Tips for Real Estate Agents to Avoid a Bad Appraisal

realtor tip- How to avoid a bad appraisalAs a real estate agent, it’s possible you have been the victim of an appraisal that came in below the contract price. Then when you saw one or two of the sales the appraiser used, you were upset.  You wanted to scream, “But that house has X, Y, and Z differences!” In many of those cases, it’s possible that the market just didn’t support the contract price, while in other cases, it was the result of a bad appraisal.  Here are some tips to help you prevent the latter from happening.

As experienced real estate appraisers, some of us like to think we know it all; we know everything about every street of every one of Chicago’s 200+ neighborhoods. But the truth is, we don’t. As certified licensed appraisers, we are required to be geographically competent in the areas we work. However, it is impossible to know the intricacies of every street and neighborhood in Chicago and the surrounding suburbs. A truly good appraiser makes use of all resources available to ensure we are giving our clients the most thorough, accurate appraisal possible, and that includes reaching out to real estate agents and accepting/analyzing any sales you provide.

There is a myth that real estate agents can’t talk to appraisers. Appraisers are by law required to develop a well-supported, unbiased opinion of value. We must be independent, impartial, and objective and cannot be an advocate for either side of the transaction. As long you, the real estate agent, are not trying to influence or pressure the appraiser to arrive at a particular value, we should not only welcome a conversation, but seek it out. I want as much information as possible, and if the agent feels it would be helpful to provide me with some comparable sales to consider, I am happy to look at them. Does that mean I will just take the three sales you give me and use them in my report without completing my own due diligence? Of course not. When I’m provided with sales, that is exactly what they are, sales. They do not become comparable sales until the appraiser has analyzed them and decided that they are the most similar sales in the neighborhood and are the best indicators of market value.

It is most valuable when the agent gives me two or three truly comparable sales from the MLS with notes pointing out things that may not be easily observed just by looking at the listing sheet. It is less valuable when I’m given a stack of MLS listings by the agent and it appears that the only search criterion they used was all properties that sold above the contract price of the subject. A thorough appraisal should will always include an exhaustive search of all sales and listings in the subject’s market area and only those that are most similar to the subject should be selected.

In some cases, it is the most helpful when I am provided information on a sale that appears to be similar to the subject, but sold below the subject’s contract price (believe me, we are going to find it anyway and it is best to explain the situation up front). Here are a few situations I have run into in the past when a sale appeared to be very similar to the subject but there were certain issues that could have been easily overlooked or were not properly communicated on the MLS:

EXAMPLES OF DETAILS TO POINT OUT TO THE APPRAISER

  • A sale was listed as a 4 bedroom, but 2 of them were in the basement and represented that way on the MLS listing.
  • The house was located on the rear of the lot and it sold lower because it lacked a backyard with privacy.
  • The only bath that a Tudor style home had was on the first floor while all three bedrooms were on the second and therefore functionally undesirable to most buyers.
  • The home’s basement had flooded after being listed (therefore was not mentioned on the MLS listing sheet) and the buyer negotiated a lower price to factor in the cost of rehabbing the basement.
  • Homes on the west side of street A are selling at a premium to the east side because they back to other single family homes while the east side backs to 2-4 flat buildings (as was the case on a recent appraisal in the Lakewood Balmoral neighborhood).
  • Sales on the south side of the Isabella Street go Evanston High School and those on the north go to New Trier (significant difference in value).
  • The subject is a unique house for the area with no recent sales of similar houses on the MLS, but there was a similar home that sold FSBO recently (we can typically verify those through various sources but may not have initially found it on our own if it was not listed on the MLS)

Many of you also often specialize in a particular neighborhood and can let us know these things. There are endless of examples that I could give of situations where the real estate agent made me aware of something I otherwise may not have noticed or known.

As real estate agents, you have an advantage over appraisers with regards to access to the buyer/seller’s thought process. You are meeting buyers and sellers every week and you get to hear what buyers think and how they are making their decisions. You have walked through or toured the interior of many of the sales and listings in the neighborhood and have heard feedback from your clients (aka “The Market”). This can be very valuable information for appraisers as we are trying to determine “Market Value”.

