Appraisal Report in MLS Listings
- Federal Valuation Agency Impact on Appraisers & the Public - July 22, 2022
- Is Georgia Going Rogue? - June 13, 2022
- Bias in Automated Valuation Models - February 28, 2022
Your Appraisal Report Attached to a MLS Listing….
Private prelisting appraisals are a good revenue stream for many appraisers. Do your clients understand the intended use and intended users? Do you, the appraiser, understand the intended use and the intended users? We often get complacent and assume everyone understands, and then the unthinkable happens; you find your appraisal report attached to a MLS listing or worse, attached as a photo on Zillow. Yes, this actually is happening!
On recent MLS listings, the following statements were found:
“Offers accepted until… Owner reserves the right to accept or reject any/all offers – Home inspection and two appraisals will be provided
Recently appraised for $315,000! – See attachments for a copy.
It is our job to ensure we as appraisers understand how, when and by whom our appraisal reports will be used. The time to obtain this information is in the engagement stage. It should also be fully explained within the report. This is not boiler plate language similar to what is preprinted on the URAR. In other words, make sure there is no misunderstanding and both you and the client fully understand the intended users and the intended use of your appraisal report. Even with a restricted appraisal report, does the client fully understand its limitations? Take the opportunity to educate your client. If you don’t agree with how the client wants to use the appraisal report and can not come to a mutual agreement, should you complete that assignment? What, if any recourse will you have if your appraisal report ends up being used for another use or by someone who is not the intended user?
Have you ever received a sales contract $30-40,000 above the comps? Some agents are using the appraisal as a negotiating tool. Phil Crawford, Voice of Appraisal podcast E164, exposes a theory that agents are telling buyers the only way to obtain this home is to offer $30,000-$40,000 above list price.
“Don’t worry, the house will never appraise and we will negotiate the price after the appraisal is completed”
In this scenario, the appraisal report is being used for an intended purpose and by a different intended user than what the appraisal was for, the lenders security of a mortgage loan.
Phil also points out an agent he knows was offered $30 to show a property. If the property went under contract as a result of that showing, the agent will receive a $500 bonus!
Yes, this stuff is actually happening!
Good advice to follow: Make sure you and your client have a complete understanding of your role, the intended user and intended use. Make the sure the verbiage in your report is appropriate and complete for that particular assignment. Boiler plate states may be more harmful than no statement at all. Check with your E&O company for advice on how to protect yourself from unintended liability.
Listen Phil Crawford’s Podcast E164 Tricky Points, Rural Appraisers, A new “Skap” Report!!!
You should check out one of my markets where this long time in the business Certified Appraiser let’s Agents put his name on the Listing (recently appraised by or priced below appraisal by John Doe) and sometimes what his opinion of value is! In my opinion that’s just crazy.
Do you mean “D. S. Murphy Co.” appraisals out of Georgia? I don’t think the head of the Georgia’s Real Estate Appraisal Board actually does most of those, though appraisers in his company appear to be doing so. Its worth looking up.
It happened to me. I did a pre-listing appraisal and the agent included my report in the MLS. She also took a screenshot of the appraised value and my signature and used it as a photo in the listing.
Excellent cautionary advice VaCAP! Thank you.
As an aside, I don’t see the issue as educating users of the appraisal report at all. It’s an issue of the appraiser not paying attention to what the client tells them the appraisal is for. Appraisers need to educate themselves as to common sense probabilities rather than the client (in this instance).
“I am selling my property and want to know how much it is worth.” Now, as appraisers we may naively think ok, its only for the clients use. Whats the harm?
What we should be thinking is whether the client is likely to use it as a marketing tool. I can’t imagine how anyone can hear the words “I am going to list the property and want to know what it’s worth” without loud alarm bells going off continuously!
1. Can you use verbiage limiting the use to no one other than the client? Sure. Good luck enforcing it…and do we need to waste time trying to enforce our limits when they run contrary to human nature?
2. Pre listing appraisal work can be a very good extra source of revenue but it should not be taken as being routine and respectfully I think it involves ‘complex appraisal’ conditions in virtually all cases. The litigation risk or probability is astronomical. Llikely litigants or board complainants are: buyers, sellers, agents for either side, even other neighbors that think you are lowering local values; competing appraisers that see technical errors in your work, and Lord knows how many variable lawsuits arising our of use by unintended third parties. You can do everything 100% right and still wind up spending hundreds of thousands defending yourself and your opinions. In return for HOW much of a fee?
3. E & O insurance really provides little to no protection for appraisers already. Do you really think they are going to defend you when a buyer sues you for $50,000 because you ‘over reported’ the square footage of permitted living area? Year ago a L.A. County Superior Court Judge in a Palos Verdes California case found for the home owner because the GLA was 50 sf was less than stated in the appraisal. Overall prices per sf of property were $1,000 a sf. Guess how much the judgement was for? (never mind that 70% to 80% of that overall price was land value.
4. OK, so you cover all the contingencies and you have LOTS of text limitations in your report including one that says it must only be viewed or shared in it’s entirety…but what if Zillow or some other online service doesn’t allow more than 25 pages of report in their ads and yours is 65 pages?
