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Appraisers Adjusting for Declining Market Conditions. Is it true?

Poinciana regression chart

Hi folks. I wrote a post over two years ago titled “Let the Games Begin”. In this post I was pointing out that Poinciana was beginning to be a declining market and that Appraisers were making downward adjustments for this. It created quite the stir.

For whatever reason there were many who commented that felt this was not happening and would never happen. Well…..it was and it is.

I reviewed an appraisal today where the appraiser made a downward adjustment of $150 PER DAY on the recent sales.

Just to give you an idea of how this works. One of the sold comparables that was used closed in November. The adjustment was -$20,000!! The same house had a pool and it was adjusted -$8,000.

So what do you think about that? $8,000 for not having a pool and a whooping $20,000 for being a 5 month old sale. Have you seen this in your market yet?

****The chart and data in this post was provided by Richard D Ferris Florida State Certified (FHA) Appraiser

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Posted by Bryant Tutas Broker/REALTOR(R) Tutas Towne Realty, Inc on 04/16/2009 06:14 PM

Comments (166)

market conditions, market data

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166 Comments on Appraisers Adjusting for Declining Market Conditions. Is it true?

APR

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Hun...

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TLW...ROAR!

That is crazy. At what point to they stop making that adjustment?

Haven't seen that here...yet.

Hopefully the numbers used for time adjustments are based on thorough research.

Yep. Lots of issues. We have stuff going for well over list price and that is a red flag, even though real recent (like last month recent) sales comparables are well above the settled contract price :groan: Something more for you to look forward to!

Wow, no, I have not seen that drastic type of adjustment here. I know we are down, but in my last conversation with an appraiser he felt things might just be leveling off. No talk like this. Although he might not have opened up and told me all their secrets.

Why isn't that information posted somewhere? I have always wanted to know, where to they get their calculations from. Is there some secret website where they get that info? Telling them how much to deduct for this, add for that. I used to use a cheat sheet, however I don't do those type of CMA's anymore. I can't figure out what dollar amount to attach or detach, so to speak. And no one is talking.

Yes. I've seen it for a while now. They have to do this. The banks are forcing them to. The banks don't want to lose money, and they don't believe the market has finished correcting itself. They won't stop until they're positive that the correction period is completely finished.

In my market, we are not making downward adjustments with the exception of some upper end areas that have a lot of foreclosure inventory. As a whole, the Dallas Metroplex has been stable and a thankful economic environment to be in at this time. As one economist for our area put it .. the word stable is the new up (meaning positive in comparison to other areas in the nation. The down is that we have not had much appreciation in our area since the year 2000. That has kept up "stable". Good luck as hopefully this down cycle plays out!

BB, all you're doing is instigating dread, because what's happening there is headed here...except, thank you, because forewarned is armed. Florida seems to be the indicator on many levels.

Hey BB!

During office meeting today we talked about appraisels coming in low. We are having a little bit of an Issue here in our market as well. I don't know the exact #'s on it yet, but we are seeing the decline more recently. We have had to do double appraisels a lot lately.

-Lisa

BB, At last week's Sequim Association of Realtors meeting our two guest speakers were two of the area's better known appraisers. Because Clallam County has a population of somewhere between 60-65 thousand, our numbers will look far different than yours. We have no large industry here, but we do have a large retirement population from all over the world. Anyway, the appraisers said that sometimes they are forced to take their comp sales from various parts of the county, not just the immediate area where the appraised property is located. Why? because there have been few enough sales that there might not be any comp within 15 miles. They laugh when lenders say "I need comps for the last 3 months."

I have seen several appraisals in this area come in low. Also, issues of no comps outside of foreclosures which kills a community and their value.

Oh yeah. We've been seeing this happening here for about a year now. It stinks!

I am not seeing it yet but the houses have sort of been on a decline like that.

You folks act like we're here to "KILL DEALS".....We don't make the market - we report it. You'd be suprised what you could learn from appraisers..............As appraisers would be suprised what we could learn from you! I've been on both sides - broker and now appraiser - I'm also a member of the policy committee at the local MLS.

Again - appraisers report the market - not make it!

I've seen it!! Only once, and only a refi appraisal. However, they only adjusted downward for comps more than 90 days old. I also had an appraisal in December on one of my listings where the guy used comps that were new builder comps with teaser prices as regular comps. Totally unfair. I have started telling my buyers to ask for a copy of the appraisal instructions before they pay for an appraisal, AND on my listings, if they want an appraisal contingency (and they all do) I am asking for a copy of the appraisal instructions the bank will send - in case there is a problem down the road. I mean, honestly, should an appraisal really stand in the way of a reasonable sale? No, but they can....EVEN in my market where under $500K it is very competitive, declining inventory and prices being bid up above list. It's nutso.

I recently saw a shirt advertised on CafePress.com - it said "Because I am the appraiser, that's why".

Yes, we started seeing that here in Chicago about 15-18 months ago. Even some COUNTIES were getting negative adjustments because of "declining market"...and this included some of our most affluent communities. Was interesting to watch...painful to experience.

You bet they make downward adjustments. We saw 30% drop in value over the course of two years in a large scale project, even though we have current escrow to prove values really have not changed at all.

Believe it or not, I just had a refinance go south because the lender said they couldn't determine the homes value. The appraiser used the most recent comps available, 4 in all, plus listings currently on the market Pick a number! Any number! How can you not come up with some sort of value? The lending community is a MESS!

Unfortunately I believe it is going to get worse...the onslaught of new foreclosures and the new laws governing appraisals that will be implemented in May will be caustic.

I am a Mortgage Banker in NJ and three of my last four purchase clients all had appraisal come in lower the agreed upon sales price. They were not all from the same appraiser, so I am inclined to believe that this is a growing issue.

Stephen Mondile / Evesham Mortgage / www.EveshamMortgage.com

Yes I have seen it. It is happening here in metro Phoenix. I just attended a symposium today on distressed properties. The appriaser said he looks back three months and sees the trend in the median price in the area of the home, and "time adjusts" downward.

Karen Picarello,CRS, GRI,ABR, e-pro, (RE/MAX Fine Properties, Scottsdale AZ)

Our market has seen fairly steep declines, and we apply the same principal when doing a Current Market Analysis.... by looking at the percentage of Sold Price declines over an indicated period of time, and then applying that to comperables.

Lisa Nolan (Keller Williams Arizona Realty/Scottsdale, AZ)

If values have declined say 30% in 12 months, then the appraiser would make an adjustment of approximately 2.5 % a month. Thats seems like fair comment.

As Rita mentioned above, thorough research should support and/or warrant that aggressive of an adjustment in daily terms. From seeing your analysis however, if it took 4 months for a sale to close that dates back to November of 2008, and we're now in April of 2009, $20K doesn't seem too aggressive amid increasing inventory, longer sales times, etc.

Painful, but true.

Looks like the trendline isn't so steeply downwards, at least. We're also seeing pullbacks in appraisals.

As a senior lender in Eugene Oregon we have been experiencing value issues for about 4 months now. Try telling your client, who wants to do a cash out refinance to perhaps pay off some debt and take advantage of new interest rates, that their appraisal came in 10% to 30% lower than when the purchased.

And oh by the way, we had to do two appraisals at $550 a piece. Thats never a fun conversation.

It is what it is. We've seen this in Michigan for a long time and even here there are some that refuse to acknowledge it. It's much easier to put your head in the sand and say things are going to get better soon.

THe appraisals just reflect past sales prices on the market as a whole, and since foreclosures are he norm now days, they are the ones that are going to determine the value of all homes. Is it fair? I don't know, but ..It is what it is.

Yes I have seen banks tell the appraisal companies how to do there job. I am not sure why a bank employee that reviews these, thinks they know the market better then the appraisal company. They don't have the license? All they are doing is bring the market down even more then what it really is. Then they wonder why they are lossing so much more then they should be. Poor bank management or is it just poor employee decissions at the bank? Of course I am just a real estate agent and not a bank employee. But what the heck.

Hello Bryant -

When our market was in an incline I would adjust upward for comps with more recent sale dates and underwriters would have a fit. Now, underwriters have a fit if I don't make adjustments for the higher days on market with the additional active listings that I add to the appraisals (mind you, I do not add active listings into the final valuation of the market approach I only use it to reconcile, so picking on adjustments for DOM is just busy work for all of us at that point).

I'm not pushing the blame on to underwriters. In fact, I'm happy that they're doing their jobs and backing the appraiser. The new addition of the 1004MC sheets that are required in our appraisals now give even more validity to the adjustments (or should... if they worked).

I'm not sure of your situation and whether $20,000 is warranted, but I've been known to adjust that much (for 6+ months old comps) for higher end homes if the market research shows the market is in fact declining at that rate.

What I do not like about that method is that is skews the weight of that comparable property and will give it a lesser weight than a comparable that might be less like the subject and so we have to reshift and add addendum statements ... blah blah blah (but that's a whole other blog).

So remember, it's not that an appraisal is necessarily 'coming in low', per say.... 'it is what it is', and it's an icky market out there.

I'm a mortgage broker in MN and I agree this will become more of an issue in coming months. I have had two purchases in the last 90 days where the buyer and seller had to renegotiate the sale price due to the following issue. This new appraisal law coming to every small and big town May 1 may even complicate matters worse. I want to stay optimistic, but I'm being told that there many more foreclosures to come. I'm sure we will all find a way to navigate through this issue. The STRONG ALWAYS survive.

Brain, I think that it is difficult to setrmine housing prices form a lender perspective when the market is not supporting any consistent market datas. Values are based entirely on what people are willing to pay, not what they are willing to sell and if consumers are not buying because it is over-valued and sellers drop price to meet that, then the market has to support that. It is pure supply and demand and right now supply loses.

Appraisers can not be help respeonsible for declining values and one last point, many appraisers are being required to supply this data at the request of the lenders. Not pretty but a fact

I can say it is not the appraisers, but the underwriter's going by the banks guidelines. I have seen this sort of bazar happeinings of lowering prices by the underwriters forcing the appraisers to lower prices which makes appraisers feel they are doing an illegal appraisal. I just went thru one of them with my own bankline...the subject property was not listed in a declining market area and all comps were within .50 miles with sales being within the 3-6 months. The appraiser was forced to lower the appraisal by 10,000. After 28 years in the mortgage business I see things that I have never seen and it continues on a daily basis.

I have seen that appraisers are in a tough position and are being told by the bank to value properties less, and if they don't the bank will essentially black ball them. I had the dubious distinction of writing a low offer on a home that was in and area that 2 shortsales and a foreclosure were the only sales. The appraiser gave our property 1000 for nicer condition. Nothing for the fact that our property was twice as large as the others and a whopping 3,000 for a finished basement vs. the others had no basement. I am finding appraising to be something like voodoo. It was an FHA appraiser and he basically said tough and that no one else would be able to buy it for 6 months unless they purchased this $220k property conventional.

A declining market is commonplace throughout the country. In the Chicagoland area over the last two years a 25% to 30% decline is typical, some very few area are at both extremes - like near 0 change, while others have seen as high as a 70% plus decline over the last two years. That is the market and the Appraisers have to reflect that.

The adjustments are based on the market, I've seen the data myself. Reality is hard to argue with, but some folks don't want to accept the fact that in most areas the national recession has and is negatively impacting the housing market. I have 32 years in as a Real Estate Appraiser and I teach many classes on Appraisal, so I meet many Appraiser, as well as do them myself and review many others. It is rare to find any Appraiser anywhere that would tell you anything else, than what I am telling you.

Those that complain now, will you also complain with the market changes and goes up to and the Appraiser makes upward adjustments?

To many loan officers out there unfortunately look for some of the Appraisers that don't care what the truth is and just simply want to make a loan. Most buyers in recent years are upside down on their mortgage and can't refinance - especially those that bought at or near the peak - 2004 to 2005 give or take. This is nothing new really, just worse than before. Remember the Carter years? Remember the early 90's? Sellers having to write checks at the closing table is not new, just painful and worse than ever before on average. Remember how bad Texas was when the price of a barrel of oil fell through the floor roughly 25 - 30 years ago? Same thing, just everywhere now. I remember spec condos in TX selling for 10 to 20 cents on the dollar.

