Start Your Engines... Appraiser Versus Real Estate Agent... Who's the better pricer?

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Education & Training with Sell with Soul

Thanks, AR, for the  Gold Star yesterday on my blog entitled "Should You Price to Ward Off Appraisal Problems?" I didn't intend for the blog to generate a war between agents and appraisers, but sometimes these things take on a life of their own. Okay, well, "war" is a bit strong, but we did have a lively discussion.

So, let's continue it. What the heck.star

However, being a Friday at the end of a long week, I'm feeling a little lazy, so I'm going to resurrect a conversation from last July on this very topic. To recap - I did an interview with Real Estate Radio USA where I casually stated my opinion that appraisers should not be in the business of pricing homes for market. I didn't think that was such an inflammatory statement, but... it was. At least to the appraisers of the world. I really wasn't trying to insult anyone; in my opinion, what appraisers do and what we do are two completely different things, at different points in a real estate transaction, for a different audience.

But my good friend Mike Lefebvre (who really IS a good friend; I'm not saying that sarcastically) took offense to my comments and wrote a rather outspoken blog in response. Which sparked a lively debate over at Real Estate Radio USA.

Here's what he wrote:

Jennifer was on yesterday's show to discuss the seemingly age-old question of how listing agents justify their fees. Anyone who listens on a quasi-regular basis knows that Barry and Barry flat out feel that it is nearly impossible for 99% of listing agents to justify their fee for the services they provide. (That's another topic all together and I feel strongly that Jennifer and I are both part of the 1% who can justify their fees as listing agents.) I enjoyed her last interview a lot and looked forward to her take on this one. She speaks with authority, knows her stuff and I was anticipating a spirited debate.

The conversation eventually turned to pricing properties and appraisers and then the fangs came out. To be honest, I wasn't prepared at all for what I was about to hear. It was appraiser hate-speak! I'm sure Jennifer would tell us that "some of her very best friends are appraisers" but I certainly wasn't feeling the love yesterday afternoon. READ THE REST HERE and don't miss the comments - they're fantastic!

No, really, go read it. It's great stuff. We'll be here when you return.

So, what do you think? Who is the more appropriate party to price a home for market? A professional, experienced, competent real estate agent? Or a professional, experienced, competent appraiser? (for the purposes of this discussion, let's leave out all the idiots in both professions).

Happy Friday!

 

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Ambassador
800,927
Russ Ravary
Keller Williams Commerce - Commerce, MI
Metro Detroit homes - Michigan Real estate & Mortg

Appraiser appraise the foundation of the house but I dont' think they are right on updates or how bad a house is.  They usually miss that area.

Jul 31, 2009 05:22 AM #1
Ambassador
2,390,928
Lenn Harley
Lenn Harley, Homefinders.com, MD & VA Homes and Real Estate - Leesburg, VA
Real Estate Broker - Virginia & Maryland

Neither.

An experienced agent will use comparative SOLD homes and market trends to recommend a list price.  The owner/seller prices the property for sale.  The agent then accepts the listing or not.  If accepted, the agent is paid at settlement.

An experienced appraiser will use comparative SOLD homes and market conditions to price a property.  The owner/seller prices the property for sale.  The appraiser is paid on acceptance of the engagement in advance of performing the appraisal.

Apples and Oranges.

Jul 31, 2009 05:23 AM #2
Ambassador
720,456
Mike Jones
SUNSTREET MORTGAGE, LLC (BK-0907366, NMLS 145171) - Tucson, AZ
Mike Jones NMLS 223495

Jennifer,

The only thing that means a hill of beans is the answer to the question: "Whose opinion will prevail if this is not a cash sale?"  And even there, the appraiser may be overruled by the lender's underwriter if she or he does not agree with the appraiser's valuation.  Just my two cents.

Mike in Tucson

Jul 31, 2009 05:32 AM #3
Rainmaker
1,382,898
Andrew Mooers
MOOERS REALTY - Houlton, ME
Northern Maine Real Estate-Aroostook County Broker

I like local appraisers who know the trends, the neighborhood. When they cruise in from four hours away, looking at their watch, anxious to get back home, the final product is flawed, missing the local element.

