In a property deal, a real estate appraisal report is very important and especially when financing is involved. Real estate property valuation is never an easy thing, it involves many complexities since every property is unique and many factors are taken into consideration in the valuation process.
These complexities add to the delays in completion of these transactions. Angus Reed – a real estate professional, explained us the pitfalls in the evaluation process. Following are the four major reasons he pointed out:
- According to the state regulations, for all real estate loans exceeding the value of $250,000, a “financial institution” must be involved as a client of the Appraiser. These financial institutions are free to choose an Appraiser who will deliver the report in time, charges the right fee and provides the best report. In this process, the appraiser is provided the characteristics of the property so that he/she can provide the best estimates. If there occurs any minor mistake in the initial steps, this can cause huge delays and can pose an obstacle in the underwriting. Hence, you need to provide the information about the property very precisely.
- The second obstacle that often comes amidst the evaluation process, is the wrong contact person provided by the lender. Typically, the lender provides contacts of the borrower and not the broker or the seller, hence the borrower has to take the information and solve discrepancies by coordinating with the seller since he/she does not have any information with him/herself. The access to the property for inspection purpose also gets delayed sometimes if the property is on rent and the tenants are not able to give the access for any reason. So, you need to provide all contacts of the right people with whom the Appraiser may have to deal with.
- Sometimes the participants are not cooperative with the Appraiser. It often happens that the seller becomes too secretive about an information that is needed regarding the various repair works that are needed to be done. It is also important for the Appraiser to know what repair works have been carried out in the recent past. The financial institution seeks clarifications about each and every details that may affect the pricing of the property. It is the duty of the Appraiser to provide full information which becomes very tough when the seller hesitates in sharing these data.
- It happens often happens that renovations or new constructions are also involved, these things can change the final price of the property. This also leads to serious delays in the evaluation process. Sometimes there can be disputes regarding the original price of the property and the cost of the construction. And a dispute can further delay this. An accurate estimation is not possible unless the renovation or the construction work is complete.
- Mostly, an Appraiser is paid a flat fee for an appraisal report. An Appraiser needs to work on many projects since he/she cannot depend on one project only. It is also possible that there is a clash of appointment dates which can add to the delays in a report. There are no contingency fees that is paid due to delays because of other participants. Hence, delays can always create a vicious cycle of more delays.
The practice of Appraisal in the US is regulated by a non-profit organization called the ‘The Appraisal Foundation’ (TAF), which is overseen by a subcommittee of Federal Financial Institutions Examination Council (FEIEC) called the Appraisal Subcommittee(ASC).
There are many more obstacles that may come up before closing a property deal. Real estate dealing usually takes time and needs a lot of patience.