The Appraiser’s Race from Request to Report
|When an Appraisal Management Company (AMC) calls an appraiser to prepare a report, a stopwatch starts in the race from receiving the order to the finalized appraisal report. First, one appraiser is played against another for the lowest fee and fastest turn time. Once the order is assigned, the appraiser must inspect, measure, quantify and photograph the subject property, gather data, drive by the comparable sales, analyze and cross check all information. A multi-page document is reviewed from each lender to make sure their unique requirements are met.And the clock is ticking. The appraiser begins preparing a 20- to 30-page appraisal report. In the meantime, this report has to move into the flow of other reports being prepared in the office. Within hours, the appraiser is barraged with phone calls, emails and faxes from the AMC wanting to know when the property will be inspected, when will they have the report and why haven’t they received the report yet.Welcome to the world of the real estate appraiser and the race that ensues from request to report. How do we get to the finished product? What steps do we need to take and what are the pitfalls and issues appraisers and real estate agents need to avoid? Following are five things real estate agents should be aware of about the appraisal process:
1. Good, accurate data is critical to the appraisal process. Gathering accurate information about a property to be appraised, along with the market data to be used in the analysis, is critical. The agent is an important part of the process. The appraiser needs the agent’s knowledge about properties that have sold so that appropriate adjustments can be made to sales used in the report. If an appraiser calls for clarification of data, please take the time to assist in verifying the information. If the report will be used in a purchase, the appraiser is required to review the purchase agreement. Get a readable contract signed by both the seller and buyer to the appraiser.
2. The appraiser is working for a specific client. Therefore, information about an appraisal and the value estimate are confidential to that client. It does not matter who paid for or ordered the appraisal, the information is the property of the client. For example, if the appraisal is prepared for a lender, any information about the appraisal would have to come from the lender. If the report was prepared for a seller to help estimate the selling price of the property, the report belongs to the seller.
3. The appraiser is independent and is not an advocate of any party in the appraisal process. Be careful of comments that might be interpreted as pressure on the appraiser to arrive at a given value. Any coercion that pushes value in any way is against the law.
4. An appraiser determines the square footage of a house using American National Standards Institute (ANSI) standards. The livable area of a house is based on exterior foundation measurements. Some other standards are: areas below 5’ of headroom are not included in the square footage; any area that is accessed by going outside or through a garage, etc., is not included in the livable area and is valued separately; upper story areas must be accessed by stairs that meet code; livable area must have a permanent source of heat; at least half of a room must have a ceiling of 7’ or higher. FNMA standards require that the basement area be split out and valued separately from above-grade livable area.
5. It has become very common for real estate agents and builders to estimate the value of houses based on the livable area of the house (sale price divided by livable area) in a given neighborhood. If the homes are all identical or very similar, this might be usable. However, most times, this is not the case. This method of establishing value fails to take into account many variables, such as lot value, quality, condition, various amenities, car storage, outbuildings, design and other differences between homes. This method of estimating value can be very misleading and, in most cases, is not a reliable indicator of value.
According to the experts, three people are involved when fraud occurs in lending practices and/or establishing value for property: the real estate agent, the appraiser and the lender. Whether these three parties knowingly or unknowingly perform their duties in an unprofessional way, the outcome can involve fraud. Many real estate agents, appraisers and lenders are working hard to improve the integrity of our professions and regain the trust of the public.