Ok, this is kinda tricky to explain, so bear with me.
I feel strongly that ultimately the seller should pay for all (actually “most”) closing costs. But not in the way that you might be thinking. And this type of post will lead to the 101 hyper technical “but what if” scenarios (more…)
I hate the new appraisal system and non-local appraisers. (see video below)
Let me explain. The government came up with a brilliant idea to curb another housing meltdown!
Assuming (you know what they say: It makes an “Ass out of you and Ming”) most lenders and appraisers were fraudulent, they decided to put a
great wall of china in between the lender and appraiser. 
So instead of having a “reliable” and experienced local appraiser, they instead farmed out the process (and sometimes to a company they own) to a company that would then find an “independent” appraiser.
1 problem is, the appraiser has no accountability.
Also problem #2 is now another middle man has to make a cut, but the cost to consumer is the same. The result? The cost to the appraiser goes down.
The result? NON-LOCAL APPRAISERS.
You know you are in trouble in Northern Virginia if your appraiser gets out of the car with a cowboy hat & boots. 
So if you (Mr. Appraiser) don’t know the area, what are you going to do? Pick the wrong houses and appraiser more conservatively (they can only get in trouble if they appraise a place too high, so why not just make it come in lower. It also takes more work to come in higher). An appraiser’s job is not to be conservative or aggressive, but to be as correct as possible.
Recently we had a listing where a bank promised that they used local appraisers. The appraiser came from Purceville! Over 50 miles away! The appraisal made comments about Ballston and Rosslyn being where the jobs were. As if Clarendon was 2nd fiddle and not desirable. (If you aren’t from the area, like the appraiser, you wouldn’t know that Clarendon is the most expensive and nicest place in Arlington, see Arlington Rap )
Even before the appraisal system was mixed up, I would always warn my buyers “hey if it comes in higher than what you paid, don’t really celebrate. Sometimes appraisers like to come in higher, just to make you feel good, and oftentimes they aren’t really “real” in my book.” Why would I burst their happy dance?
Because I warn them that the flip side (a low appraisal) is also possible.
Just because an “appraiser” says something has a value of X, that doesn’t mean it is the “true” value. While some might argue there is no “true value” or “it is worth what somebody is willing to pay for it“, I’m referring to the other problems with appraisals.
APPRAISAL PROBLEMS:
1) BANK SALES IN COMPS
Appraisers usually include bank sales on the MLS. These are homes that are oftentimes underpriced, they get 7-20 offers and the all cash offer wins. NOT THE HIGHEST OFFER. So a $400,000 bank listing might get bid up to $415,000 with an “all cash” buyer, and 3 other buyers had offers in for $435,000. What is it “worth?” Well the appraiser says $415,000, but the market says $435,000. And this isn’t even going into whether a regular, properly marketed identical listing would sell for $450,000. So what is the “value?” of this $415,000 closed home?
For some people this means NEVER being able to buy a home. They live in areas that are full of investors buying with all cash (like WOodbridge). Those sales then drive down the price of a regular listing but not enough. The appraisal will still be low, and the 3% down FHA buyer doesn’t have the money to make the difference (yes, I got emails on this).
2) SHORT SALES
Similar to the above, but the seller has NO interest in trying to get full market price. Actually the banks expects to sell them for 5-15% off market price. The seller just wants a patient buyer, oftentimes an investor. And as I have written in all my other Short Sale posts, these deals will go 3-6 months and oftentimes never pan out. So yes they have to sell for less, to compensate the buyer for the hassle and high chance of never closing. Many buyers will not even look at short sales. So are these good comparable for an appraisal? I think not.
3) MARKET UPSWING?
Oh my! Could it be? Could it be possible that homes and condos in Arlington are actually selling for more than the low in June 2009? Yes. In reality they are (this is the first time I have said anything about the market going up), yet the appraiser is more likely to call the market “steady.” All you need is a small 1-3% increase for a $500,000 place to now be selling for $515,000, yet the appraiser won’t adjust for that.
4) LOW INVENTORY
Rarely will an appraiser adjust for low inventory. IE, Ain’t nothing else out there to buy in this price bracket. Good appraisers will see this and understand supply and demand.
SOLUTIONS TO LOW APPRAISALS?
