Man o’ man do I have a pet peeve when I see a contract with “Home Inspection for Informational Purposes Only.” A wolf in sheep’s clothing?
What does “Info Only” mean? So if you find information about a $2,000 rotting deck… at least you have the information? Kinda “nice to know?”

A wise agent once said to me (I guess I could just cut out that part and others would think that I AM the “wise agent” but that doesn’t seem right), that if you really only want it for “information,” then great… do it AFTER closing.

There are too many loopholes in these contracts and I’ve been burned too many times with that clause. Why not just put in the contract your true intentions. Is if buyer worried about a home falling off the cliff, then put in the contract that you will waive the first $1,000 or $%,000 of issues.

Watch the video for more on this topic.

Agents, catch my weekly videos over on Inman News.

By Frank LL0SA- Broker FranklyRealty.com

(Ps. I’m still not too busy for you, so email me. I just cut down on the blogging to work on a house my wife bought. Also she is pregnant.)

Sheep photo by skitzitilby, cliff photo by SimplyAlex. Please report typos.

Cartus relocation company is a CROC! (that is an opinion, for more opinions Google Cartus sucks).

Actually many “relocation” companies that are supposed to help the employee are just fronts for making profit. And they have such a compelling pitch! How could an eligible buyer actually decide to bypass them? EASILY!

I’ll explain exactly why you might want to bypass your relocation company AND how you can use PART of their system to your benefit and ditch the other part.

Why am I picking on Cartus? Cuz I was robbed. I got this email the other day:

Hi, I’m moving to Virginia with my job in a month and my fiance and I are a big Frank fan! {Name Omitted} recommended you to us. We love the website and reading/listening to your blog. And, we’d like to go with your realty firm when we purchase a place in Northern Arlington this summer. Fortunately for us, my company (XYZ) is willing to pay Realtor’s fees and closing costs but I need to approve you as a realtor/realty before they will allow us to get started.

I added the emphasis.

1) Fortunately for us. Wow, the company is so gracious. They really care about their employees. Consider it a benefit like healthcare. They will pay Realtor fees and closing costs! (end sarcasm here)

Ok, first of all when you are buying, there are NO “Realtor fees” (sidenote: ha, I wonder if they pay for the bogus Realtor Admin fees which the Washington Post, link, just covered and cited my blog) per se because the Realtor fees are paid by the SELLER. But it surely makes for a good BS pitch in the brochure. Why not also add: free keys! As for the “closing costs” I’ll get to that shortly…

2) Approve you. Approve me for what? Make sure I’m good? Knowledgeable with people that are relocating? Maybe a quiz or a check for references? No. None of this happened.

I knew the “approve” the agent sounded fishy. I warned the buyer… I said “I bet they are up to something.”

Finally Cartus contacts me. I get an email that effectively said: You are approved when you agree to give us 40% of your commission. (actually it said “registration entails a verbal agreement of a 40% referral fee.”)

Are you F-ing kidding me? “Referral fee?” Did they refer business to me? Hell no. These buyers found me on their own. They were a personal reference from a friend that felt like they got great service. And Cartus demands 40% to be part of their program. What is this Robin Hood? Take from one to give a another? And keep a little for profit in the process?

So here are the details for their program, I am a fine print reader, so at the end I will try to parse this out for you.

Isn’t it fun making a really long list of fees that are paid? Even though many of them are next to nothing. I just pulled up a HUD1 for a buyer (note that fees can vary by closing company and frequently get renamed and shuffled around).

Here are a few of the next to nothing fees on the list that you get FREE!!: Notary Fee= $0, Messenger= $55, Tax service fee $0, Recording $65, Termite $35, Credit report $14, Title examination=$0.

