Nationally, one of the reasons that almost 1 in 3 buyers are not closing escrow these days is because of poor appraisals. Although this dilemma is not wide-spread in Lake Tahoe, we all hear about out-of-area appraisers who don’t know the local market, use of distressed-sale properties to appraise a property that is not being sold under distress, and lack of comparable sales. The key to a good appraisal is using accurate comparable sales and supporting data to arrive at an appropriate price for the property in question. Here are some appraisal tips from our agents that will help protect the contract sales price!
Nationally, 34% of Transactions are Affected by Appraisal Deficiencies
According to data from National Association of Realtors in November and December, 34% of Realtors reported a problem with an appraisal. Approximately 10% of the respondents reported that appraisal problems led to contract cancellation; about 10% reported a delay as a result of an appraisal problem, and almost 15% reported that the appraisal problems led to lower prices. Tahoe may begin to see more appraisal problems in our upward trending real estate market. Recently, several home transactions have been challenged in markets in North Lake Tahoe and Northstar, where inventory is most limited.
1. Make sure your lender will order a “local” appraiser for Tahoe Property
We all know that Fannie Mae initiated changes in appraisal guidelines in 2009 with their new appraisal rules under HVCC (Home Valuation Code of Conduct) that prohibit mortgage brokers or real estate agents from selecting the appraiser to perform an appraisal on a purchase or refinance transaction, but it important in Lake Tahoe to request a local appraiser, with local knowledge to perform the appraisal if possible.
Your loan officer can’t have direct contact with the appraiser, but your real estate agent can. Don’t ever let an appraiser just do the appraisal without taking the opportunity to have your agent reach out to them and explain any specifics about the property, otherwise the odds of a poor appraisal report are higher in an upward trending market. The buyers or sellers real estate agent can plan to meet the appraiser at a property to offer relevant comparable sales information if there is a lack of data. Your agent will be the contact to schedule the appraisal, and then go meet the appraiser at the property. If the appraiser IS from out of the area, it is important that your agent explain any specifics about the surrounding area that may impact the final value.
2. Improvement list provided to appraiser
If improvements have been made to the property, or there are features that don’t meet the eye, a list should be provided to the appraiser so they can include this in their final report. If possible, include before and after pictures, and copies of paid receipts for the work completed. If major updates were done, provide a detailed copy of the contractor’s bid.
3. Public records are often wrong
The public record is often wrong, particularly regarding square footage. Any documentation to justify a different number should be made available. According to current appraisal guidelines, square footage added without a building permit usually won’t get credit as usable square feet. This can lower the appraised value.
4. When there aren’t enough comps for past 3 months
When there aren’t comps for the past three months, it’s critical the appraiser is provided with the data upon which to make an accurate evaluation, particularly if the appraiser is unfamiliar with the local market. Tahoe Mountain Resorts is active in this approach.
Seller Preparation for the Appraisal
We all know that appraisals are one of the major hurdles for sellers, buyers and lenders these days on a transaction. So here are some tips for TMR sellers to follow, that will help move the appraisal process along smoothly, and will ensure the appraiser has all the available info needed to complete an appraisal report that is NOT left up to chance. Tahoe Mountain Resorts agents will help guide you through the process.
1. Compile a list of recent improvements. If possible, include before and after pictures, and copies of paid receipts for the work completed. If major updates were done, provide a detailed copy of the contractor’s bid.
2. Make sure all areas are accessible, including the attic, basement and crawl spaces. This includes the garage.
3. Provide HOA information. If the home is part of a homeowner’s association, include a copy of the fees paid and name and phone number of the association president or association administrator.
4. If the appraisal is for an FHA loan, then the area leading to the attic will have to be cleared and made accessible-the appraiser is required to make at least a head and shoulders inspection of the attic area.
5. Install carbon monoxide detectors. This is now CA law that carbon monoxide detectors are installed on each level on a home. If these are not installed when an appraiser shows up to do the appraisal, the lender will ask that these are installed in the home and will ask the appraiser to go back out to the home again to take a picture to verify they were installed. This can cost up to $175 for a re-inspection, so installing these before the appraiser shows up will save you money.
6. Straighten up each room. Appraisers are required to photograph each room, and while it may not make a difference to them if the room is messy, there is an underwriter who may be less objective.
7. Finish up any projects. If there are any unfinished projects, make sure the seller completes them before the appraiser’s inspection.
8. If there are any easements, encroachments or any unusual covenants associated with the title, provide a copy to the appraiser.
It is invaluable these days that the necessary home work is done upfront on transactions before the appraiser comes to the home. Remember, appraisers now work for the lenders and have no relationship with any parties on the transaction anymore, so unfortunately there will be appraisers that do not care what the final value comes in, as they get paid regardless of the quality of their work! Therefore it is important to do what we can to improve the odds that the final appraised value is not left up to chance.