No praise for new appraisal process
Letter to the Editor
By Inman News, Monday, June 29, 2009.Re: 'Appraisal issue coming to a head' (June 26)
Dear Editor:
I have seen the repercussions of the appraisal issues firsthand. Our office has lost approximately 50 percent of our transactions due to faulty appraisals.
One recent transaction, in which we represented the sellers, is a perfect example. We had priced the home to attract buyers. We had several offers higher than the list price. The sellers accepted the best offer, and both buyers and sellers were happy.
The first appraiser, who is local to our area, conducted an onsite appraisal. The appraised value was slightly below contract price. The buyer and seller split the difference, and the transaction moved ahead.
Just prior to the close of escrow a "desktop" appraiser from New York issued a second appraisal $70,000 below the first appraisal. At the new appraised value, the sellers would be forced into a short-sale situation if the sale moved ahead. To make matters worse, they were told the second appraisal will follow their house for six months.
The sellers can't sell; the buyers, who really loved the house, can't buy; and the lender can't lend.
What's the point? There are no winners and no one is served -- not even our ailing economy.
Linda Forester
Team Leader, Keller Williams Realty
Santa Cruz, Calif.
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Submitted by William Malkasian on June 30, 2009 - 3:45am.
Ok great story but no facts:
Why is the appraiser low balling the house is the million dollar question?
1.Does he/she not have access to comps due to lack of membership in MLS?
2.Does he/she use foreclosed properties near the house being sold to alter the pricing?
Need more details beyond that the appraiser did a bad job...I need to know why if we plan on making changes to the HVCC or underwriting standards within the Federal Government
Submitted by Derek Eisenberg on June 30, 2009 - 3:49am.
Where are the comps Ms. Forester? What's happening is simple and it has nothing at all to do with the new appraisals rules. EXCESS SUPPLY is the what caused this!!! The same thing happened after the S & L crisis. It's not appraisal rules. It's the number of foreclosures and unsold houses flooding the market prodcuing low priced comps.
If you are going to make a statement like this, talk about the comps that support your value as well as why the new appraisal rules caused the problem. I would bet that what really happened was that both appraisers found lower priced sales of comparable homes. Accept the market for what it is, and don't give your sellers unrealistic expectations. As for the bidding war, my gut is that the Realtors caused that by not showing the buyer's enough similar better priced alternatives. I bet those buyers were told the house was a great deal and they wouldn't see prices like that for long.
Also, there is a winner; the American People are the winners because had that bank made another loan based on an overstated appraisal, TARP funds would be needed to help that bank. Thank goodness that there is some system of checks and balances.
Derek Eisenberg
http://www.mls2u.com
Submitted by Jerry Hoffman on June 30, 2009 - 5:26am.
Linda,
Specific facts may be missing but gave enough for most of us to realize and on-site appraisal by a local appraisal is tremendously more valuable than than a "desk top" appraisal, which is tantamount to Ray Charles scoring Dancing With the Stars.
Since the assumptions of William and Derek seem to ignore an site inspection by a knowledgeable appraiser in favor of a "desk top" appraiser, I assume they also give more credence to an HMO over ruling the advice of their physicians.
As for Derek's nonsense about the Realtor's creating a bidding war because they didn't do their job and manipulated the consumer, he obviously has limited (I'm being generous) knowledge of real estate. More than likely he has an ax to grind for some reason. Either way, he ignores the obvious to make an uneducated assumption to disparage agents. (Probably didn't get enough attention as a child)
80% of these buyers have been searching on line before they ever get to an agent. Everybody who has been conscious for 5 minutes in the past couple years knows we have a surplus of inventory - lots of choices. Even in this market, some properties will standout and attract more buyers than others. The market is and always has been driven buy buyers demand. The market dictated what your property is worth, in your market. An appraisal (on site) lowered that - somebody from out of nowhere, with zero knowledge of the marketplace, starts cherry picking comps without the benefit of an on-site inspection and throws a dart that lands on a wall somewhere, but misses the board completely.
