Don’t let the headline fool you, we’re a big fan of appraisals. The key word is accurate, competent appraisals. So many times sellers want us to overprice a home and sell it to a northern or foreign buyer assuming they don’t really know our market. What sellers fail to realize is buyers usually look at several developments, several homes, and study the market more than sellers do. If you overprice a home, it will sit. This is a price sensitive market, and when you price a home at or very near its value, activity heats up and properties move. We often tell sellers even if we were to dupe an unsuspecting buyer into overpaying for a home; the bank is still going to order an appraisal before they lend money. Not only do buyers tend to research the market but they have a backup with bank appraisal. Some sellers say, “Well, let’s find a foreign cash buyer.” Sellers don’t realize cash buyers research the market perhaps more vigorously than financed buyers do, so they’re really grasping at straws trying to sell an overpriced property into a price sensitive market.
Just as some sellers need to research the market better, so do some appraisers. In the past week I’ve heard several complaints from Realtors who’ve said a bad appraisal nixed their closing. Sometimes banks use appraisal management companies who utilize appraisers from different markets who aren’t as familiar with the local market as local appraisers. We’ve had past clients ask us to market homes in other cities as far away as Pensacola Fl and we declined simply because we’re not experts in that market. Out of town appraisers are at a big disadvantage and couldn’t possibly know everything they should about our market.
For instance, some waterfront canal property in Cape Coral brings more value than others. Nearby neighborhoods in SW Florida may not be good comparables even though they are located right next to each other. Computer models and unsuspecting appraisers wouldn’t always know this.
Many times when the bank is considering a short sale or pricing a foreclosure, they utilize a BPO (Broker Price Opinion) and/or an appraisal. If either comes back too high, the short sale is rejected or the foreclosure is priced too high. Recently we had an asset manager contact us because our BPO came in at one figure and the bank’s appraiser came in much higher. After studying comparable sales used by the appraiser we discovered he used gulf access homes as comps even though the subject property was not waterfront. He also used a deed in lieu of foreclosure sale which wasn’t really a sale at all; it was simply a homeowner giving the property back to the bank for the loan amount. We submitted documentation to have the appraisal overturned so the bank can sell the home.
Bad appraisals can cost a sale at both ends. If the short sale appraisal is too high, the price the seller’s bank accepts may be higher than the buyer’s bank who is lending money appraisal reveals, so the deal dies unless adjustments are made, which isn’t always easy or possible with new rules placed by the government. These new regulations, designed to protect lending and real estate values are doing the opposite. Rarely when government gets involved does anything improve, it just takes more time, more aggravation, and blown deals, which doesn’t stabilize the market.
If the lending appraiser comes in too low, the buyer’s lender won’t loan the money at the contract price, potentially scuttling an otherwise good transaction that should have closed. There are lots of good appraisals out there which do blow some deals, which furthers our comment to sellers that it’s not wise to purposely overprice a property. Keep in mind, value is in the eyes of the market, not any one buyer nor any one seller. Values are subjective, and some properties are difficult to evaluate. Not all sales are cookie cutter sales with multiple active and sold comparables.
It pays to study the market, and if you doubt the value, ask questions. Sellers sometimes produce appraisals that are too high and the market won’t accept, and bank ordered appraisals are sometimes too low and not at actual market value. Do your homework and question their work. Request a copy of the appraisal. You paid for it. Some banks will let you see it. And remember, keep an objective mind. Everyone in the transaction has their own idea of what the value is, or should be. Make sure that idea is supported by facts, data and logic and not ignorance of the market or motivations.