National appraisal organizations are developing training to prevent unconscious bias in valuations. Several groups have recently committed to a review of their code of ethics and governing documents to ensure that they firmly address bias and discrimination issues among protected classes.
You know appraisals are an essential part of the real estate business. You’ve worked with appraisers before. Yet many agents are confused about what appraisers do, what is allowed in the appraisal process, and how agents and their clients can work with appraisers.
Texas REALTOR® magazine asked two licensed real estate brokers who are also certified appraisers, Angelo Amoriello and Candy Cooke, to help clear up misconceptions about how to work with appraisers.
“Don’t look at the appraisers as the speed bumps,” Cooke says. “We are the seat belts. We keep consumers safe by valuing the properties at what they’re truly worth. We also keep the entire lending industry safe. Backing up our appraisals with data helps avoid the practices that led to the 2007-2008 financial crisis.”
Why Are Appraisers So Busy Right Now?
Candy Cooke, who is a certified general appraiser, says agents and clients are complaining that appraisals are taking too long to complete. The housing market is red-hot and there are not enough appraisers to do all the work, she explains.
“We’re so backed up and so overwhelmed. We’ve filled every appointment time for the next two weeks,” Cooke says. “Somebody says they need a rush? OK, well, how would you feel if I gave somebody else a rush and bumped you back two days even though you were already in line?”
The number of appraisers nationwide has been decreasing, according to Appraisal Institute data. There were 87,130 appraisers in 2014, compared to 78,015 appraisers in 2018. Age is a factor in the shortage, Cooke says. Roughly 20% of appraisers in Q1 2019 were age 66 or older. As these appraisers retire, the next generations of appraisers will be smaller unless more people come into the profession. Less than 30% of appraisers are 50 years old or younger.
Do Not Try to Influence an Appraisal
Buyers pay the bank for appraisals, but appraisers do not work for buyers. Lenders hire appraisers as impartial third parties to figure out a property’s market value. Therefore, the lender is the client. Value is determined by many factors, including location, condition, improvements, amenities, and market trends, according to the Appraisal Institute.
“We are tasked with determining how much this property is worth, and we have to have documentation to back it up,” Cooke says.
Appraisers are required to be completely unbiased. The appraiser certifies that the appraisal was objective before delivering it to the lender. The lender then uses the appraisal to determine how much money to loan the homebuyer. “If the bank lends this money to a borrower and in a year the borrower defaults, can the bank sell that property and get all of its money back? That’s what this is all about,” she says.
Regardless of the sale price, the lender will only lend money based on the appraised value. You or your clients cannot influence appraisers to arrive at a certain value. If you or your client attempts to do so, appraisers will likely ignore it—they may even walk away from the assignment.
11 Documents to Share With an Appraiser
You and your client can share these documents with an appraiser, according to certified general appraiser Candy Cooke:
- Complete executed contract including all addenda and amendments. The lender does not always send all documents to the appraiser.
- Copy of previous survey. The T-47 Residential Real Property Affidavit (TXR 1907) does not have to be included. The survey provides lots of information for the appraiser, including flood hazard area and encroachments.
- List of improvements provided by the homeowner.
- Information about multiple offers. It is up to the sellers how much they want to disclose. They can give copies of all offers or just bits and pieces.
- Blueprints. If the property is unique, large, or difficult to measure, plans will help the appraiser.
- A list of recent sales and listings in the neighborhood that you have deemed similar.
- Information about any off-market sales or pocket listings.
- Information about comparable properties that may have issues. If you know of something that is wrong or not disclosed in the MLS, write it on the comp and provide to the appraiser.
- Your CMA.
- Information about what other properties the buyer viewed. This takes cooperation with the listing and buyer agents.
- Information about the neighborhood. This can be a link to neighborhood info.
Do Talk With Your Appraiser
Many people think you or your client cannot talk to an appraiser at all. That’s not true. “It should be a two-way street,” Cooke says. “The agent and client should provide important documents to the appraisal, and the appraiser should be asking follow-up questions. ‘Has anything been done to the house in the last year? Is there anything unique about this area?’” If an appraiser isn’t asking those questions, it’s even more important for you and your client to provide information.
