Our friend Jay Vorhees at JVM Lending has posted another great blog recently about appraisers. I have taken some liberty with his original blog and modified it to some of my personal experiences. Check it out below!
Lenders are not ever allowed to communicate directly with appraisers. They are only allowed to order appraisals through an Appraisal Management Company, which in turn contacts the appraiser. This arose out of the mortgage meltdown in the efforts to prevent fraud. Overall, I think it hurt the buyer because the cost of appraisals rose.
Realtors, however, can communicate directly with appraisers and I highly recommend that they do so. I meet the appraiser at the home, provide them with the comps I used to come up with the list price and let them know how many offers I had and the offer price of them. It is important to be nice, and not tell them ‘how’ to do their job, but provide them with data that they may not have.
Below is the criteria appraisers use for Comparable Sales Data guidelines.
1. Size: Comps need to be within 20% of the size of the subject property. For example, they usually cannot use a 1,300 square foot comp for a 1,000 square foot subject property. Likewise, they cannot use a 700 square foot comp for a 1,000 square foot property.
2. Distance: Comps need to be within one mile of the subject property, and not over any major barriers like a freeway or a river.
3. Same Town/City: Comps need to be in the same city as the subject property in most cases, even if the comp is less than a block from the subject property.
4. Closed: Comps need to have closed in the last 90 days. Pending sales and listings are not acceptable.
5. Lot Size: Lot sizes must be accounted for too. If the subject property is on a small lot of 6,000 square feet, for example, a comp and a 12,000 square foot lot will have to be downwardly adjusted significantly in most cases.
6. Adverse Influences: If the subject is on a busy street or abuts a school, a freeway or an industrial area, valid comps will need to have similar adverse influences or they will make adjustments to equalize the value.
7. Bracketing Comps: Valid comps need to “bracket” the appraised value. Hence, at least one comp needs to be priced higher than the appraised value, and one should be priced lower.
At the end of the day. Appraisals are still subjective based on the appraiser’s interpretation and experience. Most of the time they are trying to do their best, and as markets shift, they have to adjust. They do not always have some inside information about a neighboring sale or a credit and if you can make their job a bit easier, I find everybody’s job becomes a bit easier.
I should also note that Mortgage Bankers have AMC – Appraisal Management Companies, where they can cherry pick the appraisers that are in the pool, even though they can’t talk to them about value. These are usually much better than the big banks and that is a whole other story that only frustrates me….