What Appraisers See That You Don’t

What’s been your experience with appraisers during the last two years? Have appraisal delays slowed your transactions during this fast-paced market? Did you barely communicate with the appraiser at all?

Don’t look at appraisers as your enemy—they’re trying to work with you, says Candy Cooke. She and Jason Ault are appraisers, and they want their fellow REALTORS® to know what’s been happening in the Texas appraisal industry. The more you understand about working with appraisers, the easier the process can be.

“Every market is different, but I would just recommend that agents and clients be patient,” Ault says. “There is an unprecedented number of appraisals, and appraisers are working as fast as they possibly can. There may be delays on a particular transaction. We always try to be ready to answer questions.”

Appraisers need the latest data

It is unprecedented how fast Texas home prices have been rising in the last two years, and appraisers have been trying to keep up, Ault says. Appraisers are analyzing local MLS data to make the best adjustments possible and trying to factor in appreciation and market increases.

“We only look back,” says Cooke. “We’re required to use closed sales. These prices have been going up monthly. If I don’t have three sales that closed in the last 10 days, I may have to see if I need to make an adjustment for time. Otherwise, my appraised value will be lower than the contract price.”

At the end of the day, appraisers get blamed for delays. “We’re trying to do the research and everybody’s saying rush-rush-rush, let’s get this done right now,” Cooke adds. “As an appraiser, I want to make sure I do a good job.”

More cash may make appraisals less important

Appraisers work for lenders; appraisals help lenders determine how much money to lend the buyer. Deals can fall through if the appraisal is lower than the sales price because the buyer needs to make up the difference.

We’re trying to do the research and everybody’s saying rush-rush-rush, let’s get this done right now. As an appraiser, I want to make sure I do a good job.
–Candy Cooke

“Borrowers lately are willing to bring additional funds to the closing table,” Cooke says. Buyers who aren’t using VA or FHA financing may attach the Addendum Concerning Right to Terminate Due to Lender’s Appraisal (TXR 1948, TREC 49-1) to waive, or partially waive, their right to end the contract if the appraisal doesn’t meet underwriting requirements. In other words, some buyers don’t care what the appraisal says because they plan on buying the property anyway.

Down payments have increased as well. Cooke says appraisers are used to seeing maybe 10% down. Now borrowers may put down $100,000 more, resulting in a 30%-plus down payment for a $300,000 or $400,000 house. It’s really changing how appraisers are looking
at the appraisals. Sometimes lenders even waive appraisals altogether.

In hot markets or areas with strong borrowers, lenders may use a desktop appraisal. The lender sends an inspector to the property to gather information and hires an appraiser to write the appraisal. “They’re making the appraisers value the property based on somebody else’s information,” Cooke says. “Here’s the problem: The appraiser is fully liable for the whole thing and nothing goes on the inspector,” she says, adding that many appraisers she knows won’t work on desktop appraisals.

There’s confusion about VA and FHA loans

Some buyers and sellers are apprehensive about VA and FHA loan requirements. Paragraph 4 of the Third Party Financing Addendum (TXR 1901, TREC 40-9) explains that VA and FHA buyers are not obligated to complete the transaction if the appraisal comes in below contract price. With both an FHA and a VA loan, the buyer can choose to bring more money to close even though the appraised value was less than the contract price. However, the buyer cannot contract to bring more money to close before the appraisal is received due to the requirements of VA and FHA financing that are reflected in Paragraph 4 of the Third Party Financing Addendum.

AMCs can add time

The roughly 230 appraisal management companies (AMCs) in Texas bid out a lender’s appraisal jobs to appraisers and take a piece of the appraisal fee, Cooke says.

“Most appraisers will only work for two or three, maybe four AMCs. The others are sending out bids, and nobody’s accepting them because nobody will work for them—because it’s not comfortable working for them. They’re demanding. They don’t pay us right away. Sometimes you have to wait 30 to 60 days to get paid even though the money’s already been collected.”

Cooke says that when an AMC has an appraisal job, she could submit a bid and the AMC won’t accept it. The AMC might spend two weeks searching for an appraiser who will accept the project at the price it sets and not find anyone. The AMC may finally raise the price and bring the job back to the first appraisers who considered it. “So you’ve got these delays, and there’s no communication between these AMCs and the lender about these issues.”

“Borrowers lately are willing to bring additional funds to the closing table,” Cooke says. Buyers who aren’t using VA or FHA financing may attach the Addendum Concerning Right to Terminate Due to Lender’s Appraisal (TXR 1948, TREC 49-1) to waive, or partially waive, their right to end the contract if the appraisal doesn’t meet underwriting requirements. In other words, some buyers don’t care what the appraisal says because they plan on buying the property anyway.

Sellers should complete required repairs ahead of time

VA and FHA loans have property requirements. If a seller accepts an offer that includes one of these loans, the seller may be asked to complete required repairs to address issues like rotted wood. However, Paragraph 7E of the One to Four Family Residential (Resale) (TXR 1601, TREC 20-16) contract states that neither the seller nor buyer must pay for lender-required repairs. If the parties don’t agree as to who is to pay for such repairs, the contract will terminate and the buyer will receive the earnest money back. Talking about it beforehand may prevent sellers from accepting FHA/VA loans or getting mad about making repairs they didn’t want or expect to complete.

It’s good to remember that everybody is stressed and under pressure. The more we can try to be compassionate, the better off we’ll all be.
–Jason Ault

“If the agents had educated the sellers about the requirements of these loans when the offer came in, we wouldn’t have a holdup,” Cooke says. “The sellers would already know that they shouldn’t take the offer if they weren’t prepared to do the repairs.” With the inventory shortages in today’s market, some buyers are happy to purchase homes that need work. Everyone just needs to be aware of the loan requirements beforehand.

Appraisers are using new standards

Starting in April, Fannie Mae has required all appraisers to use the American National Standards Institute (ANSI) measuring standards for measuring, calculating, and reporting areas for appraisals requiring internal and external inspections. Prior to this, appraisers may have used different standards. Cooke taught the course “How Big is the House: Understanding Square Footage” in May to review the ANSI standards, among other ways to calculate the size of improvements.

Onboarding new appraisers is a slow process

The average appraiser is over 50 years old, and most appraisers could reach retirement in 20 years, Ault says. The Texas Appraiser Licensing & Certification Board requires 1,500 hours of acceptable and verifiable appraisal experience gained over at least 12 months to become a certified residential appraiser. Ault says it typically takes 18 to 24 months to earn that under the sponsorship of an experienced appraiser who accompanies the trainee to every job.

Appraisers are busy

The Texas housing market has been hot for months on end. This, coupled with a shortage of personnel, means that appraisers have been working nonstop. “I could work seven days a week, 12 to 14 hours a day,” Cooke says. “There’s so much business that we can’t get to it in 48 hours. We have to take time off. Like Mother’s Day: we took Mother’s Day off.”

Appraisers are stressed and putting in long days, Ault says. “We’ve never seen conditions like this. Timeliness is a big deal. We have to be timely and we’re pushing to do so. It’s been a challenging work environment. It’s good to remember that everybody is stressed and under pressure. The more we can try to be compassionate, the better off we’ll all be.”