The fees that have some real value: Survey= $265 Settlement fee=$195 Title Search=$175 Lender’s title insurance=$1,800 (on a $650k VA home, reissue rate) NOT present in the list of closing costs: Owner’s title insurance= $1350 (except for closing costs) Read more on Owner’s Title

Conditional costs. Ie IF, a big IF, you use their “approved” Realtor. You get: Loan origination fee 1%. Lenders have a ton of names for these types of fees. Sometimes they are called “Rate buy down” points, or “Discount Fee.” The short hand is just “points.” Points aren’t necessarily bad (make sure to subscribe to this blog for a full post on when to buy points). More often than not, if you put down 20% there are ZERO POINTS, ie $0 Loan Origination fees. So if you DO use the Cartus program, and an “approved” Realtor, make sure you go out of your way to max out the full 1% point. (ie if the lender was going to charge you no points, they can make up the fee and buy down your rate, as in make your 5% rate 4.75% approximately)

But here is the fine print as I understand it…

BOTTOM LINE: You only have to use their approved Realtor IF you need that Loan origination fee. In other words, you can still pick your favorite Realtor and get all the other fees covered for free by Cartus. (I could be wrong, but that is how I understand their rules above).

Why in God’s world would you give up the ability to get a “free” 1% loan origination fee?

Well that is a separate and lengthy discussion on rebating and discounting. Heck, there are several companies that will give you a 1.5% cash rebate. Heck a 1.5% cash rebate is MUCH better than no cash reimbursement for a 1% fee you might not have purchased normally.

WAYS TO MILK CARTUS

1) Have them pay ALL your fees except the 1%, and find your own Realtor that will give you a rebate.

2) Or if you find a Realtor that is willing to be “approved” by Cartus, tell them “hey buddy, you are willing to give 40% to Cartus right? And Cartus will just turn around and refund 33% (1% or 1/3rd of the 3% offered to buyer’s agents) of the 40% in the form of a 1% loan rebate, why not just give me the 40% directly?! Cut out Cartus and get 1.2% refunded on your HUD1 vs 1% lender fee repayment and Cartus pocketing the rest.

3) Get your own un-approved agent, skip the loan fee reimbursement, yet accept all the other fees. So why am I telling you the secret path to getting the most cash out of the relocation company and system? Well maybe, just maybe you will then believe me that #3 above might be the best solution for you in the end.

Stop and think about for a second. Cartus demands 40% from a Realtor that you pick or one that they pick. So for the ones that they pick, what kind of Realtors will accept that? Oftentimes desperate ones. Perhaps those that are kinda struggling. You know, economy is tough right now. Weekend warrior Realtors that have nothing better to do? One that will pressure you into a house and hope to get you off their slate as fast as possible so they can make the next 60% deal from Cartus. Perhaps they have to cut down half the time they spend on you, to make it worth it.

So signing with Cartus with an “Approved” Realtor, is not much different than Rebating. I have no problem with the rebating business model. (note: you won’t find many other non-Rebating Realtors talk about it openly).

Why do I talk about it? Well as I like to say

“I use to rebate, but then I got good.”

Yep Read: Realtor Rebates. Free Money or Expensive Savings? and more on rebating.

In the end, know you do have a choice. You can get the best of both worlds. You can get Cartus to pay a good amount of your closing costs, get a loan with NO loan origination fees, and get to pick an agent that is working for YOU, and not for Cartus.

Oh, and remember I’m not too busy for you, so email me. See I’m Not Too Busy For You video #1 and Video #2

Make sure to subscribe and comment and debate. Nobody likes a stale blog!

Written by Frank Borges LL0SA

Broker FranklyRealty.com, Owner FranklyMLS.com

Croc image DrBartje Fish image Phillip

ps. My experience was on the BUYING side. Can somebody comment on the SELLING side of relocating? Do they really buy the house at the appraised price and eat any subsequent loss? Now that seems to have some value in this market.

Just some housekeeping.

