Sunday, July 21, 2019

4 Steps to challenging the appraisal

In September of 2012, one in three real estate deals had appraisal problems. It was post-recession and we hit the bottom of the housing market in the early months of the year.

Although home prices rose slowly (at least in the beginning), stringent mortgage lending requirements and “appraisal frictions,” as NAR’s Lawrence Yun called them, caused many a real estate deal to fall apart.

We’re currently in a period of flux with the housing market with signs pointing to a buyers’ market, but nobody is truly certain of what’s to come. What we do know is that, while they won’t be as difficult as those in 2012, there may be more appraisal challenges on the horizon.

As a new agent dealing with VA clients, getting up to speed on the VA loan process is challenging enough. Dealing with a low VA appraisal takes a special kind of finesse, so let’s walk through the process.

Thankfully, you have options

When your clients are dealt a low appraisal from a conventional lender’s appraiser, there is little that can be done aside from asking for another appraisal or challenging the appraiser.

Loans guaranteed by the VA, however, are a different breed. Borrowers have the leverage provided by a process called the Reconsideration of Value (ROV).

Stay top of mind (Valentine’s Day postcards available in the Holiday postcard section)

It takes a team to request a ROV, so you’ll need to enlist the other side’s real estate agent and the sellers.

Step 1: Nit-pick the appraisal

The first step relies heavily on both the listing agent and his or her clients. Nobody involved in the deal knows more about the neighborhood than these parties, and their knowledge is critical in the ROV process.

Ask them to go over the appraisal, looking for errors and omissions. Even the tiniest of mistakes can make a difference, so request that they be as picky as possible.

  • Check to ensure the appraiser got the home and the lot square footage correct.
  • Is the age of the home accurate? How does it compare to those of the comps the appraiser used?
  • Were the home’s upgrades considered? Energy efficient improvements are especially important in the VA appraisal.
  • How does the home’s location compare to that of the comps?

While the sellers and their agent are doing their part, you should go into the MLS and ensure that every bit of information about the comps that the appraiser used is accurate.

Take your time and be methodical. Finding mistakes may just save the deal.

Step 2: You’ll need to pick the seller’s brains

Actually, you’ll need to ask their agent to pick their brains. Ask them to think back to any conversations they’ve had with neighbors about home sales in the area. Anything that caused the sale to be more or less than market value is important.

For instance, Joe down the street got a job in Boston and his new employer needed him there immediately. He had to sell his home and, in his rush to relocate, he took a rock-bottom offer.

A death in a family, selling to a family member and a tough divorce are a few other reasons that homes sometimes sell for less than market value.

Also, ask if there were any recent FSBO sales in the area and learn as much as you can about those situations as well.

Show them you’re thinking of them (Valentine’s Day postcards available in the Holiday postcard section)

Finally, run a CMA on the property to see if there are more relevant sales that the appraiser missed.

Step 3: Organize your supporting information

The VA has specific demands when submitting information for a ROV. Some lenders will handle this for you, but to be safe, thorough and professional, submit the information to the lender in the required format.

Comparable sales should be submitted on a grid. See the grid form the lender is required to submit at eprmg.net.

  • Ensure that the comps are truly “superior” to those used by the appraiser, such as comps that are more recent, closer in proximity to the subject property or more similar.
  • These comps must have a closing date earlier than the date on which the VA appraisal was reported and the VA will accept no more than three.
  • Include the MLS printouts (with closed status) for each comp.
  • Also, include a written narrative on why you think the comps are superior to the ones used by the appraiser. This is where you’ll mention any special circumstances, such as those listed in Step 2.

If the request for ROV is based on a disagreement with how the appraiser analyzed data, you’ll need to approach the lender with different materials:

Submit a narrative outlining which aspects of the appraisal you disagree with and why you think they’re incorrect. “Disagreement(s) with items such as grid adjustments, or subject square footage measurement should be explained and any documentation available to support these disagreement(s) should also be provided,” according to the VA.

 Step 4: It’s time to approach the lender

The lender is the middle man or woman in a VA transaction – between the VA appraiser and the buyers and sellers.

He is the person you’ll want to speak with about the ROV and he is the person who will transmit all the supporting documents you come up with.

He’ll supply the appraiser with those documents and the appraiser will have five days to go over everything, reevaluate the original appraisal and notify the lender and the VA of her results.

Let them know you care (Valentine’s Day postcards available in the Holiday postcard section)

Your job at this point is to wait for the VA review process to conclude. Hopefully, all will go in your client’s favor because the results of the VA ROV are final.