It may not be the so called code that created this problem. The real issue is why a second appraisal was needed and why it superseded the first appraisal. If this is necessitate by some new guideline, that needs to change. Considering it sticks for 6 months, I assume it was an FHA appraisal. If the lender needs two appraisals, they need to be on site inspections of subject and comps. Now we got buyers paying for two appraisals?
the root of the problem we are in lies with the lenders, not the appraisers.
Get back to the rational, reasonable and realistic guidelines of several years ago and the market will return to a level of sustainable growth. If the misguided powers that be continue focusing on the wrong issues to deflect examination of the real problems, we will all suffer - especially the consumers who buy and sell.
Jerry Hoffman
RE/MAX Territory
Elk Grove Village, IL
Submitted by Jill James on June 30, 2009 - 7:32am.
To William & Derek... No, you are not going to get all the gorey details in an Inman News post, so don't think that a lack of details means that the agent involved is all wrong. And, btw, Derek, I've seen a number of your listings that have sold for more than 10% less than the original list price, so chiding others for not counseling their Sellers is like calling the kettle back! You know the saying, those who live in glass houses...
It is known by most of us that have had any business in the last 6 months that the appraisal situation is tenuous at best in many instances. Are they all bad? No, not at all. But, when they do go bad is can be a doozie!
In my most recent experience, while waiting the 4+ weeks for the appraiser that OVER appraised the property to respond to the FHA questionnaire about his original appraisal, which was more than 30% higher than the purchase price, the first time Buyers had to move out of their apartment because they had already given notice (they thought that they had a two week buffer/overlap between the lease end and the closing!) and had to sleep on the floor at a friend's house. They also had vacation time reserved for the move time, which could not be changed, and, because of the delay, had only two days left of vacation for the closing and their move.
Under the current rules, the mortgage rep is not allowed to speak with the appraiser and the emails from the designated contact person went unanswered for two weeks. I was finally able to find out who the appraiser was and gave him a call to plead for his response. Of course he promised to respond within 24 hours, which he did not. Three days later, he called the mortgage company and asked for a copy of the original appraisal -- he didn't even have a copy of the appraisal that he did! Once he got the appraisal, he did complete the questionnaire within 2 days. If only he had reacted responsibly in the beginning and/or we had a way to communicate without using "stealth" techniques, the Buyer and Seller could have moved on without the trauma of this appraiser induced delay.
This is not even knowing or not knowing the market issue, it is pure incompetence and unprofessionalism AND no one has any recourse to keep this appraiser from doing future appraisals and messing up other peoples' lives! SO, since the consumer -- Buyer or Seller -- is being messed up, how can these rules be good?
I'm not saying that what has happened in the past was all good, but swingng the proverbial pendullum so far the other way is not good either. The rules should be re-addressed and corrected -- in the business world it is called "continuous process improvement". Let's see if the "government" can learn from its mistakes and the real feedback and IMPROVE the radical process it put in place, so that we can be functional going forward.
JMJ
Submitted by Kent Simpson on June 30, 2009 - 8:40am.
One thing I find curious about the HaVoCC rule is that we can't contact appraisers (ostensibly to prevent 'tainting' them), but I am constantly getting calls from them about properties that I've represented the buyer on.
Are we headed towards a marketplace where prices are dictated from hundreds & thousands of miles away? Why not just turn the whole industry over to HUD in Washington D.C? After all, government is the most efficient instrument to conduct commerce with - according to the faceless bureaucrats bent upon expanding their sinecures.
Submitted by Jon Astaris on June 30, 2009 - 9:31am.
Kent Simpson: Yes! Prices, salaries, jobs, cars you drive, food you eat, and before long, if you live or die, will be decided by some department in a ministry somewhere deep inside the government.
The sheeple knew exactly who and what they were voting for; they are content; no need to worry, or even think, the "Appraiser" knows everything. Agreements between buyers and sellers, laws of commerce, common sense even - who cares about such old, decrepit notions? A new hope has risen upon the world, and the old world needs to "get it" or perish.