OK, Bryant,

You just hit THE hotspot with us in the Danville, California market. We just had a listing sell for a BIG discoount - in the high $900,000s. The Buyers received an amazing deal compared to any other comps in the neighborhood. The appraiser pegged the price at $50,000 LESS than the bargain price. We were not allowed to provide the appraiser with our comp list. Nor were able to participate in any type of appeal process with the national bank. We did discover that the comp the out of area appraiser used was a home that was bought back by a relo company that backed to a storage facility. There were ten more comps that more than supported the price. The lender would not budge in considering any of this information. The benchmark for this neighborhood has now been dramatically dropped because of this one appraiser. We are just sick for our Seller and for the future sellers in this neighborhood now that a new price point has been put into stone. The situation with how appraisers are now doing their work, given there is a brick wall built around them, is going to be the main hurdle of many of our future transactions. www.EastBayRealEstate.com

Unbelievable! I have not seen this on an appraisal yet, but I sure do love to scan them and see what the trends are. I have two appraisals that just came in and for some appraisers, it's a stretch just to find comps at all in our area.

The banks do NOT force us to do declining adjustments. If they do I will personally turn them into the state to be disciplined for coercing an Appraiser, just as I will turn in mortgage brokers asking me to commit mortgage fraud - like doing a comp check that is illegal or a contingent valuation that is illegal. Nearly all Appraisals I've done have a declining adjustment currently, but vary depending on the market they are in -might be 1/4 of % per month, might be 4% per month, it varies widely, but 1 - 2 % is commonplace declining market adjustment in our marketing areas.

We've certainly seen some interesting things on appraisals lately, and using the short sale and foreclosure to hang their hat on seems to be the thing to do lately. We recently had a rural property (on well and septic with a lake view) comped to foreclosures and short sales in a different zip code and city (because as the crow flies that thought that must have seemed reasonable) - in this neighborhood you could pass your neighbor the butter from your kitchen table to theirs..and the homes were really run down....frustrating yes...lack of appeal process is really the problem.

Hi Bryant - I think that is MY appraisal you are talking about! I saw this on my phone tonight - saw the graph - and had to come jump on Active Rain to check it out! Yup...that is my regression analysis for Poinciana. In fact, I gave a seminar on pricing to some local Realtor offices here, and used the trends in Poinciana to point out what is happening.

Here is an overview of the market for the last 10 years folks:

Poinciana 10 year

Notice that is is not some generic figure pulled from national or regional data. I know some lazy appraisers who apply general statistics with too broad of a brush. Instead, this is data, pulled from the local MLS - and compared quarter by quarter for trends in list price/sf, sold price/sf, days on market and volume.

Bryant , I am glad you didn't sound too surprised or upset about this! I have had quite a few agents call me or email me back on my adjustments - but in the end, the numbers speak for themselves! I have in most cases, seen the agents go back to the bank and get the deal done, however, armed with the right statistics.

In some cases, where the bank was standing firm on a $5000 difference - how long do you think they would stand there if they knew they were losing $150 a day? You would burn through $5,000 in a month!

But hey - the bottom is almost there! With cash buyers coming out of the wood work - inventory is getting eaten up! And in this market (Poinciana) it is entirely appropriate to use a foreclosure sale - since 60-70% of homes in that market area I surveyed were in some form of foreclosure.

This is a great discussion and I would love to answer anyone's questions about it - I just wish this was on my blog for the Active Rain points!! (Jealous!)

I recently listed a home for a relocation company in a suburb of Charlotte, NC, and they required that 3 appraisals be done. Two of the appraisers incorporated a "depreciation forecast" into their final values--not $20,000 as noted in this post, but approximately $7,500 and $5,000, which they subtracted from the final calculations (which were based on very recent comparables), knocking the appraisal down that much more. Sellers weren't too happy... To be clear, it's one thing when low comps warrant a depreciated value--but another when an amount is subjectively deducted from the final value a home is appraised at based on comps. I guess it's understandable that everyone wants to play it safe by not paying too much today for something that's likely to devalue tomorrow!

Yep it's happening here too. My own house (refinanced) ... Appraised in 2007 for $139,900 ---- this time only $126,300! OUCH! I was a bit irritated by it but we got a really good rate so it was worth it but now the new value will affect other properties --- etc..., and etc...!

As an appraiser, I research (typically MLS data) what similar, comparable houses have sold for 3 years ago, 2 years ago, last year, and then in increment of the last 3, 6 and 12 months. Once I know the median or average sale prices, it is easy to see which way that particular community is heading (value-wise), up or down. Then I calculate the percentage of increase/decrease.

For example, if the market shows a decline of 15% in the last 12 months (1.25% / month), and a comparable sale sold 5 months ago for $300,000, I would make a negative $18,750 adjustment (1.25% x 5 = 6.25% x $300,000 = $18,750). Based on this, that $300,000 house is adjusted to $281,250.

Obviously some communities have declined more than 15% in one year, and other communities have been stable. Either way, adjustments must be made based on real market data, not on perceptions or feelings.

So yes, an appraiser who does his job properly will make adjustments not by intuition or a "cheat sheet", but rather by statistical data, as long as that data is known to be reliable.

All I can say is that they (banks/appraiser) are doing it to themselves! What the hey. It's their money, the bank already owns the REO's we are trying to sell for them, and might even get to own alot more shortsales that don't close if they keep it up. I don't get it?

We just saw an appraisal that was from a couple weeks ago and the appraiser used comparables from 2 different towns to get similar style homes and the problem is the one town consistently sells for more money than the town this particular home is in. So now we have a seller who thinks their home is worth $370K when reality is more like $325K. In addition, several of the "comps" sold in Spring 2008. Really surprised me.

Bryant, I have been fortunate. Priced right, they are selling quickly. Now the market is starting to turn around in our area. We'll see.

Well let's have our cake and eat it too!!! The whole bank depreciation issue is great when you (the bank) calls the shots. When they are lending money they get crazy comps (low end, reo, different neighborhoods) when they want to negotiate a short sale they get crazier ones (totally updated vs. original, new mcmansion construction vs. 1940-1950 sprawling ranch). Fortunately my market didn't see unrealistic appreciation even in the boom times so we can't fall as much but it's still nutty out there.

Contrary to popular belief, Appraisers do not drive values rather they should be reporting what the Market is expressing. Under USPAP Guideline, an Appraiser and not any other party is to decide what the extent of reporting is required to make an understandable assessment of the subject market value that would be obvious to the Client or intended user.

Time Adjustments are fraught with danger and are too subjective to produce a mathematical adjustment formula. Most Appraisers are too fearful of Clients and future work to stand for thier Work Product. And Blame, well you have to take that up to the top at the Appraisal Institute. They bacically signed on to the program from Congress that all Appraisers collectively are Morons who were responsible for the Economic Meltdown and have not one clue how to reach a value conclusion. This organization which is purported to be an advocate for Appraisers, has thrown its own constituants "Under the Bus" with the new HVCC and 1004MC forms. We don't need no "Stinking Forms" for work that we do anyway. (Another Bank CYA Form)

Any body Interested in "Change we can Believe In?". Brokers, if you do not want to be here again in another 10 years then the National Association of Realtors should be Lobbying for the Licensing of Underriters, Processors, and Loan Originators. Always follow the money for Fraud. Regulate these clowns and watch how much easier deals come together.

When these parties are accountable with their careers, most of the contorted, twisted, cover you Butt nonsesnse stops. Then the milder Kinder Appraisers can do their profession without being squeezed on all sides.

Realtors: If you feel that the Appraiser failed the Whos smater than a Brick contest, then you as the expert, present factual data that makes sense to provide a clearer picture of market conditions. Just remember Lenders put little weight on Listings. Advise your Clients that the REO and Short Sale Market is seriously distorting the Market to the lower side. Supply of Wholsale goods on the open market just drives prices down. Appraisers need to understand and note this on their side.

Appraisers: Understand your market, maintain your independence and comply with USPAP - anyone dictating protocols and ways for you to make adjustments is violating USPAP and putting you in Jeopardy of losing your license. When they get all growed up and get a License to help you with compliance. Banks are asking for some ridiculous far out forecasts by you, because they will not admit - they do not have ANY clue what the market is doing.

The faster the Banks just write down their losses for toxic assets and sell them off - the sooner we all will get back to some naormal state. This country depends on Real estate activity and Construction - Change will just drag until we all bite the bullet.

I am a Commercial Appraiser and a Real Estate Broker and still havn't been committed after 29 years

Got an unresolved valuation problem that needs advice - email me- advice is free

Working on the solution for world peace - will keep you posted

The entire appraisal industry needs to be revamped. And what's with "drive-by" or field appraisal? As if that's supposed to put any kind of accurate value that a loan can be based on! I've had properties with a full walk-through, thorough appraisal establish accurate market values and the deal falls because the bank orders a "drive-by" that comes back somewhat less. That's just wrong.

We've been seeing that for a couple years here in the Phoenix area. I posted about it in September 08. We have seen a 40-50% depreciation and more in some areas over the last 2 to 3 years. In 2006 and my home appraised for $550,000. Today my appraisal comes in at $350,000. Yikes! Just glad I'm not selling! Even better news, it seems our market is starting to show signs of improvement. Increased buyer activity accompanied by declining inventory. Let's hear a HOORAY in Phoenix for that!

So many posters here have no clue how bad the decline in values have been in Florida. One of my Markets, Lehigh Acres, has gone from a median value in 2006 of $236,000 to a current median value of $60,000. Yes, $20,000 a month sounds about right in certain markets. AND in Lehigh, condition is the key. No other adjustments matter. Either it's real nice or been rehabbed, or it's going into the bargain bin. Pool? So what, no adjustment. In all of my years of appraising this is the first I've delivered reports with NO adjustments. The prices right now are $50k or $30k. A nice home whether 1200sf or 1600sf pool or no pool. Granite or no granite.... $50... Needs some TLC... $30k. Pool? so what, it's green and gross the investor just bought it who cares..

So before being too critical please look at the market such data comes from. I have some other local markets that are showing an upswing. AND they do care if their is a pool. I've read so many generalities here basing your opinion of the Poinciana market on YOUR marketplace. Before you look at where you live and what you think of such a decline, look again at Richard's followup chart. It REALLY tells the story, FOR Poinciana. Does your market look like this? Probably not. What does it look like? Richard or I or any really competent appraiser can tell you and your buyers and sellers. Why not use our services and you won't have a surprise when the Appraisal arrives.

Remember Appraisers don't kill deals, we only write the obituary.

Kat...
St.Cert.Res.REA RD-4424
http://www.leecountyappraisals.com
Associate Member of the Appraisal Institue

I went to a seminar today featuring a local appraiser. She said they don't have a choice, the new forms the must use don't leave them a choice but to adjust down. She does have hope that my mid summer things will start to even out....In NW Oregon anyway.

There are many good explanations. I'll give Donald Martin's post extra kudos for painting such a great picture. Time adjustments (up or down) are a necessary evil when the changing market develops a track record.

Buyers with low down payments have been subject to cutbacks in maximum financing depending upon how the particular market is "scored", but that is a function of underwriting/risk management, in addition to the appraisal time adjustment speed bump that this thread addresses. The appraiser should use a time adjustment when it is likely to improve accuracy and credibility. Sometimes they are told to do so by an 800 pound gorilla, which is problematic.

Obviously, plentiful and recent sales of properties that are good substitutes for the subject (comps) mitigate the effect of time adjustments. I haven't seen those days in MN for a while. Buyers and sellers would be best served by RE agents that take market trends into account, looking so close that they know the time line for the meeting of the minds, if discoverable, for the most key transactions relevant to the subject property. It is not always at the original sign date on the PA. Be wary of extended closings where there was huge non-refundable deposits. That type of transaction may mask a time adjustment.

To those of you selling RE that are still working and making a living, you're pretty good:)

RE Broker, CG RE Appraiser, L.O.

Well this is what we are seeing in the foreclosure capital of Southern California, just the other day an appraiser told me that the lenders are asking for 30,60 and 90 day values of the property so they can depreciate it when it is in escrow. We were told to start shooting for the shortest escrow possible.

Good Luck Joe Austin

REO Buyers Agent

The Nat Genis Team Inc

I haven't seen such a drastic example in my area, but NW Arkansas is also defined as a "declining market." What I have seen is that many people (including yours truly) would like to refinance with the much improved interest rates but are unable to because of lack of suitable comps to support what they owe. The other thing that is happening (anecdotal evidence) is that appraisers are going back only 3 months instead of 6, and underwriters are requesting more than 3 comparables and those as close as possible (geographically) to the subject property. Extremely problematic in this area is that most of the recent sales have been foreclosures or short sales, which has driven prices down bigtime.