It is our job to reach out to you. Unfortunately, we are typically given no more than 48 hours from the time of the inspection to have the completed report submitted to the client. That means if we call and leave a message letting you know we have a question, we really do need to hear back from you that day or the next. It is not uncommon for me to get a call a week later when I have already signed and submitted the report. It is much easier to edit a report with new information BEFORE it is signed and submitted to the lender.  We know you are busy and your time is just as valuable as ours, which is why I make sure to let those that do take a couple of minutes with me on the phone, that they are appreciated.

Appraisers are trained in many different techniques to analyze the market but similar to real estate agents, not all appraisers were created equal.  Some are willing to go the extra mile, while some may not.  And you as the real estate agent can be a really good information resource for those appraisers willing to reach out and those agents willing to share their knowledge.  By pointing out some of the issues listed above, you could end up avoiding an “appraisal problem” in the future.

If any of you have any appraisal questions on this or any topic, please feel free to leave a comment or call me directly at (847) 863-5776.

And a HUGE thank you to all the agents that have taken my calls over the years!

 

Do you need help in challenging a bad appraisal?  I have provided two different templates below that you can use to do so effectively and efficiently.

 

Template 1 for Challenging a bad appraisal
Template 2 for Challenging a bad appraisal

 

 

Lincoln Park Single Family Housing Market

Lincoln Park Single Family Housing (5)I recently analyzed the Lincoln Park Condo market to get to see where condo prices might be heading.  This time I will be looking at the Lincoln Park detached single family market in Chicago.  I again compared the current median sales prices vs. those that are under contract and are expected to close in the next 30-60 days. First lets look at a few charts to see how the market has performed over the last year.

 

 

Year-Over-Year Median Sales Price (Rolling 12 month average) – As you can see below, the overall detached single family market is up 15.4% year-over-year and the upward trend appears to be continuing with the most recent data showing a median sale price of $1,500,000.

 

 

Months supply of inventory – Supply of inventory is around 5 months and has remained around this level for some time now up.  Anything between 3-6 months is considered to be a balanced market.

 

Average Market Time – The average time it takes to sell a house is significantly less (down 21% year-over-year).  This is also a healthy number and is a sign of a strong market.  For a little perspective, that number peaked at an average of around 221 days on market back in 2010.

 

 

List to Sales Price Ratio – The amount the home sells for vs. what it was most recently listed for has remained stable year-over-year at around 95%.

 

Distressed Sales – As you can see below,  the number of REO (foreclosures) and Short Sales are almost non existent in Lincoln Park and have not been a factor for quite a while.

 

 

 

As noted in the previous post, these are “rear view mirror” statistics.  As I analyze the market to help homeowners determine an appropriate  listing price for their home, (click here for more info on that process) I analyze forward looking indicators in an effort to be aware of what may be in store for the market.

After noting the current median sales price of $1,509,000, I compared that data point to a more forward looking data point, pending sales.  The current median list price of the units currently under contract is $2,195,000.  That number is significantly higher than what has sold over the last 12 months.  With the exception of a few hot markets, homes very seldom sell at list price.  Over the last 12 months, the list to sales price ratio is approximately 95% (see chart above).  Even after the 5% is removed from the pending sale to anticipate the final sales price, there is still a projected significant increase in median sales prices for those homes currently under contract vs. the current 12 month median sales price. Due to their only being approximately 41 units in the pending/under contract data, I expanded the data to include all active listings as well.  That included 148 homes and brought up the median list price to $2,095,000.   It is more than likely that there is a larger mix of larger, newer construction homes in the pending/listing data that could be inflating the projected overall increase, but based on that data combined with other market factors analyzed, the single family market appears to be strong and should remain so over the next few months.

In summary, the overall detached single family market has been strong over the last 12 months and the Lincoln Park neighborhood is not showing any signs of slowing.   It will be interesting to see what happens over the next several month.   For more Lincoln Park charts check out our Lincoln Park Page.  If you have any questions, please feel free to call us anytime at (847) 863-5776.

 

Chicago (Lincoln Park) Condo Market

Lincoln Park Condo MarketBased on recent speculation in the national news about a cooling housing market, I recently analyzed the Park Ridge market to get to see where prices might be heading.  This time I will be looking at the Lincoln Park neighborhood in Chicago.  I wanted to compared the current median sales prices vs. those that are under contract and are expected to close in the next 30-60 days. First lets look at a few charts to see how the market has performed over the last year.

 

 

Year-Over-Year Median Sales Price (Rolling 12 month average) – As you can see below, while the overall condo market is up 5.6% year-over-year, the upward trend appears to be flattening out and the market appears to be stabilizing.

