Hi, I’m Sean Reynolds, the owner of Summit Properties Northwest and Reynolds & Kline Appraisal. One of the things that’s been coming up consistently in this super hot Seattle market has been the fact that appraisals are coming in low. And a lot of times there’s always these thoughts or stories out there from real estate brokers that appraisers are coming in low just to kind of spike the deal to kind of break things up. And to just be annoying and this is a quick video that kind of runs down why that just isn’t the case and some reasons behind why we’re seeing some low appraisals and maybe why there’s some patterns going on here. So in the greater scheme of things, when an appraisal comes in low on an appraisal, it sets off this chain reaction in kind of the the real estate food chain that’s just awful.
So the appraiser will typically get a call from the appraisal management company who ordered the appraisal first. He may get a call from the listing agent on the transaction. He may get a call from the selling agent in the transaction and these are not good calls. These are tough calls, “hey, why are you screwing up my deal by coming in low with this low appraisal?”. Every appraisers been there who’s, who’s had a low appraisal situation and this is totally normal so that you’ve got both brokers. You may have their managing brokers calling you if it’s a big enough deal, if there’s enough money on the line, you may have escrow calling you, you may have title calling you and there’s a handful of other people that may call you as well. The buyers, the sellers, um, and any assistance involved may also be involved with providing you information, which is just kind of another way of, of, um, trying to get you to bring the value up to the price that they’re, um, the pending sales transaction is at.
So as an appraiser comes in low, all of these people may be calling him or her and it’s just this huge mess. And so within the big scheme of the real estate process, appraisers are, you know, way down here on the food chain. And we get paid some of the least within the industry. There’s only a couple of other industry people who get paid less than an appraiser and that’s based on selling commission, and loan commission, title fees, escrow fees, all of that kind of stuff. So the appraisers don’t really have an incentive to come in low. What is happening is that our market, as it’s just been ramping up, there haven’t been enough closed sales to support these super high values. And so in some markets you’re consistently seeing low appraisals and it’s not because the appraiser wants to screw up the deal or be annoying or there’s a conspiracy as to why this is happening, it’s happening because there isn’t enough data to support how quick the market is going up. And something that comes up all the time is, well can’t you just extrapolate the dollars per square foot? So this house here sold for this much, ours is selling for this much and it’s this much bigger. Just take the same square footage here and multiply it by a multiplier to get this value. You can’t do that.
What lenders want to see are actual closed sales, so if you don’t have closed sales data, homes that have really closed, like closed and recorded, that support the higher pricing, that’s when you get a low appraisal. So I think most appraisers do the very best they can to support the sales price. If they have a contract in front of them and they know there’s a willing buyer and a willing seller, I think most appraisers are going to do the very best they can to support that price, because in the big scheme of things, they don’t want to have all these people come down on them like a ton of bricks that happens every single time you throw out a low appraisal to the lending environment.
So they support that as well as they can and then if they just don’t have the data to do it, that’s when you get a low appraisal. But it’s not like appraisers are doing this on purpose, or doing this on spite, or want to keep values down, or just kind of want to make the market’s slower because it’s easier. That’s just not the case. It’s just you don’t have enough value, you don’t have enough sales to kind of support where you’re at.
So I hope this video has been kind of informative as to maybe why you’ve seen some low appraisals if you’re in the industry and maybe why you might see some more in the future, and you’ll have kind of a better understanding of exactly what it is that appraisers are using to support their values or not to support their values.
I’m Sean Reynolds from Summit Properties Northwest and Reynolds & Kline Appraisal. I appreciate you taking the time to watch this video. I’d love to hear your comments or have you subscribe to our youtube channel by doing that below and thanks again for watching. Appreciate it. Bye.