number. After all, coercion is kind of a big ethical deal. It’s rather a matter of simply using lingo that is a regular part of real estate culture – but maybe shouldn’t be. When we begin to really think more deeply about subtle statements like these, what is the real goal of using them? And are statements like this ethical in the eyes of the DRE?

The Pressure Test: How would you know if you are trying to influence an appraiser’s value? It really comes down to motives. If you find yourself saying one of the statements above while talking with an appraiser, ask yourself: “Why am I saying this? What is my goal here?” If the appraiser asked, “Why did you tell me that?”, what would your response be?

tips-150x150My advice? It’s probably best to use language that cannot be interpreted as pressuring for a certain value – whether high or low. If you find yourself using subtle statements like this, ask yourself what you are really trying to get across to the appraiser. How could you do that without pressure statements? Honestly, it likely feels tricky sometimes to be able to communicate with appraisers these days in light of HVCC and Frank-Dodd, but with some focus and strategy, there are definitely ways to chat and convey good information to appraisers – without trying to steer a certain value. If you’re looking to communicate more effectively with appraisers, check out Quick tips for agents for talking to appraisers and Agents, be ready to answer these questions when appraisers call.

Lowball Reality: Lastly, I know lowball appraisals are plaguing the market. It’s a real problem, and I’m not dismissing that reality for anyone who has lost a deal because of legitimate appraisal issues. I know a post like this can be frustrating to some who really don’t want to communicate at all with appraisers because of so many bad situations in the past. However, no matter what the past or future, the best thing we can do is communicate well and work with the system we have.

I hope this was helpful. Anything you’d like to add?

If you have any questions or Sacramento home appraisal or property tax appeal needs, let’s connect by phone 916-595-3735, email, Twitter, subscribe to posts by email (or RSS) or “like” my page on Facebook

Appraisers killing deals, comps and high prices

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There is lots of talk about appraisers being “deal killers” because appraisals are coming in too low. I’m not saying that’s fiction, and I’m not about to defend bad appraisals either, but sometimes it’s about the deal being unrealistic rather than appraisers killing it.

Image by Sacramento Appraisal Blog

Choosing the Right Comps: I appraised a property in Citrus Heights recently just south of the Placer County line and the City of Roseville. The subject neighborhood is outlined in yellow below. During the course of the appraisal I extended the opportunity for the Listing Agent to share any competitive sales or data that was used to develop the list price. The agent then provided me with “comps” across the county line in Roseville (in the “blue” territory below). These sales of course supported the contract price for the subject property, but were they really adequate comparable sales? Would buyers consider properties in Citrus Heights and Roseville at the same time? Is there any price difference between these two neighborhoods? What does the data say? (see graph below)

Citrus Heights vs Roseville Map - Sacramento Appraisal Blog

citrus heights vs roseville - graph by Sacramento Appraisal Blog

There are surely times when sales in a different city or county might be competitive and therefore worth considering in an appraisal, but not in this case in my opinion. Why? Because the Roseville neighborhood plain and simply has higher property values – not to mention it has a different school district. If I used the “blue” comps above, the subject property would have an inflated value. Bottom line.

What are the market takeaways from this scenario?

  1. Bad Comps: It’s best to use comps (comparable sales) from the immediate neighborhood, but that’s not always possible – especially if the subject property is unique. Ultimately, regardless of where comps come from, the appraiser needs to have a good reason for using them. If comps are from a superior area, they should be discounted to be more consistent with the subject neighborhood. The same holds true for an inferior neighborhood in that the appraiser should add value to those sales to bring them up to the same level of the subject neighborhood. Ultimately the wrong comps can lead to a value that is either too high or too low.
  2. Realtors: If you supply comps to an appraiser, it helps if they are truly competitive sales. Would a buyer for the subject property consider purchasing the comps as a replacement if the subject property was not available? As an FYI, when the agent for the property above told me these two neighborhoods had the same school district (they don’t) and there was no value difference either (there is), I had a hard time believing any other information the agent shared with me about the number of offers or the price level of offers too. It was unfortunate to have the feeling that I couldn’t trust the agent, whether the agent was simply mistaken or a more purposeful communicator.
  3. Appraisers: It’s important to pay close attention to nearby neighborhoods to ensure there is no price difference.
  4. Proper Pricing: The market has been “on fire” in Sacramento as prices have shown an increase lately in many areas. However, it’s still important to price properties according to the market. After all, there are many reasons why buyers will overpay right now. If you are a seller, look at the most recent sales (and listings), and be competitive with realistic expectations. I’ve noticed many sellers are actually not choosing the highest offers because they know it just won’t appraise that high. However, sometimes offers at extremely high levels are chosen, and then frustration ensues when the appraisal comes in “low”. Yet the real issue in these cases is that the buyer offered too much and the seller expected too much. It’s really not an appraisal problem (assuming the value was solid of course).

The Bottom Line: I am not wearing market blinders that ignore there is a real issue with the quality of appraisals. That’s why I’ve written so much about challenging low appraisals. Yet at the same time there are properties being priced very aggressively right now, which is also important to sift through. In cases like this, when the appraiser recognizes value at a level lower than the contract price, the appraiser is simply doing what should be done, right?

Any thoughts or stories to share? If you are an agent, how have the appraisals been for your deals lately? What do you wish appraisers would do differently? (please comment below)

NOTE: This is in no way intended to bash Realtors. That’s not how I operate. In fact, this next year will be my fourth year sitting on a committee with the Sacramento Association of Realtors. If you are looking for a trustworthy real estate agent, my digital Rolodex is full of referrals for you.

