Appraisers are hired by lenders or homeowners to give their opinion as to the value of a home.  They are as important to the process of closing on a home as the agent, title company, surveyor, or lender.  In fact, the appraiser may be the final obstacle to closing on a home.  The listing agent, seller, buyer and buyer's agent all might believe the home is worth the contract price, but they all have a vested interest in closing the home.  So who protects the lender?  If the lender is going to loan money to the buyer to purchase the home, they want to make sure they are not making a loan on a property with an inflated value.  The appraiser is a non-biased party paid to tell the lender if the property is worth what the  buyer is paying for it.  If the buyer loses the home because they cannot make payments, the lender takes the home back, and he has to make sure he can sell it without taking a loss.

Appraisers have a tough job.  Most don't have the luxury of exclusively working within a defined area like we do.  They have to work properties all over the Metroplex and go where their business takes them.  Problems can occur when they get the assignment to do an appraisal on a home in a small, niche market because there is just very little to work with in the way of sales.  They have probably never been in any of the homes they are using for comparables, but we have.  How can an appraiser really make an assessment of value without seeing the inside of the homes they are using as comparables?  The answer is, they can't.

Appraisers each seem to have their own way of valuing properties.  There doesn't seem to be any set standards that I have seen.  For example, early in my residential career, I asked three separate appraisers how much value they normally gave for a pool.  I got three different answers.  One appraiser told me a pool did not add value to a home, it just made it easier to sell.  Another appraiser told me he would give a value of 10% of the projected appraised price of the home (without the pool) for homes that started at about $400,000.  I guess he figured a $400,000 home would have a nicer pool than a $200,000 home.  And a third appraiser told me he generally gave $.50 on the dollar cost of the pool when it was installed.  I would bet most people have heard that scenario than any other.  This all made me realize that that an appraisal is a very fluid instrument that can be molded to fit just about any need.  It also gave me confidence that I could rely just as much on my own judgment when it came to pricing a home.

When a lender's appraiser cannot support the contract price, one of four things can happen:

• The Buyer can ask the Seller to reduce the sale price to the amount of the appraisal.  The Seller is probably not going to like that idea.

• The sale price can remain where it is, but the Buyer will be required by the lender to put more money down on the home.  This way, the lender has sufficient equity in the home to protect themselves if they have to take it back.  Of course, the Buyer will probably not like that idea.

• The buyer can terminate the contract. 

• The Realtor can try to salvage the deal.

A good listing agent can get involved, contact the appraiser, and hopefully provide additional information supporting the negotiated sale price.  I have had to do this several times.  Although most appraisers were receptive to my input, I have had to go to war with one or two over the years.  In all our years and sale transactions, there has only been one instance where I could not get an appraiser to agree with the contract price between the buyer and seller.  The seller agreed to lower the price to the appraised value to make the sale.

One last thing about appraisers.  They don't have to sell the homes they appraise.  They just have to agree or disagree with the negotiated contract price.  That is a nice position to be in.  But Realtors have to be able to establish a price by correctly gauging what the market will bear.  Appraisers may disagree with me, but I believe there is more pressure on Realtors to get it right.  If we price a home too low, the seller isn't going to be happy with us and our reputation is at stake.  And if we price the home too high, we are not going to sell the home, and the seller really isn't going to be happy with us.  Believe me, that is pressure if you really care about your clients!