Agents and clients may not realize that background information—the kind that may not show up on a report or in a database—is important for appraisers to know, Amoriello says. Without that communication, the appraiser could miss a key detail, such as if the homeowner chose a higher quality countertop material than what is common in the neighborhood.
Cooke says agents can show an appraiser a comparable market analysis. But tell the truth, she emphasizes. “If you’re going to give sales information, make sure it is similar to the subject property. Don’t give an appraiser overvalued or unrelated comp data just because it would make the price work,” she notes.
You and your clients cannot talk to an appraiser after the appraisal has been submitted; you must speak with the lender.
Do Not Expect a Dollar-For-Dollar Return on Renovations
Many people think a $20,000 renovation means a $20,000 increase in home value. Improvements such as bathroom and kitchen remodels do raise home values, but not usually dollar-for-dollar, Amoriello says.
Clients who have made huge improvements out of sync with what is normal in their neighborhood may be in for a shock: those improvements do not significantly raise their home values. This is called superadequacy.
Imagine homeowners expanding their home from 1,400 to 2,200 square feet of livable space by converting the garage and adding a sunroom. The rest of the neighborhood’s homes range from 1,000 to 1,400 square feet. Or perhaps a homeowner installed an indoor pool. Without comparable sales of similarly sized houses or indoor pools, the appraiser will have a hard time assigning a value to these improvements.
Amoriello says an appraiser could assign a value in use based on the cost of the amenity minus a depreciation schedule, among other criteria. But an assessment may be lower than the homeowners expected.
Appraisers are REALTORS®, too
Many appraisers join the REALTOR® association, which allows appraisers to access MLS information. Membership also means that appraisers benefit from REALTORS®’ advocacy, influence, resources, and tools. Appraisers represent about 1% of Texas REALTORS® members, according to the 2020 Profile of Texas REALTORS® Members.
There are local and state organizations appraisers may join, including the Association of Texas Appraisers and the Foundation Appraisers Coalition of Texas.
Appraisers are licensed and regulated by Texas Appraiser Licensing & Certification Board, an independent entity created by the Texas Legislature that shares staff and resources with the Texas Real Estate Commission.
Do Not Think Overvaluations Help You
Say an appraiser really likes a certain home feature, such as in-ground pools, and significantly overvalues your client’s pool without justification. If this overvaluation is not caught by an underwriter reviewing the loan application, that could be a problem for your client and the appraiser.
A year and a half later, the client wants to refinance and learns their $375,000 property was only worth $325,000 when correctly appraised, Amoriello says. The client now owes more money than the home is worth. Even if the home significantly appreciates in value, the client doesn’t benefit because they still owe the full amount of the loan based on the higher, incorrect appraisal.
Meanwhile, the appraiser may be subject to lawsuits or penalties by the Texas Appraiser Certification and Licensing Board.
What Happens After the Appraisal?
The appraiser arrives at a final opinion of value and submits a complete report to the lender, certified residential appraiser Angelo Amoriello says. From there, the lender reviews the appraisal and sends it to the underwriter. The underwriter checks the appraisal and may reach out to the appraiser to answer any questions that arise. The appraisal then goes to the investor, who approves the loan based on the appraised value. The loan must be processed before the lender can close on it.
“Once the lender closes on the loan, it’s a happy day for the buyer and seller,” Amoriello says. “Everyone gets paid.”
Do Try to Be Flexible
There may be delays outside of the appraiser’s control. For example, the appraisal may not even be assigned for several days while the appraisal management company tries to locate an appraiser willing to do the appraisal for a specific price. If the appraisal management company cannot find an appraiser who will accept the fee it is offering, the appraisal management company will keep trying until it does, Cooke says. That’s one reason why appraisals end up getting done after the lender’s timeline.
One way to help expedite the appraisal process is for agents to return phone calls and be flexible, Cooke advises. If you cannot meet during the times an appraiser is in your area, you may fall to the back of the list. “Understand that appraisers are so busy right now that when they’re trying to set appointments, if you don’t try to work with them, they’re just going to go to the next one,” she says.
At the end of the day, all of the parties involved in the transaction have different jobs. “The listing agent is trying to get the highest price. The buyer’s agent is trying to get the best price. I’m trying to get market value,” Cooke says.