One occupation in the real estate community that can be greatly misunderstood is real estate appraisers. You might think it is a straight-forward task—assigning market value to a property—but you’d be wrong.
Some postulate that drones might even replace the human appraiser but I think those predictions are ludicrous. And of course, appraisers themselves are skeptical. But what’s really interesting is how much the general public doesn’t understand about this part of the real estate transaction.
If you require a loan to purchase your home (and most home buyers do) then an appraiser can decide whether you will actually get this dream home your Realtor helped you get under contract.
So before you arrive at this critical juncture, take a moment and learn the big 7 things real estate appraisers won’t tell you.
Like the Boy Scout’s say:
Let’s take these in reverse order of importance.
#7. Appraisers Have So Many Hoops to Jump Through
Unless they’re looking for sympathy, your appraiser isn’t likely to share all the things they have to do before they pull into your driveway. In most states, there’s an enormous continuing education (CE) workload, even more than Realtors in most cases. Check out this giant list of what’s needed to become an appraiser.
We haven’t begun to talk about the fees. It’s not cheap! Then there’s the mountains of paperwork required by anyone who does work with the Federal government. Given these hefty requirements, one has to wonder if the pay they receive, often just $150 per report, could possibly be worth it what it takes to get and maintain their license. Wow.
#6. Appraisers Are Dwindling in Number
This brings us to our second secret. According to this Appraisal Institute report, the number of U.S. appraisers have been steadily declining since 2011.
Do you blame them? I doubt this is something most appraisers are going to boast about with their friends and families.
#5. Appraisers Have Very Few Friends
Speaking of friends, think about this for a second. If the sales price that both the home buyer and seller agree upon is confirmed by the appraiser, everything is rosy. Another hurdle crossed and on to moving the loan through underwriting.
But if the appraiser’s number comes back low? Lookout! Sparks will be flying and not the fun kind we see at our 4th of July fireworks display.
The seller is angry. The buyer is confused. Banks have more work to do for no extra money. It’s a lose-lose-lose and all fingers are pointed at the appraiser who’s just doing his job.
#4. Appraisers Aren’t Working for You
Quick question, when you pay a professional a fee for their service you are the customer, correct? In most every situation in the world the answer is “yes” but not with appraisers.
They actually work for the bank. The bank wants to make sure the loan they are offering the buyer is backed up with true value in real estate. You pay the appraisal fee but it’s the bank that appraiser is serving.
#3. Appraisers Don’t Value Your Home Improvement ProjectsUnless the appraiser also happens to be a Realtor who’s quite familiar with the area (more on that next) and what today’s home buyers want, they’re not likely to put accurate values on your most recent home improvement project.
Did you think spending $50,000 to remodel your kitchen was going to see a similar gain in your home’s value? Of course you did!
But that’s not always the case. It could be the true, in fact, it could be even more! But it could also be less, much less.
#2. Appraisers Don’t Know the Area
Given that appraisers are now being assigned to cases by appraisal management companies (AMCs) we see more and more examples of appraisers being sent to perform appraisals outside their home area.
Imagine this scenario. Does it seem likely that an appraiser from a mid-sized city is going to understand how to put a value on a farm with barns, acreage and more that’s located 50 miles away? I’ve even heard of appraisers being sent to a completely different state!?
Once again, we have the Dodd-Frank Act to thank. It was supposed to fix things during the housing recession but generally added more bureaucracy. That and a more nonsensical process for home appraisals.
1. Appraisers Can Be So Wrong
I’ve saved the best, er… the worst for last! Let me begin by saying this does not apply to all appraisers. As in every occupation, there are great ones, terrible ones and a bunch of average ones in the middle.
Given that, with the stakes so high, a bad appraisal can completely kill a deal. And they do!
In a regressing market, it’s not likely to see your appraisal come back low. But in rebounding or surging markets, the danger is quite real.
Speak with your trusted real estate professional and see if he recommends getting a second opinion. Perhaps, even at the start of listing your home.
But remember this, if the appraisal comes back low, don’t jump off a bridge, there are options available to you and deals can be salvaged.
In cases like these, maybe another quote is appropriate:
“The advantage of the emotions is that they lead us astray.” -Oscar Wilde
If I can help you with Louisville real estate recommendations, please contact me.