Going to court is no longer a risk of losing $5,000 in defense costs even if you win. It is more like $25,000 to $35,000 (or more-sometimes much more) and let me repeat “E & O Insurance will NOT cover your legal defense costs! They wont even try. E& O should be universally renamed as “Mediation Insurance Service” for the benefit of institutional lenders only.
IF you are going to engage in this kind of work, seriously consider having your text boilerplate specifically drafted for it and reviewed by an attorney first.
PS-another great supplement is housing floor plans and measurements with room dimensions, cabinets and appliance location sizes…but it shares many of the same risks as above.
Good luck but please be extremely cautious.
Great article, great writing. TY
See, this is the problem. Honest hard working appraisers try to diversify their income by doing private work but still run into issues like this. Appraisers have their hands tied behind their back so much that no one will ever want to get into this profession. We are held to the standards of a brain surgeon with the pay of a bag boy. This is where we need representation by the big appraisal member institutions who should be fighting for us to the very end. They should be helping us to draft iron clad (as much as possible) verbiage to make sure we are covered. They should be representing us in congress so that we are being used as scape goats. Sadly, I don’t think it will happen. The good guys will leave the business (many already have) and the AMC’s will train their own army of appraisers who will be beholding to them. The end of he unbiased appraiser is near and unless something is done the outcome will not be pretty.
The federal government and participating private authorities will never effectively mitigate lending. The mechanisms of federal oversight are inherently biased towards centralization through both insurance and monetary supply, both ran by private interests which will not be effectively regulated since they claim monopoly control of the systems. The GSE is a private for profit enterprise, so is the FED. We’re swimming in a complex sea of usury fees mis described as simple debt. How to make an effective disclaimer thereto?
I’m not sure the management companies will get the traction you predict. It’s human nature to be independent, and the benefit of current individual licensing is that you can compete outside of the confines of just one agency or another. I’m more optimistic that the amc model will be deemed devoid of value sooner than later. Major moves keep happening and I’ve heard of 3 of the top 10 now, moving to direct away from amc’s in just the past year alone. I have never had time to fee quote an infinite stream of excessively micro managed orders and personally I’m not very good at sharing, never have been.
Appraisers state the intended use in appraisal report. Unless the appraiser states that the intended use by the client is for “marketing purposes which may include publishing the report”, they do not have the right to post it on the MLS or publish it in marketing materials.
Agree, but our recourse is pretty limited as a a practical matter. Ony practical solution I can see is great big BOLD TYPE right next to value; THIS APPRAISAL WAS COMPLETED FOR A SPECIFIC PURPOSE IDENTIFIED IN THE REPORT. IT IS NULL & VOID FOR ANYTHING OTHER THAN THAT PURPOSE. ANYONE CLAIMING IT IS SUPPORT FOR ANY OTHER USE IS MISLEADING YOU.
I receive calls every week for appraisals from home owners who are thinking about selling their home and want to know how much it is worth. I do lots of private party appraisals for estates, divorce and other reasons however when they want to know what to list their home for I tell them to call 2 or 3 realtors and ask them what it would sell for. They will give them a number within a day, it won’t cost them anything, the realtor is looking to get a listing. If the appraiser completes a report it can’t be used for any lending purpose so it is a waste of their money. If you do complete an appraisal for the homeowner remember, that is your client and you can not discuss the appraisal report with any other party without the written consent of your client and that should be stated prominently in the report.
There are two types of pre lists that I offer; verbal and on form. Verbal is the easy one, intended for listing support or helping the agent get valid second opinion at request of seller if they disagree or something along those lines. Also this can help identify possible valuation concerns and solutions before hand, condition, lack of comps, something to fix, something likely worth improving, whatever comes up. The second is the on form and that’s where the fee goes from friendly email consult and some mls data attachments for 100-200 verbal & email off form, to an official report 400-650+, you never know who’s going to end up with the appraisal on form, and according to this article, also important to clearly craft a sow which includes not posting the data for public viewing. Regardless the pre list on form can be shopped by unwitting persons whom don’t understand sourcing rules for valuation forms to satisfy lending requirements. More importantly than defining intended users for pre list, is defining whom is not the intended users in a general categorical way. Sharing with buyers agent w/ special limitation is o.k., furnishing to ML appraiser as validation of pre list valuation analysis is o.k. (w/ special disclosure note the ML appraiser is not obligated to even accept or review the pre list though.), presenting to mortgage lending entity or legal authority is implicitly described as not intended and not permissible. Once I had a UW quiz me regarding my ML vs the sellers agent pre list furnished to lender. Like what? Pre lists are more trouble than they’re worth and I just offer them faith based, pay me if you’d like, I never purposefully market that but now and then get an easy 200 via detailed email and MLS analysis, it’s always the tough ones. If possible, I intend to sell pre lists as consultative work, not as official valuation products on form. Even then, pre lists are way back on the priority list compared to reliable direct assignments. Competent agents honestly don’t need them that often and I feel they’re used as tools in unintended ways more than as consultation as intended. Always keep the high ground. Cheers.