Justin Core: Welcome back to another episode of the real estate playbook here to talk about some things that help us control the deal. We're doing it all month. We're talking about components of the deal that we need to be aware of intimately aware of to avoid our deals from backsliding from getting out of our control from being put in position where you know, maybe we feel like we have no grip on this and that emotions are flying high. Our job is to be the the foundational the secure the the one that helps not only control the emotions, but make sense of hard things and prevent issues. We're going to talk about preventing an issue for the last few years. A lot of agents have become spoiled. If you got in and you know, 2020 even just a bit before I've been spoiled by lot of things. Maybe the opportunity is certainly one of them, but I think that also gives the opportunity to fail. when you are in a market that is fast moving and you fail, there's another opportunity right behind it. And so if we don't stop and think about how do I avoid... these things from happening in the first place, we're not gonna become better and we're not gonna survive in markets like the ones we've been in for the last 12 months. You know, so what we're going to talk about is how do I avoid the appraisal issue? How do I avoid my listing or my buyer being put in a situation where we have a third party telling them the home is not worth the price you have on the contract? because sometimes the price on the contract completely market driven. There's 20 people that would be ready to step in and write that offer again, should this one fall through. And so when we're putting our buyers in a position where they feel like, well, did miss something? am I, how do I get beyond ⁓ the issue and still buy the house? Can I afford to do that? We want to make sure we're not getting into that situation in the first place, if we can help it. HousingWire recently published an article called The Appraisal Gap in 2026, talking about how thin comp pools, climate volatility, and increased lender scrutiny are making valuation accuracy harder. Now, historically, only around 10 % of purchases have an appraisal issue. Now, this is not the same in every market, right? Because the percentage shifts when inventory shifts, when transaction volume slows, and maybe lenders start getting tighter on valuation issues. And also there's plenty of properties that people are willing to pay over and above appraisal should should that situation occur, but we want to make sure we're not in the 10 % if we can help it sometimes let's look at it from a different perspective. Sometimes you're representing the buyer. And it works out well for your buyer. You're able to negotiate a lower price. It was not always a bad thing. I don't want to act like it is. But more times than not right now, we have buyers and sellers who have already had a fight to get to the price that they're at. The sellers have already come off their price. The buyer has, you know, maybe felt like it was a little high and now it comes in and now emotions are running high. Appraisals aren't becoming harder because appraisers have changed. The market has changed. From the article, says, HousingWire pointed out that elevated mortgage rates over the last few years reduced transaction volume, which means appraisers now have fewer relevant comps to work with. less sales means more interpretation, more guessing more creative comparisons. And interpreting creates variance. We see this in Florida. If you've done a market analysis in the last month, two months, six months, you might have had a property where you've done a market analysis on and there is very little that have sold in the last 90 days or six months and you're having to look back and say, well, how do I make sense of any of this? Because the two comps I found that have sold or nothing like this property, right? You're really trying to draw some sort of comparison. In October of last year, regulations came out requiring lenders to quality control the automated valuation models, AVMs, that they're using for lending decisions. So lenders leaning into trusting the AVM's ⁓ now ⁓ they were previously. So there was a period where the market was moving. We were in an increasing market and to underwrite these loans. would see maybe appraisal waivers. They're putting down 20 % the markets moving in an upward trajectory. You're getting an appraisal waiver. We saw a lot of that. It still happens but ⁓ overall with the government backed loans, we're seeing less and less of that. So we are having real appraisers walk the house, compare, try to make an educated decision on on what the true market value is. So how we handle that matters. Most agents have idea ⁓ the differences, maybe of an AVM model versus an appraisal model. How do you make sense of the AVM model in light of an appraisal that may differ in opinion and it will they all will differ in opinion. One thing that also highlighted in the article was geographic differences, meaning national models struggling to try to understand hyperlocal neighborhoods, which is certainly a When you even you take a county and you put it on a trajectory line and you know when this home sold last. trying