I am having appraisal issues!!

I was taught in appraisal school not to use Foreclosures as comps.

Not everyone is an expert in their field; those of us who have done some deals have seen appraisal battles before and will again.  I tried to use appraisers to settle a dispute about a homes value - two appraisers, completely different comps, and 100K apart in price (on a home worth $500K).  Instead of helping, it killed the deal!!

Charles, I too have recently had issues with an appraiser.  During a phone call today from a local appraiser, they indicated to me that property value is derived from, get this...'time on market'.  How absurd!  They explained that the buyer determined property value with their offer. 

I had a recent potential sale that did not materialize at full market list price, when the purchaser couldn't sell their home.  The second offer on the house is what determined the value (according to the appraiser), to the tune of a 12% decrease in value.  This is what happens when appraisers can't locate comparables and, instead of constructing a 'cost' approach, they shoot from the hip.  I asked the appraiser to construct me a comparable, by virtue of lot size, location, and amenities and they wouldn't even offer up a try.  They Couldn't do it! 

I say a major ingredient of value is still in the eyes of the beholder!  A .50 cent gold fish is worth $1.00 as long as someone is willing to pay it!

The appraiser shouldn't be using short sales or REOs as a comp unless your property was also distressed.  This is just a plain mistake on the part of the appraiser. Maybe the lender could get that comp kicked out.

Charles,

I'm curious as to what KIND of appraisal it was??? If the lender was a local bank, chances are it was only a "drive-by" performed by an internal appraiser...and not much investigation goes into those. They rarely clarify or make accurate adjustments in the comps.

Or...was it a mortgage company, whereby the likelihood is that the appraiser was an independent and certfified apprasier??

It definitely sounds like a bank appraisal to me. The whole "undue influence" thing sounds like a bank's typical reply to bringing question as to the appraiser's abilitites. Also, Debbie's right. A REAL appraiser typically will never use a foreclosure in determining value, unless it's simply the only comp available of like property. Even then, the appraiser will make adjustments for condition, etc.

But I have a question for you...

(the information below was edited, as I hadn't noticed that the appraiser was already asked to recertify value with the new information. I had originally asked why not.)

If that $30,000 property recently sold for $70,000....the appraiser  has an obligation to modify the original appraisal as long as it's within six months (usual timeframe). They'll do that for a nominal fee, and the borrower has every right to request it. Once again...it sounds like "big box lender" was probably a bank, using an in-house appraiser versus an independent fee appraiser. And in these kinds of situations....that's usually not a great idea.

Hmmm...my last concern might be that the borrower is a high credit risk for whatever reasons, and that the bank is artificially manipulating the value in order to justify the requirement of additional down payment?? Is that a possibility??

In any case...good luck with the whole situation!! I hope everything works out!

Dave

I find most appraisers are not from the area they are appraising and do not know the value of the house.  I usually offer comps from the area that they can use.  Good luck and I hope things work out.

I have been struggling with the exact opposite problem lately with short sale listings that we have. As you know, when an offer is submitted the bank orders either a BPO or an appraisal. It seems that these appraisalsalways come back high. Hmmmm.. a bit suspicious don't you think? The appraisals always seem to benefit the lenders.

If there are NO COMPS for the home in question, then I would assume the appraiser must use foreclosures to formulate his assessment of value.

Charles,

Hmmm....I did some research on Florida's USPAP (Uniform Standards of Professional Appraisal Practice). The appraiser might not be obligated to reconsider value if he/she believes it was accurate on the date submitted. Most will upon request, and many will not charge to reconsider an updated comp (especially one so soon after). But it does not appear they're obligated to.

In most cases out here in California, the resolve would be for the lender to simply contact the appraiser and make the request. The appraiser relies on the continued good will of his/her relationship with the lender...and thus is often willing to do whatever it takes for the lender to be successful (short of fraud, of course.) That goes without saying.

I think I'd contact the manager of the lending office, express your concerns and see if they'll assist in getting the appraiser to reconsider the value based on the new information. It's hard for me to imagine that it was the manager who said it would be undue influence. Sounds like a processor's statement.

Undue influence would be more of a "If you don't being it in at value, we'll never send you another deal" type of thing...but certainly not what your situation is!!

Sheesh...it's the reconsideration of value based on new comps information. It should be a slam dunk!

Good luck with that!!

Dave

One thing you can't forget...

If foreclosures and / or short sales dominate the market in a typical neighborhood - then they become the market and they must be used.  You tell me - if 95% of the neighborhood's market is short sales and foreclosures are you going to try and price your property above that level if you know your client can't compete in the market if they don't price at that level?  I guess out here in Las Vegas, a lot of short sales and foreclosures are in pretty reasonable shape and they often compete pretty well with owner-occupied sales.  Maybe some landscaping and exterior yard issues but often not much else wrong with the property in comparison with an owner-occupied listing.  Unfortunately, this situation is extremely common in Las Vegas right now. 

I use the converse argument with Las Vegas Boulevard South (i.e. "The Strip") land appraisals.  If assemblage motivation and premiums are common and typical of the market, they no longer are anomalous - they become part of the market and should be used to value other properties that could be assembled in a similarly competitive Strip Frontage location. 

Sincerely,

Charles E. Jack IV, MAI

So what happened?...