The open-bidding sale closed this week without a hitch.

https://www.bubbleinfo.com/2012/11/30/open-biddingtransparency-live/

Reader Sebastian asked about how appraisals were coming in these days, and this house was a good example.  In the previous three months, there had been five sales with prices that increased by 14%, and the bigger house next door had just closed for $350,000 on a fraudulent short sale. We had listed on November 2nd for $399,000, based on these model matches:

$360,000 – July, 2012

$350,000 – August, 2012

$380,000 – September, 2012

$390,000 – September, 2012

$399,000 – October, 2012 (short sale in progress)

In an effort to provide full transparency to the six interested parties, I conducted the bidding war on the premises so the buyers could see the process take place, and be encouraged to pay more!  When the bidding stopped at $411,500, most were skeptical that I could get the appraisal to come in.  One of the losing agents even scoffed, “We know the comps”.

But it appraised for the full $411,500!

My notes on getting appraisals to come in at the right price:

1. Meet the appraiser.

I want to show proper respect, and hopefully influence the outcome – both are done best in person.  I think appraisers appreciate it too, because they are used to meeting an assistant or the sellers themselves.

2. Be on time.

The appraisers don’t get paid a lot of money, and have to complete multiple appraisals per day to make a good living.  To do so, they need to stay on schedule – don’t screw that up!  The appraised value is a subjective opinion, and every ingredient could play a role in how it turns out.

3.  Bring good comps.

Not as easy as it sounds, and must be kept within the guidelines.  They need three sales closed within the last six months that are within a 1-mile radius and whose square footage is within 10% of the subject property.  If I don’t have those, the next best choices are going outside of the 1-mile radius, then smaller houses, then pendings.  But I have to have enough to make a good case – if you show up with nothing, or a weak case, you are leaving it up to the appraiser.

4. The Good-Bye.

Appraisers don’t like it when you ask them point-blank, “Are you going to bring it in at value?”, because they don’t know yet.  They have to review the comps, and complete their adjustments to calculate the appraised value.  But I want to make sure we are seeing it the same way too, so instead I’ll ask a vague question, like”Do you think everything looks ok?”.  If there is hesitation, then I know I have to go further with explaining the comps, because once the appraiser leaves, you aren’t going to get a second chance. Once they turn in their appraisal, they aren’t going to change it.

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Then and Now. Back in the heyday, my buyers went to Countrywide, who hired the same appraiser for every loan.  We were all friends, and he brought in every single appraisal at value, even when prices were going up 10% to 20% per year.  It wasn’t a spoken conspiracy, it was just business – we needed an appraisal for every loan, and he kept bringing them in.  Of course you’d keep using him.

But now the system has been changed.  Lenders have to request an appraisal through third-party out-sourcers, who then send a random appraiser.  No wonder realtors complain about appraisals now, we had it good before!

The main reason for appraisal problems today is that the realtors take them too lightly and don’t help the appraiser with good comps – then complain that they got screwed.

When I’m representing sellers, my appraisals come in right – I haven’t missed one yet.

But I just had an appraisal come in low on a buyer-side transaction.  It was the escrow where the sellers had their second mortgage dismissed by BofA after the short-sale had been approved, which meant they had proceeds coming instead.  In the beginning, the listing agent had told me that the real estate business wasn’t working out for him, and he had taken another job.  The house needed work, so we made a repair request even though it was a short-sale and the agent had better things to do, like get back to tending bar.  So the sellers refused to do any repairs, even though BofA had dropped about $50,000 in their lap.

The appraiser called the listing agent,. but the house was vacant and usually the appraisers have a lockbox key so I don’t think the listing agent met him.  Sure enough, the appraisal comes in $10,000 low, and because they sellers had put up such a fight about repairs, I told my buyers to expect the same when we ask them to lower the price.  But the listing agent jumped to attention, and said, “If the appraisal came in low, then we have to lower the price”.  Though it is usually a negotiable item, in this case my buyers got a $10,000 windfall, thanks to the incompetent listing agent.

P.S. Another representative from Bank of America said that when they dismiss a second trust deed on an existing escrow, the sellers get no proceeds.  But we think in this case that the escrow officer might have missed the fine print, because the sellers and listing agent didn’t complain at the end.

P.S.S.  Unlike during the heyday when everyone went to Countrywide, today buyers like to select their own lender.  It doesn’t really matter about selecting an appraiser, because they are all at random and each sale has a different one.  But one of these days an appraisal will come in at the right price, the buyers will release their contingencies on Day 17, and then the bank’s underwriter (who makes the final approval before funding), is going to challenge the appraisal.

This is a big problem waiting to happen, because if the underwriter won’t sign off and the deal dies, the buyers are going to lose their deposit.  I haven’t heard of it happening yet, but it will.