The appraisal

B - Good House Appraisal: Ensuring a good one?

Appraisers are caught in the middle:

Appraisers want to stay in good graces with the lenders. Most of them do not work directly for the lender, but are from independent appraisal companies. When a home passes the appraisal, the lender makes the loan, makes money and everybody is happy.

A low appraisal leads to no loan, and everybody's unhappy, including the lender. So, the appraiser walks a tightrope between satisfying the lenders, while at the same time supplying the lender with a credible and certifiable appraisal, so that he or she will continue to receive appraisal assignments from the lender.

The uninformed appraiser:

Before the housing market hit the fan, appraisers were often told the agreed upon sales price of the home before they appraised the property.

Suppose an agent was sent on an assignment to appraise a four bedroom, two-story that had a contract price of $215,000. The appraiser would compare this house to others that recently sold in the area for around $215,000. If the appraiser is appraising a $270,000 two-story home that happens to have four bedrooms, he or she will be using houses as comparisons that sold for around $270,000.

Knowing the sales price ahead of time makes it easier for the appraiser to find comparison houses; it gives them something to “shoot for” as they come up with a value on the property. However this isn’t always the case. If they go in blind, not knowing the contract price, then they have a much greater chance of not appraising the home to the selling price. 

During the heydays of anything goes financing (before the housing bust), lenders would "sometimes" give appraisers what they called a "MTO" appraisal request. This Made To Order assignment was given with the contract price along with a wink and the understanding that the appraisal should match this selling price. 

Today, not so easy. The lending officer is to have minimal contact with the appraiser concerning the selling price and the appraisal.   

The informed appraiser:

The appraiser can usually find houses in the immediate area similar to yours that recently sold. These will be used to validate your selling price. But it really helps the appraiser if a “target” value is already known.

Whether you are a FSBO or are listed, make a copy of the sales contract and give it to the appraiser when they stop by. Simply attach it to your brochure on the home. Point out that the brochure contains a list of all the features about your home, including improvements you made. They’ll be glad you did.

Your home has more potential for loan acceptance when the buyers are putting a lot of money down. An appraisal that's a few percent under the selling price could be doomed if the buyers are only making a small down payment. However, lenders are much more lenient as the buyer's down payment amount goes significantly above 20%. Appraisers know this. A copy of the sales contract reveals how much the buyer is putting down. If your buyers are coming in with a large downstroke, the appraiser likes to know this. 

Legitimate price difference:

Appraisers know that a selling price could actually and legitimately be high if there was a "multiple offer" situation during the negotiation process. Be sure to let them know if this occurred. The influence of buyer bidding is widely accepted as a valid reason for a higher than usual price. 

Conversly, if a foreclosured house is used as a comp against your home, this would be very detrimental to your appraisal. Alert the appraiser to this possibility - if known. 

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