Can appraisals be challenged? (contract, seller, value, lender)

[kutra11]

Originally Posted by gbone

Why would it irk you that the "appraisal report did calculations such as additions/deductions...that is, it went all mathematical..."? That's normal and it a way for appraisers to take two houses that are slightly different in square feet, number of rooms, etc., and make them comparable.

Sorry, I wasn't clear. Those additions/deductions made sense to me to account for the differences in comparable sales. But after reaching the values, it appears no equation was used to figure out the estimated value.

That is, an equation could have been taking the average or the weighted verage of the final values. But if you look at the final values (see my posts for accurate values), there "seems" to be no relation between them and the appraised value. If after additions/deductions, the appraiser is going to say since A is 5, B is 17, C is 32, D is 35 and E is 78, then the price of your home is 10....as an Engineer by profession I am most certainly interested in the mathematical aspect of this. If the appraiser cannot defend the value , then he/she could have just avoided the entire report and sent me a note with 10 written on it.

-K

[Annemieke Roell]

Originally Posted by kutra11

No, that's not the case. I did not offer $913K hoping the appraisal would come low. I (and the realtor) think the house is worth $900K based on the CMA and comps, but I am okay paying $13000 more since we just loved the house, and that was the lowest the seller was willing to go. I am primarily upset because the appraiser isn't doing his/her due diligence. Because if the appraisal does come in at $900K, I wouldn't mind renegotiating with the seller to meet atleast halfway on the difference. Is there anything wrong with that?

-K

Absolutely nothing. An appraisal should reflect the market value, regardless of what the purchase price is.

[middle-aged mom]

Originally Posted by kutra11

Yes. Between the MLS listings, county records and photo tours, I have information about the floor layout, square footage of house and lot, size of basement, above/below grade living area, details about upgrades, etc.

-K

You are using the same information the appraiser has available to him/her. I dout either of you have seen and know exactly what's inside of any of the comp properties, including the floor plan.

Best case, the pictures in the MLS showcase the best features of the house. They tend to omit those areas that do not show well. They rarely show floor plans or that there is something off about the lot.

Remarks within the MLS sometimes do not jive with reality. Updated kitchen may mean it was updated in 1988. And oh yeah, what about the basement with a 5 foot ceiling?

The closed prices of all comps may or may not be reflective of the entire transaction. A meaningful number of transaction include a seller's contribution to closing costs/rate buy downs. While this does not change the agreed upon sales price, it does change the seller's net proceeds.

I think appraisers have been conditioned to produce a "lending based" opinion of value which is why is sometimes seems that the appraised value is the agreed upon sales price. Value is set by the buying public, what someone is willing to pay.

[kutra11]

Originally Posted by middle-aged mom

You are using the same information the appraiser has available to him/her. I dout either of you have seen and know exactly what's inside of any of the comp properties, including the floor plan.

Best case, the pictures in the MLS showcase the best features of the house. They tend to omit those areas that do not show well. They rarely show floor plans or that there is something off about the lot.

Remarks within the MLS sometimes do not jive with reality. Updated kitchen may mean it was updated in 1988. And oh yeah, what about the basement with a 5 foot ceiling?

The closed prices of all comps may or may not be reflective of the entire transaction. A meaningful number of transaction include a seller's contribution to closing costs/rate buy downs. While this does not change the agreed upon sales price, it does change the seller's net proceeds.

Thanks for your post. But if we are looking at the same information, why would we end up with different count of BRs/Bathrooms and the state of the basement for comparables?

And again, it is very much possible that I could be inaccurate. Don't get me wrong; I am merely asking the appraiser to provide me with whatever info he/she saw that made him use the comp stats. That is, if I have printed information (MLS, floor plans, county records, photo tours, etc.) that shows a comparable has 5 bedrooms, 4 bathrooms and a fully finished basement, then I would like to see something from him that shows different data (4 BRs, 2 BA and unfinished basement). What is wrong in asking for it? Wouldn't you agree?

