By: E. Grant Murphy – COO of DS Murphy, SRA
In June, a fractured lock link prevented the nose gear of a Delta plane to extend, leading to an emergency landing at Charlotte Airport. Luckily, no one was injured in what was likely a terrifying moment. That is a lot of build up for one single moment. That story got me thinking about how landing a plane is similar to the appraisal process. As appraisers, one of the most anxiety-inducing parts about our job is submitting the final appraisal report to the client. You sometimes never know how a client is going to react to your value. I’ve had clients mad at me for coming in over contract price on a purchase (they wanted to use the appraisal to negotiate), and plenty of folks thrilled that I came in under contract price (and saved them money). Both of those scenarios are unexpected outcomes for those situations. However, I think we can all do ourselves a favor when writing/delivering reports by thinking of the appraisal process as landing a plane. A successful landing is on time, smooth, and has no expected hiccups.
The first and most crucial part of the landing is timeliness. Landing a plane is only easy when the communication is top priority. It’s easy: BE. ON. TIME…for the inspection date/time and for the delivery date/time. When a plane is chartered, the airline informs air traffic control of their estimated departure time (inspection date) and their expected arrival time (due date). If a pilot tells air traffic control they will be landing at 5:10 and then they show up at 5:45 without alerting anyone, will air traffic control (lender), the grounds crew (underwriter or reviewer), or hospitality staff (closing attorney, buyer, etc) be ready for their landing? The same applies to us; if you tell a client up front that you need another day or two to finish the report, they will often say, “Sure, no problem.” If you do not tell them ahead of time that the report will be late, you will receive phone calls, emails, negative marks, etc. It’s all about communication and holding yourself accountable. Remember the D.S. Murphy motto: “Under-promise, Over-Deliver”. Facing delivery date “headwinds”? Set the due date of a new order for a day or two later than you think you need to finish the report. Make your runway longer than you need it to be to safely land the plane. That way, if something goes wrong, you already have a built-in safety margin. Clients are much more excited when you tell them it will take a week and it ends up taking 3-4 days than if you tell them 3-4 days and it ends up taking a week! Even if it ends up on the exact promised timeline, everything proceeds smoothly because that’s been the plan all along.
The next-most important part of a smooth landing is setting correct expectations for our clients. In the case of GP assignments, we ALWAYS strive to call the referring listing agent before releasing a Prelisting Consultation Appraisal to make sure we are on the same page as the agent. This serves two purposes: 1. Making sure we aren’t about to undermine the agent involved by releasing a very high or very low appraisal and 2. Presenting an opportunity for the agent or homeowner to provide their own information for us to analyze and present to them. The easiest way to satisfy a client is to show them you listened to everything they had to offer. Give a brief description as to why you did not include a comp they thought would help their value. Discuss that bonus room with ceilings that are too low to count for GLA. Explain to them why the report shows 3.5 baths when they have 4.5 baths including the basement bathroom. Detailed explanations matter!
For bank work, we need to clearly communicate up front any required repairs or conditions of the appraisal. The last thing a processor or underwriter wants to see is an appraisal being made subject-to repairs or subject-to inspection 36 hours before closing. If you saw an issue at the property that you will HAVE to include in the appraisal to satisfy your own liability, send a message to the lender immediately upon returning to your office. This gives them time to consider 1. What they might need to begin doing to satisfy the condition (calling contractors, speaking with the agents/buyer to modify the contract, etc) and 2. Whether or not they can even proceed with the deal. If it’s an FHA order and you have a $40k repair that needs to be done, chances are that deal is dead in the water. It’s much easier for the lender AND FOR US to have it canceled at that stage. We collect a trip fee and everyone goes on about their business. The flight plan can always be revised but only if everyone involved is on board with or aware of the changes.
I also like to discuss potential “weather conditions” that could make the appraisal difficult. Every flight has a co-pilot because potential dangers should never be viewed through the lens of 1 person. Things like extraordinary assumptions (foundation issues, water leaks, suspicious smells, etc), why finding 1 bedroom/1 bathroom above grade comps could be tricky, why a bank appraisal will have a hard time with a Geodesic Dome house, and what market conditions could be facing the new listing are all items I like to bring up at the site visit (if relevant). The sooner you can break the owner of thinking the home is worth $1m when it’s only going to be in the ballpark of $800k, the smoother your landing will be. Ask them about the house on their street with a finished basement that closed for $850k a few weeks ago. What makes them think their home is worth $150k more despite our basement being unfinished? Ask them whether they consider their $200k pool normal for their neighborhood of $350k homes. Start the ball rolling on talking them down from their high expectations. You are the pilot, but consider their perspective and bring them to your side when needed. You might also explain that the worn carpets and missing floorboards are likely to be a marketing issue. Then, they may decide they will replace the carpets and fix the floors. That makes our appraisal easier! No more across the board adjustments for condition or trying to find a comp in disrepair. By coordinating with the client, we can then make the appraisal subject-to repairs so they know how much it will be worth going forward.
According to Wisner Baum, nearly half of aviation accidents happen on approach or landing but only 14% occur during takeoff. Set the expectations from the beginning. If you have an appraisal that is facing exceptional headwinds, let the lender or your client know. They may be able to help, and, at the very least, they will understand the lengths you went to in order to prove the value of the home. The more everyone is on the same page throughout the process, the smoother the landing of the appraisal will be.
What you see below is what happens when you get the assignment for an earthen home on 8 acres. The appraisal/landing may be messy but because you did an excellent job lining up the landing by communicating with the lender/borrower, the appraisal makes a safe (albeit bumpy) landing, and you save the deal!
