By Ilyce R. Glink (Special to Freddie Mac)
The bursting of the housing bubble in 2008 led to a wave of regulations and the rise of appraisal management companies (AMCs) in an effort to shield appraisers from pressure to deliver anything other than a home's actual value. The AMCs are intended to act as middlemen between the appraiser and the other parties in a home sale.
Instead of hiring an appraiser directly, lenders contract with AMCs to assign one to value a property. After viewing the house and surrounding area, the appraiser sends the lender a report assigning a value to the home based on his or her analysis of the property and the sales prices of recently sold comparable houses in the same neighborhood.
The appraisal value is critical to sellers – who want the highest price – and buyers who want the price they offered and know their mortgage lender will finance. Regardless of which side of the transaction you're on, it's essential to know how to look out for your best interests.
Here are some tips for navigating today's appraisal process:
- Be there during the appraisal. Although there's a rule against pressuring or threatening an appraiser to get a certain home value, the seller can still be there to answer questions.
- Consider giving the appraiser one-page bulleted list of improvements and the dates the seller completed them. This will help appraisers keep an eye out for them as they go through the house.
- Never hover over the appraiser. Let them see the home at their own pace. (Also, sellers should try to minimize distractions by containing their pets.)
- Carefully look for errors in the copies of the appraisal report shared with the buyer and seller. Were features accurately described? Did the appraiser adjust for differences between the home being sold and the homes used for comparison purposes?
- Contact the lender, not the appraiser, if you find an error. The appraiser always works for the lender, not the seller or buyer (even though the buyer pays the appraisal fee). "Reach out to your loan officer or whoever you've been working with and ask what the procedure is (to fix errors)," said Jonathan Miller, President and CEO of Miller Samuel, Inc., a New York-based real estate appraisal and consulting firm.
- Itemize the issues in a letter to the lender. Set aside your emotions and stick to the facts. Lenders can't do anything with personal gripes that an appraiser got something wrong, Miller notes. Rather point out a local sale or a home improvement that the appraiser missed.
"If there really is an error, 99% of appraisers will want to fix it," said M. Lance Coyle, a Dallas-based appraiser and a past president of the Appraisal Institute, "even if it doesn't change the valuation of the property."
For more information on appraisals, see "Getting the Property Appraised" on My Home by Freddie Mac®.
Follow this series just in time for the spring homebuying season.
Ilyce R. Glink is an award-winning, nationally-syndicated consumer finance columnist and the author of 13 books on real estate and money. She is also the CEO of Think Glink Media, a digital content agency.