Excuse me while I vent about a low appraisal (agent, mortgage, mortgage)
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In a market where sellers have already been beaten to a bloody pulp, some appraisers are getting in one last punch in the seller’s gut. We obtained a contract for our home in Chicago. The buyers told us they hadn’t been able to find anything nearly as nice in the price range. In our market, the 2-flat inventory had gotten very low.
The appraiser is local, with almost 20 years of experience. Good news on that front. We had comps that seemed to indicate that our contract price was reasonable (granted not perfect comps and not very many because there hadn’t been a lot of sales in our range).
The appraisal came in $23,000 less than the purchase price. My beef with the appraiser is that he was so incredibly conservative. He knocked his comps down 15% for a busy street instead of the 5-10% that had always been used in the past (including during a refi the year before). He used comps that were a year old instead of more recent ones that had higher prices and were closer (and then discounted those old comps even more because year over year prices are lower—even though his own report shows prices stabilizing/increasing for this type of building over the past half year).
I understand that appraisers have also been beat up and in many cases unfairly blamed for the housing crisis. They don’t want to get into a situation where the home that they appraised for a certain value gets defaulted or their appraisal gets unfavorably reviewed in the future.
They’re also a proud bunch in general (as I gather from spending way too much of my time on the on-line appraisal forums). If you mention that you’re a realtor looking for some help, expect a figurative earful about how you’re just a realtor and CMAs/BPOs are garbage. If you’re a homeowner questioning an appraisal, you will probably be accused of fishing for a higher appraisal or not understanding the market. And lenders, don’t get them started—“why do I have to justify my decision to those so-and-so’s."
Not to take anything away from the profession, but (1) many aspects of the appraisal process are subjective and (2) what they do is not rocket science. And they are significantly impacting real people here.
So my opinion (which I’m sure many will discount handily as disgruntled seller talk) is that the appraiser could just as easily have used the more recent comps that supported the contract price. He could have used a busy street discount of 10% instead of 15%. Maybe he was scared to or just didn’t feel like it. Whatever the reason, something is definitely wrong with the process when one person’s judgment call can ruin an arms-length deal.
We did our homework, ended up appealing the appraisal and got a lender-ordered field review (where another appraiser comes out). That appraiser came in at $7000 over purchase price and the deal went through.
Yeah, it's amazing how one person can hold the cards.
I had a cool appraiser do my refinance this last month, who asked me off the record what number I needed to be at to make the deal work. Got my 10% equity, lower PMI, and a refinance.
Maybe you'll feel better to know that I had the opposite problem.
I was buying my partner out of our house, which we owned together. We paid about 180,000 10 years ago, and still owed about 150,000. So the plan was get it appraised, refinance in my own name, and pay him half the difference between 150,000 and the appraised value.
So I was hoping it would appraise low. The property values in my area had peaked in '06-'07, and houses like mine were selling for 230,000. but with the bottom falling out of the housing market, everyone I know was complaining about low appraisal values. So I expected the house to appraise for about 180,000-190,000 tops, meaning I'd have to give him maybe 15,000-20,000.
Ugh, it came back 215,000! We hardly did anything to it, besides paint, decorate, and get new appliances. The appraisal guy even corrected where our basement had been previously described as "full basement" when we purchased, to "partial basement," since it doesn't go under part of the house. You'd think that would have made the value go down, right? So I ended up paying my boyfriend over 30 grand!
We are going through the process now and are worried about the appraisal process. Heard that sometimes the comps they pull are subjective and not truly comps of the property they are appraising.
How does it work? Does the appraisal need to cover the value of what the buyer will get for the mortgage or the full purchase price? If it comes below purchase price what options are there? Can the buyer choose to come out of pocket for the difference?
Good to know that we can challenge it if there is a problem too!
Yeah, it's amazing how one person can hold the cards.
I had a cool appraiser do my refinance this last month, who asked me off the record what number I needed to be at to make the deal work. Got my 10% equity, lower PMI, and a refinance.
Great. So both you and the appraiser committed fraud.
We are going through the process now and are worried about the appraisal process. Heard that sometimes the comps they pull are subjective and not truly comps of the property they are appraising.
I am not sure what you mean by the part I highlighted.
While, as it was pointed out elsewhere in the grid, appraising is not rocket science, it DOES take a lot of education and experience to analyse the Subject, Sales and market. For Comparables, we choose sales that are closest to the Subject in size, location, conditions, etc. If we can't find those, either in the Subject Subdivision/Neighborhood, we go to other, competing neighborhoods. And then we adjust for any differences based on what the market indicates certain items are worth.
The OP stated:
Quote:
So my opinion (which I’m sure many will discount handily as disgruntled seller talk) is that the appraiser could just as easily have used the more recent comps that supported the contract price. He could have used a busy street discount of 10% instead of 15%. Maybe he was scared to or just didn’t feel like it. Whatever the reason, something is definitely wrong with the process when one person’s judgment call can ruin an arms-length deal.
Quite frankly and bluntly, unless the seller is a fellow appraiser, I am not in the least interested in their opinion of what would be better "comps" and what adjustments should be used for a busy street adjustment.
These types of adjustments come from market analysis where we analyse many sales in different locations and see what, if any, impact a busy street has on the locational value.
What your appraiser did was not out of fear or laziness. We have worked very hard to obtain and maintain our appraisal licenses and would be crazy and stupid to have a nonchalant approach towards the properties we appraise. Nor was he/she "conservative". It is just as bad and illegal to undervalue properties as it is to overvalue properties.
It seems to me that your appraiser did his/her due dilligence.
