September means Back to Basics here at Inman. As real estate navigates the post-settlement era with new commission rules, real estate professionals from across the country will share what’s working for them, how they’ve evolved their systems and tools, and where they’re investing personally.
This post was updated Sept. 20, 2024.
In a perfect world, we will all buy low and sell high. Astonishingly, in some places, home prices have increased by 47 percent since the start of the 2020 pandemic, meaning many should be able to sell high.
Unfortunately, not all appraisals have kept up with such fast-rising values. Sadly, some homeowners have had to enter long and tedious legal battles to realize what should have been a basic fair market valuation (like this example of a $340,000 home valuation difference). Although life’s not perfect, it can be fair in that selling one’s home should easily command the current fair market value.
No wonder some people (see lawsuits) have a disdain and distrust for the real estate/lending industry. However, we can improve this.
One step in the right direction came last week when federal housing regulators announced an agreement, including more than a million dollars in scholarship money, with the organization that sets standards and qualifications for real estate appraisers to open up the field to more Black people and other people of color.
We all should be adamant that homesellers — before listing their homes for sale (or even refinancing) — understand what a fair appraisal encompasses. Here are four insider tidbits real estate pros should arm homeowners/investors with to ensure maximum, fair market profitability from their real estate sales.
When you (or others) silence your questions, you silence your options
When there appears to be a value deviation, if we ask questions, are we just jumping to wild conclusions?
No, because the point of questions is to uncover what has led to the deviation. It does not definitively accuse the valuation of being wrong or a mistake, but it does ask for an account.
Just like saying, “life isn’t fair” to children does not pass muster legally in real estate, similarly “because I said so,” and other defensive attempts to quash accountability, do not work in the realm of fair housing (and lending). A glaring indication of a fair housing-centered milieu is the ability to welcome questions and not dismiss them.
Let’s get into the proactive strategies that can decode fair housing (and lending) for your clients.
1. Know your comparables
First, know sales comparables within the last quarter (six months maximum). Most homesellers who are informed neighbors already know which homes in the neighborhood sold recently and for how much. Truth be told, that usually is part of the impetus for selling. Still, providing those comps is paramount to passing “Good Agent 101,” so I know this needs no explanation since you are a real estate rockstar.
2. Know lender policy
Second, when considering a prospective homebuyer’s offer, review with the homeowner who the loan is through (if it is not a cash offer) and that lender’s policies regarding appraisal issues — that is the difference maker that sets a committed, trusted professional apart from someone with simply a sales license.
Remember that what we may deem as underappraisals (low appraisals compared to current comps) can happen at times.
Before committing to a homebuyer (or refinancing), the homeowner/investor should know what the buyer’s lender’s process is in case there is a disagreement or discrepancy on value. The homeowner should ask (or find on the lender’s website) the answers to the following questions:
- If there are concerns with the appraised value, will the lender offer a complimentary reconsideration of value (which we informally call a second appraisal)? If not, the additional cost may be an impediment to the homebuyer proceeding.
- Will that second appraisal be with a different appraiser (a fresh set of eyes) or can it only be with the same appraiser (who may not be amenable to new information)?
- Will the buyer’s rate be locked during the reconsideration process, since a rate change may make the home unaffordable for that specific buyer?
- Based on the buyer’s loan type, does the appraisal value stay with the home? If so, for how long? For some loan types, including VA loans, the appraisal value stays with the home for six months. If a particular lender does not have a robust policy in place to challenge an off valuation, then that’s a long time to be stuck with a problematic appraisal.
3. Know how to report and resolve an issue
If the homeowner is not happy with the above answers (or never heard back) but still wants to proceed with the prospective homebuyer’s offer (or re-fi), then be sure to have your local fair housing center on speed dial. There is also the Appraisal Complaint National Hotline (1-877-739-0096) — lock that number in because there is a limited time frame to file a complaint (one-year statute of limitations in many instances).
4. Know which lenders can help you
Fourth, as a real estate professional, if you like extra credit and bonus points with your clients, create a list of the various lenders that serve your area with their policies for each of the questions above. Of course, have a disclaimer that the information was last updated on [date] and that confirming the accuracy of all information is the homeowner’s responsibility as part of their due diligence period.
Humans — during all points of real estate transactions — can make mistakes, but the key is having a robust policy available to help correct and ensure appraisals are fair.
“The first sign of an educated person is that she asks more questions than she delivers” –Johnnetta B. Cole, past president of Spelman College
Agents need to do their part and help their clients decode the fair housing issues at work in a transaction. Give that low appraisal additional consideration and research.
Dr. Lee Davenport is a real estate coach/educator and author who trains real estate agents to provide access and opportunity in real estate. Connect with her on Instagram.
