The reason Realtors think that they are good a pricing homes is because in the past 9 years some mortgage brokers and appraisers committed mortgage fraud by “hitting the number” on a house that was in escrow. Not to worry that business is over. New appraisal regulations are eliminating that pressure on appraisers. Get ready Realtors…there will be lots more deals falling out of escrow because the appraisal did not match the contracted purchase price.

I have to say both exciting blogs. I really appreciate your drive for your profession. I commend you for being good at what you do, and that is SELL to clients. You are correct, Appraisers and Realtors function differently. You have have a vested interest in selling the property. An appraiser does not. I do agree, there are Realtors that know thier markets VERY WELL. I have a realtor friend and my father was a realtor, knows who built what neighborhood and the quality of the construction. Both know the trends, see older areas coming back to life… But you are correct, many appraisers (not all), do not know this information. I do like when an agent is present, because I feel I am getting an interview at the same time. There is always this TENSION for some reason. Like we cannot really TALK to eachother, but after awhile talking, both seem to relax and we talk about what is going on. It is interesting… Like talking to a used car salesman about his cars. But there are realtors that will be honest and we dig into the markets they are familiar with. I get tested on ths all the time by my real estate friends. Both have a very hard job. You need to take a home, being average to gorgeous and sell it. Get them excited about that house. That is your commission.
The appraiser, needs to know that area. You are correct, if they come from out of Town, they might do a good job, but that is not good enough. You should ensure the appraiser is familiar with the area, as this goes against the Geographic Competency. This does not do anyone ant favors. That is like sending you to another city to list a house you know nothing about the market.
I did want to make a comment, you stated above about the sunroom that is not heated or cooled like the remainder of the house and telling the homeowner to install temporary heating or a window unit to make it count as sq ft. Unfortunately, that is misleading the buyers. We use the “Residential Square Footage Guidelines” from the Real Estate Commission to properly measure and accurately define the actual HLA of a home.
I enjoy your blog… I am going to look for your books and read them. Thanks again, and I hope in the future, you have better experiences with Appraisers. As you are well aware, there are good and bad in BOTH professions and it is wise to find one that many people have had good experiences with….

Take care

You sound like an excellent appraiser who cares about the quality of her work. That’s great. Your industry, like mine, runs the gamut of competence and caring. So it’s easy to dismiss our value by referring to the ones who don’t care much about being exceptional.

Oh, by the way, my sunroom was integrated into the house – I probably shouldn’t call it a sunroom, except that it was mostly windows (very high quality windows to minimize heat/cooling loss), but otherwise, it was definitely high quality construction, not just a lean-to attached to the back door.

But anyway, GREAT post… I’d hire you to price my house any day!

I would have a pre-listing appraisal done. You’d be amazed how much money is left on the table because the house wasn’t priced right.

“If a residential dwelling is purchased by an investor shouldn’t the investor be entitled to an income capitilization approach. In fact doesn’t the USPAP require that appraisers attempt to use all 3 approaches to estimate value if enough market data is available?”

Absolutely. But sadly, there are appraisers out there who are simply form fillers and feel pressured by their clients to produce reports cheap and fast.

It’s because (and if this is not you, again, forgive me) I’ve seen too many Realtors continue to get stuck on price per square foot for instance. If all homes are equivalent in age, lot size, parking facilities, baths, condition, etc., price per square foot might work. ie. in new construction by a tract builder. If these factors aren’t all equal, it’s similar to comparing a Lexus and a Bronco ‘by the pound’ for pricing. Neither of these items are commodities, and price per square foot doesn’t account for views, age differences, quality levels, or those nuances you mention such as disfunctional floorplan caused by a poorly planned addition, or the smell of cat pee that permeates the lower floor.

I have several agents in my area who continually seem to get the listing because they have that asking price in the stratosphere. The only results that generally come from that are extended marketing times and eventually a lower net gain for the seller than they would have had pricing it properly from the start.

How about the ones who want to lump the detached guest quarters into the living area and price it as if there were a 4,200 SF house rather than a 3,100 and 1,100 detached guest quarters?

I also have a few in my market who are spot on with the values in a particular location. They truly are the neighborhood specialists, and we talk from time to time when I’m doing an assignment in thier ‘stomping grounds’, if you will. I’m one of those pesky appraisers who will visit with you regarding a curious sale.