to make sense of does that projected value, does that matter? do the three or four most recent sales around the comp matter, the subject property matter. That's what the appraiser does, right? So we've got to make sure when we're looking at AVM, do we have any ability to understand how it's derived? And you can do that with a lot of these. I'll do a separate episode on that where we talk about a couple of specific ones that you can interact with and make them really good. It will be a good backdrop for you when you're pricing a home. offering on a home or meeting an appraiser. But your local expertise matters. And I think the more you understand that, the more you're going to be able to potentially affect falling into the appraisal gap issue. Appraisers aren't there to just your contract price. ⁓ a, it feels that way many times. They're there to defend and support the value with an opinion of value. Now, for a minute because I've heard it now ⁓ you're listening to this, you're probably going to say, well, how come if they're not there to just justify the contract price? How come so often if I've got a $500,000 sale price contract price, does that appraisers opinion of value land ⁓ close or right on target at my $500,000? price. I thought that for a long time. What is that about? Now, we've got to understand they're working for the lender to justify that value. They're not looking to tell you what they believe the full opinion of value is. So what I find is more times than not, and I'll explain why here in a minute, times than not, they actually will work their opinion of value and then they'll land their opinion of value. number that shows up in the appraisal or just above what the contract price is. Now the reason for this is in the psyche of the appraiser. This helps us understand what they're trying to do because they are like we talked about earlier quality controlled. The AVMs are quality controlled. The appraisers are quality controlled. They're trying to make it all make sense. Right? So if I turn in if the contract price was 500,000 and then I go and I do an appraisal say, this was a slamming deal and I put 550 and then it goes before the quality control board and they look at the appraisers opinion of value and they do the AVM and the AVM says that is high risk kind of a number it need in the real value is much lower even though my contract price may still be within the AVM value. that report will get flagged. So what's actually happening a lot of times when that number is so specific is the appraiser is trying to get out of the way of a future flag from the quality control department from there, from the appraisal management firm, you know, that will control and quality control these. a little nuance to understand why that happened so often. What are the appraisers actually looking at? I would say to to under to think that appraisers are not swayed by walking into a nice house that feels good smells good looks good checks all the boxes the upgrades are done nicely to think they're not swayed by that at all is silly. It's nonsense because it actually should carry weight. doesn't carry all the weight right. They care much about you know other maybe things that might a buyer might drive a buyer to make an offer on it. something that would be emotionally appealing to a buyer for, know, how the ⁓ layouts of they're looking for marketability and comparing directly to comparable sales, right? So more data driven, but to think they're not swayed at all by the other stuff. I we've got to understand when we are meeting an appraiser, we want to put our best foot forward. We want to make sure the appraiser understands the house the way the buyers would have felt the house. If there was multiple offers, they need to know that. Is it going to influence their opinion of value? Probably not really, but it a interesting data point, even if it doesn't make its way into the appraisal, right? So the selections that they make the comparable selections they make matter immensely because they're going to look for like kind properties when they're looking at pictures of other sales. They're going to look for ones that have a feel similar to the one that they're comparing to the best appraisers try not to make too much stuff up. They really try and find sales that matter. So this is where it matters for you the information and the way in which you speak to them matter. Because if you understand they are trying to put their neck out there and make a guess on what the value of this, you know, maybe ⁓ maybe this pool is but rather I could compare to a home with a pool versus one without that's going to be a better that's going to tell the story better. So one of the things I mentioned our agents all the time is we've got to make sure that we run our the comparables we want to provide to an appraiser. through an adjustment We wanna make adjustments for pool, ⁓ square footage, ⁓ all these things, before we go and lead and take them a bunch of comps that we feel might just justify the value. Because sometimes you show up with comps, once they're adjusted, they actually don't help you. You've gotta make sure what you're presenting matters. Most appraisers want to be able to hang their hat on one