COLORADO, USA — Bryan Vayhinger is a residential real estate appraiser and the president of one of the state's industry organizations, the Colorado Association of Real Estate Appraisers.
He’s been working as an appraiser, formally, for 10 years and is currently based in the Colorado Springs area.
But even before that, the Colorado native tagged along with his mother – who was also an appraiser – which exposed him to the industry as far back as the 1990s.
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He sat down with 9NEWS Reporter Jennifer Meckles to answer some questions about the current real estate market, from the perspective of an appraiser.
Read a Q&A below. All month, 9NEWS will share stories of Colorado's housing market for our "Priced Out" series.
(Editor's note: Responses may have been edited for context and clarity.)
JENNIFER: What does an appraiser do, and how do you fit into the home buying process?
BRYANT: We determine market value of a home through data and analytics, analysis, and our observations, and past experiences for loan purposes to secure that loan for the bank. We are working for the bank.
JENNIFER: The bank is your client?
BRYANT: The bank is our client. Even though the bank doesn’t pay the appraisal, the buyers pay the appraisal, but we work for the bank.
JENNIFER: Your role comes later in the process. Someone made an offer on a home, the [seller] accepted the offer on the home, and now you’re getting into the nitty gritty of figuring out what the bank can loan somebody, based on, if the house is worth what somebody is asking to pay for it.
BRYANT: Yes, that’s it, absolutely. A lot of times we’ll be coming in after the inspection, because most realtors like the appraisal to be completed afterwards. That way, if there's any inspection items that might come up that would kill that deal, then they’re not on the hook for that appraisal - the appraisal fee, the inspection, anything like that.
JENNIFER: How do you determine the value of a house?
BRYANT: For appraisal there are three approaches to value.
- The income approach is probably the least used in single family residential. That determines, based on what that property can generate in income in rent, translated to value.
- The second approach is the cost approach, based on what it would cost to rebuild this house, in addition to cost of the land, minus depreciation. That one is used a little bit more, but it's difficult to determine depreciation and land values when you don’t have [recent] sales of those lots because the neighborhood has been built. It’s a little tougher to figure out.
- The most common is the sales comparison (“comps”), where we're looking at comparable sales in market area, that would be deemed substitutes or properties that buyer would have also considered.
JENNIFER: So, another house with a similar number of bedrooms, bathrooms, in the neighborhood, within the last few months?
BRYANT: We want as recent as possible because it’s the accurate portrayal of that market. When we get into a really unique property, sometimes that [comparable] sale might be a year or two [back].
JENNIFER: What does not determine the value of a home? What’s a misconception people think should count, and maybe it doesn’t really count?
BRYANT: The contract price is a data point that we use, it’s something we consider. But just because it’s something somebody is willing to pay does not necessarily translate to value. We work with market value as our definition, and that is the definition of market value is what people are willing to pay under normal duress.
And if you’re in a really hot market, there's a lot of bidding, and people are losing out – that might not be a normal situation. So that contract price, while a lot of people are saying “Hey, I want to pay this, I want to pay this!" Is this a normal situation? Not so much. And can it be supported? While that is a vital piece of information for us to use, it’s just a piece.
JENNIFER: Can you give us a few examples of things you’ll look for during an appraisal?
BRYANT: We’re looking at the neighborhood, what’s around, the influences, are we seeing a lot of properties being remodeled, trying to see the trends of that neighborhood, that market area. At the property we’ll be measuring to determine the square footage, size, and updating what has been completed, materials used, quality, overall functionality of the home, updates or if it's new, the finishes that were selected.
JENNIFER: How is that different from a home inspector’s inspection on a recently-purchased property?
BRYANT: An appraisal inspection we do, it's fast. If we’ve looked at thousands of houses, we usually know what to look for. We’ll go through a house pretty quick because we’re placing rooms, taking notes. I personally take picture notes a lot, don’t write that much. It’s a quick process – if things look good, and we don’t see any signs of visible damage, we assume it's functioning correctly.
JENNIFER How would you describe the current housing market in Colorado?
BRYANT: Unprecedented. It's unique, it has a lot of intricacies that aren’t seen elsewhere, and it's difficult for everybody. It's difficult for appraisers, buyers and sellers. When you get 50 offers, it's tough to figure out which one to pick. Realtors – they're having a really hard time determining how to price a house, because who knows what that’s actually going to end up doing. Lenders, they’re having a difficult time with just balancing the volume. It's not an easy situation for anybody.
JENNIFER: How has your workload changed, in this current market, compared to a year or two ago?
BRYANT: Over the past couple years, it's been really busy, steady. During COVID we actually got busier. When interest rates fell, we had a lot of refis (home refinances) again. Now that interest rates have gone up a bit, those refis have dropped off a bit, but we’re getting into the typical buying season, the spring buying season. So it's been, absolutely, slammed. It's good to have work.
JENNIFER: Homes are on the market for a record-short amount of time right now. Are you getting tighter timelines from clients?
BRYANT: To a point, it will depend a lot on the patron end of contract. If they’ve got a longer close, then we’ve got that extra time. But typical is, right now, we see a lot of appraisals a week or two out, depending on what that client wants.
JENNIFER: One of the newer, and stranger, trends in Colorado right now is the trend of buyers offering large appraisal gap coverage. Let’s talk about it.
BRYANT: For most properties under $750,000 in the Front Range, we’re seeing “appraisal gaps” on them. That’s an instance where the appraisal value might not equal a contract price. And these [sellers] want to ensure this loan is still going to go through, so they’re requiring that additional cash come to table at closing, to still close at that price that was offered [by the buyer].