...How does it work? Does the appraisal need to cover the value of what the buyer will get for the mortgage or the full purchase price? If it comes below purchase price what options are there? Can the buyer choose to come out of pocket for the difference? ...
The appraised value needs to be at least purchase price to qualify for a loan. Usually, the purchase contract will allow the buyer to cancel if it does not appraise as required. The buyer should first try to negotiate a lower price, ideally down to appraised value. The buyer could bring cash for the difference.
I am not sure what you mean by the part I highlighted.
While, as it was pointed out elsewhere in the grid, appraising is not rocket science, it DOES take a lot of education and experience to analyse the Subject, Sales and market. For Comparables, we choose sales that are closest to the Subject in size, location, conditions, etc. If we can't find those, either in the Subject Subdivision/Neighborhood, we go to other, competing neighborhoods. And then we adjust for any differences based on what the market indicates certain items are worth.
The OP stated:
Quite frankly and bluntly, unless the seller is a fellow appraiser, I am not in the least interested in their opinion of what would be better "comps" and what adjustments should be used for a busy street adjustment.
These types of adjustments come from market analysis where we analyse many sales in different locations and see what, if any, impact a busy street has on the locational value.
What your appraiser did was not out of fear or laziness. We have worked very hard to obtain and maintain our appraisal licenses and would be crazy and stupid to have a nonchalant approach towards the properties we appraise. Nor was he/she "conservative". It is just as bad and illegal to undervalue properties as it is to overvalue properties.
It seems to me that your appraiser did his/her due dilligence.
I've hung out in the appraiser's forums as well - and I've seen countless threads about lazy appraisers, appraisers sending trainees to do their footwork, appraisers doing work for "too cheap" for the AMC's, etc - so knowing as much as you do about *this particular* appraisal, I'd have to agree with the OP.
Appraisers seem to have a very easy time dismissing the "comps" that interested parties pull, however - not all of these interested parties are bumpkins or agents chasing a fast buck. I bought a couple of houses in the past year in the same neighborhood - before writing the offers, I had watched that little (400 home) subdivision like a hawk for well over a year.
I had the benefit of visiting every single property that had come up for sale or rent in the subdivision, unlike the appraiser, who could only drive past the sold "comps". I knew that particular teeny-tiny corner of a submarket better than anyone, even the appraiser.
Looking over the "adjustments" to my appraisal was a hoot - one property was given extra value because it was "newly renovated" (perhaps by a cub-scout troop, based on the quality of the work!), another "comp" was given extra value because it was listed by the agent as "immaculate" ( umm, yeah, it also smelled like cat pee).
In the end, the appraiser "went out on a limb" and appraised my property at exactly the contract price. (You gotta love a rebel!).
It's a necessary evil, but certainly not an exact or perfect science.
I've hung out in the appraiser's forums as well - and I've seen countless threads about lazy appraisers, appraisers sending trainees to do their footwork, appraisers doing work for "too cheap" for the AMC's, etc - so knowing as much as you do about *this particular* appraisal, I'd have to agree with the OP.
Appraisers seem to have a very easy time dismissing the "comps" that interested parties pull, however - not all of these interested parties are bumpkins or agents chasing a fast buck. I bought a couple of houses in the past year in the same neighborhood - before writing the offers, I had watched that little (400 home) subdivision like a hawk for well over a year.
I had the benefit of visiting every single property that had come up for sale or rent in the subdivision, unlike the appraiser, who could only drive past the sold "comps". I knew that particular teeny-tiny corner of a submarket better than anyone, even the appraiser.
Looking over the "adjustments" to my appraisal was a hoot - one property was given extra value because it was "newly renovated" (perhaps by a cub-scout troop, based on the quality of the work!), another "comp" was given extra value because it was listed by the agent as "immaculate" ( umm, yeah, it also smelled like cat pee).
In the end, the appraiser "went out on a limb" and appraised my property at exactly the contract price. (You gotta love a rebel!).
It's a necessary evil, but certainly not an exact or perfect science.
I used to hang out on those forums, as well. And yes, there ARE those appraisers but in my experience these things don't happen as often as suggested, especially now that the states are cracking down on those things.
I always accept "comps" from other parties but frequently find them inappropriate for whatever reason.
I am sticking with my original opinion. There is no point in having these kind of peeing contests with non-appraisers because you end up comparing apples and Chevrolets.
I've noticed over the last 2 years that most appraisers I worked with were increasingly arrogant. Not a big deal as most people want to do the right thing and we're all proud of our good work. This aside, I had one appraisal (and I have many examples) last year where the appraiser gave one comparable $20K for being superior. I had been in the house many times before it sold and it had no kitchen; nada nothing...it was gutted to the studs and no picture or narrative in MLS to indicate condition. We asked for an appraisal review and the review came back with no changes.
To the adverse, I had (only one) appraiser who was working on comps to call me and ask questions about my listings that had sold. And I gladly answered to the best of my ability and told her she had my undivided attention for as long as necessary. I don't know the results of the appraisal she was doing, but I respect that she cared enough about her work to produce quality results. It's a rare thing these days. I wish more appraisers would ask about things at the sold houses they cannot see.
I had one other incident that still irks me. After 4 days, I called an appraiser to ask when we could expect his report. His only comment to me was, "You can't talk to me; I'm an appraiser." I wanted to tell him to get over himself but I abstained. The appraiser had a copy of the contract so he knew the agreed upon terms and conditions between buyer and seller and my question was nothing that would have influenced his decision.
I also lookup the appraiser's name(s) to see how many years they have been licensed and I don't think it makes much difference in the care or quality of their work.
Last edited by TampaKaren; 03-29-2012 at 07:26 AM..
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Got my 10% equity, lower PMI, and a refinance.
