Appraisers serve a valuable purpose within the real estate transaction. They protect the lenders from lending too much money and they protect buyers from paying too much for a home.
Allegedly…
Look, here’s the thing- an appraisal is one person’s opinion. Get three appraisals and get three different values. An appraisal is supposed to tell you the most probable price (thank you Brian Davis) a home will bring in the open market- it’s market value.
Of course, there are different kinds of appraisals that bring different values, for instance an appraisal for insurance purposes looks at what the cost to rebuild would be so it might come in lower, and a re-finance appraisal typically comes in higher because the bank wants to loan you money, depending on your credit score. But for purposes of this post I am speaking about a market value (or comparable sales) appraisal, which is the type of appraisal you get when buying and selling a home.
The only true way to determine true value is by what a seller is willing to sell for and a buyer is willing to pay. Supply and demand, it’s economics 101.
So here’s my question- if I list a property for $335,000 and we receive 3 offers within the first weekend, all of which are for above full asking price, isn’t it reasonable to assume that the home’s most probable price is at least $335,000? Not according to an appraiser.
Appraisers see the value through a narrow field of view, only taking into account specific criteria. They will not give value toward many things that increase the saleability, or desireability, of a home. Things like an open floor plan or vaulted ceilings, or even top-of-the-line, brand new, Low E, vinyl windows have very little impact on an appraisers value. And having the yard professionally landscaped or having double sinks in the master bath bring almost nothing on an appraisal. These things increase how desirable a home is, so you might think, based on the theory of supply and demand, that they would increase a property’s appraised value, but they don’t.
Having a flat value given toward a bathroom or bedroom is ridiculous- Is there really no difference between the 12×18 bedroom with large windows looking out at wonderful views of mature trees in the park and an 8×10 bedroom with a small window with very little natural light, looking straight at the neighbor’s wall? Not in an appraisal.
Another factor that plays a large part in the struggle we see with appraisers is the fact that, in general, they are ridiculously intolerant of appreciation rates. So an area can be in a hot market, with prices going up and you’d think if the neighbor with the same floor plan just sold for $300,000 you should be able to sell your home two months later with the manicured landscaping for $10,000 more. And you’d be right- you could sell it for $310,000, but that doesn’t mean it will appraise.
Read my previous post about this, and how appraisers are the reason the Salt Lake market was so undervalued for years.
So, because of the warped sense of value appraisers use, and their drudgingly slow response to appreciation, many deals are delayed, or altogether die because of the appraisal. Families are put out, children pulled out of the schools their parents put them in, thinking they would be moving to that area, hearts are broken and dreams shattered by the big bad Appraiser Demons… okay, maybe I’m being a bit dramatic, but you get the point.
When an offer has been accepted by buyer and seller, inspections have been done, and everyone is excited and making their future plans and then the deal falls apart because the appraiser doesn’t see the value like everyone else does- it disrupts lives.
In the Salt Lake market, a market that has been hot for over a year now, we are still fighting appraisers constantly. The appraisers don’t want to admit that homes are appreciating. About 30% of the homes we sell have appraisal issues we have to deal with. We don’t under-price homes to get a quick sale. We allow our sellers to price their home based on it’s actual (not appraised) value. We have no problem finding buyers wanting to buy the property, and then we fight and claw with the appraiser trying to get the deal done.
So I explain to our sellers we are actually selling the home twice- once to a buyer, which is sometimes the easier sale, and then the hard sale comes trying to sell to the appraiser. And don’t count on moving into or out of the home until after the appraisal has been done, because a sale can easily fail depending on the comps an appraiser chooses to use.
As I said, appraisals are an important part of the real estate transaction. And with the addition of common sense, they could be even more than important- they could be relevant.
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