 

 

Months supply of inventory – Supply is down to 2.9 months of inventory but is slowing creeping back up.  (down 6.8% year-over-year)  Whenever supply is below 3 months of inventory we consider the market to be under supplied.

 

Average Market Time – The average time it takes to sell a house is significantly less (down 27% year-over-year) but this indicator is also flattening out with the last 4 months having an average market time of 57 days.

 

 

List to Sales Price Ratio – The amount the home sells for vs. what it was most recently listed for has only increased about 0.6% year-over-year and has leveled off at a strong  98%.  (This can sometimes be skewed as many condos are listed with parking “not included” and then the final sales price includes a $10,000-$25,000 deeded parking space.

 

Distressed Sales – As you can see below the number of REO (foreclosures) and Short Sales haven’t been a big factor in Lincoln Park over the last few years but still show a positive sign as they are down 49% and 64% year-over-year.

 

 

 

Overall, while the market has had a good year, these statistics are considered to be in the “rear view mirror”.  As I analyze the market to help homeowners determine an appropriate  listing price for their home, (click here for more info on that process) I analyze forward looking indicators in an effort to be aware of what may be in store for the market.

I decided to use 2 bedroom/2 bath units in an attempt to break out the extreme high end and low end of the market and compare apples to apples.  After noting the current median sales price of $408,000, I compared those two data points to a more forward looking data point, pending sales.  The current median list price of the units currently under contract is $394,000.  That is approximately 3% lower than what has sold over the last 12 months.  With the exception of a few hot markets, homes very seldom sell at list price.  Over the last 12 months, the list to sales price ratio is approximately 98% (see chart above).  Therefore, once the 2% is removed from the pending sale to anticipate the final sales price, there is still a projected decrease in median sales price of 5-6% for those units currently under contract vs. the current 12 month median sales price. Due to their only being approximately 50 units in the pending/under contract data, I expanded the data to include all active listings as well.  That brought up the median list price to $400,000 (2% higher than the “under contracts”).  But keep in mind, these listings could still experience a lowered list price as they are still not under contract, which could account for the 2% bump.

In summary, while the overall market has been strong over the last 12 months, the Lincoln Park condo market in Chicago does appear to be slowing.  However, with such a low supply of inventory on the market, things could turn back up.  Also keep in mind that we will soon be heading into the seasonally slower fall and winter months.   For more Lincoln Park charts check out our Lincoln Park Page.  If you have any questions, please feel free to call us anytime at (847) 863-5776.

 

Park Ridge Single Family Housing Market

Park Ridge Home valuesThere has been a lot of discussion in the national news about a cooling housing market.  As a real estate appraiser with my office in Park Ridge Illinois, I’m providing a little insight into how we can dig deeper into the local market to get an idea of which direction home prices may be headed in the near term.   I looked at several different metrics for single family homes in Park Ridge (charts attached are interactive).

 film Sandy Wexler 2017

 film Sandy Wexler 2017

Year-Over-Year Median Sales Price (Rolling 12 month average) – As you can see below the trend is still headed higher (12.6% increase year-over-year)

 film Sandy Wexler 2017

 film Sandy Wexler 2017

Months supply of inventory – Supply is down to 4.1 months of inventory (down 13.6% year-over-year)

 film Sandy Wexler 2017

Average Market Time – The average time it takes to sell a house is significantly less (down 41% year-over-year)

 film Sandy Wexler 2017

 film Sandy Wexler 2017

List to Sales Price Ratio – The amount the home sells for vs. what it was most recently listed for is also improving (approximately 96%)

 film Sandy Wexler 2017

 film Sandy Wexler 2017

 film Sandy Wexler 2017

Overall, these are all positive signs, but they are statistics that are in the “rear view mirror”.  As I analyze the market to help homeowners determine an appropriate  listing price for their home, (click here for more info on that process) I analyze forward looking indicators in an effort to be aware of what may be in store for the market.

After noting the current median sales price of $394,000 and average sales price of $450,000, I compared those two data points to a more forward looking data point, pending sales.  The current median list price of the 82 detached homes currently under contract is $439,000 and the average is $498,000.  Those are a combined average of 11% higher than what has sold over the last 12 months.  As we know with the exception of a few hot markets, homes very seldom sell at list price.  Over the last 12 months, the list to sales price ratio is approximately 96% (see chart above).  Therefore, once the 4% is removed from the pending sale to anticipate the final sales price, there is still  a projected increase of 6.6% over the current 12 month sales data.

