Purpose of appraisal....FSBO.

[Dee Dee]

I need some input and opinions from members of the forum concerning doing an appraisal for a homeowner who wants an appraisal done to determine a fair market value on their home which they intend to sell as a For Sale by Owner.

They need to move soon, want to sell the home quickly, but need what equity they have left in the home in order to start out in the new location they are leaving to rather than paying commissions to a realtor. They're in a tight spot, and want a realisitic figure so that they can hopefully bail out quickly before the traditional seasonal slump hits the area this fall.

Another appraiser friend has advised me that I may put myself in a liability situation if the homeowner can't sell their home for the value that I determine, or if they sell it quickly they may come back later saying that my value estimate was too low and they sold themselves short because of it.

What it all boils down to is how I address these issues in the appraisal report itself. How I cover my wording in 'the purpose of the appraisal' seems to be the key to covering my bottom. Any suggestions on how I would address this, and/or any additional comments I might make to limit my liabilty? Or is it better to walk away from work like this?

There is a growing number of homeowners in my area who are finding themselves in this situation, and since there aren't too many Realtors that I'm aware of who'll sell a home pro bono, they are going FSBO as a last ditch effort to move on with their lives. I suspect that I will be recieving a growing number of requests like this, so any advice would be appreciated.

Thanks,
Dee Dee

 

[George W Dodd]

Dee Dee,

I always look forward to these types of assignments. One think to remember is that you are able to include current listings/pendings in your consideration as supply/demand factors.

It is a great opportunity to go over things they should do to get the house ready for market: landscaping, painting, removing clutter, etc.

If I think the property is likely to go FHA then I will also do a pliminary FHA inspection and point out things that would cause a repair.

Suggest a house inspection (avoids surprieses later).

Also, I always try to give the client a range in addition to the number. You are acting as a consultant and appraiser so use both hats. I can almost guaranty that you are more qualified then the agents in your market to determine a listing price.

Try to comprise an engagement letter for them to sign that spells out exactly what you can and can not do.

 

[Tim Hicks (Texas)]

Dee Dee,

That is one of the drawbacks of doing appraisals for individuals. Here is a quick list.

1. Quote " I would never sell the house for your low value" Pertinent factual data does not instill confidence in the appraiser when the home owner has their preconcieved personal value.

2. They will ask for and demand an orally condensed version for "appraising residential properties" and a step by step explanation of every line of every page of your report.


3. If you do not hit their preconcieved value they will state, "I have just thrown away $350. This appraisal is worthless to me. I demand a refund."

4. They will proceed to tell you how their home is better than every one of the comps you used and point out what they have (a pear tree, an awning, a new convection oven in their 30 year old kitchen, etc) while failing to see what the other homes have that they do not (New carpet, remodeled kitchen, actual landscaping, no dog scratches on every door, etc)

5. Next, they will expect you to update the report for free nine months later when they sell the home for slightly below your value. Why nine months, because they refused to believe your value and listed it FSBO for $25,000 over everything in the neighborhood. They want the update, new lender name, borrowers name and new comps, but they already paid you enough to do these things.


Just a short list.

I am sorry, you did not ask for my snippy list.

State in your "purpose of appraisal" exactly what you said. "The purpose of this report is to estimate the fair market value of the subject property for the designated owner as of this specific date"

You might want to explain the scope of your report to the owner upon delivery. Emphasize that this is your "professional opinion of fair market value". Explain that there is nothing that states they can not sell it for more or sell it for less. This is just your opinion of value with the most current factual data for their market area for their age, size, lot size, site/view etc.

Oh, don't forget the GLB notice either.

