Home Buying in Scottsdale>Question Details

Buyer101, Home Buyer in Scottsdale, AZ

Hi, I am a home buyer and recently we completed inspection of a home. My realtor did not reveal that the home would not appraise at list price.

Asked by Buyer101, Scottsdale, AZ Thu Apr 19, 2012

What was more shocking is that the realtor informed our mortgage agent about it and we got to hear from him. All the time the realtor justified comps to us and said we were getting a good deal. The appraisal is almost 30K off. We are disturbed that had we known we would have not gone ahead with inspection. We are appalled that we were kept in the dark about this and now we are left to negotiate the price. Doesn't this go against the ethics of being a buyer's agent?

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21
Hi Buyer101:

I am sitting here trying to figure out your realtor's motivation...Of course he/she does not know ahead of time exactly what value the appraiser is going to give the property, but one would hope he/she would have a better idea than what appears to have happened.

My only suggestion is to call their broker and ask for a meeting. I would want to go over those comparables again--maybe they did lead he/she to think the appraisal would come in significantly higher than it did. Maybe there is something about this particular property which caused such a disparity (but, again, you would think he/she would know that...).

Tough situation. Good Luck. Bill.
1 vote Thank Flag Link Thu Apr 19, 2012
Have we beat-this-to-death enough yet...???

Have a great weekend! :)
0 votes Thank Flag Link Fri Apr 20, 2012
This is a really tough market for buyers. With homes getting more scarce and prices starting to rise, it is hard to gauge where an appraisal will come in at. Usually the inspection does get done before the appraisal because if the home is not in good shape or if the seller is not willing to fix major problems then it would not be worth it to pay for an appraisal as well. If you used an AAR contract, you have an appraisal contingency that will allow you to get out of the contract and get your earnest money back if you can't come to terms with the seller. You will still be out the cost of the appraisal and the inspection and a termite inspection if you got that done.
0 votes Thank Flag Link Fri Apr 20, 2012
The appraisal value can be behind, if the market has shifted to a new direction (prices are growing, but the comps are still lower than the market prices)...Or, the prices moved in the opposite direction, and are lower than the comps your realtor used to justify the price. This depends on the area and what comps are used.

Unfortunately, after the real estate market crash, there are less appraisers our in the field, and they often have to appraise the areas they are not familiar with, resulting in poor selection of comps. Also, afraid of being put on the "black list" of the banks, appraisers often underestimate the values - to be safe.

Take a look at what comps your realtor provided and compare them to the appraisal report comps, to see where the difference is - until you do, it's hard to tell who is right and who is wrong (appraiser or your realtor).

I would address this issue with your realtor after your review of comps and appraisal:
you might hear a very different story about the value and what happened between the mortgage person and your realtor. It is unfortunate, but, in the heat of a moment, some people play the blame game...What he says may not be true...or it could be a misunderstanding...

It's time to find out though.

Hoping for your price to be negotiated down,

Irina Karan
CDPE
Beachfront Realty, Inc.
IrinaKaran@gmail.com
0 votes Thank Flag Link Fri Apr 20, 2012
I would sit tight and see what really happens. It sounds from your update that you have not even had a formal appraisal, that the lender just 'called around'. I've never heard of something like that, but maybe that is common in AZ, but each state is different. Every property is usually a bit different and if your buying agent was able to provide comps that support the price, the appraiser who actually looks at the home closely should be able to also. Please update us after the formal appraisal :-).
0 votes Thank Flag Link Fri Apr 20, 2012
Neither the Realtor-and nowadays, the lender- have any control over what an individual appraiser might value your home at. In the lower price ranges, values have gone up 24% in the last few months. Appraisers give more value to solds, and sometimes no value to the low inventory, or the fact that it is a very competitive market. I have clients that understand these facts, and don't blame me because the appraisal came in low. Because they know that it was hard to nail down the house, and that the sales comps may not reflect the fact that the home they bought is more valuable than the sales may indicate, because of the low inventory. Yes, a lender that is concerned about your expenses, will wait until you are satisfied with your inspection. Appraisals are usually more expensive than inspections, but more importantly-there is a 10 day deadline on inspections-not on appraisals. You are looking at this situation very negatively. Why not say that because the appraisal came in low-which is more common than you think-that you are being given an opportunity to renegotiate the price you paid to a lower value? I see nothing unethical here.
0 votes Thank Flag Link Fri Apr 20, 2012
As others have said, your agent would not know before your lender. But more importantly, the standard AZ contract contains a clause that allows the Buyer to cancel if the appraisal comes in low, unless you waived it. While you may not wish to cancel, you certainly have leverage in your negotiations.