One of the local/regional banks did something really neat a few months ago. They sponsored an auction of their bank-owned properties (involved about 600 properties). There was a reserve, so I'm not sure how many properties actually sold (that information has not been released), but they were definitely trying to do their part to spur the local real estate market.

For "unique" properties, it's almost impossible to get a decent appraisal now.

Judy Luna, Keller Williams Realty NWAR, Fayetteville, AR

The banks want to make sure they have as much value as possible in case they have to foreclose, so they are pushing appraisers to devalue property AND asking for an extra 5% down in some cases here in northern metro Atlanta. The question "When does this stop?" is a good one. Even if we hit bottom and prices start to rebound a little, if it won't appraise, what's the point? Will cash sales as comps in a seller's market be the only way for homes to appreciate again? In some neighborhoods, prices are BELOW replacement cost already. That should certainly discourage new home construction for a while longer.

It will be very interesting to look back in about 7 years to see how we got back to a normal appreciation line of about 4% year (if we get back to it).

Drive-by's are conisdered legitimate if done properly and that the Appraiser clearly states "Extrarodinary Assumptions" utilized so that the reader of the report clearly understands that the value might well be different if the inside of the house were seen if the condition, improvements, finish, etc.. is substantively different.

The lenders are well aware of the limitations of a drive-by, but do them anyway. When there is a low LTV it's not such a bad thing, but I still don't like them and try to tell the client in most cases they are better off doing an interior. Also, in a pre-foreclosure situation and an agressive homeowner a drive-by may be the ONLY option shorty of being there with the sherrif, but may not be an option until foreclosure has been completed.

The Appraisal system we have which is not perfect, is far better than none at all. The wolves that already operate would have complete control.

There are still many, many Appraisers that do things the right way and do everything they can to properly reflect the market in each and every Appraisal that they do. A good honest Appraiser knows that integrity is tough thing to keep, but even tougher to get back when you are stupid enough to give it away for the mere price of an Appraisal. In any event, even if you don't get caught being a crook doing unethical and illegal work here, there is in fact a higher authority called Jesus Christ. Jesus keeps perfect score, far better than you or I. I don't have to worry what will happen to me here over my life so much, but eternity is a long time. It amazes me how many people don't seem to care where they spend eternity and will do anything to lie, cheat, etc.. just to make a buck.

It does seem to be happening in our market. Now, from what I've been told, FHA requires at least 2 very good comps within the same neighborhood sold within the last 3 months to appraise at or above the given price. In theory this is great. However, we have some neighborhoods where almost everything that has sold is a foreclosed property in very poor condition with one or two nice homes in great condition being sold by long-time owners or investors who have completed a very nice rehab. How does one determine value in that market for a home being sold by an individual? As a Realtor, I have seen so many of the active comps. When the best house my clients have seen has trouble with the appraised value because it's in a depressed area, it makes it hard to find comps. the low-priced foreclosures are what are selling rapidly and consistently. So how do home we find values on regular sales when the comps are all foreclosures?

Yes BB we have seen this here in Tampa for a while. My local regular appraiser says that is an adjustment for TIME. Knowing the mortgage side like I do, the appraiser MUST do this, or the bank would TOTALLY trash their appraisal! The want comps in the last 3 months or less and less than a mile exact house in the same community. If they don't have that, they want that ULTRA conservative appraisal.

The old rule of thumb WAS 6 months, but we all know that homes that sold 6 months ago are STILL declining in value. This sucks on the Sellers / Realtors side, but an adjustment for TIME on the appraiser part is 100% accurate when using the USPAP guidelines and regulations.

Great post as always, sorry to be MIA, send TLW my best.

Katrina

If you are interested in Appraisal Ethics, go to the "LinkedIn.com" become a member first and then join the group "USPAP, Uniform Standards of Professional Appraisal Practice"

Here's a couple links if you want to go to the Appraisal Foundation and actually read about Appraisers ethics....

Do you know what constitutes acceptable versus unacceptable business practices? This is required in all 50 States. Follow this link... http://commerce.appraisalfoundation.org/html/USPAP2008/AOs/ao_19_.htm Giving a comp check without an Appraisal that complies with USPAP IS BANK FRAUD. Ethics? Do you understand them? Follow this link to learn more about what an Appraiser is required to do and what not to do. http://commerce.appraisalfoundation.org/html/USPAP2008/index.htm

Don's Thoughts for today....

"The biggest thing we have to conquer is not those around us, but ourselves."

"You must overcome yourself first, before all else." "Wining and finishing are not everything, honesty and integrity are."

"Finding a reason to do the right thing, works much better than trying to explain why you did the wrong thing."

"If you don't do the right thing, why would you expect anyone else too?"

"Integrity, if you think it is difficult to earn, try getting it back once you give it away."

"None of us are perfect, so why aren't we trying harder?"

"Think about USPAP and how to follow it now, or you may get a long time to think about it in prison later."

"People only think USPAP Requirements are stupid until they are caught and punished for not following them."

"Don't blame me; I'm only the messenger for what's going on in today's market."

"The value is not too low; your customers' expectations are too high."

"Yes, we can tell you the value, as soon as we do an Appraisal that complies with USPAP and when I know, we'll both know."

"If you want a guess, try an AVM, if you want an accurate professional Appraisal, ask us."

Interested in articles on Appraising? Go to http://www.martinappraisals.com/articles.html

If the data shows home prices are declining, a negative time adjustment is warranted. No one seemed to have a problem when we were making positive time adjustments in the appreciating market! If you have a comp that sold six months ago and now you have similar properties on the market for less, what does that tell you? We are not deal killers...we only write the obituary.

I'm a real estate Appraisers and Realtor and I will keep this statement short and sweet. I would never make that adjustment. No one knows the future value by looking at the market trend. At some point the market will hit the bottom and start to recover. I would indicate the market is declining, but not make a adjustment. Use the most recent sales take snap shot of what the current market is the day of the inspection, never forecast, but that's just me...

Hi Bryant,

Bryant, here's the real question for your discussion. Why Aren't The "Listing Agents" doing their own homework when listing the homes these days, where there is a declining market provable by a simple MLS graph that we ALL have access to in our MLS and when we very easily know from our own MLS's that the Listing to Sales Price Ratios are sometimes below 90%. I see some of the Listing Agents just ignoring these 2 vital facts when they put a price on their listings in this environment. I find it highly ironic that the finger is being pointed at the Appraisers here when, in some cases, the Listing Agents are just putting that price on the listing the buyer wants, just to get the listing, even if it's not supportable, And then, then when they get a P.A. and the home doesn't appraise, they yell, "That Darn Conservative Appraiser!". The same facts that were available to that appraiser were available to the Listing Agent at the time of the Listing......only the Listing Agent, in some cases, chose to ignore these indicators. That's especially happening in some local over-built condo markets. I'm not lumping ALL agents in this mix. I said some. There are some Listing Agents out there that still think it's 2006 by their listing prices.

WHY DO APPRAISERS MAKE DECLINING MARKET CONDITIONS ADJUSTMENT? Because, as a real estate professional, it's unethical not to do so, And, It's in our appraisal instructions to do so, to adjust for declining markets. Appraiser's Instructions for both Conventional and FHA now are that we use 3-4 solds, which are "lagging indicators" and 2-3 listings adjusted to Listing-To-Sales Price Ratio of whatever that is, say 94%. Guess what? In today's market more emphasis is place on the current listings adjusted to List-to-sales price ratio that on the older sold comps, depending on which underwriter you're dealing with. Today's underwriters make value decisions based on the most current data, not on homes that sold 3-6 months ago. YES, LISTINGS DO TRUMP OLDER SOLDS IN THIS MARKET.

DECLINING MARKET CONDITIONS ADJUSTMENTS APPLIED TO THE CONTRACT DATE, NOT THE SOLD DATE. When we easily see clear declining market proof, the exact same proof the Listing Agents can see in their own MLS, let's say of -12% in the past year, we adjust the sold comps at -1% per month and apply that adjustment to the "CONTRACT DATE", NOT THE SOLD DATE, per lending guidelines. If the appraisal is being performed on 4/1/2009 and our 3 sold comps were under contract 4, 5 and 6 months from that 4/1/2009 date, then they are adjusted downward by -4%, -5% and -6% of the sales price. Again, these are the instructions for both Conventional and FHA appraisals. Believe me, if an appraiser fails to make these declining markets adjustments to their Sales Comparison Grid, then we will receive a call from the AMC and/or underwriter and/or Chief Appraiser with a reprimand. Major Banks are very, very, very serious about this issue. The first time I forgot to make this adjustment in a report, I found myself on a conference call with 3 chief appraisers of 1 major AMC asking me to explain why I overlooked this. That's how serious an issue this really is. And, your post seems to make this a trivial issue as if appraisers are standing in the way of Realtors and getting their deals to the closing table. NO, IT'S THE BANK THAT ARE NOW PARTIALLY IN WAY AND ARE WATCHING APPRAISERS LIKE HAWKS, SPENDING MILLIONS TO REVIEW OUR APPRAISALS FOR MARKET ACCURACY.

Hope this helps!

By the way most of the time the Appraisal is not "low" the contract is just to high. When the seller adds the points to the price, you do know that the price is now, no longer "the price?"

Think about the lenders lack of scrupples. The often order a second Appraisal when the Appraisal is below the sales price, why don't they do it, when the Appraisal is higher than the sales price? It would seem the priorities are misplaced.

Appraisers are not here to help lenders make loans, they are here to help them make good loans!

When the contract is too high open your eyes and take a good look at the data. I always tell realtors when scheduling to bring me sales, listings, pendings if they like and I will consider them. I will also pull my own data and ultimately the data I use, will be what I believe to be the most reflective of the subject under current market conditions. I don't really care what the lender thinks.

The correct way to do an Appraisal is use truly the best comps, the ones that really reflect a true alternative to the subject property - forget about prices on them, search based on physical characteristics, location, time, etc... Then after you are done, then the Appraiser should explain why they don't fit Fannie, Freddie, FHA, VA or some lenders ridiculous guidelines. Ideally, it would be nice to fit guidelines on an Appraisal, but if you are worried about having your Appraisal fit the guidelines, instead of first and foremost reflecting the market - than that Appraiser should get out of the business.

Appraisers MUST now make time based adjustments for residential GSE and FHA loans. Some will be downward, but some will also be downward. Per Fannie Mae guidelines, these adjustments are to be made based upon similar sales within the estimated market segment, not any broad based trend.

P.S. If you would like to learn more about the NEW GSE form that is at the root of this- we now offer an inexpensive online continuing eduacation course.

http://www.appraisers.in/Fannie_Mae_1004MC_Online_Course.htm

Some of our markets in Northern California are starting to bottom out, at least the lower 50% of the housing stock. I find that looking at house to house comparisons is a great way to compare apples to apples, but that generic market trends may be too inaccurate for bidding in a multiple bidder situation. Too many times the market stats reflect the "had to sell" or REO homes that may not have been the comparable homes.

If possible, I like to look at the same home selling in 2004 or 2005 vs. today to see a closer picture of the real price decline.Each dot represents an actual house that has recently sold with the price paid along the bottom and the drop it has suffered on the left axis. This was from last November and I wrote about it here.

Forgive me if this is redundant, as there have been quite a few post and I haven't the time to read them all, but it should stand to reason that if the market is declining and appraisers are making negative time adjustments, it would be prudent for a real estate agent to be on the same page as the appraiser, i.e., you are researching and analyzing the same market data for the most part - primarily the MLS... solds, listings, pending sales, days on market, absorbtion rates, etc., so I'm somewhat surprised in one respect, that there are some who apparently find it unusual that an appraiser would do such a thing (if warranted).

Study the data... not just regionally or even locally. Look at your sub-market or subject's market area - price range, size, school district, age, etc. I see prices declining in one development - at one price point, where prices are stable just down the road - in another development and/or price point.

On a recent appraisal I discovered 2-3 lots that sold a couple of years ago in the $175,000 range that are now priced in the $125,000 range, with longer days on market, and more supply than demand.

