How to get the BEST APPRAISAL

Hi Melissa -

I appreciate that you look toward the services of an Appraiser for your preliminary value, just be aware that you do not want to incriminate this Appraiser with too much information about him/her. A preliminary value would be considered the same as a 'comp search'.  This is controversially not allowed (or at very least, heavily frowned down upon depending how the Appraiser words the information that they are sending to you).

For more information, please view USPAP AO 19.

Many residential property appraisers report requests for service where the caller includes statements or information in the request similar to the following:

1. We need comps for (property description) that will support a loan of $___________; can you provide them?

2. Sales Price: ___________.

3. Approximate (or Minimum) value needed: __________.

4. Amount needed: ______________.

5. Owner's estimate of value: ___________.

6. If this property will not appraise for at least ___________, stop and call us immediately.

7. Please call and notify if it is NOT possible to support a value at or above ___________, BEFORE YOU PROCEED!!!!

Appraisers report that the caller usually makes it clear that they do not want the appraiser to do any fieldwork. Some callers refer to the service requested as a "comp check" while others refer to it as a "preliminary appraisal" or use some terms other than appraisal (such as preliminary evaluation, study, analysis, etc.). Some callers indicate that if the numbers will not work, the appraiser can send a bill for research services or a "preliminary" inspection. Other callers promise future assignments if the appraiser can make the present deal work.

Melissa, First off I just wanted to say what a great post this is.  I have a few appraisers that I am socially friendly with and I would never ask them to place their license at risk.  I do love hearing the stories that they tell me about other mortgage brokers who demand what the appraisal should be.  hhhhmm Last time I checked that is not my job to say.

As usual, Melissa.....

Your integrity and professionalism show through....... AWESOME post...I gave it a "5".....

Not tweeking the numbers is a sign you are doing your job correctly....and not commiting fraud out there!

=-)

Well, Melissa. I have been Blessed to work with an appraiser here in Spokane with whom I share the same level of integrity, decency and professionalism. He has been happy to guide me on the phone from time to time and that has helped a great deal. (1) He has said that for a refinance deal he is looking backwards at what has happened in the market. In a rising market it may be true that the owner could sell for higher but buyers pay a premium which is unquantifiable. (2) Recently, I had a rural property appraised by an experienced appraiser and the usual snags cropped up with comps. Too far distant, too old, too adjusted, too this or that. All the lenders ran for the hills*. The reason I mention these is Realtors.

(1) The client was very unhappy with the appraisal. When I pressed him for his Realtor's name and number he gave it up, albeit, reluctantly. I never spoke with the Realtor directly - the assisant couldn't come up with comps to support anything near what they had told my client. As for the 6 month old indication given by an appraiser buddy of his - the man had gone back to being a plumber. He'd been in business for 18 months. The client still felt I was the bad man in this transaction!

(2) The listing agent had no comps at all and neither did the buyer's agent. The buyer refused a home inspection (which would have solved another problem) and is now tricky about paying for the appraisal.

Lessons? Well, if a refi is heavilly dependant on appraised value and the client is adamant - ask why. Twice, I've found a Realtor (unaccountable) in the background and twice they cannot justify what they say. Neither transactions achieved the dream but did do all that could be done for the borrower. Be firm. The value of the borrower's home is their problem - not yours.

Next - on a rural purchase property where you believe comps could be an issue, get payment on the door.

* USDA were happy but income limits and poor credit put them off. Hapilly, for low earners who take care of their business and live 'rural' the USDA has an excellent program.

Sara - I appreciate you providing the Advisory Opinion so that I might try looking further.  And I do understand not putting the License of the Appraiser on the line by asking for a #.  After a brief discussion, I am usually aware of a range that is probable for the borrower.  I never make a promise of future work or a kickback.

The entire reason for this posting is to protect the borrower and the appraiser during a refinance transaction.  My question is, how do I provide my borrower with a fair Good Faith Estimate based on the value of their home when I'm not an expert at valuing property?  Zillow doesn't prove to be a good source.  I'm trying to prevent initiating a loan that isn't going to close because the value isn't there.  At best, I can look at comp's from Redfin.com.