So this is what I see happening. When a low appraisal comes in, the buyer oftentimes freaks out. It is the buyer agent’s job to warn them about this (see post above) and then discuss what they want to do. About 1/3rd of the time the buyer will walk (until it happens to the next property!), 1/3rd
of the time the seller will just drop their price and the last 1/3rd get new appraisers or work it out.
1) DEMAND A LOCAL APPRAISER
Put it in the contract (as the lister) that you will only entertain a local appraiser. Maybe give it a 15 mile range. If the lender can’t do this, make the buyer get a new lender and new appraisal if somebody non-local does the appraisal.
2) GET A NEW APPRAISAL. CHALLENGE IT.
Either the buyer or seller can get a new appraisal. Yes, my buyers have hired new reliable and local appraisals. Why? Because the buyers have been to each home in the area for the last 3 months and they know the value. While a bank won’t flat out accept the new appraiser, it can be used to challenge the first appraisal.
3) PAY THE DIFFERENCE
While it might be painful, it might be the only way. Especially if you have gone through it a few times, if you start all over, it will likely happen again (unless you are willing to wait 3 months for a short sale to MAYBE close).
Appraisals falling short is occurring in about 50% of transaction. IT EVEN HAPPENED TO ME! The home I bought did NOT appraise. Yes, I paid well over the “appraisal” price. (yep soon that will be a good post, make sure to subscribe to the blog).
Thanks for hearing me out. Now I can warn my clients with a link to this post instead of giving a limited explanation to the appraisal problem. The goal is not to pressure a buyer to increase their price. I really hope this didn’t come off that way. Instead the goal is to explain the process and for buyers to not ignore their own perceived “value” and ignore their Realtor, when some $20 an hour newbie appraiser from West Virginia says otherwise.
UPDATE: Paul Todd, has a brilliant comment. You are brilliant! Paul says, when the appraiser calls, ask exactly where they are from. If they aren’t local, then refuse access and make the lender pick another appraiser. Wow, great idea.
Written by Frank Borges LL0SA- Broker Owner FranklyRealty.com and FranklyMLS.com
Map image from Scott
Wall of China photo from jaaron
Cowboy shot by imdan
Freak out by agnes
Too frequently, I get an email from somebody that has been following my blog and tweets for months and is now ready to buy!
I get the details of this person’s dream home, including number of bedrooms, lot size and location (don’t get me wrong, most buyers still do their own searching). But then they end the email with a catch. “Oh, but the only problem is our maximum is $400k.” Meanwhile, homes in this area sell for $550k.
What to do with buyers wanting the (more…)
(get sneak previews of posts by following my Tweets: @franklyrealty)
A Brilliant marketing executive came up with the idea of promoting the “Starter Home” (not to be confused with the “starter wife”). Buy a small home or condo… stay in it for two to four years, use the increase in value, “equity,” and buy a bigger a house.
Problem is an assumption was made: Maryland home prices will go up! And why not? Real estate went like 60 years without 1 annual drop nationwide. It was a no brainer. But when people don’t think, bad things happen.
If prices don’t go up, homebuyers are (more…)
Are you better off buying in Virginia DC and MD AFTER the tax credit expires? Maybe.
Everywhere you turn (even CNN.com) you read about the $8,000 1st time homebuyer tax credit and how you need to “Buy Now” (anybody remember that NAR ad from 2006?). Gotta hurry up before the Dec 1st Expiration!
(Sidenote: that expiration means you need to CLOSE by then. If you are looking for a short sale gamble, and you want the credit, you better get it under contract NOW. And everyone else, don’t be an idiot and schedule your closing on the 1st. At least close a week early. There will be a backlog, and hiccups, and you might miss your tax credit.)
So Warren Buffet says whenever you see a herd running in one direction, you are supposed to walk the other way. (more…)
Cartus relocation company is a CROC! (that is an opinion, for more opinions Google Cartus sucks).
Actually many “relocation” companies that are supposed to help the employee are just fronts for making profit. And they have such a compelling pitch! How could an eligible buyer actually decide to bypass them? EASILY!
I’ll explain exactly why you might want to bypass your relocation company AND how you can use PART of their system to your benefit and ditch the other part.
Why am I picking on Cartus? Cuz I was robbed. I got this email the other day:
Hi, I’m moving to Virginia with my job in a month and my fiance and I are a big Frank fan! (more…)
Today I continued my research on the hunt for details on a possible upcoming influx of bank properties (due to a lift of the bank foreclosure moratorium) and to see if consumers are buying properties directly from the banks at the courthouse.
