Not My Fault! Just Blame the Appraiser

The art of persuasion, it’s a beautiful thing. Books have been written about it, master classes offered and expressions like “he could sell ice to an Eskimo” coined. Home buyers and home sellers dabble in the “persuasion” arena during the purchase process as they roll through the deal. The typical real estate agent doesn't dabble, they will do whatever necessary to secure their commission. Someone certain to be on the radar of all is the appraiser; sometimes an ally, sometimes an enemy. More on Karen later...

Home Sellers & Appraisers

When an owner decides to list, their first move to solicit a real estate agent. Unfortunately, most sellers fail to properly vet an agent and many agents lack the ability/expertise/desire to speak candidly to sellers. They tend to aspirationally price, hoping to get the listing and then to find a willing buyer. Doesn’t usually happen, so then agents push price reductions. Blame the market, not that the home was overpriced. Some agents recommend an appraisal prior to listing, they don’t want to deliver “bad news” so they let the appraiser do it..

If the appraisal comes in above what the owner expects, it’s a love connection. The appraiser’s word is final, the agent needs to get it done. If the appraisal is below expectation, the appraiser is out of touch with the market, doesn’t fully appreciate the home and doesn’t understand how buyers "will just love it". While the agent should acknowledge the low appraisal, most will agree with the owner to just get the listing. They have the perfect excuse when the home doesn't sell: “well...remember...the appraiser said....”.

If the home goes under contract and the appraisal comes in below contract price, a vendetta is set against the appraiser. The owner, the listing agent and the lender will scream bloody murder; the appraiser this and the appraiser that. Any previous favorable appraisals are shoved in the appraiser's face.  Of course no one checks to see how old they are or if that appraisal is completed using the same criteria that the lender’s appraiser is held to..."but here's an appraisal". All instantly become expert appraisers but almost always, the caterwauling stops when the call for relevant supporting data is made.

Home Buyers & Appraisers

Home buyers have less interaction with appraisers and for the most part, they never meet. The appraiser is sent by the lender to provide an unbiased opinion of market value and to ensure the contract price is supported by the appropriate data. They are required to follow set underwriting criteria; there is no “freelance” approach to this. The loan is based upon the lower of the contract price or appraisal, and sometimes appraisals come in low.

A low appraisal offers the buyer a chance to renegotiate the deal, who doesn’t love that? Some buyers will find success, saving all or part of the difference. They also reserve the option to cancel the deal if agreement isn’t reached. Appraisers have prevented repeated self-inflicted wounds on the part of home buyers, this appraiser included.

Most often, the appraiser is in and out of the deal with minimal interaction. Provided that proper and adequate support exists for the contract price, the appraiser is a minor player. In that case, there’s the standard “thanks” from the buyer and lender.

The Feeling is Mutual

For the most part, appraisers tolerate agents, there is little love between the two camps. The vast majority of agents have little idea of what an appraiser does or the criteria they must follow. The very few that are engaged can be and often are helpful, but for the most part appraisers operate in a vacuum. Their responsibility is to their client and with transactions or refinances, that is the lender. For private or other work, the client is spelled out in the engagement letter.

The market during 2021 to mid 2022 was an anomaly, fueled by reckless spending and impulse. Now the hangover and significant buyer's remorse is settling in. As the Fed raised rates in an attempt to control rampant inflation, the housing market stumbled. Greater Atlanta is finding solid ground well ahead of other areas, but '23 is expected to be turbulent. Advisories and bulletins continue to be sent by lenders, appraisals are likely to be more challenging over the next year.

All that said, let's take a look at a really special real estate agent that sets the bar for all to meet. Karen is entertaining and pretty much captures exactly what to be wary of...

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• appraisals (5)
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