There is a misconception among both real estate industry professionals and consumers that appraisers “kill the deal” with reports that either come in below the agreed upon sale price or truthfully disclose deficiencies pertaining to the property. That could not be further from the truth.
I received a call recently that proves this point. The call was from an agent that had represented the buyer for a property that was an estate located in Westmoreland County, PA. This property had a number of issues including possible mold, water in the basement, torn and very worn carpeting, peeling wallpaper, a 75 year old kitchen, open knob and tube wiring, and duct tape on the bathroom floor holding loose vinyl tiles together. In addition to the condition issues, the bathroom was in a unique location and was only able to be accessed through one of the 2 bedrooms or through an exterior entrance located on the rear porch. As would be suspected, the house was not under contract for a large amount, but nonetheless, there was a willing seller and a willing buyer.
When talking to this agent about a totally unrelated matter, she thanked me for the report on the above referenced property. Taken a little aback, I was not sure why she was thanking me. She explained that somehow the sale went through after the appraisal was completed with no glitches in the process. She had assumed that somehow I made the appraisal “look so good” that no one complained. There were no requests for clarifications and no request for endless repairs. After realizing she thought that I had completed a report that overlooked all the issues, I reassured her that there was no lipstick applied to the pig. Our job as appraisers is to report true property conditions, warts and all. That is exactly what I had done with this property.
This opened up the opportunity to discuss that if we as appraisers supply a credible report that fully discloses the true condition of the property and its estimated market value in relation to those conditions, it does not have to kill the deal. However, more often than not, the lender sees the report and then decides that the property is not worth the risk or they refuse to lend unless repairs are made prior to the funding of the loan. In this case, the lender was a small local bank that offered portfolio loans- loans that are not underwritten by the GSE’s (Fannie Mae and Freddie Mac). This bank chose to lend money on a property that was in overall fair to poor condition and where the appraisal report clearly disclosed all obvious deficiencies. Had this been through a different type of financing where the loan was underwritten by a GSE, it is certain that the loan would have not been approved unless some major repairs were made.
After having a great discussion on how lenders decide which properties and which borrowers they choose to lend to based on more than just the appraisal report, she stated that she would from now on educate other agents that I do not try to kill deals, I’m just doing my job.
Appraisers don’t kill deals.
Hidden/non-disclosed defects kill deals.
Sales agreements above the market value kill deals.
Uninformed buyers using the wrong financing kill deals.
Underwriters who choose not to assume risky assets kill deals.
If an agent is upfront and honest about the condition of the home, chooses appropriate properties for their CMA’s, and encourages the borrower to use the right financing - the appraisal most likely won’t be a problem. Being a great real estate agent takes a great deal of work and we applaud those who are constantly working hard to inform their buyers/sellers and improve themselves!
The real estate market works best when all parties (agents, brokers, loan officers, under writers, appraisers, buyers and sellers) are well educated, work hard, and are honest with each other. When any party fails in any of these regards, financial crisis is the the ultimate destination.