So this may be a slight break from the norm, as it’s not an actual FAQ that we get, but the spirit is there. I get asked questions or hear statements like the ones we’ll cover today, all the time. And it got me thinking recently: homeowners are applying what they think is human logic to the appraisal process, when they shouldn’t. So that’s what we’ll be discussing here.
It’s so easy to be critical of someone or some process, especially if you don’t have all the details, but think you do. When we apply what we think is basic common sense to a situation, we can often be surprised to know we’re wrong. Why do we do this? Why do we automatically assume we know everything about everything, and that if a statement is true here, it must be true there?
Having thought about this for some time, it has given me a greater deal of understanding and patience; it has given me the ability to show grace to a situation that on the outside may seem one way, but might have a whole lot going on under the surface that I’m not aware of. I hope it will do the same for you.
That being said, here are a few questions or statements that pertain to the appraisal world, that may just go against what you think of as being common sense.
I paid for my appraisal, therefore it’s mine!
In what may be a stroke of absolute genius, the financial powers that be have determined that if you want to borrow their money, you have to play by their rules. And most of the time, one of those rules is getting an appraisal that usually you pay for, but it belongs to the bank. That doesn’t mean you don’t get a copy, or can’t get a copy. Unless you signed something saying you don’t want a copy, the bank is supposed to supply you with one. But it still isn’t yours.
We get this one a bunch in our office. Maybe the deal falls through, or the refinance is canceled after the appraisal. The borrower calls and says “Hey, that deal got canceled, but I still want my appraisal. Can you email it to me?” When we say ‘no’, they usually get fairly irate and follow up with “but I paid for it, so it’s mine, so you need to send it to me now!”
And so we take a few moments to explain the process to them.
I tried to think of another example of something you pay for but do not own, but I came up empty . The closest thing I could think of was medical records. When you go to a doctor’s office and they run tests or X-Rays, or do blood work, you pay for all of that for sure! And, you usually don’t get to walk out of the office with your results. Sometimes, even, it takes an act of Congress just to get your results back. I know. Not the best analogy, but it gets close.
Market Value is whatever someone is willing to pay me for my home.
Ok. I don’t want to beat a dead horse. If you’ve been following me for any length of time, you know I’ve talked plenty about the definition of market value. Only in a situation where the buyer is paying cash would a statement like this apply. Most of the time, though, appraisers follow the definition as set forth by Fannie Mae, which states (among other things):
Market value is the most probable price that a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller, each acting prudently, knowledgeably and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby:
buyer and seller are typically motivated;
both parties are well informed or well advised, and each acting in what they consider to be in their own best interest;
a reasonable time is allowed for exposure in the open market;
payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto; and
the price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale.
So can we please do away with this saying that ‘market value is whatever someone wants to pay?’ It would make my job much easier if we would. Thanks. Moving on.
Zillow said my home is worth $250,000, so it must be.
Isn’t it amazing how much Zillow has become part of our culture? Where else do people turn to with so much regularity to search for homes for sale or rent, and to find an estimate of their home’s value? Insane. And here’s the most insane part: Zillow is doing all of this from a computer program. They don’t set one foot inside your home. Why would you trust what Zillow has to say about the value of your largest investment, when they don’t even know what you own?
So go ahead and pull your Zestimate, but just for reference. Then, call an appraiser who knows your market, and will come and actually walk through your door and see your home! Nothing compares to having someone walk though your home; I don’t care how good their computer program is.
The bank is going to send a third party property data collector out to my house. Makes sense, right?
Along the lines of Zillow, Fannie Mae, in all its wisdom, has decided to start using Property Data Collectors or PDCs on some of its loans. Now, to be fair, folks like this have been around for some time, but we’re going to be seeing them a lot more in the future, I’m afraid. What happens here, is that someone – anyone – can show up to your home and take pictures and measurements, and jot down some notes about your home. Then, that information usually goes to an appraiser who completes an ‘appraisal’ of some sort from their desk. Now, does that sound ok to you? Or, are you – like a lot of folks – left scratching your head? Why don’t they just let the appraiser do it all? Who exactly will be coming to my home? What qualifications do they have? All good questions. For now, Fannie Mae expects us all to just assume that it makes common sense to allow some dude who maybe just got out of jail to come to my house and take pictures and notes. Not good.
I spent $14,000 on improvements last year, therefore my home should be worth $14,000 more, right?