Time adjustments, just like anything else (comp selection, verification of data, terms of sale, etc.) can vary among appraisers and real estate agents... just depends on the due diligence of the real estate professional (or lack of), their honesty, ethics, and whether they are developing an opinion of value (or a CMA, BPO, etc. for a Realtor) based on their scope of work or based on telling someone what they want to hear.

Just a thought or two...

Hank Outlaw
NC State Certified Residential Appraiser
NC Real Estate Broker
Newport, NC

Mortgage appraisals are not normally forecasts - indicating market value. However, a Relocation Appraisal is not normally done to indicate market value and is in fact a forecast and indicates the "Anticipated Sales Price." Anticipated sales price is the value definition for Relocation Appraisals. A.S.P. and Market Value are two different things. The definition of market value in a typical mortgage appraisal does not include forecasting. The are situations where forecasting is a necessary tool, such as build out for a condo complex in two years. It's not perfect, but we do have to consider existing inventory, pendings and recent sales for a forecast along with seasonal fluctuations and changing market conditions, etc... So, there is absolutely a time and a place to forecast and is appropriate if applied and explained properly.

BTW, nice work by Richard D Ferris Florida State Certified (FHA) Appraiser (AmcAppraisalsinc.com) on the graph in the earlier post!

Hank

boy oh boy. good one, begs big questions! yes, here in our sleepy little hamlet in Western NC, we've seen adjustments for trend--a viable value fator-- (and lack of comps).

But listen up: If you want to be in this business 10, 5, heck, 2 years from now, you're going to have to get a handle on this trend issue too. I'm writing a blog on this right now, and will post within the next few days, but I have a little more research to do. Anyway, here's what you should be thinking about:

one of the reasons that consumers trust ABC Nightly news on real estate issues more than they do us, here in our own specific markets, is because they look at the BIG PICTURE: TREND. They give stastistics. Yes, they highlight the bad, the bA%$#ards. And yes, just like the weather, the real estate market in Santa Fe is different than the real estate market in Asheville NC.

but how can WE be trusted when We make these blanket statements, NOW IS A GOOD TIME TO BUY!. Prices have dropped 20%." that statement is as preposterous as is the "National real estate market meltdown" negativity. People are savvy now; many consumers are more knowledgeable than most agents. Housing prices have dropped 20%. Is that enough? should they drop 50%? 35%? What percentage of your population can buy -and sustain- what percentage of the homes in your market?

What I'm talking about, what you must know about, is the ECONOMIC trend -- "the big picture" -- in Santa Fe, Asheville, or Chicago. there are many factors in whether any specific area is rising, stable, or declining. (the appraisal watermark). It has to do with jobs. Which determines housing affordability. You all do know, I'm sure, that the breakdown came when housing became unaffordable? Affordability is the KEY issue. Much of the meltdown (if not all) is blamed on the housing market, yet jobs is what makes housing affordable. Or not. and then housing became a commodity. they packaged and sold loans, many of them unviable, and that's how we got into the stock market and crashed it.

"appreciation in this market at 30%" What an unsustainable commodity that was! If wages had increased at the same percentage rate, then fine. they didn't. We all knew they didn't. Who didn't know they didn't? housing became a speculation. Bad move, bad trend. Who were the dolts who speculated on housing prices to continue to rise when wages didn't? Who was the fourth buyer of that condo in south beach that hadn't even been built? DUH!

And further, in this environment, we are no longer purveyors of information, but interpreters of that information. We can't fight numbers with ideologies, nor trends with postulates. If we want to stay in this business, and gain the respect and business of the newly learned america, we MUST know what the hey we're talking about in our own markets -- whether they are first time or fifth time homebuyers, investors or banks looking to sell their REOs. know what you're talking about, or go hone (to you own overvalued house.)

guys, if you want to P'and moan about what's happening right now, you might want to go get another job right now, and leave the picking -up-the-pieces, and investigation and interpretation to those of us who have the stomach and skills and bravery to do so.

if 75% of your market can afford 75% of the homes in your market, then continue to do business the old way. If not, wake up. it ain't your grandma's real estate biz anymore.

I've not seen this adjustment here in Louisville, KY. Like some of you have stated, we didn't really boom when things got over-heated, but there are declining markets within my city. I've only dealt with it once, on a short sale of actually, but the people were putting down enough cash that it didn't matter.

USPAP is what matters to appraisers, so lenders certainly should not be stipulating to their appraisers that any adjustment must be made, however, appraisers can't ignore a trend if they observe one. With regard to the new form though, I don't see how that is a violation of USPAP. Is it not just a somewhat redundant exercise (if the appraiser has done his/her due dilligence) anyway? Isn't it just a broader market analysis?

Great topic.

Chris

As stated by my fellow appraisers, Markets determine values not new forms we must fill out 1004MC or anything else! We must analyze the sales and listings and pendings, expired, withdrawn listings, etc We make adjustments for declining markets based upon MARKET indicators. Then we report the value. Lenders are running scared. In the old days they did not care they pushed for high values Now they don't believe what we are reporting they want to push values down! Where was this concern for values before? I agree if lenders try to tell me to do something unethical or against USPAP I will swiftly report them! They cannot dictate what comps to use or how to appraise property. They need to let us report fairly and accurately the properties true market value. Each lender has their own set of guidelines and many are off the wall. If recent comps do not exist they deny loans! I have been told to use anything as long as it is close and recent. Well I refuse to mislead the intended user of the report. Things are only going to get worse until lenders let us do our jobs. Sorry!!

I'll admit to not reading all the replies but the way understand it is the appraiser looks at homes that have sold that are comparable and takes into consideration the overall market for the area. If there are a high number of foreclosures, resulting in under market sales numbers, that is an indicator an appraiser should take into consideration when providing a recommendation to a lending institution as to whether or not the home is sufficient collateral for the mortgage offered.

Hi BB... I did not read all 73 responses, but while I have not seen this yet in Dallas, I have been telling other agents to watch for this to occur since about last August/September. Now, after reading your post, I am really expecting to trickle down here sometime soon.

Hi BB - I haven't tried to figure the math of it, but what has happened is that an appraisal for the some house will go down if it doesn't sell right away and another appraisal is needed. Also, since we have many REOs and short sales, and some of them are "maintenance-challenged", those homes are included in the comps and bring the nicer homes down. Part of it can be when an appraiser doesn't tour the comp homes, so he/she doesn't know how ripped up they sometimes are inside.

Yes, appraisers out here are adjusting to compensate for the " declining market." What a farce!! Homes in a certain price range (under $150k) are receiving multiple offers just like it was 2004! The COST of the homes are less, but in Las Vegas anyway the BUYING FRENZY is in full effect as investors battle First Time Buyers to grab mostly REO properties. Unfortately, the First TIme Buyers are losing as the appraisers adjust prices below what the market value will command. Just makes it harder to get rid of the excess inventory!

I am so thankful that our Western Colorado (Cedaredge - Delta County) market has been spared so far. Currently we have about 50 foreclosures (between NED and sale date) in our whole county. Yes, there have been some homes sold as short sales and some REO's but not enough of them to drastically affect our market. One area of the county has seen a pretty significant drop in the average sales price but mostly because we are only seeing buyers for the lower priced homes.

We just have to do the best we can and hang in there. Many people are depending on us to help them.

Typically, you will find that most appraisers are going to adjust as the market demands....if the property is in a declining area, then that would be a direct indicator to what market values are doing....it is tough right now, but it has to be done....it takes time for the market to stabilize in some markets....sorry!

Susan

Good comments, thank you for your perspective. Might I add that the Appraiser is required by USPAP to verify each comparable utilized. To do this we must as you suggest, tour the comparable homes, not practicle in my marketplace, or we must call you. So those Appraisers that do not make proper comparisons are not doing their job.

Agents, please understand that when you use MLS descriptions like vintage kitchen, needs a little TLC, etc that this will require that we call you. I personally want to give a big thank you for all of the Agents that take some time out of their busy schedules to give us information to help us better understand the buyers and sellers motivations. Yes, I'm one of THOSE pesky Appraisers.

Also if a sale sells with concessions tell us. Yes, it does affect values, but it is the right thing to do.

We have not seen that situation in our area yet. However, depending on the town, appraisers are having a difficult time finding comps due to the fact that there have not been many sales over the past six months.

Broker Bryant,

It's happening here in Canton OHio. In fact my deal that was to close next week came in low.

If appraisers are making values lower based on comps and area sales due to lower offers being accepted, then they are doing their jobs. Another issue is the fact they are scared to over appraise a home and so part of the downward spiral is coming from those fears.

If everyone was being this guarded and cautious years ago when things were riding the gravy train, I cannot help but wonder if we would be in this mess. Probably but how many people would be better off?

It's hard to be too sympathetic because here in Oklahoma, we never saw the bubble that AZ, CA & FL saw and as a result, we never saw a bust, however we are still seeing a decline in values though ever so slight and we do have much more inventory then a year or two ago and that has resulted in longer DOM.

I am very excited to see and read about buyers getting incredible deals on homes with attention given to places like Detroit where homes are selling for $500 and it is bringing a new class of buyers in that are helping to rebuild these depressed areas. In the end, most of us will be better off and hopefully much smarter and wiser!

For me now, the scariest part of waiting for the closing to happen isn't whether or not the loan is going to close, it's whether the appraisal will come back with the numbers that will kill or close the deal.

Appraisers are under fire because of the sub prime dilemma. Banks employ the appraisers not real estate agents. In North Platte, Nebraska we are seeing appraisers only using 3 month comps , a minimum of 5 and adjusting for short sales and foreclosures. What I run into the most is rural areaas where comps are not available and that makes it hard on agents and appraisers. One job I wouldn't want right now is that of an appraiser.

Yes it is going to be up to REALTORS to work hard to keep the pricing where it should be. I recently had a home appraise for $4500 under sales price and luckily I had the buyer not the seller. We still closed the deal. Today's market is volatile and we all need to be aware of what is going on and make sure our sales reflect the current market and adjust for short sales and REO's.

I have had two transactions with appraiser situations. Actually, one had the appraisal come back at $10,000 low. We re-negotiated to the new appraised value. Then, the underwriter ordered a field review, which came in $40,000 below the appraisal. After an incredibly difficult process, the situation went to the president of the bank, who waived the field review. We were finally able to close 14 days after the closing date. What a nightmare, but fortunately it had a positive ending.

The one I have now is still in process. It is a whole different story that may get a blog soon. Stay tuned.

Example of Sales Trend

Hello All,

Lots of interesting thoughts here, and love to see the graphs, I too will ad one just for fun. When appraisals came in "on target", did buyers or for that matter the agents complain? Surely not! Why, because the deals went through with flying colors. Today, it is a horse of an all together color would we not all agree. Now it is not uncommon for the numbers to come in low. Does it always kill a deal, not always! Remember, it is the market that sets the trend, and who knows, that trend may just be heading back up!

My take on this is that in years prior lenders were given appraisals that came from questionable sources. In other words, they had little concern over who was doing the work, as long as it was done. Today, lenders have taken back control of who is assigned the work. And though these professionals more than likely know their business, it is not inconceivable that they are not always familiar with each and every market location.

Recommendations: 1) buyer and seller agents would be well advised to attend all appraisals. This way the seller's agent can point out recent renovations the seller had undertaken in the years prior, and the buyers agent can point out those features etc that were of interest to the buyer. And 2) educate! It does not hurt to provide your version of comps while explaining neighborhood boundaries that come into play. For instance, Somerville, Mass.... A small city, one mile wide, three miles long with Boston/Cambridge to the South, Medford on the North, and Arlington to the West and so on; within this strip, there numerous Squares, "Hills" and areas. We have Davis Sq, Ball Sq, Winter Hill, Ten Hills, West Somerville and East Somerville. Each of these is its own micro-market. Stray as little as a 1/4 mile away, and you can be in a totally different "market". Should I expect an appraiser who has driven form north of Boston, say 30 miles or more to know all this? NO! It is my duty to inform. I am not saying that I go out of my way to push my opinion of value, but rather to not see one contaminated by comps that are not consistent with the subject properties market area.

Therefore, I provide details on how I assisted the seller in determining asking price and a pricing graph such as the one attached.

APR

We are seeing appraisals not coming in at all due to to little volume. The argument that someone made that the banks don't want to lose money is just ludicrous. This is the banks creating a self fulfilling prophesy. What a mess.

