There are so many moving parts to track when real estate brokers come up with a listing price. All the features of the property, the comparable sales in the neighborhood and the latest market trends are just a few of the data sets that ultimately go into the equation. Sometimes prices are determined as part of a broad strategy to entice certain kinds of buyers (like the Wal-Mart-inspired $498,000 price tag) or they’re designed to trigger a bidding war.
Eventually, most listing prices will come down to two questions:
- What will someone pay for the home?
- At what valuation will the property be appraised?
While the first question is obvious, the second one often can be overlooked in the crowded mix of moving parts. If not properly factored in and planned for, an appraisal that’s misaligned with a broker’s expectation could put the whole deal at risk if the buyer is using a mortgage.
Appraisers are assigned by lenders, but they are completely neutral. In fact, their objectivity is their most important quality as it protects lenders from unnecessary risks. There is a significant pressure for appraisers to “get it right,” even if their valuation is lower than what others are willing to pay.
To smooth this tension, brokers can use a variety of tools to influence an appraiser—as long as they’re deployed to help the appraiser get to an accurate market valuation.
“A real estate professional is legally prohibited from any communication with an appraiser that is intended to unduly influence the outcome of the appraisal,” says Matthew Reischer, broker at Flushing Real Estate Group in New York City. “It is always best practice for a broker to make sure an appraiser does not interpret any communications as an attempt to improperly influence an appraisal. That said, a broker can always ask an appraiser to provide additional detail explaining how they arrived at their conclusions and the ultimate opinion of value.”
While valuation is often defined as a matter of opinion, it’s important to keep in mind that existing offers that might have been made pre-appraisal—even if there was a bidding war and the winner of it is already in escrow—do not, by themselves, impact the true valuation. The market as a whole is what’s being determined—not what a few buyers could be willing to over-pay.
Still, there is plenty of eligible information brokers can volunteer while working with appraisers, and many brokers might be surprised to learn how appreciative an appraiser is to receive it.
“Too often the appraiser, when they go out to inspect a house that’s under an agreement, they’re just given a lockbox code and they’re not met by the broker. That’s a missed opportunity,” says Stephen E. Sousa, executive vice president, Massachusetts Board of Real Estate Appraisers (MBREA), Inc. “I believe real estate agents should always be there for the appraisal. If they have information that’s helpful about the community, the schools, you might have an appraiser who’s from a little outside the area and can use that information. All they want is good information, especially if it’s about deals in the neighborhood.”
Pocket listings and offers that have yet to close can be cited in notes to support the appraiser’s conclusions, Sousa says. Other sales can be scrutinized for being “non-arm’s-length,” such as one between family members or real estate-owned properties. All of that data has to be independently verified by the appraiser, but it’s still good to have, he explains.
Ara Markari, owner of Crown Mark Real Estate Group, a full-service broker and developer in Pasadena, Calif., stresses that it’s important to work closely with appraisers and be respectful of their process and their time. The best way to do that, he says, is by being prepared and organized.
“When dealing with appraisers, I would always suggest having all your material and the property ready before they arrive,” Markari says. “On the listing side, the agent should be there on time, with the title report for any questions, MLS listing, offers—showing multiple offers when the property has gone over asking price shows the market’s need/demand—(and) comparables of similar homes the appraiser can use or can discuss with them, and any other pertinent information.”
Markari does not think buyer’s agents should get involved, but that a seller’s representative should court a close and professional working relationship. In addition to helping with pricing information, he also advises brokers to pay close attention to the little details.
“Having some water and treats is always nice as well,” Markari says. “Listing agents should make sure the seller has braced the water heater and agents have access to that room along with parking areas. They should make sure carbon monoxides are installed as well as smoke detectors. They should make sure the appraiser has full access; dogs, gates or alarms would hinder their access or time.”
Sousa says the working relationships between brokers and appraisers, when operating properly, can pay enormous dividends to future markets. With accurate details going into each transaction, real estate professionals will be able to use that information with increasing confidence, strengthening the overall system and—more broadly—the economy at large.
But it has to start small.
“One of the best ways brokers can help their clients is by trying (to use) the best, most reliable information they can right from the start of the listing process,” Sousa says. “The last time the bathroom or kitchen were updated, a description of those updates—that information can go into the listing. It all goes into the analysis of the property and its condition and quality. The more detailed the listings can be, talking about condition and quality, the better the appraiser will be able to do their job.”
Andrew King is a contributing editor to RISMedia.