Wednesday, January 13, 2021 / by Jenny Carroll
Astonishingly low interest rates and a tidal wave of newcomers have swamped lenders and appraisers in the greater Austin area. Unfortunately, appraisers have become the bottleneck for most resale transactions. Since the appraisal process is largely unseen by the public, most of our clients only learn about the process whenever a problem arises, so let us look behind the curtain.
First, it needs to be said that a real estate license does not give agents the right to perform an appraisal. We may offer an opinion of value or do a competitive market analysis (CMA), but absolutely nothing we do may be called an appraisal. Appraisers are licensed by the Texas Appraiser Licensing and Certification Board.
Regarding the bottleneck comment, until the last six months or so, a typical residential sale transaction took roughly thirty days from contract to closing. Recently, many transactions are taking forty-five to fifty-five days to close, simply because of appraisal delays. After the frenzy of working through multiple offers and hurried inspections, waiting for weeks for an answer on the appraisal definitely gives buyers and sellers a feeling of “Hurry up and wait.” So, what is the cause?
First and foremost, sales are just off the chart, but that is not all. In our Texas REALTOR magazine, I recently read that the number of appraisers in Texas has been declining as aging appraisers have retired and fewer young people are choosing it as a profession. Perhaps one reason fewer people have an interest to become appraisers is that FANNIE MAE now has an automated system for lenders that looks at past sales data and often determines that an appraisal is not even required for a new loan. Technology probably does not bode well for the long-term future of the appraisal industry.
Nevertheless, most mortgage loans still require an appraisal, and we must deal with the various rules and requirements that the public never sees . . . such as the changes brought on by Dodd - Frank regulations. After the financial debacle of 2008, the Dodd - Frank Act of 2010 was passed and greatly altered the way lenders, appraisers and title companies do business. For this article, we are sticking to the appraisers.
The Dodd - Frank Act sought to limit the ability for lenders to influence appraisers. Mortgage lenders are no longer allowed to use on-staff appraisers or hire specific appraisers. Appraisal management companies have been created to act as a buffer between lenders and appraisers. The lenders submit a request for an appraiser and the management company broadcasts that request to their selected list of appraisers. The appraisers are then free to bid on the job, or not. The bidders name a price and a promised delivery day, and eventually someone is chosen. The idea of the management company buffer was to stop the undue pressure that many lenders once put on the appraisers to get them to hit a value that would allow the loan to go forward. Trust me . . . it was a common complaint that I heard from my appraiser friends. While the lenders are no longer allowed to directly communicate with the appraisers, the same rules do not apply to the brokers. In fact, I often find it very beneficial to meet the appraiser at the subject property . . . and generally the appraisers seem to appreciate the input.
The types of items I have shared with appraisers varies, but it is often helpful for them to have a copy of the survey, a list of my sales comps, and most important of all – an accounting of any recent improvements. This is especially important on the big-ticket upgrades. Documentation of the more expensive improvements will aid the appraiser in making value adjustments when comparing the comps.
On several of my most recent sales, the appraisers have had to make major value adjustments in the appraisal due to the differences between the subject property and the sales comps. For example, one home was several hundred feet larger than any home in the neighborhood . . . and had a pool, which no other recent sale had. Appraisers have to use their best judgment in determining how to adjust for the value of other differences such as an extra-large lot or four baths instead of two, but the recent trend in flipping or tearing down houses is complicating the process. Neighborhoods in transition can run the gamut from tear-downs to extremely remodeled flips to new McMansions.
To be sure, this is what the appraisers get paid for. The issue for lenders and buyers comes when appraisers have so much work that they can pick and choose what appraisal assignment they wish to accept. Why take on a complicated sale in East Austin when an appraiser can get plenty of easy work in a homogenous neighborhood of ten-year old homes in Hutto? It has been very difficult to place some appraisals in outlying areas. The appraisal cost can really climb if a property is extremely far out, unique or it is needed in a rush.
Finally, it is interesting to think about the price whiplash that appraisers are experiencing, along with the rest of us. Imagine trying to support the sales value of a home that sold $40,000 over asking with eighteen offers – all over the asking price. The odds are very good that the appraiser cannot arrive at an appraised value that reaches the sales price, yet if the buyers still choose to close (and by putting down more cash, many are), that sales price just becomes the new sales comp for the next appraisal.
It is crazy times. All we can do is remain calm and be flexible.
Want more information about protesting your property's County appraisal values? Here is the Texas Comptroller's site with the process and how-to's on how to file your protest: