Appraisal pendulum has swung too far
Letter to the Editor
By Inman News, Tuesday, May 25, 2010.Re: 'Fannie, Freddie to field HVCC complaints' (May 20)
Dear Editor:
The pendulum has once again swung too far. Inexperienced appraisers, given assignments by AMCs whether or not they know what they are doing, have cost us three deals this month alone.
My wife and I pride ourselves on our valuations. We take three or more hours to do our BPOs, and we have done hundreds. I also was an underwriter in a previous life and have reviewed thousands of appraisals. The appraisals we have been getting lately are c**p.
One appraiser required the installation of a refrigerator as a condition. Another gave a $40,000 value to a pool that didn't work on a comp, downgrading the property being appraised, as it did not have a pool. Another required that the landscape be repaired. If the landscape adds that much value, reduce the appraised value, but don't require that the landscape be repaired prior to close of escrow as a condition of approval. Yet another appraiser took roof pictures of the wrong house, then required that our client get a $450 roof certification to prove there were no leaks.
The (Home Valuation Code of Conduct) has accomplished only one thing that we can tell. Good appraisers are being penalized for their knowledge, and poor appraisers are getting more work. Underwriters seldom question a lowball appraisal even when they should.
In Riverside, Calif., this is not helping us out of the housing crunch. If two out of 10 appraisals are coming in too low, somebody needs to be watching. Right now, no one cares, except those of us falling victims to these poor appraisals.
Steve Sanders
Pacific Shield Realty
Riverside, Calif.
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Submitted by Ted Jernigan on May 25, 2010 - 1:53pm.
We did not have the valuation problems in this market that were had in many others. We are still suffering under HVCC. Apparently appraisers have equated "conservative" appraisals to low appraisals. So far we have managed to hold most deals together often at the expense of the seller. Most recently a seller of a unique property, not in a subdivision, was the victim of a "review appraisal" done after the fact by a second appraiser. He cut $22,000 off what was supposed to be a $329,000 contract price. It appraised the first time. The seller was unhappy, but preferred to close rather than finding another buyer.
Ted Jernigan
Ebby Halliday REALTORS
McKinney, Texas 75071
www.TeamJernigan.com
972-489-6173
Submitted by John & Helen Graham on May 25, 2010 - 2:11pm.
John & Helen Graham
We are also experiencing appraisal problems in Northern Nevada. Despite obvious comps and a requested appraisal appeal we just lost a deal that under appraised by $32K. On appeal the appraiser beacame beligerent and accused the lender in writing of "only trying to hit the sales price to close a deal".
This whole appraisal issue needs a major overhaul!!
Submitted by Judy Orr on May 25, 2010 - 2:37pm.
Just had an out of area appraiser pull values of homes a few blocks away but in a less desirable school district. We fought it and the loan officer didn't seem to want to deal with it. However, the appraiser was open to re-do the appraisal with some brand new area comps and we went from $13,000 lower back to contract price!
My first reaction was "Whaaaat?!" Why wasn't it done right to begin with? Neither I nor the listing agent had any reason to believe the contract price would not appraise out.
The deal almost died as the buyer didn't have the cash and the seller didn't want to come down that amount (we're talking an accepted priced of $245,000 that originally appraised for $232,000, but after doing it again it miraculously went back to contract price of $245,000. Something is definitely wrong here when an appraiser is so open to do it over again when questioned.
We're glad he did, but why does this need to happen to begin with? Caused a lot of panic, anger and extra work. Sellers are mad at their agent (not sure why - it wasn't her fault and she kept pushing for another appraisal).
Judy Orr
Classic Realty Group
Orland Park Homes For Sale
Submitted by Joe Shoemaker on May 25, 2010 - 7:19pm.
Subject property: 5 bedrooms, 3.5 baths, full finished walkout basement (with one full bath in basement). Under contract at $175,000.
Comp property: 3 bedrooms, 1 office and a loft, 2.5 baths. Partial unfinished basement with no egress or bathroom. Sold at $167,000 with 90 days.
Unconsidered Comp: 4 bedrooms 2.5 baths, full finished basement with no bath or walkout. Same development, but a different section/legal description than subject. Sold at $190,000 within 90 days.
Appraised value of subject property? $167,000.
Appraiser lives 75 miles from the subject property. Would not reconsider his valuation.
Thanks, ValueAmerica.
Try explaining that to our clients...
Submitted by Tyler Webb on May 25, 2010 - 7:28pm.
Thanks for raising this issue.
I had a situation on one of our listings where the appraisal came back $20,000 low. We were not informed as the listing agent. The buyer's agent and the loan officer have the buyer (who is a commercial appraiser) write the appraiser a letter, again without our knowledge. The appraiser raises the appraisal $13,000, leaving the appraised value $7,000 below the contract price. I was furious when all of this came to my attention.