If you have any questions or Sacramento home appraisal or property tax appeal needs, let’s connect by phone 916-595-3735, email, Twitter, subscribe to posts by email (or RSS) or “like” my page on Facebook

Blame appraisers when it’s due, but don’t forget about the housing market

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If the appraised value comes in lower than the contract price, did the appraiser do something wrong? It’s easy to think the appraiser has been negligent somehow if the contract price is not met, but that’s not necessarily true. Appraisers have been getting slammed lately by the National Association of Realtors among other sources for “low appraisals”. There are certainly horror stories and situations where botched appraisals have killed a deal. Believe me, I know this from many relationships I have with investors and real estate agents in the Sacramento area. That’s exactly why I’ve given tips for challenging a low appraisal. But let’s remember that negotiations are normative in real estate and a list price and contract price are not necessarily a reflection of value.

Case-in-point: I appraised a flipped property in Elk Grove recently and my appraisal came back close to $10,000 below the contract price (but still above list price). While this is frustrating for the seller or listing agent, there was no ill-intent or agenda on my part. I could be blamed for bringing down the housing market and stalling a recovery, but I simply interpreted the market in this case. The lender’s appraisal department actually agreed with my appraisal too as we talked in-depth about why the appraised value was reasonable. Recent sales in the neighborhood did not support the contract price, current listings did not support the contract price, I did not use distressed sales for comparables (those were far lower than equity sales) and even offers on the subject property supported a lower value. The seller ended up accepting the highest offer – an FHA offer asking for closing costs back. All other offers were conventional or asked for no closing costs, and they all came in near or lower than the appraised value. The type of financing is not a definitive point for establishing value, but buyers not using their own money tend to make higher offers, don’t they?

Don’t forget to point the finger at the market: It’s interesting to me that appraisers are often blamed for a lack of recovery in the housing market. I wrote two days ago about the increase in the percentage of short sales in the 95757 zip code of Elk Grove. While this is encouraging news on some levels (less foreclosures), short sales also tend to sell lower than traditional sales, which means the housing market is ultimately weighed down if short sales represent 39% of all sales in a given zip code. Short sales usually have to be priced more aggressively to generate interest and/or close quickly before foreclosure. Some banks are not easy to work with either, which can also impact pricing too. I’m not saying at all that appraisers are not to face blame for shoddy work, but when the market has a total of 66% of all sales being foreclosures or short sales (as in the case above), it’s important to keep in perspective just how much the market is driving property values.

My points: 1) Give blame when it is due; 2) Market > Appraisers.

What do you think? Does this seem reasonable or am I off my rocker? What are the factors helping and hurting our housing market right now? What role do you see flipped properties playing in the housing market?

If you have any questions or Sacramento area real estate appraisal or property tax appeal needs, contact me by phone 916-595-3735, email, Facebook, Twitter or subscribe to posts by email.

Regulate those Pesky Out-of-town Appraisers

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Have you heard horror stories about out-of-area appraisers driving 200 miles to appraise properties in places they know nothing about? There is a new bill (AB 1796) to pay attention to as it relates to real estate appraisals and this very issue. You can read this very short one-page bill HERE. In essence, AB 1796 looks to require the Director of the Office of Real Estate Appraisers (OREA) to adopt regulations for Appraisal Management Companies (AMCs).

I understand the reasons behind this bill, but the part of the bill that actually really concerns me is the following:

The director shall adopt regulations governing appraisal management company activities, including, but not limited to, the following:   (a) Use of out-of-area appraisers.

I understand the need to limit those pesky out-of-town appraisers who are “killing deals” because they are appraising in locations they know nothing about. I get that, but there are several good reasons why “regulation” language concerns me as it pertains to this point: 

1) There are certain properties in my own county and city that I wouldn’t even think of appraising. Not all appraisers are qualified for all types of properties – even in the city they live in. I don’t know of an appraiser who would say it differently. So the issue is not about distance from the property per se, but does the appraiser have the experience to get the job done (or can he gain the experience)?

2) I’d hate to see the government impose some sort of a “two county” rule where AMCs could only send appraisers to properties within two counties or 50 miles of their location. Again, some appraisers have vast experience in multiple counties. This would probably hurt appraisers located in more rural areas too.

3) I’m not a big fan of the government imposing more rules and regulations on the appraisal industry. Appraisers are required already to be “geographically competent” by USPAP (our uniform standards) and if an appraiser is not, then the hammer needs to come down from the appropriate authorities already (OREA) instead of inventing new rules. This is a bit like parenthood. If you have rules in place, you need to enforce them. Don’t just go make new rules if you are not enforcing the old ones.

Isadore Hall of Compton, CA authored this bill.  

Isadore Hall
Box 942849
Room 6025
Sacramento, CA 94249-0052
Phone: (916) 319-2052

I know I sound a bit ranty, but trust me, I’m concerned – not hostile. How this bill is ultimately handled can have big implications for the real estate industry. I am optimistic that OREA will not make some hard and fast “2 county” rule as I mentioned above, but my internal sensors are dinging and I’m aware of the importance for our legislators to understand how the appraisal industry works as it pertains to appraising in multiple counties. 

I’d like to hear what you think. What is the solution to the problem? What implications do you see for the appraisal or real estate industry if this was handled poorly? Feel free to comment below.

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