Jul 31, 2009 05:36 AM #4
Rainmaker
434,244
Jennifer Allan-Hagedorn
Sell with Soul - Pensacola Beach, FL
Author of Sell with Soul

Andrew - That's what blows me away about the appraisal industry - is that it's okay to ask someone who has no familiarity with the nuances of a neighborhood or area to assign value. What's that phrase we toss around - "Real Estate is Local"?

Mike - Yeah, I know... but it's fun to talk about anyway.

Lenn - that's kinda my point, too. We do different things. For different reasons...

Russ - I think that appraisers are somewhat restricted by all their guidelines. We aren't, which some may perceive as a bad thing. But we CAN take subtleties into consideration when pricing. For example, is a house that's very difficult to show worth less than one that's easy to show? Not on paper, but it's very likely going to sell for less due to a lack of activity. That's something an appraiser wouldn't know, whether it's the house he's appraising or a sold comparable.

Jul 31, 2009 06:16 AM #5
Ambassador
729,582
Christopher and Stephanie Somers - Realtors - Philadelphia Real Estate
Realtor / Owner - RE/MAX Access - Philadelphia, PA

Jennifer - Yes, I also agree it is 2 different aspects of the transaction.   However, they do go hand-in-hand.  Because we list a lot of properties, I get weekly phone calls from appraisers (sometimes daily) asking about properties that recently settled in the past because they are using it as a comp for an appraial report.   To be specific on your question, I obvioulsy think a Realtor is a better "pricer" to list a home.  And an appraisal person is better at "value" of the home and a super internal control for the banks and the buyer to not overpay for a property per se.  Of course, then we have the other debate about appraisals coming in too low for areas where they have little or no experience... so the debate should go on for awhile.  Good question... will be interested to see other responses.

Jul 31, 2009 06:44 AM #6
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Konnie Mac McCarthy
Realty Direct, LLC/Realty Direct, Inc. - Mc Lean, VA
Associate Broker - VA & MD

I find the whole thing interesting, because appraisers hold value for some of the things agents hold value on.. :)

Jul 31, 2009 07:35 AM #7
Rainer
287,094
Leslie Helm
Tennessee Recreational Properties - Jamestown, TN
Real Estate For Trail Riders

Sometimes "location" is an intangible factor that has a value which differs from one end of the county to another. Fentress county is the poorest county in Tennessee but this end has Big South Fork national park. It is called "The Trail Riding Capital of the Southeast" and it is acknowledged to be the best trail riding east of the Mississippi. There are several equestrian communities that abut the park with deeded trails that connect directly to the hundreds of miles of trails in the 125,000 acre park. You can literally ride right out your back door so whether a property is on a horse trail or "near trails" or "minutes from Big South Fork" has alot to do with it's desirability. Similar properties, at opposite ends of the county, might appraise on the basis of age, type of construction, size, acreage and all the other factors that are used but if one is on trails and one is nowhere near trails, the seller of the one that is will be shortchanged if an appraiser from outside the area does not understand the importance of proximity to the park.

Jul 31, 2009 07:36 AM #8
Rainmaker
70,995
Todd Kevitch
BPO Realty - Boynton Beach Real Estate and more - Boynton Beach, FL

I agree with all of the above.  Let us also consider that appraisers are using listed comps as well.  With realtors making up their own short sale prices and low-balling everything else just to get an offer, appraisers are forced to use those diminished values regardless of whether or not those sales will close.    

Jul 31, 2009 07:39 AM #9
Anonymous
Anonymous
Norm Werner

This is one of topics that has no easy or even correct answer, since it is somewhat of an apples to orangles comparison. The key is to understand for whom the party setting the so-called Market Value is working. Appraisers will tell you in greater detail than you'll ever want to know about their concept of the "scope of work" and how that impacts their appraisal work. Since the scope fo work sets the context for teh appraisal it is important to undersand that work done for a lender must include some forward pricing impact of the direction of the market, as well as all of the other local neighborhood-oreinted factors and the specifics of the house itself, as best as the appraiser can dertemine. Most appraisers appear to do drive-bys of the comps that they use, instead of actual visits, so they have to guess a bit for the comparisons, as do most Realtors in their CMAs.

