There are so many moving parts to track when real estate brokers come up with a listing price. All the features of the property, the comparable sales in the neighborhood and the latest market trends are just a few of the data sets that ultimately go into the equation. Sometimes prices are determined as part of a broad strategy to entice certain kinds of buyers (like the Wal-Mart-inspired $498,000 price tag) or they’re designed to trigger a bidding war.
Eventually, most listing prices will come down to two questions:
- What will someone pay for the home?
- At what valuation will the property be appraised?
While the first question is obvious, the second one often can be overlooked in the crowded mix of moving parts. If not properly factored in and planned for, an appraisal that’s misaligned with a broker’s expectation could put the whole deal at risk if the buyer is using a mortgage.
Appraisers are assigned by lenders, but they are completely neutral. In fact, their objectivity is their most important quality as it protects lenders from unnecessary risks. There is a significant pressure for appraisers to “get it right,” even if their valuation is lower than what others are willing to pay.
To smooth this tension, brokers can use a variety of tools to influence an appraiser—as long as they’re deployed to help the appraiser get to an accurate market valuation.
“A real estate professional is legally prohibited from any communication with an appraiser that is intended to unduly influence the outcome of the appraisal,” says Matthew Reischer, broker at Flushing Real Estate Group in New York City. “It is always best practice for a broker to make sure an appraiser does not interpret any communications as an attempt to improperly influence an appraisal. That said, a broker can always ask an appraiser to provide additional detail explaining how they arrived at their conclusions and the ultimate opinion of value.”
While valuation is often defined as a matter of opinion, it’s important to keep in mind that existing offers that might have been made pre-appraisal—even if there was a bidding war and the winner of it is already in escrow—do not, by themselves, impact the true valuation. The market as a whole is what’s being determined—not what a few buyers could be willing to over-pay.
Still, there is plenty of eligible information brokers can volunteer while working with appraisers, and many brokers might be surprised to learn how appreciative an appraiser is to receive it.
“Too often the appraiser, when they go out to inspect a house that’s under an agreement, they’re just given a lockbox code and they’re not met by the broker. That’s a missed opportunity,” says Stephen E. Sousa, executive vice president, Massachusetts Board of Real Estate Appraisers (MBREA), Inc. “I believe real estate agents should always be there for the appraisal. If they have information that’s helpful about the community, the schools, you might have an appraiser who’s from a little outside the area and can use that information. All they want is good information, especially if it’s about deals in the neighborhood.”
Pocket listings and offers that have yet to close can be cited in notes to support the appraiser’s conclusions, Sousa says. Other sales can be scrutinized for being “non-arm’s-length,” such as one between family members or real estate-owned properties. All of that data has to be independently verified by the appraiser, but it’s still good to have, he explains.
Ara Markari, owner of Crown Mark Real Estate Group, a full-service broker and developer in Pasadena, Calif., stresses that it’s important to work closely with appraisers and be respectful of their process and their time. The best way to do that, he says, is by being prepared and organized.
“When dealing with appraisers, I would always suggest having all your material and the property ready before they arrive,” Markari says. “On the listing side, the agent should be there on time, with the title report for any questions, MLS listing, offers—showing multiple offers when the property has gone over asking price shows the market’s need/demand—(and) comparables of similar homes the appraiser can use or can discuss with them, and any other pertinent information.”
Markari does not think buyer’s agents should get involved, but that a seller’s representative should court a close and professional working relationship. In addition to helping with pricing information, he also advises brokers to pay close attention to the little details.
“Having some water and treats is always nice as well,” Markari says. “Listing agents should make sure the seller has braced the water heater and agents have access to that room along with parking areas. They should make sure carbon monoxides are installed as well as smoke detectors. They should make sure the appraiser has full access; dogs, gates or alarms would hinder their access or time.”
Sousa says the working relationships between brokers and appraisers, when operating properly, can pay enormous dividends to future markets. With accurate details going into each transaction, real estate professionals will be able to use that information with increasing confidence, strengthening the overall system and—more broadly—the economy at large.
But it has to start small.
“One of the best ways brokers can help their clients is by trying (to use) the best, most reliable information they can right from the start of the listing process,” Sousa says. “The last time the bathroom or kitchen were updated, a description of those updates—that information can go into the listing. It all goes into the analysis of the property and its condition and quality. The more detailed the listings can be, talking about condition and quality, the better the appraiser will be able to do their job.”
