Today, we’re going to talk about appraisals and your real estate transaction. If you’re driving and can’t take notes, not to worry, you can find all of our links to topics and guest that we have on our show at RREA.com/radio. If you can watch the videos of our segments and you have questions about the, you can always call in our question line and we will answer those on air for you, that number is 281-882-8088.
We have great show line for you today. We’re very excited to have Mike Brubaker here in the studio with us. He is a local appraiser in Houston area and he has been for over thirty years and he owns Brubaker and Associates. You may have heard of him. If you need an appraisal done, you can find out more about Michael’s company at brubakerandassociates.com. So, welcome to the show, Mike.
Thanks for having me. So, lots of appraisal questions out there I know some consumers get confused about the difference between an actual inspection and an appraisal and they’re very different.
Very different. Most appraisers are not licensed real estate inspectors. Inspectors in the state of Texas have to be licensed. Appraisers are looking more at the value of the property. We don’t necessarily go and turn on ovens and stoves and air conditioners and things of that nature.
But you do go in?
We do go in. There are some appraisal products that can be done on a drop by basis. Some mortgage lenders will do and it’s technically calling exterior only appraisal. And I get questions about that because of me a call and say, well, somebody gave me your he never came in the house, actually a gentleman appraisal product.
So, when would you need an appraisal? I mean, does every transaction require an appraisal?
Not every transaction. Certainly if you’re paying cash for the property, you don’t need an appraisal. But I will tell you, all for cash buyers these days are calling our office to get that confirmation that they get from appraisal that they’re paying decent price for the property.
So, it’s really just to check out the value?
It’s to check out the value. Most lenders, if you’re borrowing money, most lenders are going to require an appraisal.
A few years ago, some things changed with appraisals and I know a lot of it because the lending issues that were going on and some new regulations came, can you tell us a little bit about those and how things have changed over the last few years?
Well, it’s gotten semi-complicated years ago. Lenders used to have a pool of operators that they picked on their own. Folks would call me because they like our customer service or quality or something on that nature. Back in because of really it’s a dodd frank act if you want to get technical about it. Most lenders or mail required to have to pool of appraiser that is more random selected. The lender can’t choose an appraiser for specific job anymore.
But they can choose their pool of appraisers, is that right?
Yes, and there’s a difference. Some lenders have a very, very large pool of appraisers that they choose from. Some lenders, let me back up, there’s no requirement on the size of the pool as long as there is enough people in the pool to guarantee random selection. He couldn’t have just two people or one person in the pool. So, an awful lot of lenders these days are limiting the size of their pool, they’ve discover that having a large pool with a variety of quality and capability of an appraiser really didn’t work to their advantage.
So, is there a minimum for that pool of appraisers that the lender needs to have?
There’s no legal definition. I think just by aiming and telling you a minimum of three.
If you have different appraisers on that pool and one specializes in condos and one specializes in certain part of town and then you’re giving a random appraisal, you may have someone from Galveston to appraise the house in Woodlands, is that correct?
That’s correct, that sort of the downside of this random pool selection.
Is there any way that a certain type of appraiser can be requested like if you have a large pool of appraisers, can you just excuse from the pool of appraisers who are in the spring area or just that part of the pool of the appraisers that are in the Woodlands, can a lender do that?
That can be done certainly. Now, they want to clarify that this sort of selection process with appraisers is specific to mortgage lending. It has nothing to do with, if somebody needs an appraisal on property for a divorce, for in a State because they want to know what the value of the house because they want to sell it to their brother, they pick up the phone and call us directly.
These are lenders that they’re having to go by these rules and regulations that have come down? That’s correct, these are all lender regulations. How did this new changes affect the industry for appraisers?
You know, it’s a game changer for a lot of appraisers and also a lot of appraisers had a, you know, they had a client based that our company for example, by a thirty year client base folks who we work with for many, many years, who grew like us, we like them. And then, now all of a sudden that client base was worthless.
Yeah, that’s not good. That wouldn’t good. It was really a game changer for an awful appraiser.
Did the fee structure change at all? Because sometimes I hear that appraisers are getting paid less by the lenders and so you have the pools cut down, you don’t necessarily have the best appraisers out there in that pool that the lenders use.
You know, there is a group of folks came in that work, basically what they did is they went to the lenders and said we will create a pool for you. Generally they’re called IMC, it’s an appraisal management company. A lot of those guys and what they did is they went to the appraisers and said we’re going to do everything that you used to do as far as soliciting clients will take, they call that portion out of your hands and all you have to do is appraise your work. But for that, we’re only going to pay you a smaller portion of the fee and get a hundred percent of what used to be which he used to get. So, some of those fees, they varied, there’s an awful lot of as in any business. So IMCs are better than others.
Are you working under any IMCs or do you steer clear of those?
We steer clear, I say that, but we wouldn’t created our own, so that was something that we decided, you know, we could do better than most others. A lot of the IMCs are national IMCs and I’ve discovered that, I’m really not that good on Arkansas or Louisiana, so we stick with our core bas which is to Houston, Austin, Dallas, Texas triangle.
You go pretty far as a company? We did.
Now, what if you are a seller at selling your home and the appraisal at the lender does for the buyer comes in low, you know, if you agreed upon the price of one sixty in the appraisal comes in at one sixty five, what happens?
You know at that point, it’s really tough. It used to be again, the lender could go to the appraiser maybe provide some information, everybody knew the appraiser work because there was a sort of discussion, maybe education the appraiser some that process now is an awful lot tougher because the whole point of dodd frank was to insulate the appraiser from being influenced by other entities that are involved in the transaction. So, there is an appeal process. I have to tell you I have not found it very satisfying and I’ve got a lot of calls from realtors that I haven’t found it satisfying either.
Yeah, I can tell you as a realtor I haven’t find it satisfying at all. It’s been quite an issue for some real estate transaction when the home doesn’t appraise.
Yeah. And I have to tell you, my phone rings an awful lot of phone calls from frustrated realtors, you know, we had the property on the market, it’s sold in five days for back up offers on it and an appraiser came and appraise for less than contract price. My attitude is been, I think by responding in same problem, you know, give him forty eight hours to fix it and sell it to the next buyer.
Now can the lender request another appraisal to go out?
That becomes a little bit tougher because that starts to look like fraud. It starts to look like a lender is cherry picking the appraisal that they want.
So, the buyer would actually have to go to a different lender and then not lender order an appraisal? That’s pretty much the best when you do it. All right, and sometimes the seller and buyer can negotiate the difference as well, is that correct?
Yeah, and I’m not a fan of that, I have to tell you, I’m very fond of saying that there is no such thing as a divine value, you know, godson appraiser, he’s barely too busy doing other stuff. If we sent ten appraisers to the same property and there were no contract price to current go by, I guarantee you would get ten different appraised values.
Sir, absolutely, it’s just an opinion.
It’s just an opinion. And the opinion is based on the capability, the character that day and I hate to tell you, state certification I remember it was 1990 or 1991 all appraisers are required by the state achieve certification. The highest level of certification offer by the state of Texas is only requires two years of experience.
Well, that’s a low barrier of entry for sure for the industry. It really is, it really is.
All right, we are going to come back right after a commercial break. If you’re streaming us on RREA.com/radio, we appreciate you for tuning in from all over the country and from different parts of the world. We’ll be back right after this to talk more with Mike right after this commercial break.
Real Estate and The Appraisal Process