Rick Ott, Fort Hood Realtor

Contact Me

For Killeen Real Estate & Fort Hood area Real Estate Remember to call Rick Ott!

The appraisal process often baffles consumers. They may feel their home is worth a higher dollar amount, and the appraised value doesn't always make sense to them. It is important to know that appraisal guidelines are dictated by the lenders, and in some states, it is a requirement to also disclose what the appraisal will be used for because there are different rules to follow depending on the purpose.

In effect, lender guidelines force appraisers to put a fair market value on homes based on comparable sales in the same area, and the home must be bracketed in size and value. For example, there is no set dollar figure associated with a great view, pool, spa, bathroom upgrades, etc. If a homeowner installs a custom pool that cost them $30,000, but the local marketplace supports the value of a pool at $15,000, then that item will be bracketed as [$15,000] on the appraisal.

Upgrades can usually be expressed at full value in newer homes, because the only way to get those upgrades was to put more money into the cost of building the home. On the other hand, the upgrading or remodeling of an older home is rarely reflected in full in the final appraisal. This is because the home had value in its original condition, and again, the value of the upgrades must be supported by comparable examples within the same marketplace.

These comparisons must be drawn from current market activity within the last six months, and some lenders will want to look at both closed and pending sales, to see if there is any room for negotiation. This is a safeguard to prevent appraisers from attaching too high a value to the home in question. This guideline further states that appraisers can only base their opinion on the value of homes that have actually closed escrow. Any supporting comparison from pending sales will reinforce the reference to the closed sale given.

However, when property values are increasing drastically within a marketplace, the appraiser is generally permitted to make a concession and put more weight on the evidence provided by comparisons to pending sales and listings, allowing for a "real time" appraisal.

Although there is no formal standard to speak of, most lenders give the appraiser a 5% margin of error. If the file is reviewed and the appraiser is off by 8%, there is a good chance the value will be cut by the full 8%. It is in the best interest of both the appraiser and the homeowner not to try to push the value up higher than the market will support, otherwise the property evaluation would then be exposed to a severe appraisal review.

Here's a question for you. Does the seller have a right to the appraisal? Does the buyer have an obligation to provide the seller with a copy of the appraisal?

Suppose the seller thinks, as sellers sometimes do, that the property sold "too low." Suppose further, as sometimes happens, that the seller is right. If the seller obtains a copy of the appraisal -- or is apprised of its results -- he or she may start looking for ways out of the transaction. The seller may become less than accommodating to any requests by the buyer. Certainly, in such circumstances, the seller may have less inclination to negotiate over the kinds of matters that commonly arise during the course of an escrow. If you, as a seller, learn that the property appraised for $5,000 more than the contract sale price, you probably would not be as likely to give the buyer a $1,500 credit for repairs as you might have been otherwise.

So, there could be reasons for a buyer not to want the seller to know the appraised value or details of such. But, can the buyer withhold that information if the seller requests it?

There certainly is no law requiring that the seller be provided with the appraisal report. Nor is a lender under any obligation to provide that information to the seller. Indeed, it is questionable whether the lender has a right to provide that information to the seller, absent permission from the buyer who paid for it.

If a seller has a right to the appraisal, that right must arise from an obligation of the buyer. Does the buyer have such an obligation? That will depend, of course, on what is said in the contract between the parties.

If the TAR 1-4 Family Residential Contract is used then it is not address. Nor is it addressed in the Third Party Financing Adendum. If the buyer contracts a new construction home then the builder orders the appraisal and usually know value before anyone else. Is this because many builders offer to pay X amount of dollars in closing cost so this means THEY own the appraisal, even so some lender require the buyer pay for the appraisal up front. What then?

It is arguable that the appraisal, no matter who pays closing cost is not the buyer's or seller's but the lender's. The buyer has a right to obtain a copy, presuming the buyer has paid for it. Indeed, many buyers never see the appraisal, even though they do have a right to request a copy.

So, does the buyer have an obligation to provide the seller with a copy of the appraisal? I don't think so; but that opinion and a few bucks will buy you a cup of coffee somewhere. Otherwise, we'll just have to wait for a definitive court case.