In summary, while the overall rate of increase in sales prices in Park Ridge appear to be slowing, the trend appears to be still pointing up in the near term.  The majority of these pending sales should close in the next 30-60 days, so it looks like Park Ridge should have some much needed momentum heading into the seasonally slower fall and winter months.   For more Park Ridge charts check out our Park Ridge Page.  If you have any questions, please feel free to call us anytime at (847) 863-5776.

 film Sandy Wexler 2017

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Chicago’s Luxury Housing Market

Chicago Appraiser 499The luxury home market started heating up last year. Based on the Chicago area MLS (this does not include private sales and those not listed on the MLS), in 2013, there were 365 homes (including condos) that sold for over $1,500,000 in Chicago. That’s a 20% increase over 2012. In the surrounding suburbs there were 353 homes that sold for over $1,500,000 which was a 29% increase year over year.

I personally have seen an increase in appraisal requests for these high end properties as well. In 2013, I appraised 26 homes that were valued over $1,000,000 while in 2012 I only completed 17.
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The Secret to a Stress-Free Appraisal Experience

Whether you are buying or selling a home, it can be a very stressful time and one of my goals is to provide a service that makes the experience as stress-free and transparent as possible. About a year ago, I received a phone call from a homeowner in the Edison Park neighborhood of Chicago who wanted to get an appraisal to help them determine a price to list their home. During the conversation he asked, “Why should I hire you?” It caught me off guard because usually the first question I get is, “How much do you charge for an appraisal?” (I won’t get into that here, but I can promise you that it is not a good idea to hire your appraiser based solely on fee. See my blog article, "The Cheapest Appraiser", for the reasons why.) His question really made me think about what separates me from other appraisers in my market area. I started thinking about the feedback I most often get from clients and what’s most important to me when it comes to how other people perceive my company.

I think it is important to state that there are certain fundamental characteristics that every good appraiser should have (ie. experience, local knowledge, education, attention to detail, standards and ethics, etc). While I possess all of those characteristics, I know based on what my clients have said time and time again that I provide something else that is invaluable to them. When I’m hired by a homeowner, most of time they are looking to either determine a price to list their home (FSBO or just needing a second opinion from an unbiased third party other than their Realtor) or determine fair market value when purchasing a home to make sure they are not overpaying. Most appraisers will come out and measure your home, take some pictures, and ask a few questions. Then several days later you get an email with a PDF of an appraisal report. You‘re anxious to see what value the appraiser has come up with and you open the report only to find that you have no idea what you’re looking at. Most appraisal reports are 30+ pages in length and filled with appraisal jargon and lending terms that the typical homeowner just doesn’t understand.

That's why it is important to take a different approach to these types of “non-lender” assignments. All of my appraisals involve two Consultations (one during the initial inspection and another after the appraisal report has been completed). During the first consultation I interview the homeowner to find out what their expectations are and explain how the appraisal process works. We talk about the house they are buying or selling, and I point out any items of concern I see during the inspection. Once the report has been completed, I typically have the second consultation in which I come back to the house and we go over the report together to discuss the following:

  • I explain how the report is laid out and where to find the most important information.
  • We go through the charts and graphs that I have added to the report and I explain the current market conditions and property value trends in their neighborhood and how that affected my value conclusion. These charts not only show an overall view of the median sales price trends, but also give an indication of of the amount of housing supply on the market. I explain what an undersupply or oversupply of housing stock could mean for the value of their home.
  • We go through the sales I used and I point out the differences in condition or quality of construction and which features are more desirable and why. I then show them the listings in the area that they would be competing against and what that means for their property. We also go over where these comparables are located on the map and discuss any location adjustments that were deemed necessary.
  • And maybe most importantly, I ask them if they have any questions. As you already know, buying or selling a home can be a stressful proposition, and I want to make sure that the appraisal/valuation portion of the process is as stress-free and easily understood as possible.

This is the portion of the appraisal process that my clients appreciate the most. By taking that extra time to explain the report and answer any and all of their questions, I ensure that they are satisfied. I want to make sure that the appraisal/valuation portion of the process is as stress-free and easily understood as possible. In working with homeowners, I have found that this is my favorite part of the business. It really allows me to help through this process is an easily understood way. This is a much different world than the lender/refinance world where rules and regulations get in the way of who you can talk to and what you can discuss. At a time when everyone is in a hurry to move on to the next job, I think it is important that you find someone who will take their time and make sure all of your questions have been answered.

