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The Fate of an Appraiser is Worse Than an Internet Mortgage Lender
A friend promised yesterday: tomorrow will be better. Well, honestly, tomorrow will be different but it won’t necessarily be better because there is always room for stuff to get much worse. And tomorrow is already here. The important thing is to keep a sense of humor about the roller-coaster ride called Sacramento real estate. Because managing real estate transactions as a listing agent involves sometimes jumping into the middle of a tornado, even if it’s not necessarily your job to fix the situation.
One of the biggest problems we’re facing right now is a shortage of appraisers. We are selling about 80% fewer homes than we were 10 years ago but our pool of appraisers has shrunk. A bunch already dropped out. Plus, many appraisers are aging, getting older, near retirement, and I think they’re leaving the appraisal business because of the way the business is moving:
- Being plucked out of an appraisal pool as nothing more than a number and not based on value or experience, and
- Getting their paychecks sliced by at least a third because the appraisal management company needs to get its cut, and
- Now, with all the new regulations, especially collateral underwriting, the same job takes 3 times longer.
Who wants to be an appraiser anymore? Being an appraiser is a sucky job and it’s getting much suckier.
There’s like one appraiser left standing on the face of the earth in all of Sacramento, and nobody can find that guy to do an appraisal for several of my listings which are so far past due for a contingency release it’s insane. Throw into that mix an East Coast internet lender, and I don’t think I have to tell you which company, and we’re lucky if the loan ever closes. There is something to be said for dealing locally and not using an appraisal management company out of Ohio or Pocatello, Idaho, or American Samoa.
When will buyers wake up and realize that no internet lender is going to give them a break or some special deal that a local lender cannot provide? There is nothing magical about getting a mortgage loan unless you end up with a person managing the file who doesn’t pay attention to detail. Doesn’t hit all the marks when the marks should be cleared. Lets things slip through without noticing. It’s all the same bag o’ money and rates can change hourly. Don’t get suckered by slick websites and false promises.
Pick a local mortgage guy you like and trust and stick with that person. You very well might find that your Realtor is recommending a mortgage lender for a reason. That mortgage lender can find you an acceptable rate. You don’t have to hop online to find some stranger who can mess up your transaction ten ways from Sunday in exchange for waving a low interest rate in your face. You can get the best rate available and competent service if you choose a local lender with a strong track record.
But no, buyers go with the fast talker they found online who works several time zones away and is accountable to no one. By the time they figure out they had made the wrong choice, it’s too late. Instead, listen to your buyer’s agent. If the agent is recommending a lender, it’s for all the right reasons.
You Can’t Trust All Sacramento Appraisals
It’s not astonishing that people do not understand how a Sacramento appraiser appraises a home, and why not all appraisals are a guarantee of value. Unless you’re a person who is really wedded to this business, like, say, this Sacramento real estate agent. But most individuals don’t sell or buy enough homes in their lifetime to care much about the details. They also might think a bank appraisal is like receiving a certificate of gold, as though it’s redeemable somehow or an item of value to treasure.
I see the look in the eyes of my sellers when I explain that a home needs to appraise at the price a buyer is willing to pay in order to actually close escrow. The eyes glaze a bit and they hear: real estate agent talking — a phrase my husband likes to use to illustrate how carefully I listen to him as in husband talking, yada yada.
For example, if you’ve got two offers for a home, and one offer is cash at $400,000, and another offer involves minimum-down FHA financing at $400,000, a seller might elect to take the cash offer. Because there is no appraisal. Of course, the downside to that is the cash offer buyers typically possess little emotional investment, and once they snag their fish, they often try to haggle over other small things to even out stuff.
Now, some buyers might agree to bridge the difference if an appraisal comes in low. They might say they will pay, say, $10,000 in cash, meaning if the appraisal was $390,000, they would pay out of pocket the difference for the low appraisal. Some do, but not very many. That’s because people still believe the appraiser’s word is like the 10 Commandments. Others also might promise they’ll bridge the difference but then cancel under an inspection contingency, rendering that promise worthless.
An appraisal is just an opinion of value. It’s an educated and calculated guess. Ask 3 appraisers, and you’ll probably get 3 different answers. They might be close in value, but still not match.
Sometimes, the swing in value between two appraisals is tremendous. Had one of those recently in which the home initially appraised for 10% more than it sold for, which was pretty ridiculous in a seller’s market for long days on market, and the second appraisal was 2% less than it sold for, still ridiculous. An appraiser almost has to be trying to mess up the deal to do that.
I recall an appraiser a few years ago who appraised a home for .0001 less than the sales price. Just enough to make the buyer pay for a new appraisal. Who does things like that? Most appraisers in today’s market want to appraise at the sales price because they recognize that prices are increasing. They don’t want to be that cog in the wheel dragging down the market, and they want to fairly assess homes.
But until you get past that appraisal stage, you don’t really have a sale. So don’t be spending that check yet. It’s common in today’s real estate market, especially for an FHA transaction, for a lender to order a second appraisal. It says if a bank doesn’t trust its appraisal, why should you?
A Home Buyer Almost Lost Her Rosemont Home
I just closed escrow on Friday for an incredible couple of sellers of a Rosemont home who had moved to Florida. They had owned a rental property in which the tenant had vacated and it was now time to sell. An agent in Florida referred this couple to me. I think the agent found me through one of my blogs and noted that I sell homes all over the Sacramento area. Because I sell so many homes (100+ /yr), odds are I probably sell a lot in any one area, and Rosemont is one of those neighborhoods for me. I know it pretty well. And I knew this particular home might pick up comparable sales from a nearby subdivision, which has a higher per median square-foot-cost than the surrounding neighborhood. Which meant if we positioned this correctly, the sellers could probably get a bit more for this home than they would otherwise.