1) Realtors. Tomorrow (Friday) June 19th 09 at 12-2pm at NVAR Herndon

2) For those of you that read this blog through your email reader, make sure to swing by and check out the new layout http://Blog.FranklyRealty.com

We now sell Trust Me I’m A Realtor shirts that you can give your loved ones (as featured last week in the Wash Post).

3) We received two, yes two, Inman Innovation Award Finalist Nominations. One for the Most Innovative Blog (this one) and one for Most Innovative Web Service for the just turned two,  FranklyMLS.com, now with almost 90,000 added buyer agent photos.

Don’t miss out on the more frequently posted videos on Youtube.FranklyRealty.com.

Written by Frank Borges LL0SA- Broker FranklyRealty.com

Are you better off buying in Virginia DC and MD AFTER the tax credit expires? Maybe.

Everywhere you turn (even CNN.com) you read about the $8,000 1st time homebuyer tax credit and how you need to “Buy Now” (anybody remember that NAR ad from 2006?). Gotta hurry up before the Dec 1st Expiration!

(Sidenote: that expiration means you need to CLOSE by then. If you are looking for a short sale gamble, and you want the credit, you better get it under contract NOW. And everyone else, don’t be an idiot and schedule your closing on the 1st. At least close a week early. There will be a backlog, and hiccups, and you might miss your tax credit.)

So Warren Buffet says whenever you see a herd running in one direction, you are supposed to walk the other way.

Well there IS a stampede in Virginia trying to buy homes in time for the Obama tax credit. People LOVE tax credits. Kinda like people love to “SAVE” by going FSBO, when it will likely actually NET them less.

Has anybody stopped to wonder whether this mad dash might be temporarily INFLATING prices beyond the credit that it offers? And the day after the credit expires, might there be stall? Winters are bad enough, maybe the worst winter recorded?

Buyers:

If you are buying under the $100,000 price point, sure that $8k credit will likely be better to take now.

If you are buying from $400k-$700k, you have to ask yourself, “Once the flood of buyers evaporates, won’t that send prices down?” Maybe.

Am I saying “DO NOT BUY?” No, but I am also saying, don’t be silly and getting into some crazy bidding war or overpay for a place to get in under the wire.

Kinda like the Cash For Clunkers campaign. How many “Deals” do you think the dealers were really giving in that last week when their phones were ringing off the hook? They probably jacked prices up. And sometimes that $5,000 credit was in place of a $3,000 valued car. So the net saving was only $2,000! And on a $20,000 car, I bet a month after the tax credit, (after inventory catches up) you can get that $20k car for well under $18k.

Sellers:

Don’t get too greedy! You also want to sell into this flurry. Ask for too much and watch the dead Winter-time come (unless Congress extends it, which they might).

Normally I am not an advocate of Market Timing. But for those that like to try and play the game, I just wanted to give you some food for thought.

Also please attach comments with links to any other blogs that might question the value of rushing in to get the tax credit (I didn’t see any, they were all “buy now”).

And stay tuned for a flurry of new posts. I had an 18 hour trip to Africa (see Wheel Estate Cam Below) to write a ton.

Written by Frank Borges LL0SA Broker FranklyRealty.com

New: Inman 2009 Innovator of the Year (more on this later)

Random Wheel Estate Cam video from Africa:

Please report all typos!
Photo Credits:Tax photo by Aimeesblog, Clunker by ThreadedThoughts, Warren by Tedizen

Inman News is the #1 organization tracking real estates practices and technologies (outside of the official Realtor association). In San Francisco last month they held their annual five “Innovation Awards” with five finalist in each category. I was shocked to be honored with two finalist positions. One was “Most Innovative Blog,” the other was “Most Innovative Web Service” for my wiki MLS FranklyMLS.com.

I “lost” both categories. I really wasn’t too bumbed. I was thrilled to be a finalist and I love the winner’s blog phoenixrealestateguy.com.

But then the overall “Innovator of the Year” award was announced. This category did not disclose the finalist and previously did not include finalists from the other categories.