Matthew - What do you mean it is not your job to say?  If I'm trying to protect the appraiser by not pressuring for too high a value, but most importantly protect my borrower from entering into a refinance that isn't going to pencil, maybe I need to rewrite the blog post.  My question is this, I'm not an expert at valuing property, so how do I pencil this deal to make sure it works before the borrower pays for an appraisal?  What are you doing to make sure this doesn't happen?

Alexander - Thanks for stopping by to show your support!  :)

Alan - Thanks for commenting.  I'm glad you "get it".  It's unfortunate that sometimes a bad experience opens our eyes to better protect the client going forward.  I've found that if the client becomes angry because they're not getting the value they want, I rather they go work with another LO.  If a Loan Officer and Appraiser are going to let the client push for something that's not right, I'd rather see them at risk for going down.  I enjoy sleeping at night and look forward to going to work each day knowing my company will be there.

:)

Hi Melissa -

Please don't get me wrong.... I understand that you are not attempting to entice your Appraiser friend to 'come into a value', however, some Appraisal Administrators in your state may consider that the Appraiser is to be benefited by future business by providing this information.  They may also believe that if the Appraiser is providing you with this information it might be quite likely he/she is providing comp searches for lenders and further investigation may ensue.

We Appraiser's are held liable for just about everything and we tend to walk on egg shells in fear of getting 'caught' for something that may seem completely innocent to the rest of the lending industry.

But again, I appreciate that you have consulted an Appraiser and realized that AVMs such as Zillow may be rendered useless in many (if not all) situations.  I see that Zillow is popular enough now that it is a good idea to find out what the 'Zestistimate' is so that if your client brings it up, you can speak intellegently about why it may or may not be correct.  I also agree with you that what your Appraiser is doing does fall within the guidelines of USPAP and that no harm has been done in the context of OA 19.

Much respect.

Hello Sara - Thanks for coming back.  I do appreciate your discussion.  Do you have any suggestions that would help me with determining a preliminary value on my own without asking an appraiser?  I was really hoping to get more feedback from other Lenders as to what they are doing.

Best Regards,

Melissa - Sara is right on when she says appraisers have to walk on egg shells.  Any value provided by an appraiser as a professional opinion, whether it is an exact number or a range, on paper or verbal, is considered an appraisal per USPAP and we can be held accountable for whatever we say. 

As far as a preliminary value goes, you have to take a couple of things into account.  What you (or I) see on paper really doesn't provide the clearest of pictures.  There are many factors that aren't evident without actually going out and performing the appraisal, such as possible location issues and condition of the subject and comparables.  Maybe contact a local realtor that you know of for a list of recently sold properties and active listings in the area where your subject is...if you have no access to the MLS and they are willing to help out this could give you a general idea of what the market is currently up to.  I get flyers on my front porch on a regular basis that provide this information without even looking for it....got one today, as a matter of fact.  It never hurts to ask :)

Melissa,

If an Appraiser, who is certified and upheld to a professional status gives a value either verbally or otherwise, he/she must maintain a file memorandum for 5 years.  In that memorandum, all documentation which led to the value conclusion (range or point esitmate) MUST be in this file.

I have been in the commercial appraisal arena for 20 years.  Imagine the large investment the client must make to obtain a value (which may or may not work).  My personal opinion is that too many persons look at the appraisal as "having to work" instead of understanding that it is produced with consideration of many factors.  It should be used as informational...and a "small" investment in assisting the client for investment goals, etc...  It tells them where they are (good, bad or indifferent).

If it is a refinance and the client has negative equity, then isn't it in the client's best interest to know this fact, so that he/she can plan for the future and adjust their goals and expenses?

I also am an active real estate agent, a CMA and appraisal are two very different tools and are used for different purposes!!! BEWARE!  A CMA is used as a marketing tool, while an appraisal has an intended use specifically estimating a Value (Market, Investment, or as defined by client or clients needs)!

As a 20-year Veteran Appraiser, I too like to sleep well knowing that my business is in-tact!

We all need doctors, we do not necessarily like their medical opinion always! 

I empathize with your position!  I've been there after charging a client--who couldn't even use the appraisal (200 pages later).  But, I consider their investment small in relation to making the bigger mistake of making a purchase or obtaining a loan that is going to cause them larger heartache later (foreclosure, forced sale, quick liquidation)....Don't you?

Maybe a shift in perception..as a useful tool instead of an expense that has no results would WORK!