or two key comps and everything else is going to help tell the story in the secondary fashion. You need it if if all you've got is one that you can point to and you say this is the same house lot. It's only got these key differences. That's something most appraisers can get behind. Now you've got to see this from the other side as well. If there is that one, but it doesn't help you, you've got to understand why it sold for so much less than yours did. You've got to help them. You've got to tell the story as to why it should be adjusted more. or why it should be thrown out altogether. If something never actually went to market and wasn't an arm's length transaction, it sold to a neighbor and never hit the market and just posted like that is information that needs to be considered and known and shared. Unless it helps you then maybe maybe leave it in. But we're going to know all the strings we've got to pull to make sure we're presenting on a clear platter. The things that are going to give us the most highest likelihood of success. So one of the questions is, do you meet the appraisers on site when you're representing the seller? I would not be going representing the buyer. I think that's generally frowned upon. But as a seller, you as a listing agent, you get the opportunity to represent that house, access, you know, if you need to be a gatekeeper, do that. ⁓ make this process hard on appraiser though. We're here to make a friend and make your job easy. Okay. So we meet our appraisers when we're listing agent on site every time we can I'll say it never happens where it doesn't sometimes there sometimes there's nothing to worry about very rarely. Do or are we that confident or it's an appraiser we've worked with. He said hey send me your package. That's what I'm going talk about now is what do we want to share with them because the best agents don't wait for there to be a problem. They manage the risk before it becomes an issue. These are things we can control. These are sales strategies that we're going to bring to bear for our sellers and tell them when we're sitting across the table from them that I'm here to help you avoid issues. I'm help you. I'm here to help you avoid pitfalls that could otherwise lead us down a challenging road where transaction falls through where you're forced to give up, you know, 10, 20, $30,000 like that because one guy who we don't know who's not buying the house said so. I don't want to leave that up to chance. And if we're really doing a good service for our seller, we need to do that. I just want you to know, I believe with certainty, we're going to see more appraisal issues in this coming 12 months than we did even in the last 12 months. because of exactly what this article said. Comps are more scarce. ⁓ appraisers ⁓ use market trends, trending data. Is the market going up or down or flat to adjust for historical sales? If I go back six months for a comp and the market ⁓ generally gone down since then, they may not be willing. to let this one sell for as high as that one. These are market movers, right? If they are placing their opinion in that way on it. We've got to understand how they think about this. Each appraiser is going to have a different opinion on it. One of the things I want to make clear to that appraiser when I meet them on site is that hey, I know what I'm doing. Here's how we justified it before we got started. Here's how the buyer now has written an offer justified it and considered it. And here is the data you're going to need to help make this make sense. Here's two or three comps you need to know about. Here's one that you're going to see and you shouldn't use it. Here's why I talked to that agent. You should call them as well. not an arms link transaction, you know, needed a new roof, whatever it was, like, find out why the bad sales happened. and explain it. So the things you want to bring, we're not just bringing an MLS printout that says the facts that he already knows about the property, he or she. We want to bring comps. We want to bring any and all improvements that have been done in the last five years with estimated costs, right? So if I had a roof put on and it was $35,000, I'm going to ⁓ that in 2024. If I had the HVAC put in earlier this year, I'm going to say it's two systems, this brand, it was this much. If I've got him, ⁓ need to make sure I'm helping him. If he is $5,000 short, I want my improvements package to help. push it over the edge. Some people say, this isn't really my job. It's the appraiser's job. Like. I don't agree with you. I believe this is your job to do on behalf of your seller. We've got to help them understand the neighborhood changes that the market's been improving in this neighborhood. Why? Is it the schools? Is it the, has there been new roads coming in that may make it more accessible and now more appealing and so we're seeing an increase? What is the changes that have occurred since maybe the last couple of sales? Now remember, if we're using really good sales, None of this other stuff really matters that much because that's accounted for in those sales. If I'm jumping to a different neighborhood, this is where the hyper local agent wins. And I'm saying these two streets are different