The article below originally appeared in the On the Move Section of the Houston Chronicle on August 1st, 2014. The article, written by reknowned relocation industry writer/blogger Michelle Sandlin, does a great job of explaining the key differences between relocation and traditional mortgage appraisals.
There is often much confusion over the difference between a relocation appraisal and a traditional mortgage appraisal, and the intended use of each.
Relocation appraisals come into play when a seller is moving as the result of a corporate relocation, and is part of the relocation home sale process through the seller’s employer or third party relocation management company. Its purpose is to establish an anticipated sales price for the transferee’s property. In contrast, traditional mortgage appraisals are ordered by lenders for the purpose of establishing a fair market value of a property based on the current real estate market.
Mike Brubaker is president of Brubaker and Associates, and has been appraising properties in the greater Houston area for over 25 years.
In a recent interview he said that the primary difference in these two kinds of appraisals is that the mortgage loan appraisal is based on a value as of today, while the relocation appraisal is a projection into a future sales date.
“For the mortgage loan appraisal, you’re estimating fair market value, and for the relocation appraisal, you are estimating most probably sales price.”
Brubaker also pointed out that the client for these two types of appraisals is not the same.
“If my appraisal is for mortgage financing, then my client, by law, is the lender. It’s not the borrower, and it’s not the seller. Without the lender’s permission, I can’t even really talk to the buyer about his appraisal. If we’re working on a relocation appraisal, then the third party relocation company is the client.” Brubaker added, “The mortgage appraisal belongs to the lender. It doesn’t belong to the buyer and it doesn’t belong to the seller.”
In an appreciating real estate market like Houston has been enjoying for quite some time now, Brubaker said that it is not uncommon to see appraisal issues, whereby many homes do not appraise for the contract sales price. In our market today, many homes are selling well above asking price.
Additionally, Brubaker said that not all appraisers are allowing for positive time adjustments.For example, if a property sold in January in an area where the property values have since risen 10 percent, Brubaker said that the appraiser should apply that forward adjustment. Unfortunately, he said that not all appraisers make that adjustment.
If a home doesn’t appraise for the contract sales price and the buyer cannot come up with additional cash to buy the property for the agreed upon contract price, then Brubaker said that the seller’s best recourse is to put the property back on the market for the next buyer.
“The number one thing is that in a dynamic market, whether prices are appreciating rapidly like they are in Houston, or whether they’re declining rapidly like they did in some other markets in the recent past, appraisers are always late to the party. We’re always looking at past sales to try and indicate a present value, and many times we are behind the trend.”
A strong seller’s market puts the buyer at a distinct disadvantage. According to Brubaker, we have many buyers relocating to Houston who don’t understand that. They are also at a disadvantage due to the lack of inventory of available properties. This is compounded by the fact that they have a fairly short period of time in which to find and purchase a new home.
“I think the number one thing is to educate our buyers and sellers that right now the financing process, of which the appraisal is a part of, is very tough,” he said. “Both buyers and sellers need to allow for some level of difficulty, but by no means should a seller ever renegotiate low because of a low appraisal, because if that seller renegotiates lower, that’s my next comparable sale in that market.” For example, Brubaker said that if a buyer agrees to pay $175,000 for a home and the seller accepts that price, but the appraisal comes in at $150,000, and the seller renegotiates to the appraised value, that the result is a contract price that was not determined by any market force.