I am interested to know more about your situation and how it plays out.
0 votes Thank Flag Link Thu Apr 19, 2012
There has to be more to this..........no agent will self destruct their own opportunity to earn a living!
0 votes Thank Flag Link Thu Apr 19, 2012
It is almost impossible for us to know the circumstances well enough to answer your question well.

First, if the agent was justifying the price to you, how was this done? If your agent showed you comps that justified the purchase price, then it is feasible that an appraiser could have chosen the exact homes to use as comparables and you wouldn't have any problem with the value.

Second, most buyers prefer to have their inspections done first and then if they are satisfied with the inspections, they then will pay for the appraisal. This way they don't pay for an appraisal only to find they don't want the home due to an inspection issue.

Third, appraisals are coming in all over the place. You could hire 5 appraisers and get 5 different values. We all have stories of ridiculous appraisals that should have come in much higher. Values have been increasing and if an appraiser goes back 3-6 months to get comps then that can be a problem. Comparables would need to be very recent (last few weeks) to show an accurate picture. We had one investor flip a home and had receipts showing they put in $70K in upgrades (not including the labor to do it) and they only received $10K in the appraisal. So you see, not all appraisals are done well. And appraisals coming in low is an issue that seems to be happening frequently as some appraisers are not adjusting up for an increasing market.

I am not sure about the issue you commented on that your Realtor informed the mortgage lender that the value might not come in... Realtors are not appraisers, and values are determined by the appraiser and not the opinion of the buyer or Realtor (or seller). Yet, with that said, many of us study the appraisals so much that we can pretty much see about what a property will appraise for, if good comps are available.

Many homes are selling above asking and then they have to adjust the price down if the appraisal doesn't come in that high. It is a much better position to be in, to be the one that got their offer accepted and then see what can be worked out on the appraisal, than to be the person that did not get the home because they offered too little. If you make an offer that may be pushing the possible value, you can state that the appraisal is to be ordered within a few days after contract acceptance, and then have it where your inspection time frame begins after the appraised value comes in okay. This will give you more time. Otherwise the appraisals won't always come in on time for you to get your inspections done in the allotted 10 days.

Again, if your Realtor justified comparables to you, then the appraiser could have done the same. If they just told you that the comps were good, then I might suggest in the future that you ask to see the comps. This way you can form your own opinion and avoid, as much as possible, this happening again if the seller won't adjust the price to the appraised value. Many seller's will, but they don't have to. And yes, if the Realtor was not looking out for your best interest, then that can be an issue. But be sure to have all the facts. I would be surprised if someone did this intentionally. If they thought that the appraisal would come in that far below, then that should be discussed with you to see if you want to take the risk.

Hopefully you will be able to work this out. It can be heartbreaking to not be able to get the home that you love. If you don't get it, then be sure to "see" the comps next time. Still, keep in mind that the appraiser can come in with a figure that no-one agrees with. We can provide hard proof and ask them to reconsider, but the last few years has been tough in getting appraisals changed. You can also see if you can get another appraisal done or pull the loan and go with another lender.

You should discuss this with your Realtor. They are the only one that knows all the details and can give you a good explanation of what is going on and the best ways to get this to come together.

Best Regards,

Brenda

Ron & Brenda Cunningham
West USA Realty
602-980-3133
Ron: 602-499-0694
http://www.CunninghamHomesAZ.com (go to our website to search for homes like we do)

**** Recognized in the Phoenix Business Journal as "One of the Top 50 Realtors in the Valley" ****
0 votes Thank Flag Link Thu Apr 19, 2012
Hi Buyer 101!

As a local Scottsdale Realtor I can tell you that appraised values are a roll of the dice right now. I wish it were different, and that we as Realtors could more accurately predict the appraised value of a home, but you never know exactly how an appraiser will adjust the sold comps or how heavily they will weigh pending comps.

Also, as others have mentioned, your Mortgage Officer would have known about the appraised value before your agent did.

More than likely your agent completed a market analysis for the home that you are looking to buy and determined that the comps would support your purchase price. Without knowing the exact circumstances it's impossible to say if your Realtor kept you in the dark intentionally. What I can tell you that it would be VERY doubtful that they would encourage you to move forward with an offer that was too high, what a waste of their time (and yours)!