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Appraisal Secrets Revealed

“Overpriced,” thought Ryan Lundquist, a certified residential appraiser in Sacramento, California. He’d just received an appraisal order and, thankfully, his last impression didn’t match his first. In the end the home received top dollar.

But, he was puzzled. Finding that the property was worth slightly more than the selling price, he wondered why the listing agent offered no information about the property until he asked for it. Didn’t he want to ensure top dollar was received for this home?

Unfortunately, many agents have been intimidated by, and sadly misinformed about the 2010 Dodd‐Frank Wall Street Reform and Consumer Protection Act, assuming that they can’t communicate with an appraiser under any circumstance.

Let’s bust that myth

It’s not against the law to contact and converse with the appraiser, unless the goal is to bribe or intimidate him or her.

In fact, Dodd-Frank specifically states that you or “anyone with an interest in a real estate transaction” can ask an appraiser to:

  1. Consider additional, appropriate property information, including the consideration of additional comparable properties to make or support an appraisal.
  2. Provide further detail, substantiation, or explanation for the appraiser’s value conclusion.
  3. Correct errors in the appraisal report.”

The law does not, however, provide for a “full-blown conversation or discussion with the appraiser,” cautions Vic Knight, certified general appraiser and former president of the North Carolina Association of REALTORS®.

“The implication is that the flow of information is essentially one-way,” he continues, “from the broker to the appraiser.”

How your MLS description can help the appraiser

Knight offered an often overlooked point brokers can utilize to help the appraisal process. Writing a listing description is considered part of the marketing of a home for sale. What most agents don’t think about when penning the description is the appraiser, who will also be part of the audience reading it.

Knight recommends that you keep in mind the following tips as you enter the listing into the MLS:

  • Don’t skimp on the photos and include photos of the home’s unique features.
  • Be overly descriptive – this helps with marketing as well.

Point out the “quality of finish in ‘below-grade’ living areas, attics, bonus rooms, decks, porches, etc.”

Related: Featuring Your Listing in the Best Light

Create an appraiser’s package

Knight suggests that agents compile a package of documents and either leave it at the property for the appraiser to view, or deliver it in person, by meeting the appraiser at the home. Include the following documents in the package:

  • A fully-executed copy of the purchase contract and addenda
  • Comps
  • Deed
  • Floor Plan
  • HOA Docs
  • Inspection reports
  • List of upgrades, including the dates they were performed, with photos
  • Neighborhood information, especially anything that makes homes here more valuable than homes in nearby areas
  • Plat and survey
  • Proof of multiple offers

The latter is important information for the appraiser, according to appraiser Tom Horn of Birmingham Appraisal Blog. “Providing proof of multiple offers does show them that more than one person is willing to pay a certain price for the home,” he suggests.

It’s also important that you are very specific in your description of the home’s upgrades. Rather than stating that the bathroom was “completely remodeled,” list what was replaced, what it was replaced with, the date the work was performed and the cost.

For example, Lundquist suggests, on his Sacramento Appraisal Blog, “Bathroom remodel: new tub; travertine tile work; cherrywood cabinetry; Kohler sink, faucet, etc. …/Installed 2009/$15,000 cost.”

Or, offer the appraiser a cheat sheet

Lundquist offers some tips on how to interact with the appraiser within Dodd-Frank guidelines.

These useful tips help agents avoid the appearance that they are pressuring the appraiser, a violation of federal law. Any statement that can be perceived as an attempt to steer the appraiser to the value you want for the home can get you into hot water.

Examples of these are frightening because they are so commonly (and innocently) used. Banish them from your interactions with appraisers:

  • “I’ll be happy as long as it appraises for at least the sales price.”
  • “The market has been ‘on fire’. You shouldn’t have any trouble with the appraisal.”
  • “Is it going to come in at ‘value’?
  • “If this doesn’t ‘appraise’, the seller is going to go into foreclosure.”
  • “I would be shocked if it didn’t ‘appraise.”
  • “I really hope this works out. No pressure or anything though.”

To avoid trouble, keep your opinions, feelings and thoughts to yourself. Communicate only the facts about the home and neighborhood.

A listing agent’s job entails far more than marketing the home and negotiating with the buyer’s agent. Underlying all of the duties, however, is the duty of “care.” This includes ensuring your client gets the most money possible for the home.

This article is not intended to serve as legal advice and should not be used as a substitute for consultation with an attorney.

Related: Pricing Makes Perfect 

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