Please feel free to email me or call me at (847) 863-5776 with any questions you might have.

The Cheapest Appraiser

Good work ain't cheap cheap work ain't goodLooking for the cheapest appraiser?  Be careful, not all appraisers were created equal. Hiring the cheapest appraiser can often lead to a poor quality appraisal that could have serious consequences.  I can’t tell you the number of times I get a call from a homeowner and the first thing they say is, “Hi, how much do you charge for an appraisal?”  I don’t blame the homeowner for asking this question. It is certainly a valid one.  But is it the most important one?  The old saying “You get what you pay for” holds true in the appraisal profession just as it does everywhere else.  Here are some other important qualifications and attributes you should be looking for when considering which appraiser to hire:

  • The Consultation: One of the biggest complaints I hear from my clients about past experiences with appraisers are regarding the appraiser being in a hurry. I hear things like, “The appraiser was here for 10 minutes, barely asked me any questions, and then a few days later emailed me a report. I had no idea what I was looking at or how they determined what my house is worth.” To me, it is imperative that you understand the information I have provided you in the report. I believe (and my clients agree) that this is what separates me from most appraisers. When you hire me there is a consultation that takes place at the initial inspection. But equally important to the initial one is the one that takes place when I return to deliver the report. By delivering the report in person, I am able to go over the entire report and making sure that you understand everything in the report and ALL of your questions have been answered. It is something that clients have praised me for over and over. Check out my Google Business Page , Yelp reviews , and my Testimonials page to see what past clients have said. Please refer to my article, “The Secret to a Stress-free Appraisal Experience” for more detail on this very important step.

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How to Prepare For a Real Estate Appraisal Inspection

If you haven’t had an appraisal completed on your home recently, one of the first things that may come to your mind is, “What do I need to get ready for this?”.  Here are some helpful things you can do prior to the appraiser coming to your home.


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Chicago Appraiser vs. Zillow

I recently read a really interesting blog article from an appraiser in Philadelphia titled “Zillow vs. The Coyle Group”.  In the article, Michael Coyle analyzes over 20 of their most recent appraisals and compares them to what Zillow says they are worth via it’s Zestimate.  With sites like these appearing to be gaining popularity with consumers over the last few years, I thought I would do my own analysis. Below are the results: Zillow final The results may surprise you, they did me. Read More

What You Need To Know About Your Divorce Appraisal

For many couples, the marital residence is the largest asset obtained during the marriage.  Whether you or your spouse wishes to retain the marital residence after the divorce, it is important that an accurate value is obtained for purposes of property division.  There are typically two options regarding the home.

  1. The property can be sold and the proceeds divided.
  2. If either party wants to remain in the home, they can pay a settlement to their spouse.

In either case, an appraisal is needed.  In scenario #1, an appraisal should be obtained to help determine a listing price in an effort to limit the time the house will be listed for sale and maximize the selling price.  In scenario #2, the judge will not make a ruling on the settlement or division of property without an appraisal by a certified real estate appraiser.  As to who is responsible for the appraisal fee remains at the discretion of an agreement between both parties or court ordered by the judge.

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Most Common FHA Real Estate Appraisal Repair Items

It can be very frustrating for a homeowner or real estate agent when you get feedback from the lender that there are certain items that must be repaired before closing.  That’s why it is important be aware of minimum FHA appraisal standards before a real estate appraiser visits your home. The following are the most common repairs I encounter in the Chicago area for which you should be prepared.  Many of these could be corrected prior to the appraisal inspection for relatively little time and cost.   This will insure that additional inspections are not required and prevent any re-inspection related delays.

  1. Chipped/Peeling Paint: As per FHA, any chipped or peeling paint in homes built prior to 1978 must be corrected.  That means the defective paint must be scraped, sanded and repainted to comply.  Also, all of the paint chips must be picked up off the ground and disposed of properly.  With all of the Cape Cod, Bungalow style homes in the Chicago area, this is one of the issue I come across most.  87%  of homes built prior to 1940 contain Lead-Based Paint.  See the this link to the EPA website for more information on Lead-Based Paint.

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