Have you approached your agent and asked them why they did not mention the concern about the appraisal value prior to paying for an inspection?

Tara Viksne
2012 '30 Under 30' Finalist
http://www.PhoenixHomeScope.com
Tara@PhoenixHomeScope.com
0 votes Thank Flag Link Thu Apr 19, 2012
The inspection report was not bad at all, so just losing trust on the advice we are getting.
0 votes Thank Flag Link Thu Apr 19, 2012
Hi Buyer101:

I always advise my clients to have an inspection done before paying the approximately $400 for an appraisal, as I have seen too many deals go awry due to home inspection issues. So, you are lucky there.

Is it possible there was something that came out of the inspection that raised a red flag for your realtor and they then acted on your behalf to save you the cost of the appraisal, in addition to that of the inspection? "Opinions" in this market, which is a bit helter-skelter right now as many have indicated, are worth what you paid for them--nothing.
0 votes Thank Flag Link Thu Apr 19, 2012
Just to clarify, the realtor did not order an appraisal..she seemed concerned that the home would not appraise at list price and informed the mortgage agent after the inspection before a formal appraisal was done. That concern should have been flagged initially to us before we decided if we were to go ahead with inspection or not. The mortgage agent got opinions from a few appraisers and it is 20-30 k off (a formal appraisal is yet to be done).
0 votes Thank Flag Link Thu Apr 19, 2012
Let's face it. The appraiser is hired by your lender's underwriter. Appraisals can vary all over the map. Some appraisers are using 3-6 month old sales to determine value. If they do so they will come in 5-15% low depending on the price point of the house. Some are attempting to reflect the recent upward price pressures occurring over the last month due to a declining listing inventory. If you are in a subdivision where all the houses are the same appraisals are easier. If you are in an area where the homes are all custom, you can get a much wider range of values.

First, your agent was not the first to know about the Appraisal results. That was your lender. They should have contacted you immediately. Second, given the difficulty in finding the right house in this market, the cost of the inspection is the minor issue. Third, the inspection must be done within 10 days (or possibly longer based on the contract language), and sometimes/usually your lender cant schedule the appraisal before you are obligated to do the inspection. You might want to check the facts and time line before you throw rock at the bearer of bad tiding (your agent).

What are your options? 1) Have your agent ask the Seller to cut the price to match the appraisal. 2) If you have the cash, consider making up the difference. (or a combination of 1&2.) 3) Ask the appraiser through your lender to reconsider using comps supplied by your agent (not likely but worth the try). 4) Using a different lender, get a second appraisal. (The first lender will never go with a second higher appraisal from my experience.)

Don't forget to ask for an extension to COE in the process so you have time to work out the details. An experienced Buyer's agent will know what options you have. I trust that you did not use the Seller's agent to do this transaction. Talk to your Buyer's Agent if you really want the house.

Good Luck

Loren Hoboy - Realtor®
Central AZ Real Estate
lhoboy@Arizona-Dream-Homes.com
623-688-0004
0 votes Thank Flag Link Thu Apr 19, 2012
Your lender is the one who orders and gets the written copy of the appraisal not the agent and alot of times the inspection is done before the appraisal just because of timing, we have 10 days to do an inspection and no time limit on how fast the appraisal must be done, so it is very possible that your agent didnt know the appraisal was short , with this crazy market we are in right now it isnt uncommon for the appraisal not to meet the contract price and your agent should be working with the listing agent to provide comps to the lender so the lender can in return give them to the appraiser, lets not forget that an appraisal is an opinon of value and most often you can have 2 appraisals and the out come can be very different. I have seen many sellers not change the contract price of their home simply because there is no inventory and they feel very sure they will get a buyer( whether that is you or the next buyer) to pay the difference of the contract price and the appraisal price OR that the next appraisal WILL meet the contract price and if your not an FHA buyer the appraisal will in a sence "go away" if you cancel your contract. As for the unethical part that isnt for any of us here to determine as we dont have all the facts and it would be more unethical for us to speak bad about an agent not knowing the details then it would be if he/she was trying to get an appraisal worked out before you were informed of it.
0 votes Thank Flag Link Thu Apr 19, 2012
I am assuming your realtor maybe thought that appraisal would be an issue...but didn't actually know? Also, normally (in MA) the appraisal is done later in the stage, not at the same time as inspection. The timeline seems odd to me.

