If you haven’t been active in the real estate market in the past few years — buying or selling a home — the term “Appraisal Management Company” (AMC) may not ring a bell with you. But it’s important to understand what the term AMC and how appraisals work, because today, the appraisal can be a potential deal-killer when you’re trying to sell, buy, or refinance.
Suppose you found a home you really love. You have made what you believe is a fair offer and the seller has accepted. You are under contract. You’ve had the property inspected from top to bottom and reviewed all of the seller’s disclosures. You’ve given all your financial data to your bank/ mortgage broker, and you’re already picking out furniture because you think it’s a done deal.
Then, you get an unexpected call from your mortgage person, saying the property didn’t appraise at or even near purchase price. This turn of events could easily scare a first-time buyer from going through with the purchase. For a more experienced buyer or seller, it becomes, at a minimum, a major kink in the process. Unfortunately, this scenario is happening now more than ever in all markets throughout the country and here is why.
In May 2009, the Home Valuation Code of Conduct (HVCC) was adopted. The HVCC was meant to reduce the potential for the type of inflated property appraisals that often occurred during the real estate market boom, which some believe contributed to the subsequent bust. Back in the day, in some situations, appraisers and mortgage folks (and sometimes real estate agents and buyers/sellers) were working together to get a property to appraise at a high number just to get a deal done. Lenders sometimes turned a blind eye to get a loan through.
The goal of the HVCC was to put a distance between the appraiser and the bank or broker, in order to get a truly independent appraisal of the property. In theory, it was a good idea. In practice, it is sometimes makes it impossible for sellers to sell, buyers to buy or homeowners to refinance.
Since HVCC’s passing, the lender — instead of selecting a preferred, locally experienced appraiser — usually orders the appraisal through a third-party AMC. These new companies will often price an appraisal at half of what an experienced, local appraiser would charge. The AMC, in turn, may hire the least expensive appraiser, someone from outside the area. Often the out-of-town appraiser isn’t a member of the local MLS, nor are they even familiar with the area. This can result in appraisals that are considerably off the mark from a property’s true market value.
Most banks have a process by which you can dispute an appraisal. This generally requires the buyer or their agent to supply other comparable sales and explanations as to why they think the appraiser’s value is off. The review takes some time, often longer than allowed in the contract and can go either way. If it fails, these are some other options:
- If both parties still want to move ahead, the best plan is to extend all time frames and switch to a new lender.
- Another option is to reduce the purchase price, if both parties agree.
- The final option, depending on the deal, is for the buyer to bring more money to close.
It makes the most sense for all parties to work together to keep the deal going.
The trick is to avoid getting into this situation to begin with. If you’re a seller or a listing agent and you get a call from an appraiser to set up the appraisal appointment and they have an out-of-town area code, that might be your first red flag. Ask them on the phone if they’re familiar with the area, if they’re a member of the local MLS, and how many appraisals they’ve done in the area in the past six months. If you feel the appraiser isn’t experienced, you can ask for another.
Also, come to the appraisal prepped with knowledge of recent comparable sales. If you, as the seller or listing agent, are active in the local market, you can shed light on certain comparable sales for the appraiser. The listing agent and the seller have likely been physically inside all of the most recent sales, while the appraiser has not.
You might point out that one comp didn’t have a view, that the kitchen for another comp wasn’t renovated, that a third comp was in a superior location or had an unbelievable deck off the kitchen, or that comp four was a distressed sale.
Most appraisers will appreciate the data, though some will not, depending on how you deliver the information. Pushing him or her around with comps or seemingly treating them disrespectfully will only alienate the appraiser and hurt your deal. Treat the appraiser not as an enemy, but as a member of your team.
For more information about Highlands and Cashiers North Carolina, and for access to the HighlandsNC/CashiersNC MLS, contact Meadows Mountain Realty today, 828-526-1717 or email us today at [email protected].