Note: Even though I’ve written this article from the viewpoint of an appraiser in Austin, it is still applicable to ALL real estate markets.
It’s Fall of 2013 and as I look back on the real estate trends in Austin over the past Spring and Summer I am amazed at just how quickly some markets appreciated. Areas like East Cesar saw median values rise 30% in 12 months and popular central neighborhoods Crestview and Brentwood experienced “moderate” increases of 14% in the same time.
As the sales trends continue in hot areas many listings are receiving multiple offers, yet some Realtors are still struggling with appraisals that are coming in below contract price. This is a scenario that, at best, results in a slower closing or possible renegotiation and at worse a deal that falls through.
In a situation like this it is easy to point the finger at the appraiser; but that is a bit short-sighted and unfair. There is much more at work here than many realize. No appraiser wants to be the cause of a deal not closing, but often in residential valuations we are limited by the data available to us. We must be able to explain and defend all aspects of our appraisal to an underwriter employed by the lender – and they can often be ruthless!
So who is to blame and more importantly, what can be done?
Ultimately we can blame the 2008 housing crash; the industry is very different now. Lenders have more requirements and are much more scrutinizing of appraisals. The end result is that appraisers ARE much more cautious and conservative in their opinions of value. But this doesn’t mean that a well-priced property should be under-appraised for fear of a lender’s underwriting department.
So onto the point of this article: How can Realtors and appraisers work together to avoid low appraisals and increase closings?
First, it is very important for Realtors to understand just how crucial MLS data is for appraisers – it is one of our main sources of sales information. Realtors truly act as the appraiser’s eyes and ears when it comes to market data. If listing or closing data is entered incorrectly, is incomplete or altogether missing, our market research will not be accurate when filtering for comparables. This can result in perfectly good comparable sales never even showing up on our radar.
Keeping in mind how important MLS data is to an appraiser, let’s take a look at the following tips.
1. Photos, Photos, Photos. If there were just ONE thing Realtors could do to make the appraisal process easier and faster it would be include more photos with their listings. Appraisers do not have the luxury of visiting every comparable property, walking the grounds and viewing the interior as it was at the time of sale. We rely heavily on the photos supplied by Realtors and sadly this is an area where many do just the “minimum”.
Regardless of whether the listing is a “pocket listing”, a lot only sale, or a property that needs extensive rehabilitation we still need adequate photos to weigh the property against our Subject. It’s worth the extra 10 minutes to take a few more shots and add them to the listing.
With that in mind here are the recommended photos that all appraisers, and possibly potential buyers, would love to see on your listings. The exterior of the property from all 6 sides (front, back and the corners showing the sides of the home). The street in both directions. Interior photos including all bathrooms and the kitchen. Also, be sure to include exterior photos that are taken during the day. I know that 1.5 million dollar home looks fabulous lit up at night, but I need a picture of it during the day!
2. Property Cheat Sheet. Number two is still dealing with data but this time it is something you can provide directly to an appraiser. Contrary to popular belief, appraisers do not just “trash” anything a Realtor gives them while on site. In fact, one of the things that I often ask my Realtors to prepare ahead of time is a bulleted list of updates, features AND deficiencies.
Such documents are quick to type up and can provide the appraiser an easy to view list of home improvements and possible issues. But please, save the selling for your MLS listing. We’re interested in a “glossless” list of facts to review to help us understand more about the home.
3. Accurate Listing Living Area. Another big problem I see with many listings is including detached structures in the total living area. This is not the correct way to list properties that have separate living quarters, guest houses or apartments. This leads to properties showing up incorrectly in filtered search results.
I know some of you think I’m crazy on this one so here are the American National Standards Institute guidelines for calculating the square footage of single-family residential buildings (ANSI Z765):
Finished Areas Connected to the House
Finished areas that are connected to the main body of the house by other finished areas such as hallways or stairways are included in the finished square footage of the floor that is at the same level. Finished areas that are not connected to the house in such a manner cannot be included in the finished square footage of any level.
Areas Not Considered Finished
Finished areas that are not connected to the house, unfinished areas, and other areas that do not fulfill the requirements of finished square footage prescribed above cannot be included in the Statement of Finished Square Footage but may be listed separately if calculated by the methods described in this standard. Any calculation and statement of unfinished square footage must distinguish between above-grade areas and below-grade areas.