than everything that way. If you jump over this major road to totally different set of comps, you've got to stay on the east side of this road, right? We've got to be that confident in the story in which we're telling. So the things I wanna bring, I wanna bring information on the subject property, the three, four, five comps with notes as to little nuances that need to be considered, my improvements package with estimated costs, ⁓ these are things you're just gonna get from the If you have a survey, give them the survey. If you've got a floor plan, give them the floor plan. These are things that make their life easier. And you probably already have them, right? Grab those things, put them in a package, print them, take them with you, give them one for the road. If you want to send them a digital copy to do that, take them up, take them on that they can then make notes on what you're going to see is they're going to now be making their notes on your floor plan. They're going to be double checking your survey. Your time is going to be saved because they're going to be out of there a lot faster. They're not having to run measurements on everything. because if they can confirm this is the floor plan is a square footage I can just use the county's you know you know measurements right confirm a couple things it's going to be a lot quicker than starting from scratch So my belief is you should meet them there. You should grant access. You should be the gatekeeper of the house. Tell a story, whatever it is you've got to do to be able to help them have a good opinion on how they're going to consider this. Also, don't be pushy. Ask them if there's anything they're missing. Have they already looked at comps? Sometimes they're going to say, yes, I've got it all. I've got ⁓ to worry about here. That's great information. You can leave feeling good about it. They might say looked at it at all. Perfect. I've got exactly what you need. They might say I'm a little worried about this one. Let's then dive in and say, well, here's two or three things. Maybe you saw maybe you didn't. If there's an issue as to why you don't want to use any of these that I've brought, I'd love to hear about it. I'm trying to I'm trying to be educated so that I can carry this knowledge forward to my next appraiser meeting and my next listing appointment. ⁓ Use this as an educational experience. They all operate a little differently. Doesn't mean you can't learn something from them. They're not just a hurdle to get over. They are a part of the experience that you need to master. Especially if you're new in this. this as an opportunity to learn. They're gonna tell you exactly why they can't use that comp and you're gonna say, got it. That makes a lot of sense. I'll find something else. Would you mind if I do a little bit more digging since that one's off the table and I'll send you some more this evening. whatever it is, or they might they might help you fill that gap. Don't be the one that knows everything. Be the one that's there willing to learn. Market is shifting back towards skill. This is a skilled market. You can't work your way in social media and get through this part of the process. You can't you if you're going to leave it up to chance one, tell your seller about it. tell them you're not willing to spend the time to go out there and help push this over the edge. Social media can't solve this. You've got to protect the value. You've got to defend the price. You've got to give the details that are going to help to justify it because typically your story makes sense. Someone liked it for a good reason. Now, I'll close with this. if you know there could be appraisal issues and you're going to contract anyways. Sometimes we need to label that. What do we do if this happens? I'm concerned because there's not a lot to justify. We feel the value is here, but we don't know, you know, you need to understand how the other agent perceives that. Because I've heard agents that say, hey, we'll just deal with that when we get there. I'm not worried about it. Let's just get to contract. If it comes in low, you know, we'll figure it out. It depends which side you're representing as to how you want to posture in that regard. Just because your buyers have the ability to come up over and above appraisal price to pay the contract price doesn't mean they want to just because your sellers Have a number that has come down doesn't mean they can't go get a higher offer from somebody else Right at you know immediately So we've got a you we've got to understand all of the moving parts. Then we got to go help manage it when it's time That's game time. Go defend the value. I think about it a lot like this. I'm the when I'm sitting at the listing appointment and we're talking about value. We're kind of a defense attorney, right? our initial strategy or consult. At some point in the future, you now have to go be in the courtroom defending. those facts, So you've got to you. You don't want to just list to list. We want to list knowing that I can put everything forward. I've got and defend it. Well, I want to defend that price. Well, when it comes time, that's what the seller hired me for. Hope you guys have a great day. Thanks for listening.