Who Are You Going to Call?
- Who Are You Going to Call? - October 22, 2018
- Bye-bye 1004MC, Hello Analysis - August 17, 2018
- Paint a Picture with Words - July 2, 2018
Is a real estate agent the right individual to state what adds value on a home appraisal?
…Ghost Busters! (no, actually an appraiser)
Social media can be rife with misinformation, even when the information presented is well intentioned, but of a national scope. National studies are not local studies, and blanket statements presented as fact are potentially misleading. Real estate agents are professionals who are involved in selling houses on a daily basis and know their markets — as well as what drives interest with the buyers and sellers they are working with. Their job is difficult; often rewarding, and they make lasting relationships with the people they have worked with. Most agents are “people persons” who thrive on human interactions, and on being able to make a difference in the lives they touch. Agents do know what their buyers are willing to pay for certain features in certain markets and price ranges, but do not often approach the valuation process in the manner that appraisers do.
Take this ad for example. The agent had a great talking point related to how various remodeling projects can add to the appeal of a property and perhaps the eventual sales price, but the talking points were incorrectly presented. There are a few issues with this ad, one is that there are very specific percentages expressed, and there is no source citation for these percentages. The main issue however; is if a real estate agent the right individual to state what adds value on a home appraisal?
While advertising is critical in today’s market, advertising specific percentages or numbers about specific remodeling projects gleaned from national sources, can be misleading. Stating that these features add value to an appraisal and that the reader should ask a real estate agent about what adds value to an appraisal is illogical. Instead, simply go to a source, such as your local appraiser and get an appraisal completed.
For the percentages above, we have no idea where this hypothetical property is located; what price range or market segment, nor what the source for information is. In addition, the numbers are so precise that they are not logical. If one were to replace a garage door for $3,000, would it truly add a return of 98.3% or $2,949? Would that manufactured stone you put on the house, that some buyers will like and others hate, truly add 97.1% return? Do buyers even look at a property and say that they will pay $50.47 more per square foot than the next house that was 95 sqft smaller? These types of advertisements are catchy, but they could also be misleading. In addition, the ad clearly points the reader to contact a real estate agent to tell you how much value a renovation adds to a home appraisal. This too is illogical, since an agent is not an appraiser and the job functions are not the same.
A professional appraiser, who knows the local market, has the ability to both provide a current value, and a value “subject to” the proposed changes. Appraisers approach each problem to be solved in a competent, independent, impartial and objective manner. There is significant training and experience required to become a certified appraiser. Real estate agents have a lot of specific training and education as well, but their roles are different and agents work on helping buyers and sellers achieve their goals of purchasing/selling real property. They are often functioning in multiple roles, such as acting as mediator, stager, chauffeur, diplomat and therapist. While they deal with sales prices, and know what buyers are willing to pay for properties, their view on the properties is much more “larger picture” than an appraiser specific, researched and analyzed determination.
When considering buying or selling a property, the agent is the first to call. When considering a remodel or addition and the effect on the value on the property, the appraiser is the first to call.
I understand the argument that Realtors are ‘people persons’ and their focus is on making relationships that eventually create a sale (or a hopeful history of sales), and appraisers specialize in the business of valuations. It sounds like a typical debate over the ‘art’ of valuation and the ‘science’ of it. Unfortunately, appraisers tend to take on the role of having ‘achieved’ a level of aptitude that is far superior to any Realtor, and their own self-righteousness in the world of valuation tends to blind them about reality. It’s not uncommon for a residential appraiser to apply their ‘standard market-influenced adjustments’ to a comparable’s dissimilarities to the subject to arrive at an adjusted value for the comp. Once all the comps are in line, the adjusted values are averaged and wah-lah, the subject’s appraised value is calculated. The typical residential appraisal has no more idea how to prove their adjustments than a Realtor has in calculating overall values. It’s not really a fair argument to just state that an appraiser is THE person to call in a situation like this.
I’d rather see more effort placed on the valuation of properties where the client has no marketable title (ie: up and coming REO’s). Why is it still acceptable for Realtors to do valuations of properties that the client has no marketable interest in?
Your not an appraiser, are you ?
In being a trainee for 4 years in a large appraisal company Lane, I laid eyes on several thousand assignments where the focus was often the fringe issues (lessons to be learned), and thus obtained more experience prior to being able to sign a report on my own, compared to what the typical agent would sale in 5 lifetimes. When the national average is 70 hours to become an agent, please forgive us for double checking THEIR numbers.
Seek the truth.
Appraisers are very well suited for doing before and after valuations. I wrote this with the idea that other appraisers could find another avenue of work they can provide. Appraisers are by their very definition, competent, independent, impartial and objective. Who wouldn’t want that type of person helping them with this type of problem?
Art and science
! I recently had a real estate agent literally write a full package advertisement to convince appraiser of the art and science method to value. It was seriously labeled “art and science method”. Apparently, this is the new 4th approach to value! It said something like this…., ignore all comps between the subject and 35 miles and please just use this one sale because it has the cost per square foot we need. The art was the erasing of all sales nearby because nothing has ever, never, ever sold nearby, ever! The science was that the mileage could be calculated at 35 miles away, but to please ignore that. Maybe like a magic trick?
Sorry, had to take a moment and … sigh, enjoy the memory of why I love my job. I couldn’t resist. Carry on.
The only reason this hybrid model is being pushed is so the AMC can control the entire process. Once they have realtors doing the inspections they will then start completing the assignments themselves with their state licensed staff appraiser. That is the only reason for this. Otherwise a straight forward approach would be to allow appraisers have fellow appraisers inspect properties of any license level after properly trained. The unlevel playing field screams take over
It’s simply a better revenue stream. They could care less if the homeowner was put under water the day after settlement.
Wish I was a fly on the wall as AMC’s attempt to work with realtors to get these inspections completed. I think they will soon be running to appraisers and say we are sorry we made a big mistake. Of course they would never admit to that.
Well that, and greed. Overall mortgage lending volume is on the downturn, likely mid to long term. The independent appraisal position manifested itself through need and environment. These out of the box instant profit amc companies are having a difficult time adapting and tightening their belts. Rather than be fair and adapt, they would in typical vulture capitalistic form, take over the industry completely instead.
The appraiser has individual licensing accountability and for that reason cares about consumer protection and effective due process. The amc companies being corporations without individual accountability and no effective oversight, do not share similar concerns about adequate consumer protection and due process.
Art not a science. Return on investment has limitations, especially when a home is already so thoroughly improved above and beyond other properties of similar type in the same locale.
Lane Leppink is overlooking the appraisers essential role as the only non advocate and often non commission based participator with substantial influence in the sales process.
Voila! The agents did their job correctly and our job was easier… Perspective is important, not all agents are all above board and such. Be careful what you wish for.