“Drum Roll” (no really they said that)… Shit! I won. I know it ain’t th e Oscars but it felt like it for a moment. Wow, they really like me.

So, I ran up. Didn’t say a word. Was in shock. Thinking “Do I say something witty or innovative?” Nah.

(side-note: Being so “innovative” and “green” oriented I refused the registration gift bag and 20 page glossy schedule and I stuck with the online schedule to save trees. Anyhow, the online schedule slatted the awards for 11am. The print version apparently said 9:15. For once in my life, I was very early.)

I even temporarily changed one of my cards to “I’m kinda a big-ger deal.”

But the ego bubble settled once out in the hall when a tourist saw the cute trophy and was like “What is an IN MON?” And my wife saw the first video (without the panning audience photo) of me accepting the award and thought only 20 people were in attendance (vs. 1500). Watch the video…

Click here to view the embedded video.

(Thanks Ray from VideosByAddress.com for the impromptu video.)

And then I sent out an “anybody wanna do a lunch” on twitter and got no reply. So, that helped bring me back down.

Anyhow, for the acceptance speech I never did…

Thank you Inman News (see article) for checking out my little ole company and really understanding what we do differently, or shall I say “innovatively.” I’d also like to thank my agent Lindsay for saying “why don’t you write all this stuff you tell us and share it with everybody”, blogger Ardell in Seattle for some early on motivation and inspiration, Ben Martin from VAR, and my georgeous wife for dealing with my 3am posts.

Make sure you subscribe to upcoming posts. I have about 6 more posts that I wrote while on a 38 hour flight to Africa with my wife. In the meantime here is a random Wheel Estate Cam on location in Africa with elephants.

Click here to view the embedded video.

Written by Frank Borges LL0SA- Broker FranklyRealty.com

PS. I’m on the ballot for the NVAR’s 2010 Board of Directors. Voting is for NVAR Realtors only and through Oct 8th 2009. Please  Vote today (or tell your NVAR Realtor to vote) and spread the word in your Realtor office. For more details hit up www.ChooseFrank.org

pss. Now it is even easier to subscribe to this blog. Just add a small comment below and check the box to get emailed future posts. Spam free.

(get sneak previews of posts by following my Tweets: @franklyrealty)

A Brilliant marketing executive came up with the idea of promoting the “Starter Home” (not to be confused with the “starter wife”). Buy a small home or condo… stay in it for two to four years, use the increase in value, “equity,” and buy a bigger a house.

Problem is an assumption was made: Maryland home prices will go up! And why not? Real estate went like 60 years without 1 annual drop nationwide. It was a no brainer. But when people don’t think, bad things happen.

If prices don’t go up, homebuyers are stuck. I know a ton of friends that are underwater and can’t upgrade. Not only do you need prices to go up enough to pay for a larger down payment, you have to overcome those damn Realtor fees (sure you could sell it yourself, but read my “Save $20,000″ FSBO post).

So prices have come down. Now what? Many reply “But prices are down, so they can only go up!” Yeah right. Not to scare you, but it can always go down.” I’m not talking nuclear bomb .000001% chance, I’m talking real human chance.

So, what is the answer? I really don’t know. I just wanted to people to be aware. Here are some possible solutions.

• For those that are now considering buying (should you hurry for the tax credit?):
  

1. RENT (Watch my 2007 Don’t Buy Video). Yeah, just lie to your friends that say “so do you own this place?” It is none of their business. I’ve always thought that asking that is kinda like asking “what’s your salary?” Renting is still much cheaper than buying (usually). Save money and maybe buy a bigger home you can stay in for 7-10 years.
2. Buy now, but truly understand this is real and risky. (And those that say “I’ll just rent if I need to move out,” that doesn’t work so well).
3. S T R E T C H . As painful as it may be, it might be less risky to skip the starter home and find a place you can stay in for a longer period. Sure I make less money (assuming you buy both the starter house and the next house with me) but you get to skip a set of Realtor Fees and avoid the “if it goes down we can’t move” risk. See my older post Buy Bigger! You’re Only Borrowing It Until You Sell It!

