Agents, Don’t Skip the Appraisal

6 Key Competencies for Appraisal Review Work - McKissock LearningAppraisers have been accused of being “speed bumps” in the lending process. We frustrate buyers, sellers, loan officers and, sometimes, real estate agents. In some ways, I can understand their frustrations but does that mean they should bypass getting an appraisal? Nope, not at all.

The purpose of an appraisal is collateral protection.  The appraisal lets the client know that they are loaning on a property that is worth what they are loaning.  The property is also the collateral for the loan.  If the loan defaults the bank needs to be assured that they could possibly resell the property to recover the funds. Although appraisers can’t see into the future to know what the property will be worth in the coming years, they can determine if it is truly worth what the loan is for today.

Of everyone involved in the buying and selling process, appraisers are the only truly neutral party. The appraiser has no skin in the game.  If the house sells or doesn’t, if the selling price changes, if the loan gets approved, none of it makes any difference at all to the appraiser. Their part is simply providing the client, usually the lender, with what the value is on the property.

Fannie Mae and Freddie Mac, the big players in the mortgage industry in the United States, have started a trend wherein they allow some mortgage loans to go through without an appraisal.  However, they do have a lot of limitations and restrictions that apply before the appraisal can be bypassed, there are a lot of T’s that need to be crossed and I’s that need to be dotted before they can get a Property Inspection Waiver (PIW). That term, Property Inspection Waiver, is a bit of a misnomer.  As it’s being used now, a PIW has nothing to do with the inspection, it is an appraisal waiver.

I know a lot of real estate agents and almost all of them encourage their buyers to have a home inspection done.  That inspection protects the buyer from buying a home that has hidden problems and it protects the buyer’s trust in their agent as well.  Most agents have it in their contracts that they recommend that inspection.  If the buyer does decide to skip having an inspection done, the agent will usually have a record that it was, at least, offered and could provide liability protection.

I want real estate agents to think of the appraisal process the same way. I would highly recommend that you consider the liability in waiving an appraisal. Say your buyer didn’t have an appraisal done on that home they just closed on and sometime after the sale it comes to light that what they paid was $50-75,000 less than the home would have appraised for. Not only is your buyer going to be very unhappy, do you not think there’s some liability issues there?

If you run into a situation where, for whatever reason, there is a PIW on a property I’d recommend that you consider the services of a licensed or certified appraiser anyway.  Not for the buyer, not for the seller, and not for the lender but for your own peace of mind. Spend the very small, insignificant amount of money it will take to get a private appraisal on the property. Now you’ll have some assurance about what the buyer is getting into. Agents, if for nothing else but to protect yourself, encourage your buyers to get an appraisal despite what Fannie and Freddie do on the loan side of the process.

For more information on this subject, please download and listen to The Appraiser Coach Podcast Episode: 464

10 Comments on “Agents, Don’t Skip the Appraisal”

  1. Pingback: Agents, Don’t Skip the Appraisal - Appraisal Buzz

  2. If I was the buyer who paid 50- $75,000 less than the property would have appraised for, I’m thinking I would be happy, not unhappy. Just saying…

  3. Oct. 9, 2019 – Federal Deposit Insurance Corp., the Office of the Comptroller of the Currency, and the Board of Governors of the Federal Reserve released a proposal to increase the appraisal requirement from $250,000 to $400,000, citing the home price appreciation that’s taken place since the threshold was last increased in 1994.

    I am a broker and an appraiser, it seems to be that the real estate agents see the appraiser as a speedbump in obtaining their commission.

    When the appraisal comes in at the purchase price or within a few hundred dollars a vast majority of the time, I can see how some agents see the appraisal as a waste of time and money.

    Stepping back, market value means a willing buyer and seller. If a buyer is willing to pay XXXX and a seller is willing to accept XXXX, and both are acting in what they consider their best interest……….seems like market value to me.

    1. You missed an important point about market value. The buyer needs to be able to buy the house. If they can bring cash to the table, then they are able to above what a lender would lend on it.

  4. In reply to the previous comment about market value, a property is worth what someone is willing to pay for it, until the buyer wants to use someone else’s (lender) money besides their own. Then the full force of governmental and industry regulations come in to play to protect the parties involved from under selling or over paying.

    1. 100% agree! I have had to tell this to agents before who use the same arguement when an appraisal falls short of sale price. Simply have the Borrower put more of their own money down on the loan then they can pay whatever they like over fmv.

  5. We all need to review the entire definition of “market value.” It is not just what a willing buyer will pay and a willing seller will accept”……
    remember undue pressure, knowledgeable people (not impulsive), unemotional (not responding to time constraints and 15 people bidding at the same time), etc.

  6. Agree BULLDOG. Many are missing those important factors of the definition of Market Value. In this market buyers are NOT working in their own best interest, they are not always well informed on the market, homes are not exposed in the market for a reasonable time, often the day they list is the day it goes under contract and they are rushed – under undue duress to make a buying decision, paying well over listing price, even paying the Realtor Commission for the Seller, waiving appraisals and inspections. It is NUTS out there. This is not market value activity. I have suggested to Realtors that they should have buyers sign a market value/condition form which states the Realtor did duly advise the buyer of the current conditions of the market and that they may well wind up paying well over market value, over the Appraised value, etc. This way they cannot come back on the Realtor saying you did not advise me of this situation and I overpaid because you were moving fast to get this deal closed!

    I am sure the author of this article did mean buyer paying MORE than $50,000 to $75,000 🙂

  7. I think appraisals are extremely important for all kinds of uses related to loans, estates, divorces, disputes, etc… However, I’m not worried if some buyers skip the appraisal on a purchase if they will live there for a long time and have plenty of down payment. However, skipping the appraisal is probably too common right now. When I purchased our house, we were in a bidding war and I knew I was paying too much, but I also knew that I was going to live in that home for decades and in the end it didn’t matter to me how much I paid, only that it fit my budget and my needs/wants.

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