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Homes and Land in Sunny Sequim, Washington

Homes and Land in Sunny Sequim, Washington

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Email: ChuckMarunde@gmail.com

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The Out-of-Town Real Estate Appraiser Fiasco

by Chuck Marunde / Thursday, 07 May 2020 / Published in Appraisals
Real Estate Appraisers

The Real Estate Appraiser Fiasco is a true story of a home in Sequim that was appraised by an out-of-town real estate appraiser who missed true fair market value by almost $20,000! Appraiser mistakes like this always spell D-I-S-A-S-T-E-R for the seller, for the buyer, and for the listing agent, the selling agent, and the buyer’s mortgage broker. Today I’ll explain exactly how this can happen and why it’s such a disaster for everyone involved. I’ll also share best practices to resolve this kind of appraiser fiasco.

When a buyer finds the ideal home they plan to finance, once they’ve reached an agreement with the seller on price and terms, they will seek out a mortgage broker to help them get the loan. The mortgage broker, or in many cases a loan officer, will collect the essential documentation, order a credit report, and put together a package he hands off to the loan processor who does an analysis to be sure the buyer qualifies. During this process, an appraiser is appointed through a third party company. This is where it gets interesting.

During the last real estate crash that started in 2007 and lasted for almost a decade, politicians and regulators created an entirely new system for hiring appraisers for single family home loans. No longer can mortgage brokers refer to an experienced appraiser they know has a good track record. No longer can the Realtors or anyone in the transaction recommend an appraiser with integrity and who has a reputation for reliability and for returning the appraisal promptly.

Who hires the appraisers? Third party entities known as appraisal management companies, which are private sector contractors who now control who your appraiser will be. Of course, the idea with this new bureaucratic system was to eliminate the fraud that occurred between a dishonest appraiser and a dishonest mortgage broker and a dishonest real estate broker or buyer. This was allegedly the cause of the mortgage debacle, and while there were some dishonest appraisers and brokers, they probably made up far less than 1/100th of 1% of all mortgage loans.

So they created appraisal management companies (AMCs) to create separation. What they created was a monster 1,000 times worse than the original problem. These independent AMCs charge appraisers a fee up front just to be included on their rotating list of appraisers for that market area. That fee can be $150 to $350, and then many of these AMCs are also taking a part of the actual appraisal fee. One appraiser told me that their AMC takes $125 out of every $500 appraiser they do. To say that appraisers are upset about this insane process would be a gross understatement. Many of them refuse to be a part of that system, which means they are not on the AMCs rotating lists.

But it gets worse. Because many local professional appraisers with integrity refuse to be part of the AMC con, when a mortgage broker has to defer to an AMC for the appointment of an appraiser, the AMCs often appoint out-of-town appraisers who do not know the local market at all. In the story I started with, the appraiser who came to the house was an out-of-town appraiser, and she only spent five minutes in the house. In addition, she apparently was also doing five more appraisals on the same day over a large geographic area. This kind of appraisal practice screams unprofessionalism and incompetence and a number of other unpleasant things.

Here’s where the low and disastrous appraisal blows up–just before the transaction is supposed to close. At this point the sellers have scheduled their moving vans, packed up almost everything in their home, and the buyers have done the same. Suddenly, the two are forced to the table to essentially re-negotiate the transaction price, and maybe a new closing date, which throws everyone’s schedule off in what they all would call a nightmare scenario.

If the seller did agree to take the lower price, the buyer would have to come up with the difference in addition to the down payment required by the lender based on the loan to value ratio of the appraised value, but many buyers will not have the down payment plus an additional $20,000 in their back pocket.

But what if the appraiser is ridiculously low and everyone involved knows it is way below true fair market value? What if the seller cannot afford to drop the price by $20,000? Then the transaction must be terminated, and everyone goes back to square one–a huge nightmare thanks to an incompetent appraiser appointed by an appraisal management company from somewhere else in the country.

Here’s the best solution. A good mortgage broker will get help from the listing agent to assemble fair comparable sales with a narrative explanation supporting the value of the sales price, and offer this to the appraiser for a reconsideration. If the appraiser accepts good data, then he can re-do his appraisal and the transaction can move to closing without delay. But if the appraiser refuses, the transaction is either dead or the parties move to their last option.

The last option is for the seller to have a second appraiser appointed. That will mean an extension on the closing date, assuming the buyer and seller can both reschedule their moves and plans. It gets very complicated after that, because two different appraisals require a method to resolve the difference, and a mortgage underwriter is not likely to simply accept the second appraisal over the first appraisal. There is usually a provision in the contract for the appointment of a third appraiser to resolve the difference, but we’re back to the question of will the underwriter accept the opinion of the third appraiser? And who is going to pay for all these appraisals when they are charging between $500 and $1,250 for an appraisal, and maybe more for an “expedite fee”? A real estate appraiser can make a mess out of a transaction if they are an out-of-town real estate appraiser who doesn’t have a clue.

What is my final word of advice? A nightmare scenario requires the best of the best in your corner. That means you would be extremely wise to make sure from the get-go that you have an experienced and professional buyer’s agent working for you. I cannot tell you how many calls I have gotten from buyers who hired the wrong buyer’s agent and end up in a nightmare that agent cannot handle. You also need the best of the best mortgage brokers in your corner to handle anything that comes up, including a low appraisal, and do not under any circumstances hire a mortgage broker who is not local to the home you are buying. Online brokerages often spell disaster, and do not hire the mortgage broker in your hometown far from your destination. They don’t know the local market either.

I share this experience and advice with you passionately, because I’ve been doing this for 40 years, and I could share a 100 more stories like this. It sounds like I’m trying to sell myself as your Sequim buyer’s agent, and I do hope you hire me, but that doesn’t mean I’m not right about all this.