Submitted by Shriber Sayles on June 30, 2009 - 9:47am.
As a mostly buyer's agent, even before the new system, I have had appraisers do less than the bare minimum to estimate a value. The many short sales and REO listings in our market are often priced way below value to generate multiple offers - which they do. Appraisers aren't even calling these listing agents to find out what the offer amounts are or how many offers they have, even when a sale is pending; they're just using the list price as comparisons, as if they were solds. And, even appraisers living and working IN our local market use comps that are outside of the immediate neighborhood. Why go out one mile, when there are plenty of (often higher) comps right around the corner? I found that using local lenders are much easier to work with. When these situations arise, one local lender I work with has asked me to send comps showing our offer price was within range. They go straight to the underwriter, who can usually get an appraiser to change his report to reflect the offer price (some come in just below, to save face I suppose). Why on earth can I come up with comps, but a local appraiser can't? Before submitting an offer, even I call listing agents to see what the offer situation is. Why wouldn't an appraiser? If they're too overloaded, then they shouldn't take the job. Pass it on to someone who wants to do it right.
Submitted by Joe Loomer on July 2, 2009 - 4:41am.
Linda,
William & Derek seem to either be appraisers or are related to them. Providing the comps and all the other data would merely offer the opportunity to identify the parties and perhaps have unintended consequences you did not intend. I completely agree with you.
So does the National Association of Realtors' President and Chief Economist.
The appraisal issues country-wide have become so prevalent that NAR Prez Charles McMillan found it so important that he spent most of last week in New York and DC, meeting with the Assistant Attorney General and members of Congress to put the skids on the HVCC or modify it to specifically address the vast disparity between the Pending Home Sales Index and the actual sales totals. I quote McMillan in NAR's 1 July press release about the Pending Home Sales Index and it's fourth straight month of increases:
“We see that distressed homes often are selling for 20 percent less than normal homes in the same area, but some appraisals don’t distinguish between traditional homes and distressed property,” he said. “In many cases appraisers from outside the area are being used, but as everyone knows real estate is local and appraisals should be done by an expert with local expertise.”
McMillan said sellers shouldn’t hesitate to speak with an appraiser about their home. “Sellers should feel free to tell an appraiser about improvements and renovations to their home, and how it compares with other homes in the neighborhood,” he said.
“Also, if recent sales in the neighborhood were discounted, but not similar to your home in terms of quality or condition, that should be pointed out. It wouldn’t hurt to put all this in writing, especially if an appraiser is not familiar with your area. A Realtor® could offer guidance and information to help you with this process.”
William and Derek need to do their homework before jumping on the appraiser bandwagon. Like every industry - appraisers are 90% completely legit. Why would the president of an organization that represents 1.2 million members - including appraisers - take the time to spend a full week in direct discussions with the nation's leadership if it was not a huge issue?
Augusta GA Homes
Navy Chief, Navy Pride
Joe Loomer (USN Ret.)
Associate Leadership Council, Growth Chair
Keller Williams Realty Augusta Partners
Submitted by Marcy Spieker on July 2, 2009 - 7:30am.
It seems as though the HVCC has not done anything but harm the real estate industry. Our local paper (Seattle Post Inteigencer) has a great articel about it and the number of sales that fell out of escrow since May 1st as a result of the HVCC. There is a sizable movement to repeal the HVCC and you can go in and sign the petition.
Please send this to everyone you know and ask them to sign at www.hvccpetition.com
Thank you.
Marcy Spieker
RE/MAX Metro Realty
Seattle, WA
1-877-270-HOME
Submitted by Tom Molinari on July 3, 2009 - 8:07am.
Here are my recommendations;
1. Have your seller make a list of all improvments made to the property over the last 5 to 10 years along with their costs. Give a copy of the list to the appraiser and retain a copy for yourself.
2. Prepare a list of the property attributes that you feel contribute to the appeal of the property and give it to the appraiser. Items such as school district, floorplan, landscaping, etc. to be sure that the appraiser at least considers these factors.