Disclosure (or is it a “disclaimer,” sorry bad insider Realtor joke). Don’t be silly and overextend into the danger zone. However, 95% of my clients consider themselves to be “Ultra Conservative” with money. Yet versus what the national average, or what a bank says they can buy, they aren’t. For example, the bank might approve $800,000 for a 30 year fixed, but they want to remain conservative and buy a $600k home. I’m just playing devil’s advocate. That buying a shorter term home might be more risky and more expensive in the long run.

For those that already bought a few years ago and feel STUCK.

1. Take a loss. This might not be possible for some, and sure it is painful, but don’t forget you are likely buying “UP.” So sure you are selling your place for a $30,000 loss, but hopefully you are buying a place that is $60k-$80k less than a few years ago. It all washes out.
2. RENT AND RENT. Seems obvious, but when I mention it to the “stuck,” it is like a light goes off (or is it “on”). Can’t take that loss, then rent out your place, and move into (rent) a bigger place. The difference per month is just what it costs to get a bigger place.
3. RENT OUT and BUY. I call this the DOUBLE DOWN. I really don’t like this option. WAAAAYYY too risky in my opinion (but I’m not buying the house, you are). This is where a buyer is underwater on their house, and they don’t want to sell it. They instead want to buy ANOTHER house, thus owning two houses. This doubles, or triples, their real estate exposure. Because “things can’t get any lower than this!” Again I warn people about taking this route.
   

So, still want to buy that 1 bedroom condo or townhouse? Great! Not a problem. At least you are more informed and not following any brainwashing or peer pressure. And sure I’ll help you. I love working with informed buyers. Nope, never too busy for you (video).

For those that have been asking for an update on my AU Law School studies. Things are going great. Moved to the day program, taking Cyberlaw, Trademark and a few others.

Here is another video from my recent Africa trip. Sandboarding video while talking about the “POPCORN” Agent (make sure you subscribe so you don’t miss that post)

Click here to view the embedded video.

Written by Frank- Broker FranklyRealty.com

Please report typos. Please get your NVAR Realtor to vote today (before 10/09) at ChooseFrank.org. Cicada photo by marlb0r0 man, Devil by  gruntzooki, Stuck by NeilsPhotography

Too frequently, I get an email from somebody that has been following my blog and tweets for months and is now ready to buy!

I get the details of this person’s dream home, including number of bedrooms, lot size and location (don’t get me wrong, most buyers still do their own searching). But then they end the email with a catch. “Oh, but the only problem is our maximum is $400k.” Meanwhile, homes in this area sell for $550k.
What to do with buyers wanting the IMPOSSIBLE?

1) Reply that they are nuts and spend an hour explaining why.

2) Ignore the email or a quick reply saying I’m too busy. (But do I look too busy? Watch Video)

3) Lie. Accept the “challenge,” but in reality hoping they would come to their senses. Many agents that are hungry (anybody see the site Hungryagents.com, how hilarious is that? Do you bring them bagels at each meeting?) will say yes to several of these types of customers, hoping that one will stick. Knowing (lying) that they can not get the client what they want… a miracle.

4) Save a tree and send them a link to this post.

If I do send you this and tell you that you are nuts, I’m not trying to upsell you. I’m trying to educate you. Save you from wasting your time (cough, cough*, and mine). Don’t be offended. This route is much better than #3. Homes are expensive. Really expensive. Maybe you should rent. No harm in that (see 2006 video on Buying Myths and Renting Benefits, notice the full head of hair. How many people would have saved $500k by watching that in 2006!)

Whatever gut feeling price target you have, increase it by 10-15%. Again, not an upsell, just our society which tends to have taste buds just outside of our gut feeling “reasonable” price (see blog post on buying a pricier home).

