Real estate appraisers do a complicated job in an exacting, precise manner. When they create an appraisal, they have nothing to gain or lose from the final number—with the notable exception of their reputations and therefore, their livelihoods. And while most appraisers are tight-lipped and focused, they do have quite a few points they want other real estate professionals to know in order to streamline their jobs.
Appraisers are Impartial Professionals
While an appraiser may seem disinterested or aloof, they are very focused and intent on doing their work. Chit chat and nervous banter from the seller about the house only makes it harder for the appraiser to perform his or her job. By distracting them, they may miss crucial details that could negatively impact the appraisal. Please let your clients know ahead of time that offering snacks or treats to the appraiser is unnecessary and distracting. So is puffery and upselling. It impedes the process and has no bearing on the final appraisal value of the home.
Comps Matter More Than Upgrades
While homeowners may greatly value the work and upgrades they have put into their home, those upgrades will pale in comparison to the importance of comps. Appliances, structural work, or additions have an impact, but the aesthetics, regardless of how much they cost to install, won’t make as big an impact as sellers often believe it will. This can include upgraded floors, kitchens, paint, and doors, just to name a few.
You may have already had a discussion with your sellers when originally pricing their listing about the perceived value of certain features and upgrades. For example, although they spent $50,000 on a kitchen upgrade, it may not mean that it equates to $50,000 added to the home value. It may be helpful to revisit this discussion before the appraisal to help manage expectations.
Sellers Aren’t Always the Best Historians
This is where Building Permit History Reports come in. While sellers may think that they filed a permit for a 500 square foot addition ten years ago, the reality is that they filed a permit for an 800 square foot extension twelve years ago. Correct square footage is crucial to the appraisal process. By running a Building Permit History Report, you will immediately know what has been approved before the appraiser arrives. (This information is crucial for how you list and market the property, along with what disclosures need to be made. So get the Building Permit History Report run as soon as you get the listing, so you can list verified square footage in the MLS and other marketing materials.)
Natural Disaster Repairs
If there has been a natural disaster that resulted in repairs, the appraiser will need the paperwork and permits pertaining to those repairs. This means that if there was a flood, a simple DIY repair without permits can be a problem. While the homeowner can remedy water, fire, flood, and structural damage, they cannot inspect and certify the work on their own. Discuss challenges that can arise when selling a storm-damaged home with your client ahead of the listing and appraisal, to both ensure an accurate and timely appraisal and avoid a real estate lawsuit.
Be Organized and Be Prepared
Prior to the appraisal, have all documents pertaining to the home ready and organized. This includes permits, condition and age of the roof and appliances, accurate square footage, comps from the last six months, age of the home, and other amenities. While the appraiser will have pulled comps from the area during the appraisal process, it is helpful if the real estate agent has comps or information to offer as well. Oftentimes, the real estate agent knows the area better than the appraiser and may know of recent sales that could impact the property’s value.
Permits for updates that add to the main living area square footage will be important for the appraiser’s evaluation and accurate pull of nearby comps as well. Notifying the appraiser in advance of his appointment about such additions will ensure he doesn’t have to repeat his work and that the appraisal process goes smoothly.
All Square Footage is Not Created Equal
Most sellers are not aware that square footage is not evaluated equally. The bulk of the square footage that goes into the value of the home is that which is above ground in heated and/or cooled areas. That means that the square footage of a finished basement will not have the same value as the rest of the home. The same is true for additions that are partially or fully detached from a home, even if they are heated and cooled. So while the shed in the backyard garden has heat, insulation, plumbing, and cooling, that does not mean that its square footage is included in the value of the home at the same price per square foot as the main living space. This is important to discuss with your sellers, so they understand the situation before the appraisal comes back.
In 2015, Collateral Underwriting changed reporting standards for appraisals dramatically. Quality and condition adjustments are now rated on a scale of 1 (new construction) to 6 (tear it down). Most lenders will not lend on a C5 or lower and will require repairs to bring the property up to C4.
An appraiser is required to call out any health and safety issues, structural issues, and livability issues. If found, most lenders will require repairs to resolve these three main types of issues. By explaining to your client ahead of time that the lender might require repairs prior to close (and that this could impact negotiations), you are managing their expectations. If you are not sure about how Collateral Underwriting may impact your sale, contact CRES ClaimPrevent® to ensure you are not on the path to a real estate lawsuit.
The Inclusion or Exclusion of Closing Costs
Closing costs are often included in sales, which are a concession by the seller. An appraiser will analyze and report the impact of these concessions. If concessions are in a sale price, they are not adding value to the home. This means that the appraisal may come back at a value that is under the agreed upon sale price. Sometimes real estate professionals want the appraisal to be the sale price because that helps the loan close, but the lender will not loan $210,000 on a house that’s only worth $200,000.
Most appraisers would prefer the inclusion of seller concessions when they are actually concessions by the seller (where the seller is giving up something and not just closing costs) and not add-ons. Or, if the market is increasing and there has been enough time from the contract date to the appraisal date that would support a higher value due to appreciation.
Manufactured Homes and Permits
The permits required for manufactured homes (for things such as pellet stoves and additions) are not the same as other homes. Additionally, most lenders will not lend on a manufactured home that has been previously placed. Each state has different permits, but nearly all are found online. If you are handling the purchase or sale of a manufactured home, search for these permits online with a Building Permit History Report prior to the appraiser’s inspection.
Dishes in the sink and unmade beds will not impact the value of a house. However, if the house is cluttered to the point of hiding the value or hindering the job of the appraiser, you might have a problem. If a client is running around trying to clean up or stage the house during the inspection, it will slow down the process and may affect the appraiser’s work.
That being said, there is a difference between clutter and filth. Let your clients know ahead of time that the appraiser will take photos for their records and may need to include those photos in a report for the banks. A good cleaning ahead of the inspection may help support the appraisal once the photos reach the bank.
Easy access to appliances, especially the heating and cooling systems, will help appraisers and speed up the process. This includes the yard and garage. Access and availability is key–if they can’t see it, they can’t evaluate it.
Inform all Occupants of the Inspection Ahead of Time
It may seem obvious, but appraisers report that opening a door to find an unsuspecting (and sometimes undressed) occupant happens more often than you may think. Advise your sellers to ensure that all teenagers, houseguests, spouses, and so on know that there is an appraiser on the property who will go into every room in the house. Have them secure pets that may escape the house during inspection, as well as nervous animals that may bite.
They Don’t Look at Zillow
Please explain to your sellers prior to an appraisal that Zillow (as well as other home value sites) is not a resource and isn’t used by the appraisers.
What tips can you share about working successfully with appraisers? What are the most common misconceptions your clients have about the appraisal process?
This blog/website is made available by CRES Insurance Services for educational purposes to give you general information and understanding of legal risks and insurance options, not to provide specific legal advice. This blog/website should not be used as a substitute for competent legal advice from a licensed professional attorney in your state. Claims examples are for illustrative purposes only. Read your policy for a complete description of what is covered and excluded.
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