3. Give the appraiser a list of the comparable sales that you consider to be the best market value indicators for the property along with a brief statement of why you think that they are the best. Remember, most appraisers don't go on caravan and may not have as good of a feel for how the interior of a comp compares to the subject property. This is especially true of the inferior properties as the listing agents typically don't advertise when a home is in need of work, or has a poor floorplan, or has foundation issues. Make sure that the appraiser is aware of these factors.
3. If you do have the situation of two price ranges (foreclosures & short sales vs. normal owner sales) within your neighborhood, point it out to the appraiser. List the nearby distress sales and listing separately from the "normal sales" and prove that two separate markets exist within the same neighborhood. However, make sure that all of these sales are current. You can't use "normal" sales that sold a year ago and expect the appraiser to to consider them to be pertinent. Provide the most recent and most comparable foreclosures and normal sales to prove the prevailing market conditions. You are not doing the appraiser's work for him/her. You are just adding to the appraiser's knowledge base to be sure that he/she is aware of the best comps and the local market conditions.
4. Remember that it is not the appraiser's job to make or break a deal. The appraiser is there to provide an independent, disinterested, third party opinion of the value of a property. I am an appraiser and I always approach an appraisal assignment assuming a knowledgeable buyer and seller acting prudently in their own self interest. However, the data provides the support for the sale price. If the best comps support the sale price then all is well with the parties to the sale. When the comp data is not there, then the value is what it is.
The appraiser just reports what he/she knows. It is in the agent's best interest be sure that the appraiser is aware of the most pertinent value influencing factors and has the best data available to come to a reasonable and informed value conclusion.
Tom Molinari, Appraiser
Email: Tom@HomeAndRanchAppraisals.com
Website: HomeAndRanchAppraisals.com
Submitted by Tom Lois on July 3, 2009 - 9:33pm.
It's a frustrating and seemingly unfair situation these days - for the seller, the buyer, the appraiser, the lender - not to mention the real estate professionals. It seems to me that until the "rules" are revised and made more equitable for everyone the best solution is for everyone in the transaction to have eyes wide open. That is to say, proactively anticipate possible roadblocks to a successful closing. Everyone's expectations need to be managed, and this strategy is best accomplished by total disclosure of all current market statuses and recent market history. There needs to be open reporting by lenders and appraisers every step of the way during escrow, and there should be diligent and programmed communication to all principals. All of this anxiety is resultant of the fear associated with the unknown status of the project.
Submitted by Barry Noble on July 6, 2009 - 3:15pm.
Still another case of blame the appraiser. Now it's blame ALL THE appraisers.
Most cases of low valued appraisals result from the Appraisers using the correct comps of all the properties that reflect the true decline in the market. In some areas the decline can be viewed as anywhere from 8 to 18% or more, per quarter.
In a massive declining market, foreclosures and short sales ARE CONSTRUCTIVE AND RELEVANT as comparables, because they are the majority of sales at the time and for the then foreseeable future. Agents don't like to use them or acknowledge them.
Appraisers watch, study and interpret the Markets, and in a rising Market, show the value increases that reflect that Market cycle. Likewise, in a continuing, declining market - despite the wishful thinking of the agents and sellers, the appraisers must conservatively and accurately reflect, in their opinions of Current Market Values, the DECLINING Market values effects, and yes, short sales and foreclosures in the large numbers that are showing up - DO AFFECT the general Current Market Values, in a negative way.
It's not the appraisers' fault - it's not the appraisers' doing - they only interpret the Market - but the bearers of bad tidings are always the messengers the recipients want to shoot.....it's been like that since pre Ancient Roman and Greek times.
It's better to learn before you buy, that the residence is worth less than you are being asked to pay - or face later, further possible and continuing declines, resulting in a home that is worth less than the mortgage you owe.
Yes, the Market is cyclical and - unless there is an unforseen major economic or natural disaster, yes it will again turn up and rise to new value heights. Problem with the last up-swing in the cycle, it rose too high and floated off into inflationary clouds - then it rained!
Barry Noble http://www.MyPropertyIsWorth.com