"...At the extremes, in 121 instances, the appraised value was more than double the sale price, and in 132 examples, the appraisal was less than 70 percent of the sale price. It is like a game of horseshoes and throwing grenades,” the authors wrote of the results. “This study confirms what many of us have thought but heretofore have only known anecdotally: that appraisals are not very accurate. Close is good enough".     

 

Wow. The NY Tiimes released this detailed study of appraisals completed on commercial loans that went bad. It's very alarming as the "help" from Washington continues to do little except to cause trouble. The horror stories of appraisal issues on the residential side continue to flow like a raging river; the creation of AVM's have driven veteran appraisers away from the retail side of the business. Looks like the same nonsense with shopping for fees instead of expertise is entrenched in the commercial side.

 

John Cicero, a managing principal of the appraisal firm Miller Cicero, said: “It is a broken profession in a lot of ways. The appraisal industry has become commoditized, where lenders see appraisals as simply a commodity to be purchased by a vendor and where more emphasis is placed on the price of an appraisal than the expertise of the appraiser.”

For example, Mr. Cicero said, in the past lenders would often have long discussions about the project and the appraiser’s qualifications before hiring. Now, it is more common for lenders to use an online bidding system, where they issue a request for proposals from appraisers and often choose the least expensive. “They actually refer to us as vendors submitting a bid, not educated professionals who are providing an important service,” he said.

 

It amazes me that nothing is being done despite the obvious and clear adverse impact of AVMs. It seems clear that on the residential side, AVMs have resulted in nothing positive. On the commerical side, the article intimates that the next shoe to drop could be the size of one that Shaq would wear.

Hank Miller,SRA
Associate Broker & Certified Appraiser
Atlanta Communities Real Estate
678-428-8276 direct
hank@hmtatlanta.com
www.hmtatlanta.com

 

 

 
This post has been included in Georgia Real Estate News Fulton County, GA Real Estate News
Post is included in group: Appraisers
Post is included in group: "Whacked"!!!
Post is included in group: Realtors®
Post is included in group: Posts to Localism
Post is included in group: BananaTude

13 Comments on Accuracy of Appraisals Is Spotty, Study Confirms

MAY
09
2012

There has to be a better way than the current system in place to close deals
9:03am • #1
1,113,901 Points 115 Featured Posts Outside Blog Attended Rain Camp Called Shot Master

Hank it is appalling to see what has happened to the appraisal process. In short it's a mess.   What John Cicero says that it's become a commodity with lenders looking for lowest price is what we're seeing as well.  Recently it took 4 appraisals to get it right - I insistd on an experienced appaisor not the cheapest one.  This has got to get straightned out - and not by the government. We all know what happens when yet more legislation is created to clean up messes.
11:02am • #2
177,110 Points Outside Blog
with numbers this bad it makes the market a sham. We do on residential appraisals try and make sure that proper comps are being used. We will speak up when they appear inappropriate.
11:38am • #3
643,431 Points 111 Featured Posts Outside Blog Called Shot Master

".......where lenders see appraisals as simply a commodity to be purchased by a vendor and where more emphasis is placed on the price of an appraisal than the expertise of the appraiser.”  That pretty much sums it up. Appraisers, much like real estate agents, face a threat on their crediblity and like us, it's an uphill battle trying to dispel the worst of our industry's reputation.
12:29pm • #4
555,452 Points 31 Featured Posts Outside Blog Attended Rain Camp Called Shot Master
Hi Hank, Valuation is both art and science. Realtors are great on the art side of it. Appraisers are good at the technical, science, side of it. In my work with banks, they depend more heavily on their highly paid appraisals then they do on my free bpo. I am almost always right, and the appraisers are wrong more often than they are right. I have had to challenge appraisals, getting them to lower the price by as much as $105000. But often, the appraisal is too low. Then I inform the asset manager the price is too low, and we will have multiple offers, and the market will correct the appraisers mistake. Sure enough, we have multiple offers. Recently we had 7 offers with the closing price $45000 over the list price! Phil
1:09pm • #5
11 Featured Posts Outside Blog

Phil - I wear both a broker and appraiser hat. I left the retail side of the appraisal business once the AVMs came in, I do only foreclosure work. I can tell you that during my last quarterly review I had my dog tags bent for too many "low" appraisals.

8% of my appraisals for that quarter were low compared to ultimate sale price. We had a long discussion on this and at the end of it it was suggested that I give more consideration to active listings and the "three month" window.

Am I unconsciously "negative" or "heavy handed"? I guess so....I see some homes selling for prices I would never pay, but yet and still either investors buy them as the numbers work or owners buy them because it's cheaper than rent. I can't argue with the market - if they're selling for these prices then appraisers need to adjust.

