Appraisals Are A Changin. By Dan Polimino.

By
Real Estate Agent with Keller Williams Realty DTC

Our office, Fuller Sotheby’s and Kensington Mortgage, hosted two very established and well-respected appraisers at our company meeting a month ago. The purpose was for the appraisers to give us a state of union speech and for realtors to ask questions about what, where, and why. We have all seen massive changes in the appraisal business since the real estate crash and many professionals including myself are scratching their heads on a regular basis, trying to figure what an appraiser is thinking. Most people know about all of the reforms that the lending side of business has gone through, but few realize that appraisals and appraiser come in a close second when we talk about industries turned upside down.

With that said, lets hit a few highlights that were covered during the hour and half symposium because the information affects us all.

1) The number one piece of information I summarized was that in most cases, buyers are getting the price of homes correctly. Remember, the appraiser’s job is to confirm or deny the current market conditions on behalf of the lender loaning the money to the buyer. If the buyer has offered $230,000 for the home, it’s the appraiser’s job to confirm or deny for the bank that it is the current market value for that home. “Current Market Value” is the key word. They are charged with the job of finding an exact “match” to the home that is under contract to prove the current market value. Remember in the first sentence, I said that buyers are getting values correctly. What we need to keep in mind is that the buyer has seen more homes in the market than anyone else in the real estate equation. Many times, they know better what you can buy for the money than the listing agent and the buying agent. The days of buyers overpaying for a home are long gone. They are too smart, too savvy, and have done more homework than anyone involved. So in most cases, these appraisers are telling us that the buyers are getting the pricing correctly and judging well the current market conditions.

2) Ninety days is the new norm. Appraisers need to use comparables in your neighborhood that are not older than 90 days. If there are none, they can first move out of your area, or second, take a look at something older than 90 days. The days of applying a comparable from 12 months ago have been gone for two years and now the sold property from 6 months ago is an extinct comparable. Sellers better hope that something has sold in their neighborhood in the last 90 days or appraisal could be an issue.

3) Price per square foot doesn’t matter. Most real estate agents already know that appraisers do not use price per square foot for an evaluation. It has almost no bearing on the appraisal. Problem is, sellers and buyers use price per square foot when buying and selling. The message here is that price per square foot has never been and never will be a good predictor of value. There are just too many other intangibles when it comes to arriving at a fair market value of a home.

That was a lot more great information that I just don’t have enough room for here so if you would like to contact me, I’ll be happy to share it with you.

Dan Polimino is a Realtor with Fuller Sotheby’s International Realty. He can be reached at DPolimino@fullerproperties.com and www.coloradodreamhouse.com/denverpost

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Rainer
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Nor Yeretsian
Envoy Capitol Realty Inc. - Toronto, ON
Envoy Capitol Realty Inc., Brokerage Toronto

Thanks for the interesting article Daniel.

Times Change and So should our approaches ...

Cheers

Nor Yeretsian

Nov 15, 2010 06:48 AM #1
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Kristin Petersen

I recently took all the appraisal courses to become a registered trainee in Florida, not to be an appraiser....just so I could get a really good idea of how adjustments are made.  The one BIG thing I learned was about price per square foot and NOT to gauge property on that!  I posted a blog last month on it....we just need to educate the buyers...especially investors!

THANKS for the post, have a great day!

Kristin

Nov 15, 2010 06:54 AM #2
Rainmaker
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Conrad Allen
Re/Max Professional Associates - Webster, MA
Webster, Ma, Realtor

I have been a Realtor was 30+ years.  I am also a licensed and certified appraiser.  Other than who orders the appraisal nothing has changed the process.  I agree with the premise that 12 month old comparables are not relevant.  The appraiser is alsways looking for relevant comparables.  It is a never ending battle.  This is especially true when values are going down

It is the principle of substitution that drives the buyers and appraisers.  There are three approaches to determining value: cost, market and income.  The appraisal is ordered by the lender.  The appraiser's obligation is to the lender not the buyer.  If the buyer is informed consumer and has done their homework on values then the appraiser and buyer are usually on the same page.

If the listing agent did their job and priced the property correctly then there is usually a happy ending with the appraisal process.  There is no magic in appraising.  It is comparing apples with apples. You don't compare ranches with capes or colonials with raised ranches.  Most appraisers are hard working, diligent professionals. 

It would be great if all sales occurred in MLS.  They don't so the appraisers are going through non MLS sales for more current information.  There are some small towns that have 10 sales for the year.  How do you get comparables in that town?  You have to go to neighboring towns and make market adjustments.

Appraisers cannot be geographically ignorant.  That is where problems occur.  Being unfamiliar with a town is a recipe for disaster.  I hope this helps.

Nov 15, 2010 07:27 AM #3
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