On the flip side, there are appraisers who merely know how to pull 3 high sales within a mile of your subject and plug them into the form. Adjustments are pulled from air, comments are light, they don’t truly know what makes that market tick much less how to describe it.

What we are describing is the less than stellar performers of both sides of our industry. Not having lived in Denver in about 15 years, and not having been in the real estate industry when I did live there, I can’t tell you I’d know everything, but a good appraiser can pour over MLS data for awhile and discern trends about an area, and nuances about a particular property that you wouldn’t necessarily think we’d be able to pick up. When we can’t figure out why something sticks out like a sore thumb, we pick up the phone and discuss things with a local agent. ‘Can you tell my why 123 Bonnie Brae St sold so low?’ Chances are, it’s a poor floorplan (not visible from MLS photos) or divorce/distress, etc. It could be a fool that wouldn’t let you put a lock box on the house (Appointment with agent only listings are visible and noted by many of us. Particularly those of us who’ve sold properties) ‘Please don’t let the German Shepard out’ can easily mean, you’re gonna have to paint and recarpet. I’m going to at least investigate the possibility. Believe it or not, more of it is common sense to those of us with that ‘real estate gene’ that you’d realize. Good appraisers are far more intuitive and tuned into market trends than you may realize. It’s our jobs. Form fillers? You don’t want them around for those assignments when they have to come up with a number on thier own.

If a residential dwelling is purchased by an investor shouldn’t the investor be entitled to an income capitilization approach. In fact doesn’t the USPAP require that appraisers attempt to use all 3 approaches to estimate value if enough market data is available?

The comparable approach is subjective. In and of itself it’s subject to “similar properties”. As previously indicated it’s can be subject to lots of things like the appraiser, county recording, and even anticipated decling markets.
Would an appraiser aniticipate appreciable value in a sales comparison approach given very different market conditions?

Honestly, if you were going to list your home and wanted to price it right, would you want help from someone who actually markets (and sells) homes for a living or someone who does not? ASSUMING (and I realize this might be a big assumption) that the Realtor pricing the home is competent, knowledgeable and has your best interests at heart.

On the flip side, if I were going to LOAN my money to someone to buy a house, I’d certainly want an appraisal instead of a Realtor opinion of value (or maybe both). We just do different things – I don’t take your place and you don’t take mine. We work together toward the goal of getting all parties what they want! (buyer wants to buy, seller wants to sell, mortgage broker wants to lend money, bank wants to protect their money, Realtor wants to go to closing with a happy customer)

A good appraiser that is doing the proper type and amount of research can go into any market area and determine an accurate value, even if they don’t “specialize” in that particular area (or metropolitan area). One of the objectives for an “unbiased opinion” is the ability of an appraiser to go into a market area with an open mind and due diligence as a prudent buyer would. The difference being a prudent buyer (and agent) are not educated, trained, or qualified to determine value, (agents determine estimated sale price) nor are they willing or capable of complying with the regulations governing the appraisal process.

As David Dietz stated – I too do anticipated list price appraisals, pre-listing and relocation appraisals. While it is true, no one can predict the future, (not even a Realtor, regardless of how conceited they may be) a realistic price or range can be acheived if done properly without the influence of desired results (listing contract) or desired commissions.

It is common, or should be for all appraisers, to call the listing or selling agent with questions. I will even contact the seller or buyer in some cases (depending on the response or lack of from agents). My expierence with doing so has a 50/50 mixed result. Some agents are helpful and some are aren’t.

I don’t agree. He is as good as his ability to research and analyse the data and market. He probably hasn’t done any of that research yet because before seeing the house he doesn’t know what he is dealing with.

And even if he DID know that market inside and out, he would still DO that research so he has up-to -date details to base his findings on, instead of using that silly, canned, phrase “based on Appraiser’s experience”.

Thanks for the comment. Been meaning to reply…and today was my first opportunity.

In the case where I showed my seller what an appraisal of his condo might look like before we listed, he could see that although there were 8-10 other units in the complex listed HIGHER than his, when it came time for the bank to lend the money to his potential buyer, none of those list prices were going to appraise. The appraisal is just another way for me to communicate my opinion of value from the eyes of the bank who will be lending the money. Another Realtor might not be able to articulate as well why a lower listing price than all the immediate competition makes sense. I use the appraisal to not make me the bad guy, but instead make the “market” the bad guy!

