Appraisals These Days

Dear Pat,
We’re getting our house ready to sell, but our neighbor had an experience recently that gives us pause.  After they sold their house the appraisal came in low and they were forced to close for less money.
What’s happening to appraisals nowadays?
---Smells Fishy

Dear Fish Smellers,
You might be getting a fish story from carping neighbors.   Most appraisals come off without a hitch these days; although the situation you describe sometimes occurs when the appraiser (or the bank underwriter) values the property below the sale price and both parties are forced to renegotiate.  Remember, the seller is free to drop the deal at this point, and find another buyer who may have a more reasonable (to his thinking) lender/appraiser.  Or the buyer may try to find another lender who likes the sale price (assuming the seller won’t budge on his price).  And sometimes the renegotiation includes a lower sale price but with some compensating concessions from the buyer.  So that rotting bullhead may turn out to be a walleye by dinnertime.  Keep in mind that we’ve always seen the occasional low appraisal. 

But there have been major changes in appraisal procedure since Fannie Mae handed down new guidelines in May last year.  In-house appraisers are a thing of the past.  Lenders are expected to choose by case from a large pool of appraisers; most large mortgage companies take it a step further by hiring a third party company to pick the appraiser.  Thus the mortgage company has no affiliation with the case appraiser, and no undue influence (keeping that fishy smell far, far away).  Unfortunately, since the appraiser comes off a very large list, he/she may know nothing about the area of town where the subject property sits.  In the past a bank would choose their “south Minneapolis expert” to appraise a house in Longfellow—nowadays it could easily be an appraiser who lives in Blaine who has a keen understanding of the northeast suburbs! 

So, as it turns out, these days one of the few people who may have contact with the appraiser is the listing agent, who sets up the appraisal appointment, and sometimes meets the appraiser at the house. 
At this time a savvy agent is able to impart useful information about recently sold houses in the area that the appraiser might not find in MLS records.  This can be of great value if the listing agent has been in the comparable homes and can shed light on the differences.   Surprisingly, since the guidelines have changed we haven’t seen a big increase in low appraisals.  It could be that appraisers, whether local or not, are working extra hard these days to find the best comparables in a very close area, or it could be that listing agents have stepped up to provide more information to appraisers about recent sales in their neighborhood. 

One thing that hasn’t changed is the problem of getting the “odd-fit” house through the appraisal process: a split entry in a 1920’s bungalow neighborhood, or an exceptionally upgraded home that may be smaller than its less-stylish neighbors.  The problem is finding nearby comparable properties that have sold in the last six months.  But that’s not your problem, Fishy ones—pick a good agent, trust the process, and soon you’ll be smelling only the roses.  Good luck!