NATNews Blog > June 2016 > ​Helping Your Clients Understand Appraisals and Your Appraiser Understand the Property

    ​Helping Your Clients Understand Appraisals and Your Appraiser Understand the Property

    6/20/2016 10:33:56 AM
    Real estate agents and their home buyer and seller clients sometimes see the appraisal process as a stumbling block along the road to closing a transaction. And with the advent of the Dodd Frank Act in 2010, new rules ensuring appraiser independence have made everyone a little uneasy about this vitally important step in the process.
    According to John Brenan, director of appraisal issues for The Appraisal Foundation, there can be a lot of misunderstanding around the appraisal process, particularly with the new emphasis on appraisal independence. But real estate agents can actually play a powerful role in providing important information to the appraiser and in helping their clients understand the purpose and scope of the appraisal. Here are a few things real estate agents should keep in mind as they guide their clients.
    The appraiser’s client is the lender, but the homebuyer also benefits from an accurate appraisal
    One of the most important things a real estate agent can help their clients understand is that the Lender is the appraiser’s client.
    “The law requires the lender to engage the appraiser and that makes the lender the client,” Brenan said. “Even though the homebuyer pays for it, they are not the client, although they are entitled to receive a copy of the appraisal. The whole point of the appraisal is that the lender is looking for an impartial, unbiased opinion so they can properly collateralize their loan.”
    Real estate agents can also point out that even though the homebuyer is not the client, they still benefit from an accurate appraisal.
    “When you are talking about buying a home you want to live in, it becomes an emotional process,” Brenan noted. “If someone says ‘I really love that house, this is what I am willing to pay for it,’ that doesn’t mean that is what it is worth in the marketplace. An appraisal can be a dash of cold water to the face that maybe they are actually paying too much for it. You can pay that much for it, but the lender is only going to loan 80 percent of the market value.”
    Providing information versus influencing the appraiser
    An appraiser develops an opinion of value based on all of the information available. That includes communicating with the lender to understand the terms of the assignment and the real estate agent to understand anything unique or unusual about the property that may aid in arriving at a credible opinion of value.
    “The biggest myth is that agents and brokers think they are prohibited from communicating with the appraiser,” Brenan emphasized. “With the Dodd Frank Act and independence issues, there is feeling by some that appraisers are radioactive and if we talk to them we are going to jail. That communication is not only allowed but is absolutely essential.”
    Brenan said most appraisers believe the more information they receive the more effective they can be. This might include updated features but also information about recent sales, homes that have been taken off the market in the area, or particular things buyers may be looking for in the area.
    “Communicating this information is not only allowed but very, very helpful,” Brenan said. “The appraiser’s lifeblood is data and information and as long as that information is not intended to influence or impair the appraiser, they welcome as much information as the agent can provide.”
    A seller’s written documentation can be particularly invaluable. Brenan noted that the appraiser can benefit from a written list of upgrades, including dates and receipts for work completed. This could include such things as a new roof, new plumbing or other additions or recent repairs to the home.
    An appraisal is NOT a home inspection
    An appraisal is an unbiased and independent opinion of value provided to the lender to make a determination of how much money it will lend against the property. It is not the same thing as a home inspection, and the real estate agent can help clarify this for the homebuyer.
    “The buyers think if there is something wrong with the home, the appraiser will tell them,” Brenan said. “But appraisers are not construction experts. There are some homebuyers who think they don’t need to consider a home inspection. But that is something very different and we strongly suggest that they consider getting a home inspection as well. With an FHA appraisal, the appraiser has to do a little bit more, but still they don’t know if there could be a problem with the foundation or the framing that might lead to problems. That is not their area of expertise.”
    The appraiser’s scope of work is more than a visit to the home
    According to Brenan, it is also important to point out to the homebuyer and seller that the visit to the property is just the starting point of the appraisal process.
    “The lion’s share of the appraiser’s time is doing the analysis and generating the report,” Brenan said. “Sometimes the seller or buyer will ask why the appraisal isn’t done yet when they see the onsite inspection is done. Instead of looking at it as a stumbling block, look at it as ‘I am paying for this, I want it to be meaningful. If there is a problem with the value, I want to know about it now.’”
    The appraisal process involves several steps, including:
    • An exterior and interior inspection
    • A review of county and municipal records, multiple listing service (MLS) records and other data sources relevant to the market area
    • A search for comparable properties that have recently sold in the area
    • An analysis of the characteristics of the comparable properties in terms of land area, number of rooms, age, upgrades, and unique features such as garage size, decks, pools, storage sheds etc.
    • And finally, based on all of the data at hand, the appraiser will develop an opinion of value in the form of a report with supporting data for the lender
    Real estate agents can request reconsideration
    If the opinion of value is not in line with the sales price, there are steps the real estate agent can take to have that appraisal reviewed and new information considered.
    “The new federal laws specifically allow for reconsideration,” Brenan said. “It is permitted for the real estate agent to work with the lender to say, ‘We have these additional sales that were not in the report. Can the appraiser look again with this additional information and reconsider?’ It is absolutely permitted under law to make that request.”
    Real estate agents sometimes have the misperception that banks won’t reconsider because they don’t want to make the loan. But lenders are in the business of making loans and usually are open to sharing the information with the appraiser for reconsideration.
    “It’s very common for those types of requests to be made,” Brenan said. “But they must be made through the lender.”
    After suffering through years of coercion and intimidation, appraisers have benefited from the pendulum swinging hard to the other side, with the advent of the Dodd Frank Act. But, concluded Brenan, things need to return to the middle to ensure appraisers are being communicated with appropriately to get the job done. Real estate agents have always been and will continue to be a valuable resource in that process.