In the second case where we bought a FSBO listed home, without another agent involved on the listing side, I assumed there may have been less due diligence performed in calculating a list price. Again I used the appraisal to show the owners/sellers that, “Yes, your home is beautiful and you’ve put a ton of work into renovating it, but my buyers needs to borrow money and based on the best comps available AND the recently tightened lending standards, I’m fairly confident that they will not lend on a value much higher than this. ” If this was a home listed with an agent, perhaps the list price might have been more reflective of true market value.

The appraisal is just one vehicle of expressing my opinion of value. I am ethically forbidden to perform appraisals for lending purposes on properties that I have an interest in. That’s an obvious conflict of interest. I’ve turned down several appraisal assignments that involved agents from my office. I feel I’m too close to those deals as well. But if I’m just using the appraisal process to communicate to my clients what my opinion of value is, and more importantly what the bank’s potential opinion of value may be, I think I am serving the best interests of my clients.

If the listing price is right on the money (pun intended), there’s no need to submit an appraisal with the offer because our offer is going to be pretty damn close to the list price. If I’m listing a short sale, doing an appraisal is often meaningless. The sellers just need to get the hell out of the situation ASAP and the home probably won’t be selling for market value anyways. So sometimes it makes sense, and sometimes it doesn’t.

The way I look at it is, over the course of my career I’ve personally performed over 1,500 appraisals in the area and have learned a thing or two about property valuation along the way. I feel I owe it to my clients to put this experience to work for them. If we can look at the price from yet another angle, the one from the underwriter who is going to eventually OK the financing on this transaction, we be crazy not to explore that as well, agreed?

Thanks again for your comment. Have an AWESOME weekend! Mine is just about to start…..

All My Best,
Mike

But based on the “hotness” of this neighborhood, and its recent positive press, I bet when he performs his neighborhood analysis he will find lots of recent, proximate, relevant data that supports everything you’re saying about the area.

Plus, most appraisers talk to much on the inspection as well. Do your inspection, ask the questions you need answered and shut up! Leave your market reports to yourself please. If I take that statement a couple steps further, I could say most people talk too much most of the time. Two ears, one mouth, to me means talk for 5 seconds and listen for 10 (or more).

I understand what you’re saying Jennifer (I think I did from way back when the interview was on…how long ago was that???), and it does make sense. Grizzly Adams should not be pricing trendy urban homes for market. But as long as he uses the most recent, relevant market data from the immediate neighborhood, I think he will have just as much insight as Loretta Lexus, who may be factoring in her next car payment as much as the current market data when she sets a listing price.

I’m no Grizzly (could have shaved better today, though) and you’re no Loretta. But I do contend that GOOD appraisers go deeper than the MLS to do their research in formulating their “opinions of value.” I’m assuming you’ve never (or rarely) got a call from a random appraiser who was looking at one of your recent sales as a comp and had some questions for you? I do that ALL THE TIME. Some sales prices make perfect sense and some demand a little more explanation. I always call the listing agent and the selling agent to try and get the scoop. Maybe that’s not common.

PS- LOVE the conversation we’ve stirred, don’t you?

I just returned from meeting an appraiser at my listing. It’s in one of the trendiest neighborhoods in Denver and it has been trendy since 1996. Recently it was written up as being the 2nd fastest appreciating zip code in the city. I live here, too and yeah, it’s very desirable.

However, 14 years ago, it was not quite so trendy and some old-timers still remember those days.

So anyway, the appraiser made the comment: “Well, I don’t do a lot of work in this neighborhood, but it seems to be finally starting to turn around.”

Uh, well, yeah, it turned around, like, ten years ago.

So, while I’m not saying that he can’t come up with an accurate appraisal, I do say that because appraisers don’t “specialize” in any particular areas (or even metropolitan areas – he says he does a lot of mountain work), they aren’t the best people to properly price a home for market.

Whenever I venture into a neighborhood I haven’t been in before, or even recently, I spend a lot of time (re)educating myself on the nuances of the area so that I UNDERSTAND WHY the sales figures are what they are. Not just that they ARE.

Does this make sense?