Interview with a Real Estate Appraiser
After many weeks of trying to get it organized, I was finally able to find a willing home appraiser to come in and speak to our agents. Naturally I had to promise that there would be no torture involved, that agents would check their pointy sticks at the door, and that foul language would be strictly prohibited. I guess appraisers are feeling the wrath of a few agents whose clients came up on the wrong side of an appraisal.
All kidding aside, we were happy to welcome Tracey Smith, Manager of Appraisal Services and a veteran commercial and residential property appraiser from T. McCormick and Associates, one of Toronto’s top appraisal companies accompanied by Joe Sammut, Bosley’s go-to mortgage broker from Mortgage Architects.
Some agents in the room had stories of low appraisals and deals falling apart so it wasn’t surprising that the first question of the day was rather blunt; Are the banks demanding that appraisers be especially conservative in their valuations? Smith’s answer was an unequivocal no. They are mandated to use their best efforts to appraise properties fairly and to derive a value that can be supported on several different fronts. Appraisers are looking at metrics like days on market, income, and appraised value. Appraisal research is fairly lengthy and naturally there are oddities that pop up every once in a while, but when that happens Smith explained that appraisers will call listing agents of previously sold properties and ask questions. Smith informed us that most appraisers have limited search abilities via TREB and that their authenticators don’t allow access to Geowarehouse or give them more than two years of data history. Ultimately the sale price is the best indicator of value so it is no surprise that 95% of appraisals coming in at purchase price.
If that is the case then it stands to reason that 5% of home appraisals come in at less than value. Smith was quick to point out that a good chunk of that 5% is made up of people who are doing appraisals for refinancing purposes, and typically owners are underwhelmed by the appraised values. This is also the case for a large percentage of private deals (FSBO’s). Still, there are buyers who get let down by their appraisals and are forced to scramble to get their financing in order. So what are a buyer’s options in such a situation? Smith offered that you (buyers or buyer agents) can challenge a lower than expected appraised value, but you had better have good comparable properties.
At the end of our meeting we all came away with the same conclusion; the banks dictate how accurately they require an appraisal to be (ranging from a quick drive –by to a full in-depth valuation). Appraisers are not out there to kill deals. They appreciate and welcome listing agents sending them their CMA’s and they often include a little wiggle room in their valuations. Ultimately, agents need to fully understand the process and make sure their clients are prepared for a lower appraisal because, while it is not the norm, it can happen. Buyers should understand the value of a good mortgage broker.