* Make sure when you cough to cough into your shoulder, not into your hands. Stop the spread of H1N1.

5) Still want that miracle deal? Skip your agent (because the “seller pays” doesn’t apply). Go buy a courthouse Foreclosure (see my video at the Courthouse). Not an MLS listed Foreclosure, short sale or REO, but a real courthouse auction. Look through the notice section of your newspaper or search the Washington Post trustee search (which blows since a search for a zip code can bring up hundreds of results if the law firm’s zip code happens to be in that city). People who do this, THEY get homes for $100k below market. Easy money? If it was, I’d be doing it.

But wait, there is more! Here are the pitfalls for #5:

a) Professionals doing this have 3 employees going to dozens of auctions in hopes of getting ONE property (good for an investor that doesn’t care about getting a “home” but more about a “steal.”)

b) Research 20 homes. No photos. No entry into the house. No home inspections. 100% as is.

c) Only 1 or 2 of those homes will be sold at any decent price. The rest of the 18-19 times the seller reclaims the property in time (think Brady Bunch movie saving the family home from auction) or the bank, which is too busy to get a proper value on the home, will buy it back for the loan amount, which is way over market.

d) Oh, and do a title search first for each home. It might have a hidden $100,000 trust or IRS tax levy that is NOT disclosed and you have to pay for it.

e) Win the house and in some states, the homeowner can still get it back.

So, I digress. A good agent will help you get the best price possible. A great agent will be willing to lose a couple deals for you (this about that for a second. LOSING a deal can be a GOOD thing) because you came in just under the “price that would pass the seller’s laugh test.” A fabulous agent might tell you to read this post because what you want is impossible. If you let it (the customer) free, it will come back (is that how the saying goes?)

See related 2008 video: lowballing doesn’t work

Written by Frank Borges LL0SA- Broker FranklyRealty.com

(NVAR members, have you voted yet? And customers with agents, tell your agent to go to www.ChooseFrank.org to vote me onto the NVAR Board of Directors before Oct 8th 2009)
Nuts by Sergei Golyshev , H1N1 by Guerry, Needle by naughty architect

Please report typos. Oh and I LOVE comments. Only 1 in 500 visitors comment! So chime in, agree, disagree, debate, say hi etc. and subscribe to get the next post emailed/RSS to you.

How is it that every agent seems to have some “#1″ status or “Top 1%” on their website or business cards (Google #1 Realtor)?

Well I’ll explain it for you.

Sidenote: I gotta new gig. I’m weekly news correspondent for Inman News. Most of the videos will be agent focused, so I didn’t want to bore my blog readers, which are mainly home buyers and sellers. But this video transcends.

Click here to view the embedded video.

Upcoming Post: I Just Bought a House, and NO I didn’t get a Good Deal.

Make sure to subscribe via email to my not too frequent posts.

#1 Video by Frank Borges LL0SA
Broker FranklyRealty.com
Owner FranklyMLS.com
More Inman videos at www.Youtube.com/FranklyNews

I’m really excited about this new feature for FranklyMLS.com . Normally I leave all the feature upgrades to franklymls.blogspot.com, but this one graduated to the main blog.

I’ve written a lot about Virginia short sales (don’t miss the older “SS 101” post) and a year and a half ago came up with the 1st MLS search that would scrub short sales (see post) and put a * next to their price (it would look at both the remarks and checkboxes).

But that wasn’t enough. I also gave some guidance on a “Top 10″ questions to ask a listing agent, as they are the key to getting short sales closed (in my opinion).

The most important question on that list was “have you ever closed a short sale.”

Well now you no longer need to ask them! (and they so frequently get offended)

FranklyMLS.com will upgrade the normal asterisk next to a short sale and make it two green **, IF that agent has EVER closed a short sale within the last 4 years. Yep, the system will now look at every short sale, and then scrub the 4 year history of the listing agent and if their sold listings show a successful short sale… then BOOM, they get upgraded.