If your agent was able to provide you with comparisons that matched your offer price, I am suprised the appraisal came back so very 'off'. That is the disturbing part to me...take a look to make sure the comparisons were valid, but regardless, the sellers of the home now know what their home is really worth and will hopefully negotiate with you on a final price.
0 votes Thank Flag Link Thu Apr 19, 2012
Dear Buyer 101,

Appraisals are one of the most difficult parts of every transaction right now. Lenders have to order them from a 3rd party and Agents most times cannot communicate directly with the appraiser. Also, with the current market considitions, appraisers are very conservative and many are not in tune with what is happening in the market with multiple offers, highest and best, etc. You could request another appraisal from your lender and many times the 2nd will come in at a completely different value. You could also request the seller to meet the appraised value, negotiate to a price that is acceptable to both or you could also cancel the contract due to the appraisal deficiency.
I realize that you have already spent money for the inspection and appraisal, but you still do have options. If you do get a 2nd appraisal, have your agent leave some comps for the appraiser which would support your purchase price.

Best of Luck,

Gloria MacKay
0 votes Thank Flag Link Thu Apr 19, 2012
Your Realtor is not a licensed appraiser. That being said, 30K is quite a difference between two parties both using the same sales data and without knowing which comps were used and what adjustments were made it is difficult to determine where the discrepancy in value lies. I have had to dispute the comps an appraiser used in the past and successfully had the appraisal adjusted for one of my Sellers. That being said, right now with low inventory and multiple offers above list price an appraised value lower than offer price is common. Both of my last two transactions had a appraised value below contract price both parties were prepared for that--one on the buying side and one on the selling side. The good news is if the Sellers do not reduce the price you are not obligated to proceed and you get a full refund of your earnest money (provided these appraisal contingencies in your contract terms exist and have not been waived or expired) and the other good news is that if this is a bank owned foreclosure or short sale your likelihood of getting a price reduction is high, however, the Sellers do have the right to dispute the appraisal if they feel the right comps were not used or the proper adjustments were not made.
0 votes Thank Flag Link Thu Apr 19, 2012
You can't reveal what you don't know.

Also - how did your real estate agent get the appraisal ahead of the mortgage agent who ordered it?
0 votes Thank Flag Link Thu Apr 19, 2012
In defense of your realtor, appraisals are coming in all over the place right now. I just completed a listing in Grayhawk where the appraisal came in 30k short. The buyer paid for another appraisal and the value came in right at purchase price. Unfortunately you could send in 3 different appraisers and come out with 3 different values. Look at almost any set of comps today- you can make a case for a high or low number. This is because you are combining distressed sales with regular sales.
Your realtor has no motivation to blow up a deal.
The only thing your realtor did wrong was not tell you what I just did at the beginning.
0 votes Thank Flag Link Thu Apr 19, 2012
Hi Buyer 101

It is an interesting question to answer. The market is moving up on price. The buyer representation should allow you to feel you have a Realtor representing your best interest. Your role is to interview your agent about how they practice real estate. Some things to consider:

1) Did the Realtor provide the comparables in writing to you so you could see what homes are selling for in the area you were buying. Did they explain why they consider your offer a good deal to your satisfaction? No, they should not mis-represent those details to you. In good practice they should know how to run comps and explain them to you so you are informed and make that type of decision.

2) When appraised value is a consideration you have the option to get your lender to order a rush appraisal so you can see value before your inspection is done. Some buyers do want value before inspection. You can extend your inspection period to allow for this, all negotiated up front.

3) Some buyers are willing to pay above appraised value. As long as you are informed this is ok!

The Mortgage Lender orders the appraisal, not the Realtor. The Lender informs the Realtor of what the appraisal comes in at, not the other way around.

Sometimes the Realtors opinion of value is not the same as the appraisers. Some appraisers complete bad appraisals and they are challenged by the lender and Realtor. In some cases the Realtor pulls bad comps due to inexperience.

You as a buyer should request full data on your Realtor's experience and ask questions on how they come up with their data. It may not be the Realtors fault in this case vs a bad appraisal. This happens.

The cost of buying a home is the inspection costs...if during this time there is an issue causing you not to want to buy its ok, you do have an expense to this point however.

Discuss the concern with your Realtor and if not satisfied with the answer seek the brokers opinion as well. If necessary seek a new Realtor.

Keep in mind for example I have two buyers knowingly paying above appraised value on homes in order to get them right now. The margin is 3-4% so not excessive but worth it to them in this competitive market.

Cheers
Laura Myers
0 votes Thank Flag Link Thu Apr 19, 2012
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