Sunday, September 13, 2009

How appraisers can help or hurt buyers

Part of the home buying process after your offer on a home is accepted by the seller is getting the home appraised. The purpose of an appraisal is to determine the homes worth and market value. If a home doesn't appraise for the price which a buyer and seller agreed upon, then the lender will only issue a loan for the amount which the home appraised for. At this point,a negotiating point,the buyer and seller can talk about making up the difference between the contract price and the figure which the home appraised at. The buyer may insist that the seller reduce the contract price to the price which the home appraised;the seller can stick to the contract price and tell the buyer to improve his offer;or the seller may agree to lower his/her offer if the buyer also agrees to increase his/her offer to make up the difference.


Over the last couple of years the appraisal industry has been heavily scrutinized,as some appraisers have been accused of "making sure their number matches the sales figure"---either due to pressure from the lender,listing agent and/or buyer agent to make sure a deal happens.
Some lenders and appraisors have faced pressure from clients and agents that they will not use their services or refer their services if the homes don't appraise. To be fair many agents want homes to appraise to keep the deals together. If a home appraises for higher than the contract price,which a buyer doesn't have to disclose to the seller,then the buyer is probably happy and should be very happy with how negotiations went on the sales price. Even If when a home doesn't appraise,in a "buyer's market" the buyer may have an upper hand and be happy with his/her agent, since there is so much housing inventory. The buyer may be just has happy if the home doesn't appraise,thinking the seller will agree to a lower price and just be happy to have a buy and not having to look for another buyer. Strictor rules have been enforced regarding appraisers to limit their communication with real estate agents--agents can't choose the appraisers to avoid the appearance of price fixing.

I am currently working with a buyer in Frederick, Maryland and we agreed to sales terms with the seller. One of the terms of the contract is that the home has to appraise at the agreed upon sales figure. I was told that the appraiser was going to complete his report last Friday, meaning to me that he did his diligence,evaluating the market trends for similar homes,actually going inside the homes which he is comparing to the home which my buyer is purchasing, and of course going inside the actual home which my buyer is purchasing. As reluctant as I am to tell other people how to do their jobs,appraisers should go inside of homes to see the homes features and faults. Driving buy a home to see just the outside and/or looking at recent sales history based on sales data on the internet and court records doesn't tell the entire story.

On Friday I touched base with the listing agent,who told me that neither she or the sellers had any contact with the appraiser,which is of particular concern to me because the home is owner occupied and at least one of the sellers is home almost all of the time. So,the owners would know if an appraiser or anybody else came inside of their house.

The listing agent expressed her concerned. If the home does not appraise that it is because the appraiser did nothing more than drive by the home or look at sales data on the internet and court records. She believes the home should appraise. Based on the sales data I have seen, I would be surprised if the home didn't appraise. But,I am not a professional appraisor and don't know everything they do to calculate values of homes.

The listing agent basically warned me that the appraisal will be challenged if it is below the sales figure because to her it appears that the appraisor didn't do his due diligence. Will the home appraise,I don't know. If it doesn't appraise I will 100% represent my buyer and talk about
the fact that the listing agent and buyer agent aren't appraisers.

At the same time,I did tell my buyers to be prepared that, if the home doesn't appraise, then the sellers will likely appeal the appraisal and could file a complaint about the appraisor for not performing his due diligence. Meanwhile,let's keep our heads' cool and wait for the report to come in.






















Many homes do appraise and many homes don't appraise. The question is if the evaluation was done in a professional and ethical manner.

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