EXCERPT: In Jonathan Miller’s Housing Notes blog post this past week he mentioned an article from the online version of the Denver post that is disheartening to appraisers. In the article, Denver real estate agent Steve Danyliw was quoted saying the following:
“Agents are experiencing a higher degree of cancellations and of contracts falling through,” he said. Part of that could reflect offers from buyers that are going above what appraisers are willing to support.”
Emphasis has been placed on “willing to support”. Comments like this emphasize the misunderstanding of exactly what appraisers do. I’m sure that Mr. Danyliw is not the only agent who believes that it is the appraiser’s job to look at the contract price of the home they are being asked to appraise and then find sales that support that value.
Low appraisal or high contract?
I recently wrote in this blog about the Top 7 reasons sales contracts come in higher than appraisals because I too saw the same mentality among agents and the general public for that matter. I kept reading articles with titles like “Reasons why your appraisal came in low” or “How to deal with a low appraisal”. One article mentions that both buyer and seller can get blindsided by a low appraisal. The truth is that nobody has to get blindsided by a low appraisal if it is priced correctly, and by that, I mean priced to the market.
A different perspective
In my post I took the opportunity to flip the script, so to speak, and look at the issue from another angle. You see, when you think that the appraiser’s job is to “support” the value that is on the contract then when the appraisal comes in low, of course, you are going to believe that it is the appraiser’s fault.
When you understand that the appraiser’s true job is to measure and report the real estate market and report how your listing fits into it, then you will realize that homes should be priced to the market rather than the other way around where you pick a price and then find sales to back you up.
One of my main goals, whenever I speak at local real estate offices, is to educate agents on the appraisal process. It is my belief that if agents price homes using similar methods to what appraisers use then the contract price is going to be more in line with what other similar homes are selling for and the likelihood of contracts falling through will be diminished.
One of the main problems that I have seen when agents price homes is that a predetermined value for the home is arrived at first. This value could be based on various reasons, including how much of an investment the owner has in the house, or the cost of repairs, updates, and renovations among other things.