Real Estate Appraisal Insight From the Expert

What Can a Homeowner do to Ensure a Better Appraisal?

For the last few years, a divider really has been put in place that supposedly improves transparency in the appraisal process. And while it may have some supposed benefits that help to eliminate fraud and inflated values, it really has screwed things up for the consumer. Now don’t get me wrong, a home is worth what it’s worth and “better comps” are typically not “more appropriate” comps. So when the borrower truly doesn’t know his house’s worth and he relies on one of the popular real estate websites that magically estimates the value sight unseen, then a certain dollar amount is planted in that borrower’s head. Well, when they start the loan process and pay $400, or $450, or $500 for an appraisal that used to only cost $350, now they’ve gone down a road that resembles a casino in Vegas.

Why is it a gamble? Because you really never know what kind of appraisal you are going to get. First of all, most lenders utilize Appraisal Management Companies (I shudder at the idea of capitalizing that), which means a middleman who serves as the barrier between the lender and the appraiser. That appraisal fee is then paid to that AMC who then looks for the cheapest and fastest appraiser they can find. And I’m not kidding when I say that some of these AMCs would offer as little as $120 to an appraiser to do the job. So let’s estimate low on the consumer fee of $400, subtract $120 and that leaves the AMC with $280 for essentially being the barrier. Now I’m not saying that these AMCs shouldn’t make money; they do have staff and overhead and sales people. But the actual appraiser doing the work gets 30 percent of the total fee? Does that seem fair?

Well an HVAC company may charge like $60 per hour to work on your air conditioner and the technician may only get $20 per hour. So that’s a good parallel right? Actually, no, because if your AC causes a fire and burns your house down, you don’t sue the technician- you sue the company. The appraisal is still signed by the appraiser who has his state issued license and his mandatory errors and omission insurance. If you have an issue with your appraisal, the AMC doesn’t care about it at all.

Now I’m not complaining about this process except in spirit- you see the “good” appraisers don’t play this silly game. They won’t drive from one corner of a metropolitan area to the other corner simply to get some work. These good appraisers have a little more pride. They have branched out into non-lender appraisals like bankruptcies, divorce or estate settlement. They only work with small lenders who are exempt from the AMC process and thus can still get full fees. They only work with the reputable AMCs (yes there actually are reputable ones) who value the work of an appraiser. These AMCs collect $400 from the client and pay $325 to the appraiser.

But what about the (let’s not say “bad” because they’re not necessarily bad) inexperienced, desperate, low self-esteem appraisers who will do this work for less than full fee? Well, in many cases, these are the appraisers who come to appraise YOUR house… yes it’s true- not always, but often.

So if you’re buying a home, the appraiser will get a copy of the contract and will find the listing in MLS (if it’s available) At least that way he will have an idea of what value is “needed”. Now before you jump on me about hitting a value, let me explain… if your house is in a newer tract neighborhood where every other house is the same floor plan and there are lots of sales and there are no foreclosures or short sales and the economy is stable, etc. etc. then there’s an efficient market. But it’s not like that. Today you may have several sales that sell on the exact same day- a short sale that is immaculate and sells for $200,000, a bank owned plain Jane model that sells for $205,000, an investor flip that sells for $225,000 another short sale that sells for $180,000 and a fixer bank owned that also sells for $205,000. So how much is YOUR house worth? The point of knowing the contract price is to at least have a number to check your work against.

There have been PLENTY of times when I came in lower than the purchase price and guess what- a few days later, I get a revised contract with the purchase price now matching my appraised value. On the other hand I’ve also come in low and had angry Realtors, AMC underwriters and $10 per hour AMC processors getting all up in my Shiite for killing their deal- and this is AFTER HVCC which was built to eliminate pressure. Again, knowing the contract price is a good check for your work.

But with a refinance, it’s completely different. You don’t see an estimated value or loan amount- it’s just an appraisal request- it’s actually a little daunting at times because the appraiser is actually being asked to do his job without guidance. What a strange concept- I don’t mean hand holding, but actual free reign to appraise a home for what it’s worth. It’s sort of refreshing. However, I just had one last week- a refinance where the owner lived in another state so they were having their rental property appraised for refinance. The last loan amount was $250,000 and the house is now worth $180,000. Do I think that they will get their refinance? It’s none of my concern… I’m helping the bank make a decision by providing them with data. If they shouldn’t do the loan, then they shouldn’t do the loan. But then again, I do wonder what might go through that borrower’s head. How much did they pay (in this case, they paid $350 and I got $350), what gave them the idea that their home was worth more?

But refinances are such a rare bird nowadays and they make up a very small portion of my volume- I’d say less than 3 percent in 2011. So this is where I come to giving some advice to people looking to refinance.

First of all, I gave you the background on the appraisal ordering process to prove a point- you have no control over who appraises your house. However there are some precautions you can take.