Andrew King is a contributing editor to RISMedia.
As an appraiser I can tell you that my opinion is that there is no such thing as to much information on a property. In 20 years of appraising I have had the listing agent meet me at the property less times than I have fingers. Another time, while the agent wasn’t there she left a packet full of information. That happened once. I would like for an agent to at least make an effort to provide as much information as they have including the comparables they used to create the listing.
The appraisal industry is a joke. They now have a middle man booking the appointments and taking half the profit. Appraisers are working twice as hard and making half the money they used to. They were too generous on values before market crashed, now they are too conservative in value. The reason being they need to keep the business from the lenders they work with. If they come in higher they will not be chosen for more business. I love how an appraiser can justify coming in $1700 less on value or $1000 less on value but not justifying the purchase price. It’s happened to me many times in Phoenix. I meet them, give them the upgrades etc. A month after closing the property, is worth $5000 more than the purchase price, but they come in $1700 less. A broke system controlled by appraisal management companies and big lenders putting pressure on appraisers to keep values down. Nothing to do with agents meeting them at the property.
Excellent article!
I’ve been working with Appraisers for years. Letting them see what homes Sellers looked at when listing and when negotiating sales price. Careful to redact information that shows average sales price, average price per square foot, etc. Trying to keep my t within 2 miles and the past 90 days so the information is relevant. Has worked well for me.
This is a great article and newer agents or seasoned but cavalier agents should take note. As listing agents (my husband & I work as a team) one of us ALWAYS meets the appraiser at the property with comps and as much appropriate information as we can gather including our contact information. We open and prepare the property – lights on; systems working (heat or AC at appropriate temperatures); ceiling fans working; all areas accessible, etc. We do NOT “schmooze” beyond a welcoming hello. The appraisers are ALWAYS surprised to have the agent meeting them in the house. One of them said – “Wow, you guys are old school…” Is it inconvenient to go this extra step? Sometimes. But the number of under-value appraisals we have had to handle are few — even if we are holding our breath. It also gives us a feel for the temperament and professionalism of the appraiser. At listing appointments, we always make sure the owners know that we MEET the appraiser and why that is important.
As a California Certified Appraiser, these two paragraphs are most relevant:
“Sousa says the working relationships between brokers and appraisers, when operating properly, can pay enormous dividends to future markets. With accurate details going into each transaction, real estate professionals will be able to use that information with increasing confidence, strengthening the overall system and—more broadly—the economy at large.”
“One of the best ways brokers can help their clients is by trying (to use) the best, most reliable information they can right from the start of the listing process,” Sousa says. “The last time the bathroom or kitchen were updated, a description of those updates—that information can go into the listing. It all goes into the analysis of the property and its condition and quality. The more detailed the listings can be, talking about condition and quality, the better the appraiser will be able to do their job.”
I will also add, if there are additions/conversions that are not reflected in public records it is very helpful for the listing agent to have a city/county report addressing the issue, or at a minimum have a credible, researched explanation with sources for verification.
The statement ” That said, a broker can always ask an appraiser to provide additional detail explaining how they arrived at their conclusions and the ultimate opinion of value.” is misleading. A broker can ask, but unless the broker is the client, ( highly unlikely) the appraiser cannot discuss the appraisal of a particular property with any entity that is not the client. I have had to say numerous times, ” I’m sorry but regulations prohibit me from discussing the appraisal with anyone other than the client.”
Bill hit the nail on the head. Like agents, there are many very good appraisers and some bad ones also, but it is the system that controls the “process” for the lender. The reforms enacted to keep an “arm’s length” between the lender and appraisers might have been well-intentioned, but it seems to be irrelevant inasmuch as the appraisers’ opinion of value is designed to meet the expectation of the lender’s underwriting dept. How can it be a fair assessment when the underwriters have veto power over the professional preparing the report? The whole system needs scrutiny and revisions in my opinion. There is way too much emphasis on comparables over market conditions, the economy, interest rates, motivation of the parties, and condition of the property. There has to be a better way to compare apples to apples. It is a rigged game.
We meet the Appraiser 100% on our listings. Have the home show ready.
We provide a complete package for them and let them do their job. Always available to answer questions or provide additional information.