How many times has a slipshod appraisal killed your deal?
Property appraisers were once considered artisans — specialists in a local market with intimate knowledge of comparable properties and enduring trends. Today, the lending industry, claiming the authority, has farmed-out this service to anonymous appraisal management companies (AMC) by federal directive.
However, dear reader, you need to know AMCs only pay enough to hire part-time novices with little but the well-known and publically available real estate web sites as a resource for their appraisals. A drive-by appraisal might be more enlightening (and accurate).
Since the mandate that all appraisals be handled by an AMC, more deals are dying due to knee-jerk appraisals coming in lower than the contracted price. In a March 2012 first tuesday poll, 94% of respondents (nearly 350 votes) said AMCs were a detriment to the California real estate industry.
Related article:
The votes are in: AMCs have decreased appraisal efficiency and increased homebuyer costs
As deals continue to die on the lender’s desk after a bad appraisal, some agents are getting aggressive with their recourse. Rather than rolling over, proactive agents send a rebuttal letter to the lender arguing for an additional appraisal from a more qualified local appraiser – i.e., one well-versed in the nuances of the local community.
A solid rebuttal letter:
- is written by the buyer with the help of an experienced agent;
- focuses on hard facts rather than emotions;
- includes professional opinions and recent comps to rebut the previous appraisal; and
- is professionally bound and sent to all parties to the transaction.
Though chances are somewhat slim the lender will oblige, the goodwill you’ll build with your client will be worth it.
first tuesday insight
Of course drafting a rebuttal letter is a sound practice when an experienced agent deems it necessary. The proliferation of incompetent appraisers working today is an undeniable fact.
However, talk of rebutting low appraisals during a momentum market is worrisome.
Any agent worth their salt knows the fair market value (FMV) of a listing in their farm community. If the appraisal comes in low after an offer has been accepted, the first question asked, if not earlier, ought to be, is this a fair price?
As markets heat up, buyers tend to use their emotions when making an offer — a respectable buyer’s agent will know when to apply the breaks, thus avoiding running past the point of no return only to lose the deal because the buyer was permitted to get snared in the excitement.
Draft a rebuttal letter if you like, but don’t do it to prolong the madness of a bidding war in this mini-bubble. Listing prices will fall soon enough, in spite of popular opinion to the contrary.
Related articles:
Re: “A second chance for rejected borrowers — the rebuttal letter” from the Wall Street Journal
On the other hand in N Cali when dealing with Short-Sales The Banks are Hireing
inexperienced Appraisers who are over pricing property’s. Because of a lack of affordable homes by average wage earners, Banks think that the buyers will roll over and pay top dollar for property’s that are in bad areas and need much fix-up compared to other property’s on the market. Virtually most Short-sales languish on the market and finally sell after the listing agent has blown several opportunities to sell at near market value and been jacked around for months trying to get a realistic price. It’s obvious the appraisers have never looked at comparables and used some kind of Automated appraisal system. Good for the home owner as they are living rent free to the tune of $18,000 a year or more while the servicers screw around.
Along with the mandate that AMC’s order appraisals as part of solving the prior problems of clients pressuring appraisers to inflate values or using appraisers who would inflate values; they cut the appraisers fee in half and demanded faster delivery of reports.
Sadly, just because an appraisal comes in below the Sales Price, does not in and of itself mean the appraisal is bad or wrong for that matter.
‘Market Value” as defined and required of the appraiser, will only be the same as the Sales Price by coincidence.
There are many legitimate reasons why there could be a difference between the two.
When the Buyer has been subjected to having their Hot Buttons Pushed, and to over bid on properties; there would logically never be a direct connection or correlation between the measureable Market Value and the agreed upon Sales Price.
The same would be true if the buyer was not well informed, not operating under their own best interest, did not have normal motivations, etc.
It would also be true when there were sweeteners thrown into the deal to make it work, or personal property included in the deal, etc, etc, etc.
All that said, and as true as it is in case after case; the best appraisers do not do lender work because it is the lowest paying and most pressured of all the work available. The least trained are relegated to doing lender work.
No one wants the appraiser to do a real good job, they only want the report to come in at the sales price, and to do so quickly. It takes time to do a good job, which means a higher fee is required as there is actually due diligence that needs to be done. Fast and cheap results in no due diligence, and often in reports that Look Good, but are fake appraisals.
This is not a situation