Possibly Related Posts:

  • Are Zillow Zestimates Accurate?
  • Appraisal Management Companies
  • Sellability and Appreciation
  • Fair Market Value (FMV) and the Comparative Market Analysis (CMA)
  • What if You Get a Low Appraisal?

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About Chuck Marunde

After practicing real estate law for 20 years in Washington, Chuck opened iRealty Virtual Brokers covering the Sequim and the beautiful Olympic Peninsula. Chuck is the author of numerous magazine and Internet articles with a primary focus on real estate. He is also the author of over a dozen books, mostly about Sequim real estate. Chuck is a photographer, videographer, and Registered FAA Drone Pilot. Chuck has combined his love for real estate and technology to create a growing Internet presence in his market, and enjoys building his websites and blogs, including SequimBlog.com and Sequim4Sale.com and LuxuryWaterViewHomes.com. Chuck has degrees in Economics, Law, and Education.

3 Comments to “ The Out-of-Town Real Estate Appraiser Fiasco”

  1. Former Senior Appraiser says :Reply
    April 25, 2021 at 11:21 am

    Mr. Marunde, While I greatly sympathize with the situation of a home which appears to be undervalued by the appraiser, I am floored by your take on both the “mortgage debacle”. Having reviewed many appraisals during that period of time and having also worked to expose the many mortgage brokers real estate brokers and appraisers who involved themselves in inflated pricing and or the “No doc/Low doc” scams, your assertion about the number of affected transactions seems incredibly inaccurate.

  2. Former Senior Appraiser says :Reply
    April 25, 2021 at 11:28 am

    If I may continue…
    A skilled appraiser can and will appraise in many markets and even markets unfamiliar to them, with little error. To make the supposition that the appraiser must be local is to me absurd, and an insult to the craft. The very design of the appraisal form is such that it lends to consideration of a market which may be unfamiliar to the appraiser, showing different approaches to value which are used to temper ones final number. Rural areas simply cannot support having local appraisers as such a system was designed so that appraisal standards can be applied in a variety of areas and when conforming to those standards and performing the proper market research the result of a skilled appraiser even from out of state is very reliable.

  3. Chuck Marunde says :Reply
    May 23, 2021 at 8:37 am

    To the Former Senior Appraiser: I appreciate your comments and your experience. My research is accurate, and as for your comment that an appraiser doesn’t have to be local to do a great job and that rural areas cannot support local appraisers, I’m afraid your lack of real estate experience in the real world is showing. I cannot tell you how many times I’ve seen out-of-town appraisers screw up an appraisal because they were not familiar with the local market and did not have access to local sales data that in many cases was only available through a local MLS database. Appraising a condo downtown Seattle is light years from appraising a single family home built in 1958 outside of Port Angeles. Again, while I appreciate your comments and do not doubt your sincerity, you are quite incorrect. Even good appraisers in the Sequim area affirm what I am saying and your comments find no support among them.

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Chuck E. Marunde, J.D.

Sequim Buyer's Agent
(Atty Ret.)
Founder and Broker of
Sequim & Port Angeles Real Estate dba iRealty Virtual Brokers
125 Olympic Ranch Ln,
Sequim, WA 98382
(360) 775-5424
ChuckMarunde@gmail.com

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From Los Angeles

It's rare, but once in awhile life provides the perfect collaborator for an important endeavor such as buying your new home. For me that person was Chuck Marunde. His two decade background as a Real Estate Attorney, his prolific career as an author of articles and books on Real Estate and his forthright and moral character made choosing Chuck a no-brainer. Chuck is dedicated, thorough, incredible at the negotiating table, knowledgeable about all local laws & regs but, most importantly, Chuck loves what he does. And what he does is find his client the perfect property. Chuck isn't about making the sale, he's about making the sale that is OPTIMUM for his CLIENT and this makes Chuck a rare bird indeed. I love my new home in Sequim and I am indebted to Chuck for making it happen. Kevin E.

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I’ve had the pleasure of working with Chuck over the past three years in selling my parent's estate. It was a tough time to sell during the housing recession, but Chuck always kept things on the positive side. With his real estate law background, he offers sound, practical advice. He helps you along with the process using discussions and reason, rather than opinions and speculations. If Chuck doesn’t know the answers, he will get them for you. In several instances, Chuck took the initiative to meet with county officials to get up-to-date facts about zoning and regulations. I was always impressed with his company’s tech savvy communi-cations and internet presence: weekly email updates, blogs, videos, links, Linked-in networking, etc. He is truly pioneering the future of buying & selling real estate. Brian M.

From California

"Andy Romano is a successful motion picture character actor with over 40 years in 'the Biz.' Mr. Romano has a home in beautiful Santa Barbara, California, but he chooses to live most of the time in Sequim, Washington on the Olympic Peninsula in the great Pacific Northwest. Why? In his own words, 'Because it's even more beautiful and surrounded by more beauty in this incredibly peaceful and quiet place. With respect to real estate agents or brokers, well my friend Chuck Marunde, owner of Sequim and Port Angeles Real Estate, is hands down the best there" Andy R.

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From Florida

We do our homework for the task at hand and we look for and expect to enlist partners that do the same. It was our good fortune to select Chuck Marunde of Sequim and Port Angeles Real Estate to represent us as a buyer's broker in our search for a home in the Sequim/Port Angeles area. Chuck's site is all encompassing and super fast compared to many others, he knows the market at every conceivable level and his guidance through the process of selecting and purchasing a home is priceless - above and beyond that of anyone with whom we have ever worked. Add to all this his 20 year background in real estate law and you have discovered a superb asset in the adventure of purchasing a home. Greg and Marilyn

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