Appraisals – Subjective, Objective or Objectionable
The world of mortgage lending has changed dramatically in the postrecession era and that is quite evident with the way that property appraisals are handled these days. Prior to the recession and the implosion of the banking industry buyers could usually ask their lender to have a particular appraiser perform the appraisal of their property. One of the primary reasons for handling matters in this way was so that buyers could be assured they would have a local appraiser who was familiar with their real estate market performing the analysis of the property they were trying to purchase.
However, there were some significant problems during the real estate boom, not the least of which was appraisers and lenders being in cahoots and artificially valuing properties higher than they were really worth. While this made it easy for transactions to sail through the underwriting process it contributed to the real estate bubble and eventually the collapse of prices all across the country. Appraisers were simply pushing through reports at or above the contract purchase price even if the property had changed hands for a significantly lower value just a few months earlier. There was a belief that the rising tide of real estate values would continue endlessly into the future and that there would be no harm caused by these inflated property appraisals.
In the postrecession world of real estate sales and mortgage financing new regulations were put into place in an effort to prevent a recurrence of this phenomenon. As a result, lenders no longer have any input as to who will be performing the appraisal on a particular property. In an effort to ensure that all appraisals are performed without any type of undue influence by lenders, buyers, sellers or agents there are new safeguards and procedures that must be followed as a part of the loan underwriting process.
Essentially, after you meet with your lender and fill out the loan application the underwriter will go through their checklist to make sure they have all of the information that they need. After their file is bulging with the necessary paperwork an appraisal intermediary service will be contacted and they will arrange for an appraiser to visit the property. Buyers do have the right to reject a particular appraiser, but since the assignments are done rather randomly the underwriter will simply move to the next appraiser on the list.
Unfortunately, Incline Village and Crystal Bay are lumped in with the rest of Washoe County plus the Truckee/Tahoe area. As a result, it is very likely that the appraiser who is assigned to a property in our community will be from out of the area. While we still have a small cadre of appraisers who live and work on the Nevada side of North Lake Tahoe there is no guarantee that one of these highly qualified individuals will be assigned to appraise the property you are trying to purchase.
About the only time that someone can select a particular appraiser to appraise a property is if the property is not involved in a sale or transfer to another person or entity. For example, you are in the process of writing a new will and you want to establish the value of all of your assets. So, you and your heirs agree on whom to hire as an appraiser and you simply contact that person directly. In the event that you and your heirs disagree over the appraisal report that was provided you can always hire another appraiser and get a second or even a third opinion.
While appraisals are supposed to be objective the reality is there are a number of subjective factors that are taken into account prior to the completion of the Uniform Residential Appraisal Report. This multipage document utilizes what the appraiser thinks are comparable sales based on their market knowledge and research (or lack thereof). This is where things get sticky especially in Incline Village and Crystal Bay where it is a community of custom-built single-family homes. It’s relatively easy to get an accurate appraisal for a condominium in one of the larger complexes where there are a lot of sales each year. But single-family homes on the Nevada side of North Lake Tahoe all have their unique attributes and features, which can dramatically impact the fair market value of each property.
If you are buying a property and the appraisal comes in below the contract price you can walk away from the deal, bring more money to the table to satisfy the lender or attempt to renegotiate the purchase price with the seller. There is a rarely used fourth option, which is to appeal the appraisal by providing comparable sales information and market data along with specific information about the property in question to your lender. If you are lucky, the underwriting department will take this additional information seriously and on rare occasions your appeal may be granted.
The days of an appraiser walking into a property, taking a quick look around and simply writing an appraisal that is at or above the contract purchase price are long gone. While buyers and sellers rely on appraisals to make a transaction goes smoothly, the appraisal process and the resulting report can sometimes throw a monkey wrench into what everyone thought was a relatively easy deal. Buyers who are purchasing a property all-cash will sometimes waive the appraisal if they believe that they are paying at or below fair market price. Sellers love to see all-cash offers with the appraisal waived because they know it is one less contingency that will need to be satisfied. However, anyone getting a loan will need to go through the appraisal process with fingers crossed and hope that they get a local appraiser who will be able to perform a fair and accurate analysis of the property.