After all it is an informational tool that is very inciteful as to were the client is and what steps he/she should take for planning purposes!

Regards!  Please Respond with your Thoughts!

Matt - Thank you for the suggestion.  While I do look at comp's like a realtor would, I posted this in hopes of a deeper insight.  I appreciate you trying to help me without getting defensive.  :)

Hello Elaine - I had no idea you were required to maintain a file memorandum for 5 years.  Is that nationwide, or by state? 

As far as the appraisal "having to work", I know better than that.....especially when UW will just cut it back anyway.  The longevity of my business depends on integrity.  But you are so correct, it IS a small investment compared to the price of property.  And YES, I definately want my client to know a fair value determined by a professional......the entire reason of this post. 

When it is borderline if the transaction will work, I'm looking for additional guidance with the refinance BEFORE possibly creating a lost expense.  Fortunately, we haven't been experiencing a decline in values here, it is more likely a problem when a client wants to refinance within a short period of owning the property.  The reality is, I can only be responsible for my role and advise the client of the risks and choices they must make.  That's the beauty in our business relationship and each role, is the trust you place in their expert knowledge.  Maybe I'll loose a deal because I won't push or search for a higher appraisal, but I'm ok with that.  In the long run, the appraiser and I will still be in business.

Melissa, 

Here's the verbage right out of USPAP (Uniform Standards of Professional Appraisal Practice) as developed by the Appraisal Foundation.  This is the organization which is comprised of members of other highly recognized appraisal organizations who have joined to regulate appraisers (ALL) as a profession.  These standards began in 1987 and led to the establishment of the Appraisal Foundation, who now acts to change, edit and update these standards.  These standards (USPAP) represent the generally accepted standards of appraisal practice throughout the US!

I have highlighted a few important points, which may shed light on some of the "resistance" you have been experiencing! 

Record Keeping  (ETHICS RULE)

An appraiser must prepare a workfile for each appraisal, appraisal review, or appraisal consulting assignment. The workfile must include:

• the name of the client and the identity, by name or type, of any other intended users;

• true copies of any written reports, documented on any type of media;

• summaries of any oral reports or testimony, or a transcript of testimony, including the appraiser's signed and dated certification; and

• all other data, information, and documentation necessary to support the appraiser's opinions and conclusions and to show compliance with this Rule and all other applicable Standards, or references to the location(s) of such other documentation.

An appraiser must retain the workfile for a period of at least five (5) years after preparation or at least two (2) years after final disposition of any judicial proceeding in which the appraiser provided testimony related to the assignment, whichever period expires last.

An appraiser must have custody of his or her workfile, or make appropriate workfile retention, access, and retrieval arrangements with the party having custody of the workfile.

Comment: A workfile preserves evidence of the appraiser's consideration of all applicable data and statements required by USPAP and other information as may be required to support the appraiser's opinions, conclusions, and recommendations.

A photocopy or an electronic copy of the entire actual written appraisal, appraisal review, or appraisal consulting report sent or delivered to a client satisfies the requirement of a true copy. As an example, a photocopy or electronic copy of the Self-Contained Appraisal Report, Summary Appraisal Report, or Restricted Use Appraisal Report actually issued by an appraiser for a real property appraisal assignment satisfies the true copy requirement for that assignment.

Care should be exercised in the selection of the form, style, and type of medium for written records, which may be handwritten and informal, to ensure that they are retrievable by the appraiser throughout the prescribed record retention period.

A workfile must be in existence prior to and contemporaneous with the issuance of a written or oral report.  A written summary of an oral report must be added to the workfile within a reasonable time after the issuance of the oral report.

A workfile must be made available by the appraiser when required by state enforcement agencies or due process of law.  In addition, a workfile in support of a Restricted Use Appraisal Report must be sufficient for the appraiser to produce a Summary Appraisal Report (for assignments under STANDARDS 2 and 8) or an Appraisal Report (for assignments under STANDARD 10), and must be available for inspection by the client in accordance with the Comment to Standards Rules 2-2(c)(viii), 8-2(c)(viii), and 10-2(b)(ix).  

MY CLOSING COMMENT...

Now,  Did All appraisers realize, this last highlighted paragraph?  Not only do they need a workfile in existence PRIOR to issuing an oral report.  But, the appraiser must write a summary of that oral report and add it to the work file after issuing the oral report!!!!

