Confessions of a Former Transferee: How I Viewed the Appraisal Process

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The relocation appraisal can be a major source of conflict between employers and their transferring employees. Here’s one transferee’s story – and what you can do to avoid a similar situation

Years ago, I accepted a job transfer to a new location, and the relocation process began. During the next several weeks, I suffered through endless inspections – by appraisers; realtors; radon, structural and termite experts – who looked through every closet and corner of my home. I reminded myself “this too, will pass,” and that I’d soon be settled comfortably in my new home, relishing the challenges of my new job.

Then I got the call. As a corporate relocation professional, you know the call I mean: the one where I learned about the average of my two appraisals and the Guaranteed Buyout Offer being made on my home. Stunned and angry, I stormed into the HR department. My recently anticipated relocation had just turned into a nightmare.

“That relo company is trying to buy low and sell high!” I screamed. “I had an appraisal done for a second mortgage a month ago and that was $10,000 higher! Why can’t I use that one? And the appraiser says the interior needs painting, but I just painted it!”

Sound familiar?

Like most transferees, I had taken the situation personally. My reaction had as much to do with the appraiser’s lack of appreciation for my newly painted cinnamon-red living room walls as it did with the financial loss my husband and I would take on the home, the results of a real estate market gone sour.

Ironically, at the time, I was a real estate appraiser myself, and had faced the same reaction from other transferees. I’ve learned, however, that although you and I may understand the basic principles of the relocation appraisal, your transferees often don’t. And sometimes, even if they do understand, their emotions override their reason.

Educating your transferees about the relocation appraisal before it takes place can save you a great deal of time and trouble. Most transferees will realize that while the differences between a mortgage and relocation appraisal can be vast, they are reasonable.

The proof is in the purpose

The major difference between the two appraisals is simple: purpose. The mortgage appraisal is completed for loan purposes, to support either a sale or refinancing. When a mortgage appraiser inspects a property, he assumes that the purchasers – or owners – like the decor; the cinnamon-red walls will have little impact on the home’s value.

A mortgage appraiser is more concerned with the structural integrity of the property. He estimates the home’s value so that in case of default or foreclosure, the lender’s collateral interest is protected.

The mortgage appraiser is also responsible for scrutinizing economic conditions, so he appraises the property based on present market conditions. Although mortgage appraisers may use different approaches to decide the cost of financing, typically, if sellers pay closing costs and/or discount points in a particular market and those costs have not inflated the sales price, the appraisers will not make a deduction for financing.

The problem with relo appraisals

Relocation appraisals, on the other hand, are conducted as if the property is vacant, or in “as is” condition.The relocation appraiser must envision the house minus its furnishings and wall hangings. Will the cinnamon-red walls appeal to the majority of potential buyers? Even if the house has been “neutralized” (relocation-speak for a house painted beige from top to bottom), the walls may need repair and repainting when the wall hangings are removed.

The relocation appraiser considers what typical home buyers in a given area expect, and estimates the cost of any decorative improvements or repair. These anticipated expenditures are usually deducted in full.

Like the mortgage appraiser, the relocation appraiser must also consider current market conditions, as well as forecasted market trends. Are there plant closings planned nearby? Will there be layoffs or group relocations? How many competitive listings does the property face? Is there new construction in the area that will attract the home’s potential buyers? Equally important is the time of year in which the relocation company will acquire the property if it fails to sell within its initial marketing period. If the transferee’s 60 or 90-day marketing period occurs during the summer months, for example, the relo company may wind up acquiring the property during the winter months, typically a slower time for home sales. As a result, there may be financing and forecasting adjustments made against the property.

Comparable neighborhood sales

Often, transferees are encouraged to provide comparable neighborhood sales to relocation appraisers. To appraisers, one high or low sale does not a market make; three, however, may suggest a trend. Relocation appraisers discuss the sales terms and conditions of all comparables with the parties involved in the sale. If a sale has occurred, high or low, which is not considered a “normal” sale in the market, the appraiser will disregard it. Transferees also need to understand that the more current comparable sales are, the more closely they reflect current market values and trends.

Decorative dilemmas

Relocation counselors frequently advise transferees to complete any unfinished projects or minor repairs before the appraisal. Too often, however, transferees take this to the extreme. I, for example, added custom built-in’s, papered and painted, spending thousands of dollars I would never see again. Of course, the appraiser’s trained eye stripped the wall of its hangings and noted the umpteen thousand nail holes that would need spackling and repainting.

The built-in bookcases I’d added did increase the home’s marketability, but not its value. This is generally true of other features as well, such as upgraded carpets, hardwood floors, pools, Jacuzzis and extensive landscaping. If a prospective buyer wanted to pay actual cost for these items, he would more than likely add them himself according to his own needs and tastes.

A final word

The relocation company never intends for the Guaranteed Offer price to be the highest or best offer a homeowner will receive. Rather, it is offered as an alternative in case the owner is unable to sell his home during the marketing period. Transferees who are aware of this are often willing to reduce their current listing price accordingly, since this will often result in a sale price higher than the appraised value of the home.

A real estate appraiser for 10 years, Faith Kaiser currently manages transferee services at Mobility Services Inc., Newburyport, Mass.

 

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