Real estate appraisal challenges due to the pandemic are increasing. Buyers, sellers and especially real estate agents need to understand how the appraisal industry is adjusting during the pandemic. Being both an active associate broker and certified appraiser, I see this from both sides; as an agent working with appraisers and as an appraiser working with agents.
Real Estate appraisal challenges due to the pandemic
In a normal market, the majority of agents have little to no idea of how an appraiser works. With the pandemic, everything has been tossed into the air. Some appraisers will not complete interior inspections as part of the appraisal process. A segment of appraisers have shut down business until this situation is better understood and under control. Another segment does not agree with the appraisal changes made in light of the pandemic; they do not want to be responsible for information not personally collected. This uncertainty can result in delays, higher cost and in some cases a lower quality report.
Appraisers and agents tend to see things differently under the best of conditions; the pandemic is exacerbating that. Appraisers are faced with litany of changes as lenders scramble to keep money flowing to buyers. Agents that don’t understand this environment are doing their clients a significant disservice.
In response, FNMA, FHLMC, FHA and all of the other acronym rich lending agencies have modified certain appraisal requirements. These range from waiving appraisals entirely to desk tops, to curbside, to exterior only to completing an appraisal up to four months after closing. In many cases, agents/owners are providing critical information to appraisers including photos and details. MLS photos and descriptions are also being used in some cases.
Tight inventory and reduced activity has been exacerbated by the pandemic. The spring is always the most robust part of the year; but the current spring market has obviously slowed. Appraisers typically work within a six month look back for comparable sales; the winter markets are slowest and the spring market ‘20 volume has been below normal. The resulting shortage of suitable comparables can impact the appraisal, underwriting and ultimately, loan approval. Sellers and agents have to understand how to assist appraisers and if needed, how to challenge an appraised value below sale price.
Appraisers are and should be cautious. The crash a decade ago changed the appraisal industry, most management companies and many lenders require appraisers to sign indemnification agreements. The most onerous not only want protection from the appraiser’s possible errors, but anything related to the appraisal, including their own errors that likely may have nothing to do with the appraiser. Appraisers are being justifiably cautious; some prefer to wait this initial period out let things develop.
Ways to avoid real estate appraisal challenges during the pandemic
Work with experienced lenders, local is usually better. Many of the national banks use management companies that assign appraisal work to the lowest bidder. The buyer is charged market rate and the management firm keeps the difference between fee collected and fee paid. Delays, poor quality, underwriting issues….are frequently seen.
Contracts must allow ample time for the appraisal contingency. Buyer agents must understand how to effectively write a contract that protects the buyer’s interest. Listing agents must ensure that time frames are reasonable and that only well qualified, preapproved buyers are involved.
Listing agents must understand the appraisal process and what type of report is to be completed. An information package supporting the price can be helpful IF it’s legitimate and applicable. If it’s filled unsupported nonsense and fails to account for the subject market in a true, accurate way then it’s best not to bother.
Listing agents should counsel sellers that in the event of multiple offers, “highest” doesn’t equal “best”. Listing agents should have a foot in reality; be able to support list prices with appropriate comparables. Buyer agents should similarly counsel sellers not to get caught up in bidding wars. Some buyer agents suggest overbidding in hopes that the appraisal comes in low – a stupid and irresponsible suggestion to make to a buyer.
The real estate industry seems to be in the “we’re in unchartered times” scenario every few years; we’re in the deep end of the pool again. This isn’t the last crash; we don’t have toxic loans, bogus unchecked appreciation and an insane glut of inventory. We have an economic disaster that will impact the real estate food chain – but we also have an administration and Fed that are flooding the economy with relief packages. Shuttering the global economy…not good; how bad and how for long remain unknowns as of today. It’s time for the genuine real estate pros to step up and lead clients; many which may be in financial duress. Most importantly, now is the time for buyers and sellers to demand the best and to work only with professional, proven agents.