Don't Over Exaggerate Problems Or Repairs

Now at the same time, don't be like some appraisers and over exaggerate everything as being bad just to Cover Your Assets. This is another aspect that bothers Realtors and I agree with them on this point as well. If you're a doomsday appraiser then you're not doing the client any good because you're over exaggerating things and your market value estimates will be way off base by being too conservative. Don't unnecessarily make the client think that the house is a dump and about to collapse on top of you when it really isn't so bad, or that the house isn't worth $10.

All houses will have some problems because no house is perfect. So you want to be reasonable in your conclusions and evaluations to the client

All houses will have some problems because no house is perfect. So you want to be reasonable in your conclusions and evaluations to the client. If the house needs a new roof, don't make the client think that no one would ever consider buying this house because they will have to sleep with an umbrella over their bed the whole time they live there! Just tell him to get an estimate for a new roof. Plain and simple. You're going to see many houses that have older roofs that will need replacing. Don't make the client think that this is the only house around that needs a new roof. A roof can be an expensive item to repair. However, if he puts a new roof on the house, he'll increase the property's market value. He also won't have to worry about any roof leaks for 20 years. Replacing roofs, heating systems, appliances, etc. is all part of normal house maintenance. Some items are more expensive than others, and some items last longer than others. Whether your client buys this house, or the house next door, he's going to have to do the same basic maintenance to either one over time. The only difference may be how soon he has to do the repairs and maintenance. Just tell him to get estimates on the items that need it, so he knows what his repair costs will be before the closing.

You're also going to see many houses that have negative aspects that affect their market value. Whether it is a locational problem, functional problem, physical depreciation, environmental problem, etc. Despite the extent of the problems, all houses will have some market value. If the house is located in a low income section of town, don't make the client think that no one would ever consider buying this house because of its location! Just make sufficient adjustments for the property location and any other negative aspects in your report. This way you can accurately estimate the market value. Don't make a big deal over something that merely needs a price adjustment in the report. Just be honest and reasonable in your evaluations, plain and simple.

There's risk in everything in life, even crossing the street. What you and your client need to do is eliminate as much risk as possible in their purchase or loan on the subject property. You can never eliminate all of the risk, but you just want to narrow it down as much as possible. Having a good, thorough home inspection and appraisal done; checking the records at town hall; getting estimates for items that you determine need to be repaired; having certain things further evaluated; etc. all help to reduce the risk for you and your client. The more that is checked out then the more the risk is reduced. It's that basic. It's like buying an insurance policy for you and your client. So if you don't get lazy and cut corners, then at least if something does go wrong, then you won't look back and kick yourself for missing something you should have checked out further.

You also have to make sure that you're knowledgeable enough so that you can give the client enough information to help him in his real estate investment. You can't just tell the guy to get a whole host of contractors to come in and evaluate the different aspects of the house further because you're not sure about anything. I've seen this done by some home inspectors and believe me, you're going to have an unhappy client if you do this to someone. I once was doing a foreclosure appraisal for a bank and they sent me a copy of the home inspection report for this house. The bank had paid a very high price for the inspection. This bank didn't know that I did home inspections. They ended up hiring a home inspector that was recommended by a dishonest Realtor who wanted to move the deal along to get a commission. (How unusual for a Realtor to do that!?). There were other factors that came up during my appraisal process which indicated further that this Realtor was dishonest. I told the banker that I couldn't believe it when I read this inspection report and found out the price the bank paid for it. This inspector wrote a four or five page report that told the bank absolutely nothing about the house! This inspection report basically told the lender that since the inspector wasn't sure about anything, the bank needed to hire many different contractors to evaluate: the heating system, the well water system, the septic system, the electrical system, the structural beams, the swimming pool, the roof, etc. Do you believe that? I'm amazed that the bank even paid this incompetent crook that calls himself a home inspector! They should've told him to "whistle Dixie" for his inspection fee and then replace the greedy Realtor for recommending this incompetent knucklehead that called himself a "home inspector".

There's nothing wrong with recommending to your client that they get estimates for repairs that are needed. Or if there are items that you think a licensed contractor should evaluate further. However, don't charge somebody a fee if you can't evaluate anything about the subject property!

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Harry L.'s Avatar
Harry L. replied the topic: #11335
This is the best appraisal advice available. I purchased this appraisal book years ago and still use it as a reference all the time!