Appraisal pitfalls

The way an appraiser is selected has changed significantly, said Will Robison, an associate broker with Berger Briggs Real Estate & Insurance Inc.

Rather than choosing a familiar appraiser, it’s up to chance as appraisers are sent out at random from a pool, he said.

“There’s no control over it,” Robison said, adding that can be frustrating.

With so many homeowners overmortgaged, the idea behind the revamped methods was to save buyers from themselves, he said.

Changes began in 2009 when Fannie Mae and Freddie Mac implemented the Home Valuation Code of Conduct. It required that lenders use a third party to arrange for an appraisal. The code prohibited lenders from speaking directly with the appraiser about the valuation process.

The code was replaced by provisions in the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. In addition to working with appraisal management companies, lenders now can set up their own firms. There still are standards to ensure appraisal independence, and the firewall between the lender and the appraiser on any specific appraisal is supposed to remain intact.

Still, low appraisals can easily torpedo a sale, Robison said.

	Appraisal tips ⋄  Make sure your lender hires a qualified appraiser. Ask the lender for an appraiser’s qualifications. ⋄  Don’t get greedy. Strong demand for homes is resulting in multiple offers, and some properties are being bid so high that they won’t appraise, real estate agents say. ⋄  Provide information about the house, including renovations and comparable sales. Put together a package that includes comps, upgrades and amenities within the development. Include the dates of major work done on the kitchen, bathrooms and roof, as well as the closed permits on any additions. ⋄  Accompany the appraiser during the inspection. Did the appraiser spend enough time at the property to observe important features or improvements or potential problems? ⋄  Ask for a copy of the appraisal report and examine it. “Appraising the Appraisal: The Art of Appraisal Review,” says common errors in appraisals include “misuse of adjustments to comparables, disregarding special financing and concessions, or miscalculation of … living area.” ⋄  Ask yourself: Do adjacent homes add or detract from the value of the subject property? Is the subject property equal to or lower in price than surrounding homes? Does the floor plan have any functional problems? ⋄  Appeal the appraisal if you believe it is incorrect, or ask your lender to review the report. Most lenders have appraisal appeal procedures, known as “reconsiderations of value.” ⋄  You can ask your lender to order a second appraisal. If problems were found with the first appraisal, you should get a second one. For more information, go to www.appraisalinstitute.com

“I had one deal for $100,000 but the appraisal came in at $70,000,” he said. “We had to terminate the loan. The guy pulled comps (comparable sales of like houses) from miles away.”

When that occurs, one option is to pay for another appraisal – at the home seller’s expense – and hope for a better result, Robison said.

Ken Chitester, spokesman for the Chicago-based Appraisal Institute, has conceded there may be a lag in valuations in a recovering market, but says appraisers can only work with the data available to them at the time.

The new rules also limit the amount of contact a real-estate agent can have with the appraiser as the appraisal is under way, said Pete Veres, a broker with ReMax’s Elite Management Asset team.

But there still are some ways that an agent can help the process, he said.

“One thing I do is call him ahead of time and try to establish a good rapport with him,” Veres said. “I want him to know that I can help him as much as I can.”

There are opportunities to present pertinent information, particularly as it relates to improvements that have been done to the property.

“If there are a lot of updates, you want to point that out,” he said.

For instance, if the countertops have been upgraded to marble or if the bathrooms have been modernized becomes items an appraiser may want to know. And how a house fits into its neighborhood could have some bearing, as well.

“The age of the house is important. We had one house that was about 12 years old, but it was a in a neighborhood with 100-year-old houses. But this one was built to look like the other ones so it fit in, so that was important to point out.”

With so much riding on a good appraisal, though, it’s in everyone’s best interest to have as accurate an appraisal as possible, said Joe Olmi, a real estate agent with Gateway Real Estate and La Entrada Realty.

Neither the buyer nor the seller comes away pleased if the appraisal fails to match the agreed-upon sales price, he said.

So just like when presenting the house for sale, it’s important the home it looking its finest, Olmi said, with a strong curb appeal and a clean and uncluttered interior.

Like Veres, Olmi said he tries to point out little, but potentially relevant bits of information that could help an appraiser in the evaluation process.

“You never know what’s going to help,” he said.

Still, Olmi said, it’s important to do so without going overboard because that could become counterproductive.

Sometimes in the current market homes have sat for some time and in that case, it helps to make it looked lived-in with some furniture and other accessories, Veres said.

In addition in that scenario, a little thing like making sure the electricity is turned on could be important.

“That sounds like a simple thing but it could be a major issue,” Veres said.

And any major repair work that is necessary will negatively affect an appraisal dramatically, he said.

In the end, however, both the buyer and seller remain at the mercy of the appraisers’ findings and if it turns out poorly the agents have to be creative to find a way to fix it, Veres said.

“Sometimes we have to come up with solutions that are outside the box,” he said. “For the most part, I’ve had real good luck. But we’ve had a couple of hiccups and that’s when we have to come up with a way to justify the sales price. And we have to do our jobs to make sure we have it priced properly at the outset.”