I'm seeing the same thing as Kate. The credit markets froze up last September and now that they have thawed, we are lacking comparable sales for the past six months. To make matters worse, the investors who enable mortgages to become securities, have demanded three supporting comparable sales within the past three months in declining markets. Who can say whether my market area is declining or not? There haven't been enough sales to create a trend in the past six months. It is a vicious cycle that is being broken in my market area through cash sales and portfolio (in-house) mortgages. However, it's caused so much distress for home sellers, buyers, mortgage brokers, and agents.

Our appraisals in the Lewis-Clark Valley have not been affected yet...I do know a few appraisers eMail when a sale is complete to ask all types of questions regarding the sale for the future comparable.

Seems to be confusion with many realtors, it is generally (not always) - the Appraisal is not low, the Sales contract to high and folks there is a difference.

Remember, the definition in part for "market value" is "the most probable sales price."

Some incorrectly think "a home is worth whatever someone will pay for it." Such nonsense would mean anybody stupid enough to pay any ridiculous number would be market value and that is not the case. Neither a low, nor a high extreme is typical.

If a field reivew comes back low, do demand an interior, it is possible that due to "extraordinary assumptions" made, the market value might be different on an interior. Also, keep in mind if an interior is done, it could be higher or lower, not just one or the other.

Many times deals fall apart because the seller paid points and the seller was not informed properly, that the Appraiser will look at that and realize that the sales price is the price in the contract less the value of the points paid, acting as inflationary stimulus to the price. In other words how much less would the contract price be without the points. That being said, it is often foolish to include points then watch the deal get shot down, because the real sales price is less than the contract price.

Just because you can convince someone to sign a contract at a price does not mean it should Appraise out.

It is quite ridiculous to automatically assume the Appraisal is low, when usually (not always) it is the contract that is just to high and not supported by the market.

I can't tell you how many times realtors think that homes that sold for the same price are comparable when they are often not, because they do not know what comparable means. A 3 bedroom ranch for example should not generally be compared to a 5 bedroom two story as an example. Look at the subject, look at the comps do they look similar? Same market area? Recent? Similar gross living area? Seperate out the basement, it's not part of living area. Similar age, condition, effective age, modernization? Would a buyer of the subject really consider the comp if it were available for sale today, as an alternative to the subject property?

In some areas - urban and some suburban, there are plenty of comps in a few blocks are less, in some rural areas you may need to go 20 miles. What defines the market area varies depending on the economics of the area, the housing stock, amenities, services, school district and far too many variables to have an absolute in every case to apply the same way. But, if I took truly seasoned appraisers - competent appraisers - both geographically and property type and we could pick 4 Appraisers, they should be agreeing pretty closely on the data, if not keep looking till you do. Those that do Relocation Appraisals understand this concept.

We've seen a few appraisals come back with time adjustments... negative adjustments that is but they were nowhere in the range of $150/day. Wow. Then again we weren't hit as hard as you'll either.

I see this and much more happening. I recently posted an article about the responsibility appraisers have to all property owners to accurately appraise property.

http://activerain.com/blogsview/1012745/Appraisers-have-responsibility-to-all-property-owners

I know that here in Florida property appraising is "an art, not a science". Unfortunately, the artist who simply slings slop on the canvas will starve while the appraisers who do this are staying busy and being paid to do so.

In their defense, many appraisers are under extreme pressure from the lenders to complete an appraisal in just a day or two. If they wish to continue to work for said lenders, they have to lean more toward the "artist" side of the equation and move on to the next job.

Personally, I try to deal with people who have the gumption to continue to do the right thing even in a shifting or difficult market. This includes lenders and appraisers.

As the appraiser who performed this one.....(yes it is MY appraisal we are discussing here...or at least it was my graph originally posted by Bryant)

It is funny that people get hung up on "$150 per day". That actually is $4,500 per month. In a market where the median sales price for the prior 12 months was $77,250 - that is 5.8% per month decline. That sounds like a lot too....but "$150 a day" sounds much more drastic, doesn't it?

I loved the comment above "the appraisal wasn't low, the contract was too high". Great one Don!

And also that all the listing agents have access to this data. All of it was an export from my local MLS with a defined criteria which can be duplicated.

Since I love charts (yes I am such a nerd) - I'll also throw in that there is a BIG difference in the market between sellers and buyers, and maybe between listing agents and selling agents:

Poinciana Overpricing

You see that the "average" list price to sold price ratio is 5.62%? That means that the average home sold for 5.62% less than the current list price. But when you compare that with the ORIGINAL listing price - the ratio is a whopping 23.20%!

That indicates that the market is generally over priced by 17.58% on average (23.04% for median sales). This is a HUGE indication of what is happening in the over optimism of sellers and general glee of the buyer looking for the best, most aggressively priced home in the market!

I think this is why I love the statistics so much. This is the "science" of appraisal practice....the "art" is understanding the story that it tells. When people talk about "art and science" they typically mean appraisers "feel" their way through adjustments. One does not have to "feel" for the adjustments when you can interpret the data and patterns from available information.

Bryant - by the way, I read you post you referenced " "Let the Games Begin" - back n the day when prices were in the 6 figures.....you were right on the money then too!! This is a great discussion! Thanks for starting it!

(Oh - I'd love to hear the rest of the story of your appraisal review - either here or offline, since I believe I had done the appraisal for an estate situation. I am assuming you are reviewing the appraisal to list the home? I'd love to hear more).

Bryant,

Yes in our area, the appraisers are adjusting bbased on tredn lines. Our market is declining 1.4 percent per month. SO based on a sale of $100,000 30 days ago, that would be a downward adjustment or now a sale price of $98,600 to be used as the comp price. The appraisers job is to find out what a ready willing able buyer would pay. They are simply reporting the market and here we need to be aware of the quicly changing market and evaluating every 2 weeks.

Bryant is right, we for sure see a downward trend from the bank appraisals beginning to poke their ugly heads out. It gets a bit unnerving for a buyer after the first time and then attempting to jump back into another purchase. With cash already tight, a buyer can only afford to pay for so many appraisals only to have the deal fall apart. Makes us Realtors look pretty bad as well when it is totally out of our control

Bryant, we just had an appraisal where they used a 1.6% a month decline in values, since there were not enough recent comps.

Yes, negative time adjustments will be around for a while. Appraisers must use closed sales. In New York, it can take 60 days or more to close a transacation. Therefore, from time of contract to closing date is reflective of a different market. Appraisers have to adjust to the current market conditions since they are working on historical data. Expect to see this and make your sellers who are still overpriced realize what is happening. I don't think the banks are forcing the appraisers to do this. Appraisers are estimating value based upon current market conditions. Market Value is estimated by determining what most buyers will pay for a home and not just what one buyer would pay for a home. Contact me if you have any additional appraisal concerns.

Richard...

Thank you for coming in here and adding your thoughts to this discussion. We certainly appreciate that :)

TLW...ROAR!

I attended a FHA conference just yesterday and one of the speakers was an appraiser. There were about 150 Realtors present and the roof blew off the building when he said that appraisers were using REO's and Short Sales. In Illinois is not uncommon to find a subdivision with 7 or more houses on the market, similar properties, all priced within $5,000 of each other and then the dreaded short sale that went on the market priced similarily, but is now $75,000 less.

As realtors I think that we should be providing comps to the appraiser. Use their criteria and don't forget about the "principle of substitution". Just because there are no comps within one mile or 3 months doesn't mean you shouldn't provide them with one in a different subdivision or town for that matter just as long as the home has the same criteria...even down to comparable school districts, square footage, etc. If you know that they are looking for three comparable sales, 2 comparable actives/pendings and your listing has that short or bank owned right around the block then you the listing agent need to meet that appraiser, give them your comps with a detailed list of upgrades and go the extra mile.

One other tidbit I got out of the conference was a short reminder about a loan assumption. FHA guidelines on a loan assumption do not require an appraisel. If you have a client who just wants out of the house and you come up with a willing buyer, you might turn out to be someones savior.

My two cents anyway!

We have a meeting in our office every Tuesday morning. A mortgage specialist is always there to let us know about the rates for the week. She continually advises us, for months now, to guide the buyers carefully because the appraisal may not come out as high as the Agrrement of Purchase and Sale. Make sure your clients can come up with a shortfall if this sitaution arises.

Holy crap!!!! Great discussion you are having here. I have avery busy morning and have only made it through about half the comments so will have to come back later.

I did speak with Richard this morning to thank him for doing such an awesome appraisal. With out a doubt his was the most thorough appraisal I have seen in my 15 yuears as a broker. I highly recommend his services.

Richard D Ferris Florida State Certified (FHA) Appraiser

*******I do want to point out in case it comes up that the address of this property is confidential at the owners request

"There were about 150 Realtors present and the roof blew off the building when he said that appraisers were using REO's and Short Sales" - Don Hawley quoted above:

Don - that really gets the blood moving huh? As an appraiser - let me say that we should NOT be using short sales or REO sales as comparables....UNLESS they are driving the market.

In your scenario, 7-8 retail listings woud comprise the market. The short sale/REO is the oddball and should be considered, discussed, but likely not counted.

However, in a market like Poinciana - the view of foreclosures is more like this:

Poinciana Foreclosure

So in this case......REO/short sales ARE the market.

For Realtors out there...in your discussion with appraisers - bring this up. Make sure appraisers are not just choosing the first 3-4 comps which match a sales price....but rather are really measuring, considering, and reporting on the true market.

Richard,

Yes the blood was a movin'. Thanks for the follow up! By the way, what are your thoughts on Realtors providing you with comps?

How about this one Bryant - My company develops and builds urban infill communities in Orlando. We recently lost a contract on a completed spec to a buyer who's mortgage broker issued him a denial claiming that he couldn't get underwriting approval for a house in a new home subdivision that had not yet been completed asthe uncertainty of the market trends disallowed an approval for that senairo. Remember, this is not a 300 lot neighborhood at the end of a highway in suburbia - this is a 20 lot cull de sac less than 5 miles from downtown Orlando! I advised the buyer's Realtor to connect with the mortgage broker who closed a loan in that same community one week before the "denial" was issued, but was told that the buyer had been "spooked" and did not want to buy that house anymore. In lieu of exerting energy on this unethical and possibly illegal exchange I choose to continue to market the spec. This story and some of the examples above do prove that these trends themselves are being driven by extreme adjustments, bad press and the like.

Our market in Maryland in still declining, but so far I have not seen appraisals that you have mentioned.

My last appraisal for closing was done 3 weeks ago for a closing next week.

Don

A few things in your post are very telling. You stated "In Illinois is not uncommon to find a subdivision with 7 or more houses on the market, similar properties, all priced within $5,000 of each other and then the dreaded short sale that went on the market priced similarly, but is now $75,000 less.... Just because there are no comps within one mile or 3 months doesn't mean you shouldn't provide them with one in a different subdivision or town for that matter just as long as the home has the same criteria...even down to comparable school districts, square footage, etc."

Perhaps your market is telling you something. And many factors must be considered by the Appraiser. Are those 7 sales on the market because they are overpriced? Is the short sale listed too low to create a buyers frenzy with no approval from the Bank at that low price, non arms length price? Why are there no current sales in the subjects community? Why would the appraiser go only to the next community or city for comparables, ignoring the sales activity in the subjects neighborhood just because REO and and Short Sales are the only ones selling?

Once the market is driven by REO's and Short Sales then the Appraiser MUST consider them. As far as providing comps, absolutely!! I love yet. Please!! Meet me at the subject property. Come prepared with comparable sales, be sure to give the Appraiser your time. Let us know what was special about a comparable sale, what affected its sale either positively or negatively. Realtors you are our eyes and ears. You are the ones that know the motivations of the buyers and sellers in the marketplace. Please share that, Appraisers need to know what is happening too. Please don't dismiss us when we call to verify a comparable sale. So many Realtor's do that unless the Appraiser is working on THEIR deal. How about your competitions deals! They effect your sales also. So yes, bring comparables, bring them all. But make sure your bringing COMPARABLES and not just SALES that meet your needed value.

Great discussion.
Kat Bryce
http://www.leecountyappraisals.com

Guys...

I love it when you do this to Broker Bryant. Please understand that it keeps him out of my hair. I'll be able to go about my daily biz without his constant chatter about Real Estate. He really does need you Guys to interact with him. He gets tired of me saying...Yes Dear :)

TLW...ROAR!