1. Check your home value on one of the popular websites. You can actually put in your address and they will give you a value based on their own proprietary system- whether or not it’s accurate, it’s a start.
2. Get some perspective of your own house.  EVERYONE thinks their house is the nicest one around.  After all, they did pay for the lot premium and upgraded carpet padding, and upgraded vinyl flooring and they’ve got 2 extra feet in their garage and they have a soft water loop… WAKE UP!!!  You’ve been sold on BS!  You bought your house from a SALESperson.  So if you come down from you attitude that your house is awesome:
1. Look at the sales in your neighborhood.  See what features they have.  If there is a rare open house, take a look- and then track if and when it sells and for how much.
2. Make friends with your neighbors- only for the sake of getting into their house so you can compare it to yours.
3. Find the close by neighborhoods that have homes similar to yours and see what they look like.  Are the common areas nicer?  Are the lots bigger?  Is the builder better?
3. Are you ready for my pitch?  Are you ready for my angle and reason for writing this blog entry in the first place?  Here it is… Get some real data that an appraiser would use to appraise your house.

So how do you get real data that an appraiser would use to appraise your house?  Simple.  Call a local appraiser.  That’s right, go to Google or Bing and do a search for “your city appraiser” and you just might find a good appraiser.  Try it now.  Click this link and you’ll see what I’m talking about (and no it doesn’t go to porn!)  And when you get there, click on Advantage Appraisals- which of course is my company.  The point is that when you find that local appraiser in Cicero, Illinois or Hollywood, Florida or wherever you are, give him a call.  And be honest with him.  Let them know that you plan on refinancing and you want to know if you should proceed.  Here’s the possible outcomes:

1. no answer (most common)- he’s out of business, which is an unfortunate reality of what HVCC did to my fellow appraisers across the country
2. reply of “I can’t do that”- he’s clueless and is one of those $120 appraisers
3. reply of “That’s illegal”- he thinks he knows what he’s talking about but he doesn’t.  Remember, you’re asking for data, not analysis
4. reply of “I’d love to help you, but you’ve got to realize that regardless of what I provide for you, when you do get the actual appraisal, you might get some schmo who doesn’t know your neighborhood, drove 100 miles to get to your house and is only getting $120 to do all that work because he’s a loser appraiser”  That’s probably a good appraiser 😉 because that’s the exact conversation I had today.

The homeowner told me his situation and I told him “I will pull comparable sales based on what public records shows for your home.  Assuming that I am appraising your house today, I will pull comparable sales that a reasonable appraiser should find given your characteristics and typical lender guidelines for appraisal requirements (recent sales, similar style, similar age, actives, pendings, etc.  How the actual  appraiser (because it sure heck won’t be me) analyzes that information is up to him.  If you don’t get your appraisal for another 90 days then this information will be essentially worthless.  I won’t provide you with a report- just sales and listings.  But with that data, you can make a more informed decision on if you should proceed with your refinance.  Total cost- $55.”  To which he replied “Sounds like an easy decision and you should market this service to others”  After the call, the process was complete in an hour and the guy was ecstatic.  Guess what, I technically did an appraisal.  I created a workfile and I will keep it for the requisite number of years.

But here’s the next point of advice. The homeowner asked me if when the appraiser calls to set up the inspection appointment whether he should tell him that he has comparable sales for him.  My reply was “Heck no!  We appraisers are a proud bunch and if you happen to get a good appraiser and pull that line, you’ve immediately touched a nerve.  The “I know how to do your job” Realtor, borrower or loan officer is considered a douchebag to an appraiser.  As unprofessional as it may sound, and perhaps a generalization that is exaggerated, you don’t want to run the risk of offending an appraiser.  I told him that the best course of action is this.  When the appraiser calls to make the appointment, find out where he’s coming from- that’s it.  If he’s within 30 miles you should be ok.  But if he’s over 30 miles away, that’s a huge red flag.  You might want to google his name and look him up on the state licensing website to see if his license is in good standing.  Again, this applies to our world of cheap and fast appraisals.  If you’ve got a bad feeling, call your lender and tell him that the appraiser gave off bad vibes and you want another who is closer, or Certified, or designated or whatever it takes to put your mind at ease.  But you must do this before the appraiser actually comes to your house.  Once the inspection is done, if you get that vibe, you will probably have to pay extra for a second inspection.  I personally will drive over 30 miles for a full fee good client.  And if I don’t know the area well enough, I will get to know it (as I am legally required to do) before I appraise that home on the opposite side of Maricopa county.  Secondly, when he gets there, be cool.  Make small talk, and then you can present the data that you received from your local appraiser for only $50.  Stroke him first with “I don’t know how to do your job, but I’ve got some sales that you probably already have.  Just figured I could save you some paper by printing it out for you.  Some appraisers might refuse it, but again, the “good” appraisers will at least courteously thank you and  take the information.  Sure you might find it strewn across the community park later that afternoon, but the “good” appraiser will at the very least compare it to the data he already has.  Chances are he has the exact same sales, but he just might realize that you provided him with one or two good ones that he missed because the Realtor input it wrong in MLS.

Besides that, it really is a gamble.  But I’d sure as heck like to play a game with better odds- like Baccarat or Blackjack, than slot machines or Roulette.  Unfortunately, we live in a world with a lot of one-armed bandits- so watch out!

Visit our website at http://www.advantageappraisalsllc.com, and if that doesn’t roll off the tongue, just try http://www.appraiserdude.com. Or now you can follow us on Twitter at @appraiserdude AND we just added a Facebook page for you to “like” at http://www.facebook.com/appraiserdude. Give me a call at 480-544-1217 if you have any questions. I look forward to working with you.