Varying Degrees of Professional Appraisers
Appraisers are like professionals in any other field—some are excellent, and some could not find a property with two maps and a flashlight. In some states, appraisers might not have to be licensed. Unless a seller has first-hand experience with a particular appraiser, there is no way to be completely confident the appraisal will be accurate.
Appraiser Errors
Appraisers can make mistakes. If the appraiser is unfamiliar with a neighborhood or its quirks that might detract from value, the appraisal might be incomplete. The method used by many appraisers to establish market value is to compare similar homes in a similar condition that have recently sold. Sometimes, agents remove photographs after closing from multiple listing service (MLS).
Appraisals Using Realtor Information
Appraisers can’t always find all of the required data and may ask real estate agents for information about their recent sales. The appraisers want to know if there was anything unusual about the home, whether the seller paid for the buyer’s closing costs, or if there were special concessions. Not every real estate agent is available to answer these types of questions, and not every appraiser asks. Top producing agents might not recall the details of every single transaction.
Buyers and Comparable Sales
Home pricing is part art and part science. When real estate agents prepare a comparative market analysis, they are trying to determine how much a buyer will pay for the home and the price at which the lender’s buyer will appraise. These values can be two different numbers. Sometimes buyers are very confused when shopping for a home. They generally compare values among homes they have toured, so they don’t really know how to determine value when the only homes they see are homes for sale. They know what other sellers are asking for their homes, but they often do not know which homes in the neighborhood have recently sold and for how much. Buyers might try to compare a home with a pool and upgrades to a home on a smaller lot without a pool and in need of work; they’d have absolutely no idea how to compute the difference in monetary terms. For example, a buyer might be told the home next door sold for $300,000. That would be enough to make the buyer believe they should be able to offer $300,000 for the home for sale next to it. However, the home for sale next to that home might have an extra bedroom and bath, which would mean it could probably be worth more. How much more is an extra bedroom and bath worth? Buyers do not know.
How Buyers Appraise Homes for Sale
Buyers often make a decision on price based on the competing homes for sale. For example, if they tour an overpriced home, that will make the reasonably priced homes look like a bargain. They might also ask their real estate agent how much they should pay, and the agent might say, for example, that the average sold-price-to-list-price ratio is 98%, which might suggest a 2% price reduction. Buyers should not ask a real estate agent how much to offer for a home. Most agents are uncomfortable suggesting an offer price since it is not their home, and they may not be able to answer confidently. A buyer should ask a real estate agent to give them enough information to make an informed decision.
Reasons to Avoid Seller-Paid Appraisals
The buyer will still need to pay a separate fee for an appraisal to obtain financing. Moreover, it is highly likely that the buyer’s lender would require an additional appraisal just before closing to check on the accuracy of the first appraisal. Also, after the market crash of 2008, lenders realized a good appraisal is simply a good estimate of value, and estimates can vary. While a real estate agent’s estimate of value is not an appraisal and should not be construed as such, listing agents generally can do a fairly good job of figuring out a listing price based on comparable sales and market movement.