Click here to view the embedded video.

Now of course this is FAR from perfect and in no way is it an indication the short sale will definitely close (far from it), but I’d venture to say you have a 3x better chance. So in a quick second, a glance at the results might help you consider a short sale that before you might have been too scared to try.

Try it. Search for Arlington Short Sale.
About 40% have **.

Now, I’m still willing to tweak this. Should it require 2 closed short sales? Also I think it currently looks at whether the agent was either a lister or a buyer agent. I’ll be changing that to just successful sold short sale listings.

Also the system puts 1 green * if the remarks say “Approved” since an approved short sale has a better chance of closing.

Why am I so excited about this? Because it is my first attempt to incorporate sold data as an indicator or predictor about how an active listing will do. Next up is the Frankly Price Predictor that I talk about here for Inman News (I do a weekly video column for them now):

A few quick personal notes:
- All done with my 5 AU Law school exams, only a year and a half left.
- Just finished a shoot for HGTV’s “My First Place,” which you would have seen some behind-the-scenes videos like this one if you followed me on Twitter @FranklyRealty
- Was listed as a “Inman 50 Most Influential Online”
- I started a couple new Youtube accounts at Youtube.com/FranklyNews for my weekly Inman.com industry focused video segments and Youtube.com/LakeBarcroftcom (and snagged LakeBarcroft.com from a squatter), which is where we recently bought a home.

Written by Frank, Owner FranklyRealty.com and FranklyMLS.com

Photo by dichohecho

I hate the new appraisal system and non-local appraisers. (see video below)

Let me explain. The government came up with a brilliant idea to curb another housing meltdown!

Assuming (you know what they say: It makes an “Ass out of you and Ming”) most lenders and appraisers were fraudulent, they decided to put a
great wall of china in between the lender and appraiser.

So instead of having a “reliable” and experienced local appraiser, they instead farmed out the process (and sometimes to a company they own) to a company that would then find an “independent” appraiser.
1 problem is, the appraiser has no accountability.
Also problem #2 is now another middle man has to make a cut, but the cost to consumer is the same. The result? The cost to the appraiser goes down.
The result? NON-LOCAL APPRAISERS.

You know you are in trouble in Northern Virginia if your appraiser gets out of the car with a cowboy hat & boots.

So if you (Mr. Appraiser) don’t know the area, what are you going to do? Pick the wrong houses and appraiser more conservatively (they can only get in trouble if they appraise a place too high, so why not just make it come in lower. It also takes more work to come in higher). An appraiser’s job is not to be conservative or aggressive, but to be as correct as possible.

Recently we had a listing where a bank promised that they used local appraisers. The appraiser came from Purceville! Over 50 miles away! The appraisal made comments about Ballston and Rosslyn being where the jobs were. As if Clarendon was 2nd fiddle and not desirable. (If you aren’t from the area, like the appraiser, you wouldn’t know that Clarendon is the most expensive and nicest place in Arlington, see Arlington Rap )

Even before the appraisal system was mixed up, I would always warn my buyers “hey if it comes in higher than what you paid, don’t really celebrate. Sometimes appraisers like to come in higher, just to make you feel good, and oftentimes they aren’t really “real” in my book.” Why would I burst their happy dance?

Because I warn them that the flip side (a low appraisal) is also possible.

Just because an “appraiser” says something has a value of X, that doesn’t mean it is the “true” value. While some might argue there is no “true value” or “it is worth what somebody is willing to pay for it“, I’m referring to the other problems with appraisals.

