The Appraisal

The Appraisal

One of the biggest factors that effect ShortSales & their processing, is the property valuation.  Depending on the type of loan & ShortSale program, appraisals/BPOs will be performed either before an Offer is received, or after. Regardless, the Bank will need to verify the Property’s worth, so as to accurately respond to the Buyer’s Offer.

            In some ShortSale programs, such as FHA, the appraisal will need to be performed before the Homeowner is even approved to participate in a ShortSale!  Once the appraisal is received, the Bank will then issue a “pre-approved” listing price, which is typically the Property’s appraised amount.  The Listing Agent then, is responsible for amending/updating the listing price to match the Bank’s value.

            In other ShortSale programs, depending on the investor, a BPO (Broker’s Price Opinion) will be ordered instead of a full blown appraisal.  These can either be interior BPO’s or external “drive-by” BPO’s.  Needless to say, a BPO does not go into nearly as much depth as an appraisal, and the consequent value will tend to reflect that.

            Regardless of the type of valuation performed, the quality & importance of said valuation is not something to be trifled with. It is our duty as Real Estate professionals to make sure these valuations are done properly, accurately, and on time. There are many things to take into consideration when evaluating a property’s worth, and a good appraiser is worth his weight in gold; although it is a fairly common occurrence to see Banks being presented with a bogus, unrealistic value. And since the value will be “valid” for up to 3 months, an inflated appraisal/BPO can put a significant strain on the ShortSale process.

            In an effort to educate & help the appraiser perform the most accurate valuation possible, there are several things that the Listing Agent or Homeowner can provide, such as the hardship letter, and CMA’s.  If nothing else, often times there are repairs needed which might not be immediately/visually evident to the Appraiser, and so the perceived value is higher than in actuality. If supporting documentation is not presented to the appraiser/BPO Agent, the value can come in too high, potentially halting any ShortSale progress with the Bank.  Compounding this issue is the lack of knowledge Bankers have about Real Estate.  9.9 times out of 10, the ShortSale worker at the Bank is located across the Country, and has no idea whatsoever about the Property’s condition & market.  The Banks only insight to the Property is the Appraisal, so it is our responsibility to make sure the Appraiser presents an accurate value.

            A few things that can be provided to the Appraiser to support and/or sway the appraisal/BPO are: Good comparables, a CMA, the MLS sheet with listing history, a separately performed appraisal, the Homeowner’s hardship letter, neighborhood statistics (average DOM, proximity to school/services [police, fire, hospital], etc.), documentation of property damage that is not immediately evident such as contractor estimates and/or the Property Disclosure, current appreciation rates (property, neighborhood, zip code, city), and even a printout/map showing the convicted felons living in the area. 

            A fair amount of the supporting documentation is intangible and might not necessarily translate to concrete value adjustments, although they are still important factors that any potential Buyer considers.  If the Bank worker knows the appraisal didn’t take some crucial details into account, they can submit a value dispute in an effort to revise the value.  Without having any additional property information on hand however, the Bank will take the appraisal/BPO as gospel.

            Providing value supporting documentation to both the Appraiser & the Bank will help the ShortSale immensely. It helps the Appraiser by making their job easier, and it helps the Bank recognize the different factors affecting the Property and its sale.  A poorly performed valuation will be a detriment to everyone involved in the transaction, and will lead to delay & conflicting information.  A proper Appraisal/BPO, on the other hand, will keep everyone on the same page, and streamline the ShortSale process.