I have seen this & in a declining market (like all of FL!) it makes total sense - Obviously a home that sold in November is not going to have the same value as one sold yesterday,

I've seen this personally from clients that purchased a home 4-6 months ago when rates were higher & called me for a refi - When we did a new appraisal the value came back 20% lower!!

I look forward to the days where this market stabilizes!! (1-2 years in FL)

Bryant, great post! This is what AR is all about, getting opinions and ideas from around the country. Congrats on over 100 comments!!!

I only had time to read through #17, but will come back and finish the rest.

I have heard appraisers tell me "off the record" that they are being asked to lowball the appraisals. I have no issue if the banks want to lower their LTV's to protect their hind side, but to make a joke out of the appraisal is sinful!

I think appraisers should be required to do an agency disclosure like we do as Realtors, so that the client knows if the value is being done for them, the seller, or the lender!

Jim Paulson

I had a troubling experience recently involving Countrywide as the lender and Bank Of Amrica appraiser. The comparables they used were not remotely comparable. They took a track home with no country club or golf course and starts in the Mid to high $200k's and an 18 year old house on the golf course in his community (our house was custom built with high end finishes in 2006) and a production home built in a neighboring city no gate, no golf, no country club. The house had a bank approved number 2 months prior as a short sale at $650,000, we had a contract for $615,000 (not concerned about appraising) it appraised at $550,000 with these comparables. When we tried to challenge it we had no luck. They stood by it and refused to use the comparables we provided in a neighboring community same city with golf, country club and the comps were production homes not even custom...Just wait until May comes and the lender can't talk to the appraiser and neither can we..property values are going to decline unbelievable just due to the paranoia the lenders have put in these appraisers. It is really scary. The pendulum has swung way to far now......

just closed a real estate transaction (chicago suburb) ..the appraisal was $7000 below contract price...

seller refused to adjust...buyer threatened to kill deal....seller still refused to budge.....buyer paid the difference to keep house which they thought was still a "hell of a deal" ......interesting...before this buyer came along..the house was sitting on market for 500+ days........priced at aprox 30% above sales price.......(that was the original list price)....after various price point adjustments.....the ratio sales price to final list price was aprox..... 3% or 97% of final List price.

Interesting attitude by seller not to concede...........(actually seller was 3rd party relo company). In 20 yrs i havent seen that dialogue before.......

I still see....huge market absorption rates here....(chicago burbs)....and as spring market hit...additional inventory adding to it all....yes, more action and more buyers......but, the market is still declining as we speak..and most likely will remain

'in this mode.....due to 'unemployment".....which drastically reduced # of buyers even more.....and till the supply and demand levels off again.......I see sellers (who were just laid off and unemployed)...listing their homes immediately..for fear they will not be able to continue with current mortgage each month....feel insecure....want to dump house, and take

any equity and purchase with the cash....a smaller (paid for ) place to live.........thats a new trend i see.......

panic attacks....sellers actually feel they wont find the same security they had with job they had for 20-30 yrs...got laid off....these are sellers who are 'current"....and when they inquired with their lender as for recommendations..lender

told them..there was nothing they could do for them........of course each case is individualized....so who knows how many

fit this "scenario"...........great discussions......thank you.

Thus far, I havent seen the appraisers take a downward slide factor into the appraisal. If you ask me, the comps that you pull would naturally take that into consideration already. Not sure if you have any thoughts about this.

I'm in the suburban Chicago market. Many appraisers are adjusting for a declining market primarily becuase the market has declined. What is most concerning is that some lenders (Countrywide, for example) are issuing "commitments" to mortartgage applicants that includes the provision that the commitment may be adjusted down any time prior to closing. (We recently had one adjust down about $20,000 2 hours before the closing was to take place.). It's obviously adviseable to make sure potential borrowers (or their attorneys) read the commitments carefully.

I'm seeing it more and more and now some bpo's I do are demanding a downward adjustment for time on market and lack of sales. It wouldn't be so bad if there were any conformity as to how this number if reached. I have a client who called her lender about a refi and was told over the phone with no appraisal at all what her home was now worth. She has owned the home less than a year and while it wasn't bought out of foreclosure, it was a builder who basically sold it for what he had in it. So far my experience with loan modifications and refi on stuff like this is that the banks basically don't want to do anything and are just going through the motions to keep Washington happy. Foreclosed homes are now selling for far less than they can be built for and to use this as a barometer of true value is deceptive. While some markets are glutted with REO, others don't have that many and are simply hampered by very slow sales. I simply don't have a clue how we can achieve normalization this way.

Hi guys, If you have an interest here are details for properties under $60,000 on the market today in Poinciana.

Let me know if you want to buy one or two or three :)

Great post! Great Discussion! I've seen "time adjustments" on appraisals in Northeast Florida. One lender I'm familiar with watches for a minimum of 1% per month. I agree that this can become a self fulfilling prophecy that works against stabilizing the market. It's a painful spiral for sellers. It's equally upsetting to buyers and agents that thought the deal was solid.

I have found that sharing these market realities with sellers helps them to understand why last month's price, last year's price, or their perceived value are not a substitute for today's market price.

I'm not sure we are not adjusting downwards because that is our expectations in the current market. There are so many flaws in a chart like this I can write a paper, started to but time ruled that out. Also, as far as reducing a comparable because it has a pool a few things also come to mind. Condition of pool, neighborhood expectations just to start with.

When assessing the value of a specific home can be done solely on historical data without human judgment we can all be replaced by computers. Numbers are important but condition, location and seller's motivation at this stage, has not been quantified.

Stanley Rinehart wrote:

"I'm not sure we are not adjusting downwards because that is our expectations in the current market. There are so many flaws in a chart like this I can write a paper, started to but time ruled that out. "

Stanley - since I speak of this first hand, as the one who did the appraisal, I approach each "micro market" with the perspective that it could be going up, down, or sideways. I don't prejudge just because I am in Florida, that the whole state is declining. In fact, many little markets have bottomed now, and I have the data to prove it.

The numbers speak much clearer than emotional expectations. Talk to buyers here, and I bet they will tell you, "I am afraid to buy with values falling still". Do they have any factual data other than Channel 6 broadcasts at 11pm to base that assumption?

I have seen appraisals where the rate of decline was adjusted based on a county wide perspective. Orange county's median sold price compared to 1 year ago may show you an 11% decline or 0.91% per month.

But the micro market, the area we are actually appraising, is NOT all of Orange county. It is the subdivision or surrounding area as defined in the report. So - using an 11%/year adjustment would be less than credible, if in this case, it is a 5.65%per month (or a whopping 67% per year median to median) - or $150 a day.

The contrary is also true. I did a report yesterday where the market clearly bottomed in 4th quarter 2008, and all of 2009 (now into the 2nd quarter even) is showing recovery (appreciation). So to adjust that for the whole county's loss would also be unfair.

By the way - I'd love to read some of that paper on why charts like this are rife with problems?

Thank God I livein the conservative Mid West, the St Louis, ,MO area. We've noticed about a 7% decline in sale prices compared to first quarter of last year. I recently attended a seminar where 2 appraisers, an underwriter and operations manager from a financial institution were on the panel. What they said is that appraisers here are required to use 5-6 comparables (used to be 3) and starting April 1st they have a new form to report the "characteristics of the neighborhood". This is so the investors know that if there are foreclosures in the neighborhood they are not be over-looked to determine value. If it is not "characteristic" of they neighborhood then they don't expect them to use them. The prices of appraisals are going to go up because each one takes more time. So, our job as specialist in determining value is very important when listing a home. Make sure you have it at a price that will appraise, do your homework and educate the seller.

Well if they keep this up I guess we can just give the houses away. Maybe Obama will then give Bail Out money to Realtors sso we can just take homeless people around and help them pick out houses.

Our local appraisers have been told by banks to do their work then lower the final number by 10% to compensate for the "declining market". It has been increasingly harder to finance real estate in northern Indiana. Thus far, 4 deals down and counting for bad appraisal when our market has not seen the 10% decline.

Brian, First I agree with another comment. I wish I had thought to write this Blog. It's very good. Yes appraisals are fluctuating because the housing market has not stabilized. Now,this is like sailing in a cross wind. If you are representing the buyer, banks are reluctent or completely disallow a buyer from borrowing above the appraisal price. If you represent the seller, these appraisals are flucuating depending on what the market will bare. It depends on your region or for that matter neighborhood what a property will sell for and that is changing every few months. It appears that an appraisal has to be updated every two to three months.If you are representing the seller, this can be very diffiicult to explain to them especially if a home down the street sold for more back in Nov. or Dec. and they are going to have to ask less for their home even it appears to be worth more. Agents need to be very knowledgable and up to date with all their information. As we know, a home has to be priced right or your seller will either lose money if priced too low or have no lookers if priced too high. These updated appraisals at least give you a starting point. In our area,with the high-end homes some have had to come down as much as $300,000-400,000 less to have people come for a look. Even then they are waiting for the market to stabalize before commiting. I had one seller relay to me that she felt that many of theae homes will sit on the market until interest rates start rising which will be one indicator that the market has stabalized. I thought that was an interesting concept and I don't know whether I agree but it may come to be true. See youn really started me thinking!! Sue

I believe this is happening all over the United States. I am located in Maryland and the market is really slow but improving in sales but not prices. I believe the decline in value here is between 18 to 23% and not much more than the state accessment. I also believe the banks are sending out BPO request to verify appraisals that have been completed for reassurance. Appraisers have change there way in doing business and started to adjust for the declining market.

Some good comments and some that sho a lack of knowlege. Thar's ok, we read to learn & then we are better able to serve our clients. Appraisers are basically market analysts. We report our opinion of the market data, we don't make it up. In these difficult markets we are now experiencing, experience is often critical. One thing that appears to be changing is how appraisals are ordered, as per new gov. regulations. This appears to be sending larger amounts of appraisal work to what are known as AMCs or appriasal management companies. They typically pay far less than the full appraisal fee & many of the appraisers that work for them are newer to the business & less experienced. This can sometimes create difficulties with some appraisals that should have been done by more experienced appraisers.

Time adjustments are often difficult to analyze, depending on the amount of similar sales data that is available. Current listings & pending sales are also important, as they should be reflecting the same trends as the closed sales are. Often I see many listings that are over priced until they have price reductions that bring them in line with the market. It is interesting to look at days on market from a price reduction that brought a listing into market harmony, to contract date. This can usually be seen on the closed & pending sales. This is more important than the overall days on market. My opinion is that if a listing is significantly overpriced, its really not "on" the market. I'm not sure that most markets are precise enough to justify a daily time adjustment. I'm sure that it could be mathematically calculated, but would a buyer say gee, this was worth $200,000 2 days ago, now I'll only pay $199,800, I doubt it. I think its important for appraisers to remember not to get more precise with their report than what the typical well informed buyer would. The data is important to support our opinion, but the opinion still needs to reflect a realistic market thinking.

And one last thing. REOs, if they are prevelent in a neighborhood, then they may be the best comps, but if they are not prevelent in a neighborhood they may tend to indicate a price lower than the typical market for that neighborhood. If a REO sale has to be used in a neighborhood that is not typically influenced by REOs, care should be taken with market adjustments like condition etc. Its true the appraiser typically doesn't get to see the inside of comps, but he or she can call the agents & ask about condition & get a fair idea of what would be a good condition adjustment. Even then a REO comp may tend to set the lower end of the market range for the subject.

I have seen that in my area of South Orange County California but only if they do not have enough recent comps, 3 months. If they need to go back more than 3 months then I have seen adjustments being made. I did not like that they were going to sites such as data link and using the figures on this site to see the average % decline per city. If the entire city showed an average decline of 35% then they used this percentange to make the adjustment. I did not agree with this because some areas within a city held there prices better than others. It is the REOs that are bringing the prices down for the most part in my area. They are listing these homes Sooooo far below current market values.

Gail/ Century 21 Beachside at viphousesearch.com

Wow, you certainly struck a nerve! I don't have time to read the comments but I can add that I am not at all surprised as I remember this happening in the early 1990's in California. We even had re-appraisals at the end of the escrow just in case the value dropped during the escrow period! Since your market was hit hard and early I'm sure you are experiencing the cutting edge of the depressed housing market:)

Richard,

You are the man. As a fellow brethren appraiser (Certified General in NV and AZ + MAI Designation - 19 years experience) as well as a licensed broker / salesman and NAR / Realtor member you are analyzing the market correctly. Of course it's sad and many Realtors are impacted by the emotional consequences this downturning market has with their clients.