APPRAISAL PROBLEMS:

1) BANK SALES IN COMPS
Appraisers usually include bank sales on the MLS. These are homes that are oftentimes underpriced, they get 7-20 offers and the all cash offer wins. NOT THE HIGHEST OFFER. So a $400,000 bank listing might get bid up to $415,000 with an “all cash” buyer, and 3 other buyers had offers in for $435,000. What is it “worth?” Well the appraiser says $415,000, but the market says $435,000. And this isn’t even going into whether a regular, properly marketed identical listing would sell for $450,000. So what is the “value?” of this $415,000 closed home?

For some people this means NEVER being able to buy a home. They live in areas that are full of investors buying with all cash (like WOodbridge). Those sales then drive down the price of a regular listing but not enough. The appraisal will still be low, and the 3% down FHA buyer doesn’t have the money to make the difference (yes, I got emails on this).

2) SHORT SALES
Similar to the above, but the seller has NO interest in trying to get full market price. Actually the banks expects to sell them for 5-15% off market price. The seller just wants a patient buyer, oftentimes an investor. And as I have written in all my other Short Sale posts, these deals will go 3-6 months and oftentimes never pan out. So yes they have to sell for less, to compensate the buyer for the hassle and high chance of never closing. Many buyers will not even look at short sales. So are these good comparable for an appraisal? I think not.

3) MARKET UPSWING?
Oh my! Could it be? Could it be possible that homes and condos in Arlington are actually selling for more than the low in June 2009? Yes. In reality they are (this is the first time I have said anything about the market going up), yet the appraiser is more likely to call the market “steady.” All you need is a small 1-3% increase for a $500,000 place to now be selling for $515,000, yet the appraiser won’t adjust for that.

4) LOW INVENTORY
Rarely will an appraiser adjust for low inventory. IE, Ain’t nothing else out there to buy in this price bracket. Good appraisers will see this and understand supply and demand.

SOLUTIONS TO LOW APPRAISALS?

So this is what I see happening. When a low appraisal comes in, the buyer oftentimes freaks out. It is the buyer agent’s job to warn them about this (see post above) and then discuss what they want to do. About 1/3rd of the time the buyer will walk (until it happens to the next property!), 1/3rd of the time the seller will just drop their price and the last 1/3rd get new appraisers or work it out.

1) DEMAND A LOCAL APPRAISER
Put it in the contract (as the lister) that you will only entertain a local appraiser. Maybe give it a 15 mile range. If the lender can’t do this, make the buyer get a new lender and new appraisal if somebody non-local does the appraisal.

2) GET A NEW APPRAISAL. CHALLENGE IT.
Either the buyer or seller can get a new appraisal. Yes, my buyers have hired new reliable and local appraisals. Why? Because the buyers have been to each home in the area for the last 3 months and they know the value. While a bank won’t flat out accept the new appraiser, it can be used to challenge the first appraisal.

3) PAY THE DIFFERENCE
While it might be painful, it might be the only way. Especially if you have gone through it a few times, if you start all over, it will likely happen again (unless you are willing to wait 3 months for a short sale to MAYBE close).

Appraisals falling short is occurring in about 50% of transaction. IT EVEN HAPPENED TO ME! The home I bought did NOT appraise. Yes, I paid well over the “appraisal” price. (yep soon that will be a good post, make sure to subscribe to the blog).

Thanks for hearing me out. Now I can warn my clients with a link to this post instead of giving a limited explanation to the appraisal problem. The goal is not to pressure a buyer to increase their price. I really hope this didn’t come off that way. Instead the goal is to explain the process and for buyers to not ignore their own perceived “value” and ignore their Realtor, when some $20 an hour newbie appraiser from West Virginia says otherwise.

UPDATE: Paul Todd, has a brilliant comment. You are brilliant! Paul says, when the appraiser calls, ask exactly where they are from. If they aren’t local, then refuse access and make the lender pick another appraiser. Wow, great idea.

Written by Frank Borges LL0SA- Broker Owner FranklyRealty.com and FranklyMLS.com

Map image from Scott
Wall of China photo from jaaron
Cowboy shot by imdan
Freak out by agnes