Are Appraisers Reporters or Creators? How Agents Can Prepare For an Appraisal
June 16, 2014 |
By Robert Oglesby
The valuation process to most people outside of the appraisal world is somewhat puzzling. Often times, a real estate agent will hand an appraiser a Competitive Market Analysis (CMA) and indicate “this is how I came up with my price.” The process is much more intricate than that. The valuation process is not just about comparable properties. Depending on the intended user, intended use and other aspects, the process can be lengthy with many steps involved. As a real estate agent, the best way to prepare for an appraisal is by gaining an understanding of what the current expectations are from appraisers in today’s market.
For example, for single-unit properties, when a bank requests an appraisal using the Fannie Mae Form 1004/URAR, the statement of limiting conditions and certifications requires the appraiser to develop his or her opinion of market value of the real property – based on the sales comparison approach. I highly recommend every agent take the time to analyze Fannie Mae’s Appraisal guidance (see site reference below) to learn about the requirements. After an agent falls asleep from spending hours reading about Appraisal Quality Monitoring, Uniform Appraisal Dataset and of course the “small” Fannie Mae selling guide, they will hopefully gain a better understanding of today’s residential appraisal world.
The bottom-line: appraisers are being held to a much higher level of reporting than in the past. Why is this important to a real estate agent? Sometimes we forget what it takes to maintain our credentials on a daily basis in the housing industry. Professional appraisers have a license to uphold and an obligation to all parties involved to be accurate and analyze credible data. They are reporters of information and cannot create value that doesn’t exist. Appraisers are expected to investigate, verify and report.
The short outline below may help a real estate agent prepare for an appraisal:
1. Control access to the property; meet the professional appraiser at the property.
2. Under “Appraiser Independence Requirements” there’s nothing that prohibits a real estate agent from discussing credible data with an appraiser. In fact, agents are market participants. It’s important for appraisers to have conversations about the subject, properties, the market, neighborhood, etc. However, the appraiser has to verify information from a disinterested source, especially information presented by parties who have a financial interest in the sale or financing of the subject property.
3. Bring a detailed list of improvements, upgrades, site improvements and other important characteristics about the subject property.
4. Gross Living Area – there are times public records will not match what the appraiser measures. Don’t be surprised.
5. Comparable Properties – bring a list of the best comparable properties based on key elements of comparison. In most cases, it will be hard to deviate from location & utility. Explain your opinion, when the comparable properties may exceed what normal users may expect. Appraisers do not need 20 comps, but only the best. When you only present the high sales for the neighborhood and skip over lower sales, have a logical explanation. This does not guarantee the appraiser is going to agree, but if you keep it short and on track, they will likely investigate and verify your information.
6. Neighborhood, Market Area specifics: As an appraiser, I understand agents work more in the public and may have information on job creation, local market changes, etc. I highly recommend agents present credible neighborhood information that is relevant to why buyers want to live there.
7. Unique Properties – If the subject property is unique for whatever reason, have market information on the characteristics. If it’s a premium view, green home or a higher quality of construction home, present information related to that characteristic that makes the home unique.
8. Appraisal Visual Observation – most appraisers are not technically exhaustive. Don’t rely on the appraiser to be a technical expert; this does not fall into the appraiser’s scope of work and or qualifications.
If real estate agents are prepared in a professional manner, it will go a long way with a licensed appraiser. I recommend real estate agents review several sources related to appraisal – I’ve provided some below. You can also try inviting an appraiser you know out to lunch. You may be surprised what you learn when you hear about their new life in today’s lending world.
Robert is a Certified Residential Appraiser and President of AppraisalTek, a multi-state appraisal management company. Robert’s personal appraisal practice includes high performance homes, vacant land, custom homes, and a mixture of residential properties. Advanced continuing education is a must in the appraisal industry, where Robert has taken all green-related residential courses with the Appraisal Institute and earned a LEED Green Associate designation with the USGBC. Already a certified instructor in Arizona and Texas, Robert recently obtained AQB Certified USPAP Instructor status (May 2014).