I have to agree that the appraised price and the market price are two different things. The market price is, as was pointed out, what someone else is willing to pay for the property; while the appraised price is what some lender will lend against on the property. All is well and good when the two are in sync, but more frequently lately that is not the case. There has always been a gap between what houses are listed for and what they eventually sell for. Historically (defined as the pre-bust era) that gap was only 3-5%, but now the gap often exceeds 10%, at least in my area. The gap is particularly wide when comparing the averages from only owner-occupied homes to the overall averages that have been driven down by the foreclosed homes that have flooded the market.

In my area we use a State assessment value called the SEV (State Equalized Value) mainly for tax purposes, but also as an indicator of a homes value. In theory one can double the SEV to arrive at the value of the home (or at least the taxing authority's view of the value). Over the last two years of the housing bust, the actual sales prices as a multiple of the SEV have drifted down to an overall average of about 1.5 times SEV. For foreclosed homes it is actually only 1.0 times SEV on average (with many being sold for less than SEV or less than half of the value that they are being taxed uppon) and for owner-occupied homes is running 1.6 to 1.7 times SEV. When appraisers look at the market, they use the lower average, but when Realtors set market prices, they tend to set them comparing against other owner-occupied homes. The banks will likely side with the apprqaisers, since theirs is a more conservative approach and safer for the banks. The Realtors will defend the heck out of their pricing as being reflective of the owner-occupied homes inteh area and reflecting the better condition of the home vas. an abandoned similar REO house. Is either side wrong? Not really.

So this whole arguement, if it can be called that, is somewhat meaningless. In the final analysis the house is worth what the buyer will pay for it, assuming that the buyer can get whatever financing is needed to make the purchase.

Jul 31, 2009 08:57 AM #10
Rainmaker
434,244
Jennifer Allan-Hagedorn
Sell with Soul - Pensacola Beach, FL
Author of Sell with Soul

Norm - thanks so much for your thoughts! Wow! However, I don't believe the argument is meaningless, simply because those in our industry have made it meaningFUL. Real estate agents are often frustrated with appraisers' knowledge of the market and appraisers often condescendingly belittle our pricing skills and expertise because we don't rely solely on facts, figures, data and statistics. Oh, sure, in the big picture, it doesn't matter what you or I think - it's the way the system is set up, imperfect as it may be.

However, what I do think is important is for those in our industry to remember who we are hired to serve... in our case, it's our sellers. And there's much more to pricing a home for market than facts, figures, data and statistics.

I don't know if you read the comments from the blog posted above, but one of the most meaningful things I believe said (by me, of course) is that a real estate agent has the ability to influence what the seller does to prepare a home for market. The example I gave was whether or not a professionally constructed sunroom would be counted as square footage or not. In the appraiser's eye, it either is or it isn't. However, to a real estate agent, here's a problem to solve. And if we solve the problem, that seller gets more money. And that's part of the pricing-for-market process, if the agent is a good one.

Anyway, my big picture message is, again, that real estate agents and appraisers have different roles to play in a real estate transaction. And I guess I get irritated when people dismiss the role we play in researching and setting a listing price, as if because we don't have an appraiser's license, we are less competent to do so.

Whew! Didn't mean to go on that long. Thanks for inspiring me!

Jul 31, 2009 09:09 AM #11
Anonymous
Anonymous
Dan

Buyers set the market value. Our jobs as agents is to analyse and read that information to set prices accordingly.

Jul 31, 2009 05:40 PM #12
Anonymous
Anonymous
Anonymous

All things being equal -- "professional, experienced, competent" -- I'll go with the appraiser for the reason that his appraisal simply carries more weight at the end of the day.

Aug 02, 2009 01:40 AM #13
Anonymous
Anonymous
feby
Thank you for posting this. I'm and agent meyslf specializing in . If I hadn't carved out this niche for meyslf there is no way I would have been able to stay in the business the last few year. I think the real estate industry was and still is the cause of the recession.
Jul 22, 2012 10:38 PM #14
Anonymous
Anonymous
qahnahrtkrw
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Jul 25, 2012 06:56 AM #15
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Rainmaker
434,244

Jennifer Allan-Hagedorn

Author of Sell with Soul
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