Appraisers had the same problem when the market was going up. The banks didn't want to see upward condition adjustments on residential loans. (In commercial appraising the banks criticize us if we don't make and support such adjustments.)

What I don't understand is many people's resistance to accepting objectively presented and verified market forces... Richard has certainly demonstrated he has done his homework here and unless the homes being appraised have some type of magical fairy dust sprinkled on them that makes them completely immune to downward market forces, the downward adjustment for market conditions is absolutely correct in his report.

Hasn't the brokerage community learned enough from the "Liar's Loans" the undue pressure put on appraisers by unscrupulous loan officers and purchasers? Why do you think there are now laws or pending laws at the State Legislatures that will make it a criminal act or gross misdemeanor to attempt to influence or bribe an appraiser inappropriately? Is this because there were no problems in that arena instigated by unscrupulous mortgage lenders and / or real estate agents? Are these ethically challenged loan officers and/or real estate agents happy now that they pressured appraisers (most of whom now are no longer in the business) to push up values and corresponding loan amounts?

Kudos to you, Richard, and shame on anybody who buries their head in the sand and suggests that somewhow their particular residential market will be immune to the credit crisis and economic distress washing over this country like a tsunami. Experienced brokers/agents/appraisers should all look in the mirror and accept some responsibility for the mess that has been created. My first supervisor in the business (MAI appraiser and broker) told me that you're not doing your job unless you make some of your clients unhappy - in some cases very unhappy. Listing agents should really take this sage advice to heart if they want to kick up their ethics and standards a notch. You do nobody any good, including your client, by accepting an over-priced listing. I'd say let some other poor inexperienced agent take the over-priced listing - let them get beat up - and then make your presentation to the seller when they're ready to get serious about selling their home.

I'm not saying it's anybody's particular fault but our entire industry (Lending, title, sales, appraisal, etc.) as a whole collective has managed to destroy many families' net worth and in some markets, completely wipe people out and force them into no other choice but bankruptcy. And nobody accepts any blame or responsibility. I feel horrible about the families I helped purchase a home during the boom and blame myself for not seeing the future correctly though seeing the future is a very hard thing for anybody to do. I think everyone has to wear their mistakes and own up to them for recovery and prosperity to re-emerge in the market.

Everybody blames everybody else. Everybody should know the feeling from their experiences with the medical profession and insurance. The doctor's office points the finger at the insurance company and the insurance company points the finger at the doctor's office. You, the consumer get left holding the bag. But only this time it's everybody in our industry pointing the finger at everybody else and the poor consumer, again, is left holding the bag.

I've always criticized my appraisal brethren for being "forensic appraisers" buried in the past as opposed to looking to where the market is going. I believe Richard is a very rare exception to the forensice breeding of appraisers and all real estate professional in Florida should be ecstatic you have such a competent professional practicing in your midst.

Sincerely,

Charles E. Jack IV, MAI

What I have seen here on a refi is. The bank sent out for BPO comes in low, of course they do drive by bpo's. Then when that is low they send out an appraiser to do an appraisal.

Bryant, hasn't this been going on for awhile now? Florida was listed as a declining market in early 2008 or late 2007? Richard Ferris looks like a great appraiser. Kelly Kellogg has always been my favorite appraiser because she will actually give great comp information to agents, but Richard looks like he really knows his stuff as well. Thanks for sharing this graph. Looks like we may indeed be at the bottom - at least of sales - which is what Mr. Watson has said this year. Thanks for a very engaging post!

Ten different appraiser will render ten different opinions of value. They are all experts so who is right? If you don't ike the first opinion get a second. This phenomenon is not new but has now evolved to a point where appraisers now attempt to read the future based on past market performance. Attempting to make these forecasts will only serve to ensure that values continue to decline. Then the lenders who made loans one year ago will be upset because their collateral has declined in value. Appraisers will then start to forecast two years out, which will drive values down even more. Where will it all end? When homeowners have to pay buyers to move in to there homes? How about returning to the text book definition of market value and let buyers and sellers decide what homes are worth.

Charles E. Jack IV, MAI....I am now blushing! Thanks for the really kind words! "Just doin' my job!"

*EVERY* deal I've worked this year, except short sales, haven't made appraisals. It's like the appraisers take the contract purchase price and multiply it by 85% to get the appraisal value.

We've gone from one extreme to the other. A few years ago a landlocked lot with a cardboard refrigerator box would appraise at $200,000, $225,000 if the fridge that came in it was a big stainless side-by-side.

Now a 3/2/2 on a deepwater canal is $200,000, $225,000 with a boat lift and a dock. It's just nuts...

Richard...

I really think you need to just take over this post. It's your area, right? :)

TLW...ROAR!

Ha ha! TLW - I think it has gone beyond people reading through the discussion after 133 posts! If someone has a specific question and wants an answer from "an appraiser guy" - I'll chime right in!

Keep 'em coming folks!

Thank you Richard :)

I will add one more chart just for kicks though - since I haven't exhausted my market analysis of this area yet!

For anyone who doubts that numbers tell a story - take a look at this chart and follow the reasoning afterward.

Poinciana Avgs

Now, this is just a search in the MLS, defining the area with a mapping tool. I then filtered out anything more than 1,800 sf in size, and anything built newer than the year 2000. So this comprises the "older" homes in the area (9-25 years in most cases) which in this area, get lumped together.

What story does this tell you? These are the sales, average quarter by quarter. What pattern do you see looking down average list price/sf (avg lp/sf)? Or sold? Or that column in between which is the widening gap between list price and sold price?

If you want a quicker story - just look at the average %/year. This takes all 4 quarter of a year, and averages the decline or increase. Notice 2005 at 2.90% per month? So if you bought in Jan 2005, by the end of 2005 your purchase would have increased by 34.8%! Everyone is excited about that! And everyone was paying within 1% of list price also! Another very exciting feature! You remember 2005 right? When you listed something and it sold in 14 days at nearly full list price (or OVER list?) Yeah, those were the good old days!

But then when the market falls apart....and that decline is going down just as fast...or faster at 5.67% per month.....people then are wondering why an appraiser would adjust for that? Are REO sales influencing that drop per month? You bet - but then again...thy ARE the market right now.

Richard, Those stats sure tell the story. I was doing research last week and found the absolute peak of the market in Poinciana to have been may 2006 which is exactly in line with your chart above. Based on my recent analysis I beleive Poincianba may be very close to the bottom. Inventory is down, sales are way up and va;lues can't go much lower. A change is in the air!!!

I really appreciate you takling the time to answer questions on this post. As TLW mentioned iot's all your!!! have at it.

Funny how the comments on this post are so diiferent from the one 2 years ago when I wrote about the same thing.

Bryant, I have not read through the comments, too many of them. What I will say is that the Appraisals that I have seen have not done that around here. They continue to due their appraisals based on the most recent sales and those are the comp's that they use. If anything I have seen the Appraisers around here work harder than every before to produce GOOD comp's to justify the sales price. I have not seen any Appraiser project a lower value because they feel it is a declining market. That is around here, your market has been in a far greater downward spiral then we have.

All I would add is this, if Appraisers are doing that in your area, how do you every get the values to start going up again if the appraisal is not being done based on recent sales, but on projects of the market continuing to decline?

I saw it a few weeks ago for the first time here in the metro-Atlanta area and found it absurd and surprising.

Gary

APR

"I saw it a few weeks ago for the first time here in the metro-Atlanta area and found it absurd and surprising" -

How can making an adjustment for a declining market be absurd? Surprising - yes! But absurd? What I find absurd is seeing adjustments which are not supported by any market data - or by old data - or by Regional or Statewide figures which don't apply to the local market.

Ft Myers, for example, is in worse shape than Central Florida. Just ask Kat Bryce, a fellow appraiser in that market.

So what if we were adjusting prices, based on statewide "decline rates" if those rates also included all of Ft Myer which could skew the adjustments even further.

THAT would be absurd! Or...making NO adjustments at all....THAT would be absurd.

YES - this is happening all to often here in South Atlanta also. What also seems to be happening is that if one appraisal comes in low it is registered in a database. You go to another lender and/or appraiser and the other appraisal surfaces and just creates so much chaos and distress to the buyer that you risk not just loosing the deal but the buyer also. When will all this end?????

I had a house listed and was in process of moving toward closing which was deliberately delayed three months by the Buyer for tax reasons so the apprasior redid his analysis, as is his right I suppose. The new appraisal was based upon sales within the last three months only, used a non-comparable home on a "footpront" lot in a different developemnt where the subjest home was on a 1.5 acre well landscaped lot with pool and outdoor entertaining areas and dropped the value by $70,000 (offer was at $630,000). This was for a loan where the applicant has a great credit score, large income and was putting $530,000 down!! There were many comps in the immediate area (including even recent vacant lot sales for undeveloped lots) which would show that the $630K price was fair. I am not an appraiser but this still seems crazy to me. The Buyer understood the comparables more than the appraiser it seems and went through to settlement any way. I sure hope a change is in the air but do not see many signs of that here in NE Pennsylvania although sales are picking up.

Thomas

That doesn't seem right and I'm an Appraiser! But, I think I know why it happened even though I have not seen your report. More and more lenders are requiring the Appraiser to use only sales that have closed in the past 3 months, OR the Appraiser has no clue how to make adjustments for market conditions properly, like Richard and I do. And so he used the most recent sales so that he doesn't have to deal with making market conditions(time) adjustments.

The Appraisers that do not have the anylitical skills like Richard, are going to produce reports with as many shortcuts as possible. Therefore utilizing sales that have closed in the past 90 days aleiviates them from having to measure the market. They will use sales, rather than comparables in their reports. It appears that is what happened in your case. They used a recent sale but a non-comparable home.

I propose that had the Appraiser used older COMPARABLE sales, properly adjusted for market conditions, that their final opinion of value would have been closer to the contract price. Much closer, than an Appraiser that takes the shortcut of using only the most recent closed sales.

So with that though in mind, Gary who said"I saw it a few weeks ago for the first time here in the metro-Atlanta area and found it absurd and surprising." Do you now feel that using COMPARABLE sales but adjusted for market conditions is absurd? Or do you think it is more absurd to use Sales that are recent?

Just like Realtors, many Appraisers are in it for the vocation and not the profession. Thomas it sounds like you have run in to an appraiser in the former catagory. Richard Ferris is in the Latter catagory and I'm proud to call him a friend and collegue.

Kat Bryce
Fort Myers, FL
http://www.leecountyappraisals.com

In East Tennessee noticing several homes not being closed due to lower appraisals. Recently had a deal go due to this. Historic area with one home selling for $110,000 with 1700 sq ft. My house had 2500 sq. ft totally remodeled for $115,000 and appraiser valued at $100,000. His reasoning was that the one house had sold in Oct. 2008 and ours should have closed in Feb 2009 but for 5 months took off $10,000. We did have a second appraiser come in and valued at $105,000. Sellers were forced to adjust their price.

Cheryl Laxton

Coldwell Banker Jim Henry & Associates

I will have to look at a low appraisal I just received to see if that was the problem. The appraisal is only $8K off, but it may kill the deal.

What is really frustrating is, market value is what someone is willing to pay for a home, right? So why wouldn't the appraiser come in at value when a mirror image of my property sold a little over 6 months ago for $4K more?

That was the most recent comp when the home was listed and I believe still the best comp for the appraisal, but it's beyond the appraiser's "guidelines" so it wasn't used.

Having solid deals killed for no good reason is not going to get the housing market back on track!

John

Hi,

I am in Southern MA and we are seeing it here...2 deals have been compromised due to lower Appraisals...which I find is crazy because we are usually choosing the BEST house for the money?!!

In one town they quoted a 4% adjustment down/month and another is at a 6% downward adjustment. So they were taking past sales (up to 6 months) and adjusting them down 4-6% for each month... CRAZY!!!

On Seller is actually suing us and the mortgage broker saying that we were talked the appraiser into lowering the appraisal so our buyer could get it for less.... we never even spoke with the FHA appraiser. CRAZY!!

So I am absolutly seeing it here and it is KILLING us... they are also using bank owned homes for comps because really that is all there is.

Just one more thing for us Realtors to face trying to hold together a deal

Wow impressive graph, even TLW is impressed. Have not seen it this blatant but I have seen where the appraiser used a 'guesstimate'. How did the guy determine the $150? Do you think it's correct?