With the evolution of these standards in 1987 - 1989, appraisers became so regulated; I don't think the public really understands or realizes the LIABILITY!   Remember that this regulation came about from the savings and loan crises in the 1980's!  The appraisers were found negligent as a whole and down came the regulations.  These rules change each and every YEAR!

You can find a link to the USPAP and learn more about The Appraisal Foundation at   AppraisalFoundation.org .     All of the standards for real property appraising and reporting are there!  click on 2006 USPAP.   The entire Standards Book is There.  Real Property is covered under each rule and specifically in Standards 1 and 2.

I hope this helps!  So the long-winded soap box answer is Nationwide!

Melissa,

I would like to personally "Thank You" for your efforts in understanding the appraisal process and in exploring questions in a positive, open-minded manner!  If you get answers and empathize with the process, then you will certainly be an asset for all appraisers and will help us educate one person/lender at a time!

THANK YOU! THANK YOU!  THANK YOU! 

Elaine - Thank you so much for sharing this!  This is an excellent resource for me to learn more about how you do your work and what is required.  I've spend some time understanding how I can make the life of an Agent better so it's really rewarding for me to have the door of an Appraiser's life opened.

THANK YOU!  THANK YOU!  THANK YOU!!!  :)  ....for sharing your time and knowledge.

my rule of thumb to the 2 appraisers i use. do not do anything that makes you feel uncomfortable. if the value is not there, than the value is not there. let's live to play another day knowing that we are doing the right thing.

that being said i can remember 2 recent occasions where the underwriter sided with the initial appraisal even after a review showed a lower value. the appraisers data was strong and withstood the challenge. 

Jay,

As an appraiser, thanks for the comment.  I just ran into a situation like that!  Appraised a residence about 6% below contract (approx. $300,000 contract).  Selling agent was furious after call from mortgage broker.  He called listing agent, who indicated that she is not an appraiser and set the list price based on other "listings" in the neighborhood.  Listing agent asked me "what should I do"?  I said get a copy of appraisal from Buyer and take it to sellers and show them what the market is doing.

Finally, Seller agreed to sell for appraised value.  Lender called and asked if I could change "check mark" under oversupply and check "stable" market.  I said, no.  Too much evidence of existing and potential supply, especially in light of new home permits pulled!  Lender said well underwriting says it will require a review.  I said "Okay" let them order one.

Finally, Selling agent told me that the bank accepted the appraisal after review because it was thorough!

Now, I was hounded for 48 hours to finish..... I used four closed sales, one active listing as comp. 5 and included land sales for support.  I explained everything I researched--active, pending, expires and solds!

Even though it took 2 days more, I saved them so much time in the end.  If a review or second appraisal would have been stipulated.  At least 1 to 2 more weeks would have been required!  But I just don't think that the "typical" agent or broker realizes or appreciates the efforts of a quality appraisal!!!!

By the way, I was shocked at the Selling agent's "attitude" because his buyer would be the one losing, if he was placed in a "negative equity" situation!

We need to respect each others knowledge and contribution to the process!  It will give us clients for life--not just a quick deal!

Hi Melissa -

To answer your question about alternatives to using an Appraiser, I would never try to steer business away from using an Appraiser. However, it never hurts to educate yourself.  If you have time, take some courses or ask your Appraiser friend to ride along with them for a day.  I often go into open houses and talk with Realtors about the market, trends, etc. (when they're not busy with real clients, of course).  I worked as a Loan Officer and Processor for a year or two so that I could better understand the banking side, I worked at the tax assessment office to find out more about mass appraisal. 

Elaine -

Your story just brought to mind a recent appraisal that I did where the Listing Agent misread the tax records and listed the house for 400 square feet more than it was (the garage square footage was added into the living square footage) ... and priced it accordingly. Sadly, the house appraised for $40,000 less than the listing price and I am thinking that sale will fail.  It really made my heart sink when I finished the sketch and verified the substantial square footage error and thought of how the seller was going to feel and whether or not they could afford the difference in price. 

Jay - thank for commenting and sharing your experience remembered.

Elaine - great example reminding us this transaction should be fair for both sides which is why we rely on experts.

Sara - Yes, I visit open houses and watch the market.  I have been happy to hear all the comments in this post.  Thank you for visiting again and commenting with Elaine!  :)