 

[Ross (CO)]

Dee Dee, ......I'll bet you know what your answer is. You have met them already, face-to-face, yes ? Or, has this only been a phone contact so far ? This seems like one of those rare opportunities to actually create a Letter of Engagement, that document that so many of the pros and veterans and course teachers have told us to use......but then it never really seems to work out that we ever create them or get to use them. The notion of getting an order or a very positive phone call from a "new" client, with an assignment pending, and then saying that you have this "letter" that you want them to agree to.....well, I have not yet been able to master any successful delivery of the concept and all seems to get worked out on the phone and so it goes. You end up putting all the CYA stuff in the right places in the report and you give them the product. I might think that you could simply ask them, "what do you want me to do for you ? (they want most probable market value and selling price for what they have to sell ) Why do you feel that it is helpful for me to assist you to make this sale of yours easier, or faster, or leaving more money in your pocket ? (that answer is in the question). Ask how your reported value might become a disappointment to them ? Sell too low ? List too high ? Be sure to ask just how much they want to negotiate over and during this transaction. Know how much they will "walk with" and see if your "price" would satisfy them (even though you do not have that price/value determined yet). Tell them how long you have been working in their area and the general breadth of your experiences. Then ask if they trust you ? Bingo. Now you put together the simplest and briefest of Letters of Engagement which tells them what they just told you...and you both sign it. That's what I'd do...now I just wait for my phone to ring and such an offer to come my way. Good Luck !

 

[Mike Garrett RAA]

We do these all the time, no real problems IF you set the ground rules in advance. I ALWAYS collect the fee up front too.

Purpose of the appraisal...."Estimate Fair Market Value".

 

[Terrel L. Shields]

Ditto, and I do them as NARRATIVES. Not a biggie once you are set up. And you will NEVER get that call 9 months later asking for a free "update" report for the bank.

Ter

 

[larryhaskell]

Dee Dee:

I'm not sure you can estimate market value based on the situation you described. You stated "they need to move soon and want to sell quickly." You first need to define what quickly is based on your clients needs. Read the definition of market value. Are the sellers typically motivated? Are the buyers and sellers well informed? Your client will likely be well informed if you do the appraisal for them but I'm certain they will likely call you several times before the house is sold. A second major point is, will there be a reasonable time allowed for exposure in the open market? Doesn't sound like it to me. Let them know what a reasonable exposure time would be. These were just some quick thoughts I had as I wind down for the day. Nearly 9:00 PM so if somethind doesn't make sense I have given you an excuse in advance.

 

[jtrotta]

Ditto with Larry; and read with "them" the definition of market value and be sure they understand, then have em initial ( or signature) the bottom, along with your name and date. Tell them you'll provide a copy for them along with the report.

Keep it simple and do your job within the confines of what Your required to provide to them.

Good Luck

8)

 

[Dave Smith]

Dee Dee:

I do quite a few appraisals to "assist the owner in establishing a marketing price."

My usual final pararagraph in the final reconciliation for those situations is:

"Although the appraised value is indicated as being $000,000 it must be acknowledged that if the property were actually for sale there would undoubtedly be unique and specific transaction circumstances affecting the actual sale price. Those circumstances would probably result in a sale price that differs somewhat from the appraised value. The subjectivity and motivations of buyers and sellers, market supply and demand issues, sales timing and concessions, marketing efforts, and other factors virtually always enter into real estate transactions. Those variables inevitably have an effect on sale prices. An appraised value is really only a general indicator of value at a specific time. It is based on an objective analysis of the best sales data available at the time of the appraisal. In the case of the subject property a sale price ranging from a low of $000,000 to a high of $000,000 could be considered a "fair" price for the property when the various sales variables are taken into consideration."

I have never have any problems with the sellers after the fact. And most of the time they do sell it within my range of values. Just remember to give them a large enough range that it will sell within that range.

Good luck.

 

[John Hassler]

Dave

I like you statement. Mind if we borrow it?

I think Dee Dee needs to remember to be an appraiser, not a sales consultant unless see's qualified to be one and receives adequate compensation. I would politely change the subject if the homeowner started asking questions on how to stage and market the home.



John Hassler