Get real! Graphs and stats don’t mean one thing. All that matters is what the facts state on the Appraisal. It is what it is. Based on facts not whims. The market value goes up and down. If you have a lot of low sales in a particular area then it affects all of the market in that area. Sell em short and you’ll get deflated values every time

Thank you! B.B. For confirming what I thought I was seeing - but was told I wasn't. I had a couple of appraisals that were definitely waaaay off what any comp I could find (including contracts and pendings where the agent was kind enough to enlighten me.) but some people kept telling me I was wrong. Trouble is, I come from a world of science and statistics and I ALWAYS look at the numbers and the numbers didn't add up - no matter what I did. Should I send them your link - or just let them continue to think I'm crazy? So yes, we have it here. But not the way you do - not as extreme.

Oh - and excellent use of a scatter plot with trend line. The former genetics statistician in me was very happy.

PS - its nice to see TLW back and commenting....I was worried for a while.

APR

RuthMarie...

I'm thinking it would be a good idea for YOU to enlighten THEM. If they still don't GET IT send them over to this post. It's public so they can have it right in front of them. Good luck :)

TLW...ROAR!

Great discussion! I think it's important that we each learn more about the others profession and requirements thereof.. I would like to address John Keene's comment "... market value is what someone is willing to pay for a home, right?" and I know that many Realtor's share that definition of Market Value.

Now let's look at Fannie Mae's definition of market value the one that Appraisers are required to use when writing Appraisals for Mortgage Finance Transactions. "The most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller, each acting prudently, knowledgeably and assuming the price is not affected by undue stimulus"

Notice how the Appraisers definition of Market Value includes the need for both the seller and buyer are acting in there own best interest, are KNOWLEDGEABLE and that the price is not affected by undue stimulus (like foreclosure).

I would like to address each in order. If the buyer is acting prudently then they will try and purchase property at the best price. Now I suggest that a buyer that is acting in their own best interest will have saved up a down payment, will have a clear idea of how much they can afford and will not need to have the listing price increased to cover 3%-6% or more in seller concessions or kickbacks? Especially in a depressed marketplace?

The buyer and seller are knowledgeable. How do they become knowledgeable? Buy attending many open houses? By looking up sales that have closed in the neighborhood in which they are interested? Most likely not, most likely they are listening to their Realtors who have done an CMA for them. And this is a great tool in which to educate your buyer. But are you totally honest with your buyers and sellers when creating your CMA? I have 'killed' a deal back in the boom days when the purchase contract was for the brokers own condo unit that they planned to flip. The broker owned 4 units that were listed at $20,000 more than the 10 other identical units in the complex. Were the buyers knowledgeable or acting in their own best interest when the contracted to pay $20,000 too much? Yes, there was nothing SPECIAL about the brokers units, other than the broker was the buyers agent. I have a deal on my desk today, the buyer is under contract at $100,000 to cover a 6% seller concession. List price was $96,000. The subject is in average to below average condition. The only sales that would support this value were rehabbed homes that were 5 years newer. Even a model match but better condition sold for $75,000 5 days ago. The Appraiser has identified 4 other active listings with prices offered in the $80,000? Is this buyer knowledgeable? I profess that I am not "Killing" this Realtor's deal, I'm only writing the obituary... The buyers agent is not acting in the buyers best interest to push this one forward in my opinion, the buyer will be upside down the day they move in at $100,000 FHA financing. Is THIS buyer knowledgeable and acting in their own best interest?

Now let's address "the price is not affected by undue stimulus" Do Bank Owned properties(REO's) fall into this category? No! Do Short Sales fall into this category? No! In both cases the seller is typically just trying to unload the inventory. So no, these sales do not fit into the definition of Market Value by Fannie Mae. Why do Appraisers use these sale? This depends on the marketplace of course. But lets go back to the first to. The buyer is acting in its own best interest and is knowledgeable. So the question the Appraiser and Realtor must ask themselves, will this knowledgeable buyer pay more for home that is a traditional arms-length transaction when there are other properties in the marketplace that are available for much less but are REO's or Short-Sales. If the answer is a resounding Yes, then use of those types of comparables in a report by the Appraiser to determine value is inappropriate. But if the answer is No such as my marketplace as there are 1,000's of brand new homes available that are REO's, then the use of such sales is mandated as they do influence the value of all. What if the answer is maybe? I suggest a more in depth research of the marketplace is required.

I hope this gives the community some insight into the Appraisal Problem. How can we work together as professionals so that neither is blind sighted by a "low" Appraisal. The Realtor who's deal was "killed" and the Appraiser who is hated for "Writing the Obituary"

I've very much enjoyed following this conversation.

Kat Bryce
http://www.leecountyappraisals.com
Florida -St.Cert.Res.REA RD-4424
Associate Member of the Appraisal Institute

I would like to put this example to the community for input. My Realtor friend called to tell me about a low Appraisal on one of her deals and wondered if I could help her out. My initial research was not very promising. I made this up and forwarded to her.

Chart of Fort Myers Homes in GEO area FM02 4-2009

What do you think? It show some sign of recovery first quarter of 2009. For what is worth the buyer had to keep trying and the deal did not close.

Kat Bryce
Florida State Cert Res REA RD-4424

My things have sure changed once the influence of the realtor, loan orginator, and banks have been taken out of the equation. Oh that's right it's illegal now to influence a appraiser. In the past, get the value or you don't get any more work. What do you thing the value would be. Kill one deal every sales agent in the office is talking about you. They then told the loan orginator you had better not use him or you won't get any more of our business. What do you think the appraisers did. They have been pushing value for years, which helped in the escalation of prices. Got to keep the sales agents and loan orginators happy. Let the crazy talk begin. It's just crazy. Realtors really ought to take some appraisal courses. It might help you understand one and where those crazy adjustments come from. Also you would be able to have a intelligent conversation with the appraiser, not just screaming at them. I like the agents that can't explain how they came up with a asking price other than that's what the seller needs or wants.

Isn't interesting that the people loaning money don't value a salesmans opinon. Wonder why that is when they have money to gain out of there opinion. Never trust the person making the money. They are what you call, bias.

Bryant - Great subject. I for one am glad appraisers are doing there job. Thanks to all the appraisers that included graphs for the areas they work in their comments. It was the best look at local markets in different areas I have seen in a long time. While prices are diffferent in the different markets trends do appear, all markets began the decline roughly the same time and the month of March 2009 shows an increase in sales. What data charts like these don't reflect is who the buyers are - we are seeing an increase in investor buying in our market. Prices in our market are now at 2002 - 2003 levels which more accurately reflect their worth.

Kevin Appraiser.. How has your comments contributed to this discussion? How have your comments made a change for the better, for our Profession? For the Real Estate Industry? Making general negative comments only dilutes what up until now has been a very healthy conversation.

Tell us why the Realtor's yell at you. What do you wish the community would do to understand us better. Or what do you desire from Realtor's rather the yelling? Please.

Kat

Well appraisers in my area now have to attach a report to the appraisal because we are in a declining market. The funny part is that we are coming out of it and are now declining much slower than before. I'm just thinking this should have been done much sooner. Homes that sold in my market 1 year ago would not sell for that price today so an adjustment would be expected. If that is the reality of the market than the lender is deserving of the true picture.

APR

When a subject property is located in a neighborhood that is declining in value. The appraiser should search for comparables sales that are as recent as available. If no recent (less than 60days- old) comparable sales are found, the appraiser must adjust for market conditions to reflect this trend. The appraiser must also adjust any active listings used to reflect list to sales ratios if any, this might be a positive adjustment in areas with excessive REO listings that actually bid up.

All appraisals as of April 1st, 2009 will require the new form 1004MC which addresses a more thorough market analysis. So the neighborhood section and sales comparison section must or should correlate to the results of this new form.

James

Thank you for your contribution. May I suggest that the Appraiser should ALWAYS use the most recent sales available despite the current market conditions. But I will argue that and older sale that is comparable properly adjusted for market conditions is a better indicator of value than just recently closed SALES. Yet, you wouldn't think this when one submit's their carefully completed report to the bank. Especially the difficult assignments where their may be 7-9 comparables in the report as the property was a bit unique in the market place. First thing that will happen is the underwriter will stip the report for two sales that have closed in the past 90 days and within one mile. Often those may be the REO properties that you will see in the reports. Fortunatly I do little lender work so I am able to use true comparables, not just sales that fit into the underwriters check boxes.

The requirement to adjust active listings is a client specific request. I seldom do that. For what should I apply the typical list to sale price to? The original price, the current price? Is the current price reasonable or does the seller have their head in the clouds? Too many factors their to measure, I just don't adjust the actives. I may adjust the pendings if I can get enough information on them. Again I don't do work for lenders very often.

Only FNMAE, FHA and VA appraisals will require the 1004MC form. Get away from lender work and their is no need to fill form, however my MLS Rapattoni offers this form as part of their service and I've been utilizing it as it offers yet another perspective on the market to the research and reporting that I've been doing for years.

Appraisers, what's in your report?

Kat Bryce
http://www.leecountyappraisals.com
St.Cert.Res.REA RD4424

Bryant,

I haven't seen or heard of that kind of thing happening in our market and really hope that we don't. Those are some pretty drastic adjustments, even for this market.

Well this turned out to a great discussion.

Thanks to everyone for participating and a special thanks to all the appraisers.

Hopefully this post has helped everyone to understand more thoroughly how the appraisal process works.

Good job!!!!

Yes, I've seen it happening. Where more homes have sold in a comp market to investors under foreclosure, the occupied resale gets the bad end of the deal. Good for investors, bad for the families who need to sell and get top dollar.

APR

Hi Byrant- congrats on 162 post so far...now 163!

I am so glad to have been part of this discussion....even if the focus and center of it! I have had good feedback from this - and today, I even got an FHA appraisal order from one of the followers here! THANK YOU for the business and thank YOU Bryant for the expsore, and a connection I will value for years to come!

Sincerely,

Richard D Ferris - AmcAppraisalsinc.com
Fl St Cert Res REA #RD4088

Very cool Richard. I just posted this over on my main blog at brokerbryant.com as well. That blog is more consumer orientated so maybe you'll get some business from there too. I really appreciate all you did on this post to educate our peers. That's what it's all about. If I can ever assist you in any way give me a call. And don't forget your favorite Poinciana Broker when talking to those asset managers :)

APR

Welcome to SOCal's world. If foreclosures are part of your market they "are your comps". I posted a couple of months ago on the Market Conditions Addendum for FHA appraisals and got a big "YAWN" but it seems more markets are starting to feel our pain.

Real world example: An inspired asset manager dictated a list price of $214,900 on a home in our area that easily comp'd at $270,000. The rationale was too "promote some interest". Needless to say it worked. There were 63 offers with the winning offer at $305,000. FHA appraiser brought value in at $270,000. However, review appraiser (everything out here is being reviewed) cut the value to $240,000 based on the low list price.

Value can also be cut be underwriting and underwriters are making a habit of asking for additional comps no more than 30 days old and then relying on newer comps if they are lower.

Moral of the story? A deal isn't done until it closes!

APR

We were informed months ago of this happening but don't forget it's not just ForeClosed Homes and Short Sales it's also all the AUCTIONS that are going on in the area. This also is bringing down the price of many of the homes.

We have had two houses in the South Texas Area appraise for exactly $20,000 below the sale price. One of them appraised $2000.00 under the tax appraisal district value. After much hasseling we found out that the appraiser was using the last 3 sales in the neighborhood and the those were 1000 s.f. smaller. The bank took the price and not the s.f. price so we had to sell a home for the same price as one that was smaller. So is this the appraiser's fault or the out of state bank who said that is how they do it in Nebraska.

The 2nd home which i also the one that is under the tax appraisal also took older homes and made comparisons because that is all that sold in the area. We were never allowed to talk to the appraiser so we don't know why he did this when we found newer comps to work with.

So I think the world has just decided to plan for the worst and put it on paper now.

APR

This is interesting reading. I didn't even make it through all of the comments! Don and Richard, I do not use short sales or bank owned properties when trying to determine market value for an appraisal. Short sales and bank owned properties are stressed sales and not good indicators of fair market value. I go to other neighborhoods if necessary to find the most recent similar sales available, and explain that I did not use bank owned or short sales in the report, but note if there are some in the immediate market area...

Most of the reports are just plain ugly out there right now!

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