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Appraisal Tips to Protect the Real Estate Contract Sales Price

Nationally, one of the reasons that almost 1 in 3 buyers are not closing escrow these days is because of poor appraisals. Although this dilemma is not widespread in Lake Tahoe, we all hear about out-of-area appraisers who don’t know the local market, use of distressed-sale properties to appraise a property that is not being sold under distress, and lack of comparable sales.

Quick Statistic: Nationally, 34% of Transactions are Affected by Appraisal Deficiencies

According to data from National Association of Realtors in November and December, 34% of Realtors reported a problem with an appraisal. Approximately 10% of the respondents reported that appraisal problems led to contract cancellation, about 10% reported a delay as a result of an appraisal problem, and almost 15% reported that the appraisal problems led to lower prices.  Tahoe may begin to see more appraisal problems in our upward trending real estate market.  Recently, several home transactions have been challenged in communities like North Lake Tahoe and Northstar, where inventory is most limited.
The key to a good appraisal is using accurate comparable sales and supporting data to arrive at an appropriate price for the property in question. Here are some appraisal tips from our agents that will help protect the contract sales price:

1. Make sure your lender will order a “local” appraiser for Tahoe Property
We all know that Fannie Mae initiated changes in appraisal guidelines in 2009 with their new appraisal rules under HVCC (Home Valuation Code of Conduct) that prohibit mortgage brokers or real estate agents from selecting the appraiser to perform an appraisal on a purchase or refinance transaction, but it important in Lake Tahoe to request a local appraiser, with local knowledge to perform the appraisal if possible. 
Your loan officer can’t have direct contact with the appraiser, but your real estate agent can. Don’t ever let an appraiser just do the appraisal without taking the opportunity to have your agent reach out to them and explain any specifics about the property, otherwise the odds of a poor appraisal report are higher in an upward trending market.  The buyer’s or seller’s real estate agent can plan to meet the appraiser at a property to offer relevant comparable sales information if there is a lack of data.  Your agent will be the contact to schedule the appraisal, and then go meet the appraiser at the property.  If the appraiser IS from out of the area, it is important that your agent explain any specifics about the surrounding area that may impact the final value.

2. Improvement list provided to appraiser
If improvements have been made to the property, or there are features that don’t meet the eye, a list should be provided to the appraiser so they can include this in their final report. If possible, include before and after pictures, and copies of paid receipts for the work completed. If major updates were done, provide a detailed copy of the contractor’s bid.

3. Public records are often wrong
The public record is often wrong, particularly regarding square footage. Any documentation to justify a different number should be made available. According to current appraisal guidelines, square footage added without a building permit usually won’t get credit as usable square feet. This can lower the appraised value.

4. When there aren’t enough comps for past 3 months
When there aren’t comps for the past three months, it’s critical the appraiser is provided with the data upon which to make an accurate evaluation, particularly if the appraiser is unfamiliar with the local market.  Tahoe Mountain Resorts is active in this approach.

Stay tuned because tomorrow we will look at what the seller should do to prepare for the appraisal.


*List inspired by Michael Deery, a lender, who compiled and sourced his information from free resources for California real estate agents on Facebook. It was then customized to fit the Tahoe Trucke real estate market.