So, I went to the courthouse steps in Arlington Virginia to see today’s scheduled auctions. First of all, all 3 homes set to be auctioned off (more…)
Ever heard somebody say “Cash vs loan? Money is money, the seller doesn’t care, as long as we show up to close.”
Sorry, but that was so 2000-2007.
With Banks, REOS and Short Sales, money is playing second or third fiddle to TERMS, TERMS, TERMS. Banks are taking 2-4% (more…)
NEWSFLASH! MANY Short Sales are NOW CLOSING! But still BEWARE!
They are the best deal in town, by far. More so than bank deals. But if you don’t read this carefully you will be FORKED!
In case you are new to the world of home shopping, 
there is something called a Short Sale. You need to read the details (more…)
After 82 blog posts, I have never re-posted or written a post about another blogger’s post.
However, today (actually earlier this month, but I never completed the post) I saw a post that I know took 4 hours to write, and is very informative. Also it gives me a chance to introduce Realtor Jeff Royce. He has one of the best blogs around for Fairfax Homes (that was for Google Juice), and after 11 years in the business he just came over to FranklyRealty.com from Re/Max. Welcome Jeff. (more…)
I got the best feedback of the year yesterday. Somebody said they wanted to use me as their agent, but they thought I was too busy for them. They signed up another agent and they were disappointed.
Then they recommended my blog, Youtube and FranklyMLS.com to 3 friends. They also liked what they read and saw. But each one also thought I was too busy.
So to dispel this, I made a video (I didn’t have time to write it out*). (click here if you don’t see video)
So I’m a big fan of Redfin. I love their MLS search engine (better mapping vs. my faster FranklyMLS.com) and don’t worry, they love a good debate, as long as they get link love (helps with Google).
This is a 2 part story. 1) Redfin Increases rates and 2) Fuzzy Math on Redfin’s “Advantage” calculation.
Part 1:
Many people might not know, Redfin two months ago increased their buyer agent commissions by 50% (more…)
After 5,000,000 page views served and 40,000 Wiki added photos, FranklyMLS.com (Frankly MLS) has done it again.
A new round of 1sts for MLS Search engine features! And you might have been wondering what I was up to.
PREVIOUS LIST OF FIRSTS:
I just got a bank owned / REO property under contract. Was previously $800k, and it was now listed for $400k.
We had to bid on 6 properties before finally “winning” one (ask how we “won” without having the highest offer too!). Wow was that a pain. And people say it is a “buyers market” with tons of inventory? If a home is priced right, it will sell FAST. The key is to get daily MLS email alerts! (or ask for hourly)
So, I haven’t figured out to what degree the hassle was with the listing agent or with the bank (more…)
(Warning long a** post, but my best of year.)
FranklyCRA: A Comparative REALTOR Analysis. Unleashed.
Imagine legally eavesdropping onto the conversation of the listing agent, with buyer in tow.
You know, the one that goes like this, “Well, in my experience I think you should…”
Well what if I could tell you there was a way to know what that experience exactly was? Trends that the other agent repeats. Yep, and I have been doing it for 4 years.
A REALTOR friend that I taught this technique to, and works for one of the big boys said, “No Stop, (more…)
FranklyMLS.com now offers in the spreadsheet view a % Difference between the Tax Assessment and the List Price. But I’m here to tell you that I see too many buyers giving TOO MUCH weight to the tax records and tax assessments. (So why offer it? Well cuz you want it anyway).
1) The MLS freezes tax data (more…)
In a long list of “1sts”, FranklyMLS.com is now the 1st Virginia/DC/MD MLS search engine that scrubs for Short Sales! (maybe the 1st in the nation). Also see my quote today in the
Wash Post, and my other articles defining Short Sales.
On the FranklyMLS.com spreadsheet results page, try a search for Alexandria, if you see an asterisk next to the price, that means it is “probably a short (more…)
My grandmother thinks I’m broke!
The other day she calls me and says in a thick accent,
“Are you still able to feed yourself? Why are you still in Real Estate.”
I asked why, and she proceeds, “I keep reading in the paper (more…)
(Update 6-16-08: This post was featured in the Washington Post)
I wrote about my distaste for Short Sales (aka Fake Listings), and how only 5% close in Northern Virginia (as of 2-08, but that might be changing). I guess now my distaste has shifted away from Short Sales, and more toward clueless (more…)
