A buyer is under contract to purchase a property. An appraisal is ordered if they are getting a mortgage. A buyer views the property, and often times goes to the inspection. So, who goes to the real estate appraisal?
The Purpose of the Appraisal
Let’s begin with the purpose of a real estate appraisal. The buyer’s mortgage lender orders the appraisal. The lender wants to find the value of the property, so they can determine how much money to lend the buyer.
In the past, mortgage lenders could choose their own appraiser. The lender could choose an appraiser who was knowledgeable with the area and could give them an unbiased, valid appraisal. However, some lenders abused the privilege, and selected appraisers who would appraise it at whatever price they asked. This contributed to the housing bubble.
The government wanted to dissuade appraisers and lenders from creating biased appraisals, so lenders were required to use Appraisal Management Companies (AMC’s). This limited direct contact between the appraiser and lender. In theory, it was a good idea. But in practice, it has some drawbacks. Since the lender can’t select the appraiser, they are given a random appraiser. Sometimes the appraiser is familiar with the area, sometimes they are not. Quite often, the appraiser who takes the job is who can get out there the quickest, which doesn’t mean that they are the best appraiser for the job.
With that background information, we can circle back to the question. Who attends a real estate appraisal?
Who Goes to Real Estate Appraisals?
The buyer usually does not go to the appraisal. There is nothing for them to do there. The appraiser is going to measure the property and take photos. They do all of the research and calculations at their office, so they won’t be able to give any information then.
The seller is encouraged to be at an appraisal. The seller knows the property best, so they can provide information regarding updates for the property.
The listing agent should be at the appraisal. Much like the seller knows the most about the property, the listing agent should know the most about the comparables. The listing agent should have a list of all the updates and improvements to the property, as well as a basic list of comparables. The appraiser is going to do their job either way. However, a good appraiser, will welcome any information that is given to them. They may not necessarily use it, but they usually do appreciate the data.
Keep the information factual, because anything biased the appraiser most likely will throw out. It is most important that the listing agent attends, in case the appraiser is unfamiliar with the area.
The buyer’s agent usually does not go to the appraisal. They can go, but if the listing agent does their job, the buyer’s agent shouldn’t need to attend. If the listing agent does not plan to go to the appraisal, and the buyer’s agent has concerns about how the appraisal might go, then the buyer’s agent should show up with comparables and data on the property.
An Example
A story about why all of this is important, happened last year, when my buyer was purchasing a duplex for investment, in Fort Lauderdale, Florida. The seller hired a discount real estate agent, which meant that the listing agent did not want to do anything. The agent listed the property incorrectly as a single family home, when it was zoned as multi-family use, according to the tax record. She did not attend the showing or the inspection. The agent sent the seller to the appraisal, but did not attend herself.
The appraiser went off the MLS listing, and appraised the property incorrectly, as a single family home. The property under appraised by $65,000. My buyers were purchasing this property as an investment, so that was not a price they wanted to pay.
When I asked the listing agent why she did not attend the appraisal, she said that she had never heard of an agent attending an appraisal. (If your agent says that, run!)
I spent a week providing data, showing the bank how the appraisal was poor and should be thrown out. I gave them comparable sales data, showed them the tax record, and so on. To prove it was even more blatantly wrong, I pointed out that a single family and a duplex are appraised differently, on different forms. The appraisal was successfully thrown out.
The second appraisal was ordered, and the listing agent still did not feel that she should attend. Since the listing agent and the seller did not want to attend the appraisal, I attended. I provided the appraiser with the comparables, the tax record, and any extra data I could find. I handed it to him simply saying, “Here is what I used to come up with our contract price.”
Keep it simple, and never be pushy. The appraiser thanked me for the information, and took it.
The second appraisal was appraised more fairly. The appraiser appraised it correctly as a duplex, on the correct form. Since there were not a lot of comparable duplexes of that size in the area, we knew it still might have a hard time appraising. However, with the correct data, and a better qualified appraiser, the property appraised $30,000 (instead of $65,000) under the purchase price.
An appraisal is just the amount that the mortgage lender will lend on. The buyer can still come up with extra money, and the seller can still hold on to their asking price. An appraisal can be a point of negotiation.
With a valid appraisal, I was then able to negotiate for the buyer, bringing the seller down $20,000. The buyer knew the property was worth more than the appraisal. It just didn’t have enough comparables to justify it. The buyer happily paid $10,000 over the appraisal price, and we successfully closed on the property.
If I hadn’t have stepped in to help with the appraisal, this deal would have been cancelled after that first appraisal.
A listing agent should almost always attend the appraisal. When a seller is shopping to find an agent to list their property, I recommend asking them if they attend appraisals.