There are easy ways to limit real estate appraisal issues, they don’t need to be tension filled, white knuckled adventures. Using experienced agents who understand the process is the best first step to limit real estate appraisal issues. Specific appraisal requirements exist; reports are subject to automated and/or manual underwriting, automated valuation checks and desk and/or field reviews. Many problems can be avoided well before the appraisal if agents “think like an appraiser”. Professional agents anticipate problems and try to avoid them before they hit the radar.
Real Estate Appraisal Issues Due to Poorly Written Sales Contracts
Experienced agents understand that every sales contract is a legal binding document; what is in writing is what matters; this includes stipulations and amendments. Appraisers ARE REQUIRED to review contracts in full.
Inspection issues frequently raise flags. When a contract includes a laundry list of repairs to be made before closing, lenders routinely require reinspection to ensure completion. Issues/repairs underway are required to be photographed and noted in the report. An FHA appraisal will almost always be flagged if repairs are needed or underway. This is fine as long as all parties are aware of how this plays out; this is the agent’s responsibility.
It’s very common that in lieu of repairs, either price is reduced or closing costs are adjusted. That’s often the best and preferred way to address inspection issues – provided the amendment is properly written. An amendment starting with “In lieu of repairs, all parties agree that…..” begs the question “what repairs”? A simple “All parties agree and acknowledge that the sale price shall be $XXX” or “….that the seller will contribute $XXXX towards the buyers closing expenses” is a significantly better option.
Real Estate Appraisal Issues Due to Condition
Photographs are an integral part of every appraisal; most appraisers are required to shoot every room, all views of the exterior, the street and any unique features of a home. Deferred maintenance, safety issues, worn or damaged equipment, functional and external obsolescence…all recorded. Listing agents that fail to present the home in the best possible light do a disservice to the seller.
Similarly, listing agents should understand how the buyer’s financing impacts the appraisal process. Is it an FHA or conventional loan? VA or USDA? Torn carpets and rotted trim is considered differently between FHA and conventional underwriting guidelines. Is the home on septic? Is public sewer available? A listing or buyer’s agent that fails to verify this invites trouble. If rotted siding or damaged carpet is present, expect it to be noted. If utilities are off, FHA will require them to be turned on as appraisers are required to test a sample number of outlets, water, appliances and HVAC.
Real Estate Appraisal Issues Due to Listing History & Overpricing
The listing history of every property appraised as part of a sales transaction is required to be included in every report. Also required is a summary of the current market conditions, to include median days on market and current listing inventory. Homes outside of the norms attract attention; particularly those relisted, with extensive marketing times, with failed contracts and poorly presented MLS entries. Agents that fail to properly advise sellers on pricing, fail to properly present the homes with the best photographs and marketing and/or fail to properly manage contracts provide opportunities for trouble. Underwriters are trained to find and challenge anything out of the norm.
Sellers and buyers must understand the critical role an agent plays representing their interests, particularly when it comes to appraisals and real estate appraisal issues. Data over 2018 shows 23%+- of home purchase appraisals fall short of contract price, appeals rarely change things. Most appraisals are uneventful, professional agents can be a considerable asset to ensure that. The key is to think ahead, understand the process and what real estate appraisal issues may arise. Above all, agents should do no harm and resist the idea to mislead or misrepresent the home to both their client and the appraiser. Every aspect of the home and the listing is going to be examined, agents limit the potential for trouble by being fully transparent with everyone involved.