The appraisal was garbage and there was a lot of issues to discuss, but the appraiser would not consider any further discussion of the appraisal. All of this happened a few days before closing and left the sellers with a decision to blow the closing date and enter a formal appeal of the appraisal or go to closing, eat the $7,000 and move on.
The whole system is a mess wreaking havoc with the market and the lives of the people involved in the transactions.
Tyler Webb
Associate Broker
Champion Realty Inc
Annapolis, MD
www.recrab.com
@REcrab
Submitted by Danielle Gatsos on May 26, 2010 - 9:24am.
I am curious, if these appraisals were poor why weren't they disputed for corrections, or even sent to another appraiser? In the case that we try out an appraiser and receive "c**p" we either ask the appraiser to re-evaluate the disputes (if valid of course) or we simply re-assign a rush job to another appraiser at no additional charge to our lender. Can you tell me why this didn't occur in these three cases?
-Danielle @ WCCI
Submitted by Jim Hodson on May 26, 2010 - 2:34pm.
At Countdown To Buy we invest up front as a "marketing" expense in independent appraisals and BPO's for all the properties we feature for sale in an effort to get buyer and seller on the same page (not the same value) quickly. Needless to say the valuations can vary considerably in today's volatile market.
In my opinion, the flaw in current real estate industry practice is to think valuations are firm. They have considerably more "art" in them than the industry would like to admit. Two or more very "good" appraisers or brokers will come up with different valuations more often than not based on rational approaches. In a 1:1 market such as housing, buyers of the day establish the market value and they are oft times emotional and have a different value scale.
Appraisals or BPO's in aggregate are great but for an individual transaction should not be weighted as heavily as they are. Ranges and confidence intervals are much better. That's why working with a seller to create a reasonable range and creating a competitive market within that is the best way to have buyer and seller satisfied with their transaction.
Jim Hodson - CEO Countdown To Buy
www.countdowntobuy.com
Submitted by Bobbie West on May 26, 2010 - 3:02pm.
You're all experiencing what those of us "oldtimers" KNEW was going to happen ...AGAIN...if the lenders were allowed to require that instead of using the by the book,solid appraisers..they went BACK to this appraisal COMPANY bull crap.In the 80's ..after we had so much fallout in Texas because of the screwy appraisals and massive foreclosures..Michigan lenders decided to jump on the SAFE route and use appraisal companies.What saved us back in the day..and rather quickly...the banks were actually being run by people who knew the business and recognized real fast what a sham these appraisal companies were..and they dropped out.
Magically to appear THIS year when we've had massive foreclosures AGAIN.Problem is our banks are no longer staffed by knowledgeable people so we're being forced by lenders to use appraisers who have NO business even being able to retain their licenses.It is also appalling to me to have buyers paying ridiculously high appraisal fees when a few month ago..the same appraisal would have been half the cost,dealing directly with an appraiser instead of using these "companies".
I have been lobbying realtors and mortgage brokers..trying to get enough of them to start contacting lenders, protesting the use of this type of appraisal company.It is of no benefit to ANY buyer that we are being forced to use these useless people to complete our transactions..particularly since most of the time they screw up the value and managed to add an additional 2-3 weeks to the transaction time.
Submitted by Baron Kahle on July 7, 2010 - 3:19pm.
The value of any commodity, including real estate, is what is agreed upon by seller and buyer. The lenders don't accept that proverb. They want common approaches to common values and the interceding bureaucrats back that philosophy.
So we in the business are stuck with this one size fits all agenda established by those in control. Appraisers are micromanaged by everyone right from the start of an appraisal request and far beyond the close of escrow. The appraisal report is reviewed later by central office staff then reviewed again by government regulators and finally down the road a Forensic review. Their job is to run everything through a microscope with an intent to find fault with the appraiser.
The new reviewers are more concerned about how the report is written rather than the actual quality of content or accuracy of the estimate of value. Typos, uncrossed tees, or choice of words (if you don't phrase something as they would you are done), or some procedural faupax may lead to a loss of one's license. Remember, no two appraisers would conduct an appraisal the same way and a reviewer may have a different idea as to how an appraisal could be done, though the outcome may be similar, and there is room for arbitrariness. The more addendums, the more exposure to liability and more material for the gotcha game. All that for a few hundred dollars. No way Jose!
So, the good appraisers are not doing federally related transactions, thank you.
P.S. Most of the gripes above are the result of choosing the cheapest and quickest appraisers.
Don't go to MacDonalds expecting a gourmet experience. Especially with a coupon in hand.