I cannot tell you how many times I have found what looked to be a perfect comp only to later realize I cannot use it because the home is actually too small – the listing added the size of the detached structure to the reported total living area.
And if you think about, this isn’t just a bad idea from an appraisal research standpoint. If a buyer is searching for a home that is 1200-1500sqft and your listing is actually a 1000sqft home with a 400sqft guest house, but you listed as a 1,400sqft home – the potential buyer may be unhappy about the discrepancy. The correct way is to list the Living Area at its reported size and include the size of any detached livable structures in the agent comments section.
4. Below Grade Rooms. Number four isn’t common in Austin since most homes do not have basements or rooms below ground level but I’ve heard several appraisers mention it so I will include it in my list.
Make sure you correctly list the number and size of rooms that are “below grade” as well as note whether they are finished or unfinished. Rooms that are below ground level are dealt with differently on the appraisal form so it is important that they be correctly reported.
5. Call me Back! This next tip is a personal pet peeve: Please Return Appraisers’ Phone Calls! If an appraiser calls you and leaves a message, 9 times out of 10 he/she has a question about one of your listings. This question is possibly holding up the completion of an appraisal report so please try and return calls as soon as you can.
6. Fix It First. Another tip that can not only save time but possibly money for the borrower is to have all repairs completed BEFORE the appraiser’s site visit. An appraiser is obligated to disclose any “defects” that are present at the time of a site visit. Even something as simple as peeling paint could be cause for the lender to request a second site visit. This cost more money and can hold up the appraisal process for days depending on the ability to reschedule. Make it a clear point to your sellers that repairs must be made before the appraiser arrives.
7. I Love Comps, But Not After I’m Done! If you have comparable sales or listings to provide to an appraiser please do so before or at the time of the site visit. Doing so at a later time may be TOO late as the appraiser may have already researched and written their report. No appraiser wants to go back and re-do work they’ve already done – and most won’t just consider additional comps.
8. A Little More Info Please. This tip goes along with number seven. If you do provide comps to the appraiser, do not JUST provide sales that you think support your listing price. Explain low sales nearby that the appraiser is likely to find in their research. As an agent you go through a lot of homes and hear a lot of things, sometimes you will be able to explain why a sale was low due to marketability issues or conditions NOT reported in the MLS or known by the appraiser.
9. I Need Rental Amounts. Number nine is a bit of a no-brainer but I still run across it from time to time. If you are listing a multi-family or investment/rental property then please include current rents. If you want to be really helpful you could make a calculation of current market rents and provide it as well. Keep in mind that for rental property we must perform an Income Approach to value which leans heavily on market rents. Again, the more information you provide in your listing the easier our job is and the faster we can work.
10. Know the Property Type. Going back to your MLS data, the incorrect listing of property “type” is another challenge appraisers must deal with. I blame this mainly on newer real estate agents that may not yet realize that condo and town home are not styles but rather legal types of properties.
Admittedly it can be tricky to define the property type when even the tax rolls have them listed incorrectly from time to time. Your best bet is to research what the legal use of the property is and whether there is a percentage of interest in the development or common area.
The other property types I see incorrectly interchanged are modular and mobile homes – if it has a serial number, it’s a MOBILE HOME.
11. Get a Condo Questionnaire. On that note, here’s another time saver when dealing with condos. If the appraisal is for a condo, and going to a bank, be sure to have the Condo Questionnaire paperwork filled out as soon as possible. If the HOA doesn’t have a standard condo questionnaire form then ask your appraiser to provide you with one. This again will avoid delays in closing and possible extra fees.
12. Get a Pre Listing Appraisal. While it isn’t possible for anyone except the bank to select the appraiser for the mortgage, you could consider getting a pre-sale appraisal to prepare yourself for any possible issues the bank appraiser will uncover. If you decide to go this route, contract an appraiser or appraisal firm that calculates market trends and considers these trends in their Sales Comparison Approach – this is critical in an appreciating market.
For example: If a market is showing 12% year over year appreciation it makes perfectly good sense to adjust any sales over 30 days old by 1% a month. The standard Fannie Mae 1004 URAR form contains a line for adjustments to age of sale – make sure you hire an appraiser that knows how to use it! (By the way, at RealEstateAppraisalsAustin.com we provide a five year market trending report with ALL our appraisals so we know how to adjust for age of sale)
I hope these tips have inspired you and opened your eyes to how appraisers and Realtors can work together to achieve faster appraisals, faster closings and more accurate appraisal reports.
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