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Getting accurate home appraisal key part of mortgage process

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Real estate appraiser Matt Cook just finished working his way through a house to gauge its value when the homeowner reached out to shake his hand.

Inside the man's palm was a $20 — as if he was tipping a maitre d'.

"I don't know what insulted me more," Cook said, "that he thinks he could bribe me, or that he thinks I could be bribed for 20 bucks."

Lenders need an accurate appraisal so they can make sure a home is worth what the buyer is willing to pay, and that the property can be used as collateral for the loan. A house or condo that appraises for a different amount than the price the homebuyer and seller agreed on can scrap a deal.

Appraisers, however, aren't supposed to be looking to confirm a proposed sale price. Their task is to assess the home's market value. That's based on many variables, including comparable, nearby sales.

Under a rule that went into effect this year, lenders must inform applicants seeking a first mortgage that they'll promptly receive a free copy of the appraisal — and then send it.

The quick, automatic access to valuations could lead more people to challenge the results.

"It probably will have the effect of slowing things down as more and more reports get questioned, and rightly so," said Steven R. Smith of Redlands, Calif., whose appraisals have included a $43 million Rancho Mirage, Calif., estate purchased by software billionaire Larry Ellison, and who often reviews other appraisers' work for court cases. "Appraisers doing schlock work should be questioned, and they should be driven out of the business."

How about trying to head off a bad appraisal from the beginning?

Tips for smooth appraisals

The Orange County Register asked appraisers what homeowners can do — and should not do — before and during an appraisal. They offered a variety of ways that sellers and real estate agents can make the process go more smoothly from the start:

• "Give us a brag sheet," advised Craig Gilbert, an appraiser in Huntington Beach, Calif.

"Tell us everything about your house, all the positive things you can think of: 'I've got a new roof, the kitchen is six months old, these are brands of our appliances, here's what we paid for them, the flooring, the scraping of the ceilings,' " he said. "Spell out: 'Here's the year I did it, here's what it cost and here are some of the specifics.' "

Appraisers actually are required to report the year that the kitchen and each bathroom was updated or remodeled — or if they were not improved in the past 15 years.

Provide comparable sales that truly are comparable. Go beyond the square footage and prices of nearby homes that sold. Include relevant details, and point out the homes that should not be used as comps, as well. "For example, 'That property backs a busy street. That property does not have a swimming pool and I do. That property has an original kitchen built in 1950; my kitchen was remodeled in 2012,' " Gilbert said.

• Don't lie about illegal room additions. One homeowner told an appraiser a room was already there when he bought the house. But it turned out that the man built the house. Appraisers will learn the truth, so just be honest. Better yet, pull the addition permits for them, even if they were done before you owned the property.

• Don't lock rooms and leave. Appraisers have to see the whole house. Don't make them come back, incurring additional cost and delays.

• Install carbon monoxide detectors and smoke alarms as required by the lender. Otherwise, the appraiser will have to make a second trip to the home. "It will cost the buyer an extra $100-plus to have the appraiser return to photograph, for example, a carbon monoxide detector, and could in rare circumstances delay an escrow closing date," said Dean P. Zibas, an appraiser in San Clemente, Calif. Also provide details and documents on any energy-saving devices.

• Don't follow the appraiser around, shooting the breeze. "It gets me out of my process," said Cook, of Torrance, Calif., who focuses on Los Angeles' South Bay area. "I do love to talk, but it does distract me. If I'm talking as I'm walking past a door and I forget to go back, and there's a bathroom there, that's not good."

His analogy: "If your mechanic was working on your car and you're jabbering the whole time, he might forget to tighten a bolt."

And, several appraisers said, get out of the way while they take photographs of various rooms.

• Get a business card from the appraiser. "It is imperative that the appraiser inspecting the property is the same one who prepares and signs the report," Gilbert said. "This will avoid being scammed by a 'ghost' writer working for an appraiser."

• For condos, provide the appraiser with the name and a contact for the Homeowner Association, as well as your account number. You also can call the HOA before the appraiser comes out to get the number of units in the project, including the number of owner-occupied units.

• Explain anything unusual about the property. Why is there a large hole in the ceiling? Is there access to the rear of the lot from another street? "We appraisers may not notice everything and/or we may jump to the wrong conclusions," Zibas said.

• Skip details about routine fixes. "Do not bother with most standard maintenance items that are expected to be periodically replaced, such as a water heater," Zibas said. "Every time I hear something like 'We just replaced our air conditioner,' I can't help but wonder: 'What else is about to die?' "

Interviews and a question posed in an online appraisers' forum yielded additional peeves. Some highlights: Homeowners who fail to mention that a rattlesnake recently made an appearance in the bushes next to the house — and wasn't caught. Or who proclaim, "My dog is friendly and never bites," as the canine charges, hackles up.

And, several appraisers said, homeowners should always be sure to let their spouse and children know that a stranger will be roaming the house.

Challenging appraisals

Appraisers take a lot of heat in the real estate industry.

"Depending on where we are in the (housing market) cycle, we're either fraud artists deliberately over-inflating values or deal killers trying to ruin the market," Cook said.

But no one is harder on appraisers than other appraisers.

A nationwide appraisers professional association and veteran appraisers have cited problems in the way appraisal management companies assign and pay appraisers, saying too much of the emphasis is on working quickly and cheap. Appraisal management companies have countered that the way their businesses operate is misunderstood.

Real estate agents responding to the Campbell/Inside Mortgage Finance HousingPulse Tracking Survey in February said appraisal issues were the reason for about 10 percent of closing delays.

Under a rule that went into effect this year, as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, lenders must promptly give mortgage applicants a free copy of the appraisal results.

Applicants can ask a lender to review the appraisal or order a second one. If a consumer requests a review, that should be backed up by facts the appraiser included or left out of the report, not just a disagreement over the appraiser's opinion, said Ken Chitester of the Appraisal Institute, a Chicago-based professional association with about 22,000 members.

Getting accurate home appraisal key part of mortgage process 04/23/14 [Last modified: Thursday, April 24, 2014 4:48pm]

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