A newspaper columnist asked me today if I’m still seeing properties fail to appraise for their sale price in rare cases, like we saw a year ago around this time.
It got me thinking about the way appraisals are done with respect to Toronto real estate, and the differences between appraisals on houses and appraisals on condos.
If any of you work for banks, or better yet – in appraisals, feel free to chime in, and if you think I’m out of line with the following, then please tell me…
Last week, I got a phone call from an appraiser, who asked me, “What did the property sell for?”
It was my listing, and he was doing an appraisal for the buyer’s lender, so while I didn’t want the deal to go south (not that it would…), I did take this as opportunity to play around with him and get an answer to a question I’d had for a long time: Do appraisers just appraise at the sale price, or is there any work involved in their jobs?
It depends on whether it’s a house or a condo, as we’ll discuss shortly.
So I asked this gentleman on the phone, “Well, what do you think it’s worth?”
There was a pause, no emotion, and then, “Can you please simply tell me the sale price?”
I asked again, and this time a bit more directly, “Well, you’re the appraiser, right? So what do you think it sold for?”
He then answered, “I don’t have the Agreement of Purchase & Sale in front of me, and I’m just trying to get this thing finished – can you please save me a trip to the office, as a professional courtesy, and tell me what it sold for?”
So I told him.
And that was the last I ever heard of it.
Folks, I really, truly believe that in many of the Toronto condo sales of a simpler nature, the appraisal isn’t really an appraisal; it’s an exercise.
I don’t know how the lenders work from the top down, nor should I. But I would guess that when it comes to some random $400,000 condo, there’s a lot less risk for them than with a $1.1M home that was listed for sale at $849,000.
You might suggest that the condo market will go down before the housing market, and thus I have this backwards.
But it seems that the “appraisals” are a heck of a lot easier when it comes to condos!
I’ve been on these “appraisals” before, and there’s little to them. At least, the ones I’ve been on.
The last one I went on lasted under a minute. The “appraiser,” (and I’m sorry if I put that word in quotes, but if I lift up a weight, I don’t become a “weightlifter”) came into the unit, walked through each room, opened the sliding glass door and closed it, and said, “Okay, I’m good.”
So what is that exercise, exactly?
It’s not an “appraisal,” or at least not by any definition that I know.
My guess is that the lenders are just trying to see that the unit exists, that it’s not mortgage fraud, or that the condo isn’t grossly misrepresented, ie. the listing says it’s a 2-bed, 2-bath, but it’s really a 1-bed, 1-bath.
I think, based on the condo appraisals that I’ve been on, that the process for smaller, cheaper, somewhat “safer” real estate is a lot simpler than for single-family homes, where no two properties are alike.
Then again, there’s always the human-element to the appraisal, as I detailed before on this blog on the only occasion I have EVER seen a condo not appraise.
I dedicated 1,600 words to this once, so let me give you the Coles notes here.
I sold a condo for, I think, $348,000, and the appraiser showed up to do his thing on a miserably cold January day.
He called me out of frustration multiple times to say that he couldn’t find the lockbox, then couldn’t open the lockbox, then he got a parking ticket, and he spilled his coffee while trying to open the lockbox. He complained that he was freezing cold, that he might have got frost-bite trying to open the lockbox!
He was pissy the whole time, and was mad that I didn’t put the lockbox in an area that wouldn’t get cold. Perhaps, like, a sauna…
He appraised the property for $345,000, which I still believe to this day, was because of how mad he was at the weather, and just his day in general.
I called him directly to ask him why he had appraised it at $345,000, and he didn’t give me two seconds on the phone before he hung up.
In the end, my buyer-client went to a different lender, with a different appraiser, and they got the property appraised at $348,000.
So what the hell is the point of an appraisal?
I think that if a lender wants to lend, they’ll lend.
As I said, I’m hardly the CEO of TD Bank here, but I think the appraisal serves as a risk-management tool in assessing which loans to take on, but since they’re done on a case-by-case basis, you’re always going to have human emotion and human error.
In the case of single-family homes in Toronto that sell insanely over-asking, the appraisal process is different than that of condos, and it plays more of an important role, but my point remains: if one lender won’t lend, you can easily find another.
And that’s because if one appraiser doesn’t appraise the property at the sale price, then another will.
I’m sure there are cases of TD losing a deal to RBC based on appraisal, and RBC losing a deal to TD based on appraisal.
If a lender wants to lend, they’ll lend.
As I told the newspaper columnist today, there’s this common misconception that if your property doesn’t appraise for what you paid for it, then you’re in trouble.
Not you’re not. Unless, you think there’s ONE lender out there, and that’s your “good ole’ loyal bank” that you’ve been with since you were a child.
Take the situation of an $849,000 listing that gets 14 offers and sells for $1.1M. Sound crazy to you? Well, it’s not crazy to the person who paid $1.1M, or the buyers behind them that had offers of $1,088,000, $1,075,000, and so on.
So let’s say that they’re pre-approved with CIBC, and CIBC sends out an appraiser who comes back and says the property is worth $1,050,000.
This means, of course, that the buyers have to come up with that $50,000 in cash.
That is the fear that many buyers have, and it’s what most people will tell you is the worst-case scenario when buying a home, unless, you know other letters in the alphabet like TD, and BMO, and RBC…
If CIBC’s appraiser came back with a value of $1,050,000, that’s fine. Don’t worry.
Call your mortgage broker and have him or her call Scotia, and they’ll send out their appraiser. When that appraiser comes back with a value of $1,100,000, then it’s the end of this story, plain and simple.
If that appraiser comes back with $1,070,000, then call TD.
And so on.
Now I’m sure that the market bears, and anybody who works for a bank, will tell me this is problematic, or troublesome, but it’s not.
It’s like dating, really.
You date somebody, you find out it doesn’t work, and you move on.
You try it again, and if you’re not compatible, then you cut ties.
You keep trying until you find “the one.”
And when it comes to lenders, not to sound like a broken records, but if a lender wants to lend, they’ll lend.
If you’re reading this, and you’re a mortgage broker with BMO, then of course you don’t want me to tell people to go to another lender. But what would you do?
Would you come up with that $50,00 difference in cash?
Or would you go to a different lender who will provide a different appraisal?
Perhaps the market bears will suggest that this has the sounds of a “US Style Housing Problem,” but we’re not committing fraud here, nor is there misrepresentation. If three people arrive at three different prices for a home, then what’s wrong with finding the one that works best for you?
So what’s the point of an appraisal?
It all depends on whether you’re a buyer, seller, mortgage broker, bank, or of course, and appraiser.
And if you’re a buyer, all I’m saying is that you do have options.
Nothing is carved in stone.
Especially appraisals; most of them aren’t even done on clipboards anyways…Back To Top Back To Comments