Why do sellers, buyers and real estate brokers often cringe when the appraiser comes to their home?

When a buyer applies to a lending institution for a mortgage, the financial institution hires an appraiser to value the property that they are considering lending on. Many buyers put only 20% of their own money into the purchase; this leaves the bank with the greatest interest in the property.  They hire the appraiser as insurance, or protection for them. They want to make sure that the Loan to Value ratio that they apply is in line with the value of the property.

The problem can arise (and has!) that appraisers have fairly strict guidelines that they must follow as directed by the lender. Sales must be current, similar and not require adjustments exceeding certain percentages. As real estate professionals, we may know of more current sales that have not yet closed that cannot be used by appraisers, and in a market with increasing values, this can be a challenge. The sales that have closed (often 90+ days after the contract is signed) can already be “stale”. If the appraisal comes in lower that the accepted offer, the bank will not lend as much as anticipated to the buyer.  This can cause a problem in the transaction. Often, buyers are asked to waive their mortgage and/or appraisal contingencies when bidding for precisely this reason. Additionally, appraisers are often not from the area.  They may not regularly experience sales that go way over asking in a competitive bidding situation—“normal” in certain price ranges in Larchmont.

What is our best defense?  Have your agent meet the appraiser with comparable sales and notes describing how each sale compares to the subject property. Not just for closed sales, but even those in contract that the appraiser cannot use in his or her written appraisal.  It will at least give them the current data and breathe of the market to consider when making their adjustments. Remember, the appraiser has most likely not been inside any of the comparables they are using, so our input can often be their “eyes” and help them determine an informed valuation for the property.

-Deborah Doern, Larchmont Brokerage Manager