[middle-aged mom]

Originally Posted by kutra11

What is wrong in asking for it? Wouldn't you agree?

Nothing wrong with doing due dilly.

[Annemieke Roell]

Originally Posted by middle-aged mom

You are using the same information the appraiser has available to him/her. I dout either of you have seen and know exactly what's inside of any of the comp properties, including the floor plan.

Best case, the pictures in the MLS showcase the best features of the house. They tend to omit those areas that do not show well. They rarely show floor plans or that there is something off about the lot.

Remarks within the MLS sometimes do not jive with reality. Updated kitchen may mean it was updated in 1988. And oh yeah, what about the basement with a 5 foot ceiling?

The closed prices of all comps may or may not be reflective of the entire transaction. A meaningful number of transaction include a seller's contribution to closing costs/rate buy downs. While this does not change the agreed upon sales price, it does change the seller's net proceeds.

I think appraisers have been conditioned to produce a "lending based" opinion of value which is why is sometimes seems that the appraised value is the agreed upon sales price. Value is set by the buying public, what someone is willing to pay.

I have to take exception to a few statements here:

1. The buyer may have the same MLS information as the appraiser, but unless he/she knows how to use that information in a manner that is in line with appraisal practices, this data does not mean much.

2. Some appraisers may be conditioned to "hit" the purchase price but this is in violation of USPAP and they ought to have their license yanked for incompetence at best and producing a misleading report at worst.

Under valuing a property is just as bad as over valuing.

3. No, we don't know what is inside the comparable sale's house by looking at it from the outside. However, calling around to realtors, buyers, sellers, etc will give you that information.

[Annemieke Roell]

Originally Posted by kutra11

That is, if I have printed information (MLS, floor plans, county records, photo tours, etc.) that shows a comparable has 5 bedrooms, 4 bathrooms and a fully finished basement, then I would like to see something from him that shows different data (4 BRs, 2 BA and unfinished basement). What is wrong in asking for it? Wouldn't you agree?

Kutra, this is almost impossible to answer without seeing the appraisal and any data sheets.

There may be sales in the immediate neighborhood that don't HAVE 4 baths and a finished basement. It is perfectly ok to use them, provided they are adjusted for based on a Paired Sales Analysis ..... market reaction.

If the Subject is substantially different from the sales in the neighborhood, it may be that the house is over-improved for the neighborhood which is not necessarily a good thing. If there ARE other houses like it in the nieghborhood but none that have sold in the previous 12 months, you can either go back in time and do a time adjustment OR go to a competeting neighborhood (meaning similar land values, ppsf house values and other amenities) and get the comparable sales from there.

There really is no easy answer based on a few posts .................

[Goodpasture]

Originally Posted by kutra11

The appraiser compared 5 sales to reach the appraised value of my home which (surprise! surprise!!) came identical to what I agreed to pay for the home with the appraisal contingency, of course.

To me, this is a BIG red flag.

Originally Posted by kutra11

1. All 5 comparable sales [A, B, C, D and E] had prices higher than the sales price on my home. Correct me if I am wrong, but shouldn't he/she be considering few sales lower and higher than my sales price?

Under ideal situations, searching for higher and lower is preferable. However if there are NO comparable houses that have sold then you use what you have. If you found comparable sales that are both higher and lower, then the appraiser should have been able to as well. The crux of this problem is the word "comparable." Just because a sale is a sale does not make it comparable. And remember.....ALL sales CAN be comparables, however an appraiser should use the most proximate, most similar, and most recent sales as comparables. If you cannot find a similar (at least similar utility, if not style) sale that is both recent or proximate, then you need to either expand the area you are looking in, or go back in time (preferably both).

Originally Posted by kutra11

2. For 2 comparable sales [A and B], the appraiser used incorrect information. That is, he/she did not use facts that A and B had finished basements, larger lot size, more bathrooms and upgraded kitchens.

