The English language can be so much fun ... sometimes. Take the word “bad,” for instance. It can hold several different meanings. Bad can mean of very low quality/not acceptable, as in, “The dinner I made a rare attempt at cooking last night was bad.” It can also mean evil or morally unacceptable, as in, “My client’s ex-husband is bad.” My personal favorite this week, however, is this meaning: not good, disappointing or unpleasant, as in, “We had two bad appraisals come in this week.”
With the housing inventory being so low right now and multiple offers coming in at higher than asking price, it is not surprising that some of us have run issues with appraisals. In order for a lender to lend the money to a buyer to purchase a home, an appraiser has to go out to the home and determine the value. There are a variety of methods that are used to do this depending on the type and location of the property. Either way, it is not really a surprise that we are running into these issues with value. Interestingly enough, the two “bad” appraisals that I had come in this week did not have to do with value.
It may be that there is something “bad” in either the water the appraisers for my deals are drinking or in the water I’m drinking. Regardless, it is not boding well for my clients.
The first bad appraisal I got news of this week was on an older home in Ogden. It’s on the border of South Ogden and close to Harrison, which is super relevant since the values in that area are highly variable within just blocks of each other. My buyers were going to be using a VA loan. This, too, is relevant, since the appraisers for this type of loan have a much more stringent list of guidelines that they have to abide by than does the appraiser for a conventional loan. I made sure my buyers were aware of that before we went out looking for homes.
They happened to fall in love with the very home that would, almost certainly, have some VA required repairs. The list agent knew this, my clients knew this, the seller knew this, and I knew this when we decided to write the offer. We all discussed how we would work together to address those repairs and get this done.
The day came that the appraiser went out. That evening I received a call from the lender. She told me that the appraiser removed himself from appraisal. He spent a fair amount of time in the home and said that the seller was verbally combative to him, so he refused to complete the appraisal. When I called the seller’s agent to report this, she was stunned. Her client had reported that a very pleasant exchange had occurred between him and the appraiser. Whatever actually occurred, only the two of them know. However, the appraisal was reassigned.
The next appraiser most likely had knowledge of the last appraiser’s experience. Unfortunately, every conceivable repair that could ever be found in a home was called out. There was no way that these repairs could be done in this decade. The deal died.
The next “bad” appraisal happened yesterday. I’m using the word “bad” here with the meaning of disappointing and unpleasant. This was in a large listing of mine in a desirable area. The loan is an FHA, which still has more restrictions than conventional, but not as many as VA. However, this appraisal came back with required repair items that none of us — the buyer’s agent, myself, nor the lender — had ever seen called out before. They were inspection-related items, not normal appraisal-related items. After further investigation, we all learned something new. These repair items are now on the “list” of things that FHA appraisers will now be requiring to have repaired before closing.
For FHA buyers, this will add an extra layer of protection. However, it may be a further deterrent in a multiple offer situation to have the seller pick an FHA buyer, since the bar has been raised. For sellers, it wouldn’t be a “bad” idea to line up your electrical, plumbing and handyman contractors. There is a decent chance you will need them.
Jen Kirchhoefer is an associate broker and Realtor. She can be reached at email@example.com or 801-645-2134.