Posted on March 20, 2018 - 03:07 PM
by Cat Stevens
WHEN APPRAISALS BECOME A PROBLEM:
When a condo is appraised for less than the buyer has agreed to pay, that's a problem. It can not only spook buyers, but also upset the loan-to-value ratio required by a mortgage lender; meaning either a buyer must come up with more cash or the seller must cut the price for the deal to make it to closing.
In a rising market like the one we've been in lately, low appraisals are a particularly a real and pesky problem. It takes a few months for transactions to close and sales prices to become public, which makes it tough for appraisers to find good, current comparable sales to base their numbers on. Sometimes appraisers go outside of a property but in most cases we do not need to do that in Destin. The low supply and high demand keep properties moving at a brisk pace.
So what can you do about it? If you're the buyer, nothing. If you're the seller there are options.
First off, here's what an appraiser does: The appraiser is an independent third-party advisor who gets paid a flat fee to appraise a property regardless of value. Lenders and appraisal management companies are required by law to follow strict rules when it comes to conducting appraisals. Even then, the margin for error is still quite high. You also won’t have any say in who does the appraisal because it raises potential conflict of interest issues. These are the new laws.
Do your homework: Don’t sit on the sidelines and take what they say as true value.
I once had an incompetent appraiser who gave me a 15,000 under market value for a unit. I was able to get Trustmark Bank to redo and pay for a second appraisal and it came in right at contract price. As your broker I take the pro-active position. Once I provided the comps to the bank they could see that he was way off the mark. He was not familiar with this property either. He was so bad Trustmark took him off of their rotation. The bank cannot hand pick the appraiser. They have several on rotation so the next one in line gets to appraise. However, they don’t have to stick with a bad one either!
I help the appraiser do their job by providing information such as comparable sales and floor plans when asked. By all means list your upgrades and costs on a spreadsheet. Leave them on the counter for him/her. The condition of a unit is so important. The appraiser will compare to the one that recently sold and if you have granite, upgraded flooring, stainless, etc., they will give you an uptick if the last comparative unit sold did not. They will subtract from you if you don’t have it and the last unit that sold did. Find out how well the appraiser knows the neighborhood: You see what happened to me when the appraiser was clueless! Don’t be shy about asking if they have experience in your building and the area when they call to make the appointment.
Make sure everything looks (and smells) nice: First impressions matter. Any minor improvements like fresh paint, clean floors, and small repairs such as stains on furniture are so important for first impressions. Make sure all fixtures are in working order as well. Even if you can’t make other improvements like new floors, furniture or an updated kitchen or baths, you can make sure it is clean and smells fresh. Caulking and spackling where needed can make a huge difference. A tub or shower surround with bad caulking needs to be addressed. If your condo shows a better light factor in the morning schedule the appraisal for that time. Get rid of any cooking odors. Many appraisers’ state condos are not clean when they arrive. It is so important to create a positive environment. Move anything you don’t want them to see because they look at everything. Put personal items away and out of site. I will tell you I have seen some appraisers come in and take pictures and be in there all of 5 minutes. I do not like that approach. I think an in-person visual is always better especially when the property shows well. It takes time to be aware of all of these things. Sometimes a photograph is not worth what the eyes can see in person.
Finally: Read the appraisal, and make sure it's all accurate. You always have the option to appeal, which is known as reconsideration of value. Most lenders have this option to appeal and I would use it if you are unhappy with the outcome. If the lender sent someone from another area you can ask them for a second appraisal if you feel the appraiser was not qualified. All of this depends on the financial institution but most will be somewhat responsive. I also consider this part of my job to find out for you. When I see the comparable an appraiser used that may be inappropriate I am going to point that out to the bank and provide one that is more on target. Appeals can be time consuming and difficult but I say it is worth the challenge in the long run. Buyers get spooked when an appraisal comes in low and sellers who know better will not relent either. Very few are going to come up with a big difference out of pocket. They may meet in the middle sometimes. My job is to make it happen and I will push to the edge and beyond to get it done.
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