All data should be verified by an independent source. And adjustments should be made based on what the MARKET says the item is worth. Cost is NOT value. FWIW, bedrooms do not frequently figure into the adjustments (their presence is usually covered by the square foot adjustment). Significant differences in kitchen, finished basements etc should be addressed.....if not adjusted for, why not? If they were adjusted for, then where did the adjustment data originate?

Originally Posted by kutra11

3. 1 comparable sale [D] was not even a sale price! It was the listing price since that property was still under contract! The appraiser did mention this in the report however. But it makes no sense to include that since a seller could demand the moon and stars for the property.

Listings and Pendings should NEVER be adjusted. Until there is a hard number recorded at the courthouse, it is ALL speculation. I teach trainees that including listings is a good idea, however they should not be gridded until they become sales. HOWEVER, a comment about the ratio between listing prices, sales prices, and days on the market should be developed and displayed on the report.

Originally Posted by kutra11

4. 1 comparable sale [E] was not even comparable since the sale price was 15% higher than the sale price on my home.

The price you agreed to pay should not have been considered. Regardless of the price, the ONLY consideration should have been similarity, proximity, and when it was sold. If this comparable was a model match, then it is possible that the seller is leaving 15% on the table.

Originally Posted by kutra11

5. There are 3 sales [X, Y and Z] which are comparable in all aspects to the home I am purchasing but the appraiser did not include them! There were only 11 sales in the neighborhood in the last 12 months, so the appraiser could have chose any one or all three of these sales rather than D and E.

How were they comparable? What made them comparable?

Originally Posted by kutra11

Since I have an appraisal contingency, I want to go back to the seller with a reasonable value.

You are spending close to a million dollars. Pay an appraiser a thousand and get a good report.

Originally Posted by kutra11

Is it possible to appeal an appraisal? If yes, what's the protocol for doing this?

Of course. Have your own appraisal performed, and/or have a review performed on the banks appraisal.

Originally Posted by kutra11

Also, what equation do appraisers use to reach the appraised value? Is it weighted average?

There is no hard and fast equation....which is why appraisers do this and not computers. A weighted average is frequently used.

Originally Posted by kutra11

the appraised value of my home came to $913K!! How do you figure that?

In short, the appraiser is a number hitter. I frequently send reports in to the state appraisal board for this crap. I testify against other appraisers and help get their license revoked. An appraisal usually allows for about a 5% variance as the final estimate of value is in reality a range of values where the final number represents that range. By saying the house is 913, he is saying it is NOT 914 or 912. By using the 1,000 number he is nailing it within 1,000. Had he said it was 910, then the range (using the concept of the first significant number) would be between $900 and $920, with $910 representing that range in value. My first inclination is that the appraiser used the sale price as a target. This is against the law in every state in the country, and the appraiser should be prosecuted.

The Appraiser Certified, in that report, that

Originally Posted by USPAP 2008–2009, Standards Rule 2-3

my engagement in this assignment was not contingent upon developing or reporting predetermined results.

my compensation for completing this assignment is not contingent upon the development or reporting of a predetermined value or direction in value that favors the cause of the client, the amount of the value opinion, the attainment of a stipulated result, or the occurrence of a subsequent event directly related to the intended use of this appraisal.

USPAP has been adopted by all States, Territories, and Districts as being the law regarding appraisals. The complete text can be found here:
USPAP 2008 - 2009 EDITION

Both me and Schousse have been Certified by the National Association of Independent Fee Appraisers (NAIFA, a founding member of the Appraisal Foundation which establishes the rules whereby appraisers are licensed or certified; the educational requirements; and is charged with maintaining Uniform Standards of Professional Appraisal Practice--USPAP) as Certified Appraisal Reviewers. Furthermore, I am a certified apprasial instructor in the state of Oklahoma with more than 25 years in the appraisal profession.

[DMenscha]

I can't rep you again Goodpature, but another excellent post.

[Rakin]

Forget the apprasial, if the seller was only willing to come down to $913k what makes you think they will come down further ? They probably looked at comps with their realtor and have a good idea what the home is worth.