I look to maximize profit for my sellers. That’s because I really enjoy what I do. It makes my sellers happy as well. I feel like I’ve done my job above and beyond when sellers walk away with a lot more money in their pocket than they thought was possible. Being a Sacramento real estate agent is one of the greatest jobs in the world. Being a top producer is even more fun, if you can imagine that.
The sellers had finished painting, making a few repairs, and buying a new microwave. The home in Rosemont looked great. Even the door knobs glistened. A bunch of offers arrived. One of them was all cash from an out-of-state investor (warning bells), but the buyer’s agent swore up and down the investor would perform. Easy peasy guy is what he said. Exact words. Except the investor was anything but easy peasy and the agent failed to respond to requests for documents. My recommendation to the seller was to drop the buyer. Fast. Like a hot potato. Because the Sacramento real estate market is too danged hot in itself. It’s a seller’s market right now, which means there are a lot of buyers competing for limited inventory.
Sure enough, we went back into escrow immediately with a new buyer. She wasn’t cash, though. She needed an FHA loan. And the appraisal came in a little bit lower than the asking price. That’s the problem with buyers who use financing. They must rely on a Sacramento appraisal. If they don’t have the cash to bridge the gap between the appraised value and the sales price, they risk losing the home. The difference wasn’t that great, though, and it was still more than the seller had hoped to receive, so the seller elected to move forward at the new sales price.
See, that’s the problem with an appraisal. Appraisals are not chiseled in stone. An appraisal is just somebody’s opinion of value. Could be a person of great integrity and intelligence who prepares the appraisal or it could be a lame-ass doofus who couldn’t find his way home with 3 maps and 2 flashlights. You just don’t know who you’ll get.
After we moved forward with the appraisal, the buyer’s lender simply could not close. It’s like an epidemic sweeping Sacramento: lenders who can’t close. Not on time anyway. They might say whose time frame are you looking at — is it the purchase contract that gives us only 30 days, which isn’t enough time to brush our teeth much less brush our hair? Or, is it our time frame, which is somewhere south of the border, west of the International Date Line and in another century?
The escrow dragged on and on and on. The buyer’s agent submitted an extension. Then another extension. The sellers questioned whether they should sign it. At this point, it might make more sense to just rent out the home in Rosemont, put it on the market next spring and deal with the new influx of buyers. Or, not. It was enough to give the buyer a heart attack. See, this is the importance of selecting a mortgage lender who can perform and not some group that can’t close on time. Because, as a buyer, you could run out of time and the seller could cancel the purchase contract, hand back your earnest money deposit and say nice to know ya; don’t let the door hit ya in the butt.
But these sellers elected to close escrow and extended. It made no difference to me because a commission now versus a commission next spring doesn’t matter; besides, I want what is best for the seller. Who it mattered to was the buyer. The buyer was a first-time home buyer. My agent who picks up my lockboxes after closing said the buyer was very grateful when he stopped by yesterday. It’s nice to have a happy ending. Happy sellers, happy buyer, happy buyer’s agent. What else could you want? How about a happy referring agent in Florida? Yeah!
How Do Sacramento Appraisals Work?
People think Sacramento appraisals are etched in stone, but that kind of thinking is flawed. Appraisals represent an opinion of value. Get 10 appraisers together in a room, and you’ll have 10 opinions of value, and some of them will undoubtedly be worthless. But that doesn’t stop people from thinking their home in Sacramento is worth a certain value because the appraiser said so or the agent said so.
Market value is that price at which a seller is willing to sell and an able buyer is willing to buy. It’s when you throw a lender into the mix that appraisals come into play. This is a reason sellers tend to prefer cash buyers. When you throw an appraiser into the transaction, it’s not unusual for market value to vanish — poof! The appraisal is for the lender, to protect the lender’s security; it’s not for the buyer, even though the buyer pays for it.
I closed a Sacramento short sale transaction this month in which we had 2 appraisals. The first was ordered by the mortgage lender by mistake. It was a conventional appraisal, not an FHA appraisal, and there is a difference between the two. The conventional appraisal came in at, oh, let’s say $200,000. The problem was the buyer had applied for an FHA loan, not a conventional loan and did not qualify for a conventional loan. So, the buyer could not use the $200,000 appraisal for her loan.
Enter the FHA appraiser. Her appraised value was, oh, let’s say $180,000. Yup, a $20,000 difference. Which appraiser was right? They were both right, if you can believe that. Because this transaction was a short sale, though, the short sale bank had plenty to say about that FHA appraisal at $180,000. The bank had approved a sales price of $200,000. It would not agree to let the seller sell at $180,000. We supplied comparable sales and argued, but in the end, the bank agreed to, let’s say $195,000. The buyer had to pay the difference of $5,000.
How much was that home in Sacramento worth? It was worth $200,000 to the buyer. The buyer always has the last word. If you’re thinking about listing your home in Sacramento, hire the best Sacramento real estate agent you can find. Because you want somebody on your side, not just the agent who will promise the highest sales price. Agents will list at whatever price a seller wants. The agent doesn’t choose the price. And the seller doesn’t, either. It’s the buyer.