The size of these gaps varies. You see 5-10% of that contract price is pretty common right now, but they go up from there. I’ve actually seen unlimited appraisal gaps, where the offer was $75,000 over list, and it was an unlimited appraisal gap. They would pay every penny.
JENNIFER: You have the buyers’ expectations, and the sellers’ expectations, but you work for the bank. Is this a lot of pressure on [your job] right now?
BRYANT: It is. It is. We don’t want to be the guy that kills a deal. We don’t want to be the one that doesn’t allow these people to buy this house or have realtors feel we killed their deal for them, and we don’t want to do that. But on the backside, we’re held to the standard of what we can approve, what we can support through our analytics to support our opinion of value, for the bank, and to protect the banks interest on that loan.
JENNIFER: How has your industry changed, as far as rules and standards, in recent years?
BRYANT: We’ve gotten a lot more. Especially since the last housing crash, the industry standards – rules and regulations on appraisers – have increased a lot. There used to be more of the opinion – as an appraiser, you could give your opinion of value, and it was based on your past experiences. And that was sufficient. Now, everything needs to be supported. And it can't just be based on prior experiences, I think it's ‘this.’ We have to have data and analytics to support that. So it’s a lot more math, a lot more statistics, and complex things that didn’t used to be involved in appraisal processes. A lot more writing.
JENNIFER: Do you think people understand that about your industry? You said you don’t want to be the “bad guy” that kills a deal, but you have other pressures on you besides the contract price on this house.
BRYANT: Absolutely. Absolutely. And that’s, it’s the nature of the beast right now. When everything is going through, these buyers finally won that deal, and the appraiser comes in and says – nope, not going to happen. Well yeah, that would put us as the “bad guy.”
But we are bound by a lot of things, if the market turns – that bank will be looking at that appraisal down the road, however many years, and say, well, are we upside down on this loan because it was a bad appraisal? Or because the market just turned? And so that can come back on us, years down the road.
JENNIFER: Do you get a little nervous about the trends you’re seeing in the Colorado real estate market right now?
BRYANT: To a point. There’s always risk in real estate. There’s always the ups and downs. And we're absolutely in the crazy “up,” and what must go up, must come down at some point. It’s just going to be a matter of how, and when, and if it's gradual or if it's sudden.
If appraisers are doing their job correctly, if we’re looking at actual data that’s supporting it, then there should be no concern on our end if we’re going to have issues, because if we’re basing it on the facts we have, then we are clear.
JENNIFER: You seem to describe an appraiser’s job like a piece of the home buying puzzle that just get can’t get caught up in the insanity of the market. You have to stay tunnel-vision focused.
BRYANT: Yup, and that’s where we're just looking at the numbers. While we know the situation, we know the experiences, we don’t deal with the buyers. I rarely, if ever, talk to the buyer that’s having the appraisal completed. We’ll talk to the agent for the seller, or the bank, but we don’t have that buyer typically calling us up wanting to tell us their story, that can come across as being influenced.
Our job is to be unbiased. We’re supposed to be the neutral ground that has no stake in it. We just come in and analyze the situation for what it is.
JENNIFER: I’ve heard some realtors say they, if they receive 60 offers on a home they’re trying to sell, they’ll try to share that information with the appraiser – to demonstrate a higher value through the number of people interested in the house, participating in a bidding war, and willing to pay top dollar for that home. Does that matter to an appraiser?
BRYANT: It does. It’s a data point that we look at. A piece of the puzzle. It absolutely plays a role, but the loan is going to be based on the valuation with the data we have. And while there’s a lot of people who want this house, it might not be a typical circumstance, so we really need to cut through that and it's data that has to be considered and analyzed. It might make the difference, it might not. That’s where every appraiser will do it differently, but it is important data.
JENNIFER: Is there anything a buyer or seller can take away from our conversation that will help them guess the appraised value of a home, or if they’re hoping to increase the value of their home right now?
BRYANT: It's really tough right now, just because most things are out of the control of that actual homeowner, because we’re basing it on the data for all of the surrounding properties. And while a new kitchen is absolutely a great thing, and it helps the value, it might not be that “make it or break it” because we still might not have the data from comparable properties to support that.
But it’s the idea that, buyers right now don’t have the luxury of picking the one with the nice kitchen. They’re picking one that has a kitchen because it’s for sale.
Views and busy roads. If you buy a house that backs to a busy road right now, it impacts the value much less than it would in an equilibrium kind of market because [buyers] don’t have the luxury of caring about that busy road. That’s on the benefit of that house.
But -- views – people with really good views – right now, they’re not getting as much value as they would in other times because people aren’t willing to pay.
They’re already maxed out. They can't pay extra for a view right now.
JENNIFER: Is there anything else you hope viewers take away from this conversation?
BRYANT: There are a few things that could change the market, coming up. We’ve got a lot of loans right now in forbearance, not making the payments, and through that – it's estimated that 17% of mortgages right now are in forbearance. If those get called in, we could see an increase in inventory that could change the market area.
Interest rates could also have a huge impact. If rates start going up very much, that’s going to decrease a lot of people's buying power.
Those are kind of the major things that we look at, as on the horizon, could impact, but who knows… when or how it will happen.
JENNIFER: Final thoughts?
BRYANT: It’s a unique situation. As a [Colorado] native, it’s unfortunate to see difficulties that natives, or first-time homebuyers, or service members, have trying to buy a house right now. But on the business side, a strong healthy market is a great work environment, job security. So – I’m a little conflicted with the idea of the changing of Colorado, but also happy to have a job that keeps me busy.
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