So, I'm trying to be more "open minded" when looking at these assignments....but wasn't that what got us into this mess? Ultimately the market is always right so if I take that view I guess it cuts both ways.
2:53pm • #6
7 Featured Posts Outside Blog

Please keep posting info like this. Appraisals are the bane of my existence. I am horrified every time I have a loan that requires one. Depending upon the lender it can be the worst nightmare.

If only we could get Washington to wake up and remove the requirement to use AMC's. An AMC in Florida knows nothing of the property or appraisers in KY.  As a broker I must select a lender, submit the loan and let the chips fall where they may. Prior to AMC's I used a couple of seasoned appraisers whose quality of work I knew. I submitted an appraisal along with my file. Lenders have methods in place to verify quality of appraisals, we do not need AMC's.

I have many horror stories. A Realtor friend had a transaction last summer where an appraisal for a sale at $85000, got an appraisal in the 60's. They waited, stayed with the same lender, the next go around a different appraiser got the order and the value was more than $85,000. Go figure???
2:57pm • #7
378,625 Points 5 Featured Posts Outside Blog Attended Rain Camp Called Shot Master

Hank, 

Fabulous info!  I am about to repost.  

Appraisals are all over the board and it doesn't seem like there is any science to this.  I just see it as a blessing or a hatchet!  

All the best, Michelle
5:15pm • #8
510,588 Points 1 Featured Post Outside Blog Attended Rain Camp Called Shot Master

I was just having a related conversation with a client this afternoon. He's relunctant to get a pre-listing appraisal because he so distrusts the appraisal process. But it is that very appraisal process that his eventual buyer will be using. Kind of a catch 22.
7:14pm • #9
864,437 Points 18 Featured Posts Localism Sponsor Attended Rain Camp Called Shot Master

This dysfunctrional appraisal situation should be addressed.  I hope folks are keeping track and documenting what is going wrong so that it can be communicated to washington.

 
7:31pm • #10
105,566 Points 2 Featured Posts Outside Blog Attended Rain Camp
Wow, those opening stats would be troubling to anyone looking to buy ir sell. Who can they trust, no one wants to overpay or leave money on the table. Change is needed for sure. On a happy note, I got the results of an appraisal today, and it was within $5k of the purchase price, both sides agreed to split it.
7:46pm • #11
11 Featured Posts Outside Blog

I have been saying that this is a combination of issues -

  • AVMs added another level of BS as well as chopped fees
  • Additional work was added to the standard appraisal - including the MC form which is really useless
  • Reduced fees result in less experienced appraisers, greater coverage areas for work and fewer data sources to reduce costs
  • Reduced fees also require more volume to stay level and that requires faster turn on each job
  • The constant hammering from underwriters has resulted in appraisers writing to please underwriters, take no chances and keep it vanilla
  • Keeping it vanilla means you are very very reluctant to consider a possible changing market and stable to increasing values - hence deals are getting trashed with appraisal issues
  • Less volume means fewer comps to select from

As Gretchen said, it's a Catch 22 but even worse, you don't know who will show up for the appraisal - one goes high and one goes low...

It's amazing that with as much attention this issue has received that nothing is being done to at least investigate it. And the Appraisal Institute, for all it espouses, is doing nothing to support the membership.
7:55pm • #12
MAY
13
2012
153,669 Points

A simple review of appraisal-related events from the late 1980's to the present indicate clearly that the appraisal industry is a dying industry.  Most probably to be replaced by some automated value system which any active appraiser knows will be filled with inaccuracies.  Rather than eliminating poor appraisers and placintg a greater emphasis on controlling the abusive lending industry, appraisers as a whole have been made the scapegoats for the S & L downfall as well as the collapse of the housing market.  The American public needs to insist that banks be regulated.  This past week's loss of $2 billion plus by Chase only focuses the cause of the problems.  Unfortunately, for appraisers, a career change search is in order.
11:36am • #13


What does the graphic say?
Leave a response…

(optional)
Spam Prevention:
 
Hmt_650 Rainmaker_large

Hank Miller, Broker & Certified Appraiser

Alpharetta, GA

More about me…

Atlanta Communities Real Estate Brokerage

Address: 3730 Roswell Road, Marietta, GA, 30062

Office Phone: (678) 428-8276

Email Me

The HMT blog is written by Hank Miller of The Hank Miller Team. He is a licensed broker and certified real estate appraiser in the state of GA. Since 1989, real estate has been his full time occupation and Hank consistently ranks at the very top of Atlanta area agents in overall production. He is known as much for his attention to detail as he is for his candor.


Listings

Links

Archives

RSS 2.0 Feed for this blog