In the recent Real Estate crash, appraisers played a big part in what took place. It was so big that new regulation was put into place and it is a felony to interfere with an appraiser and his duties is what I have been told. I know they use comps, new construction and income property approach to come up with values...Those three approaches need reviewing
FOOD FOR "VALUE" THOUGHT
I have two ideas I want to throw out. The first is that it should become the norm or at least be considered that 3 independent appraisals would be required by lenders for each lending episode. The appraisers have to be literally independent and have no contact with each other sort of jury instructions to not talk to anyone about this case mentality goes into play
TAKE THE AVERAGE
Then, after the three come in, take the average and that should be where the bank should stand. That would be the lending price. This approach will even lower the cost of appraisals to offset the cost of the extra two because of the increase of appraisal services. More emphasis and confidence would be given then to getting an appraisal from an appraiser for valuation
HERE'S THE OTHER THOUGHT
The other thought I have is that an appraisal is to take the three approaches that an appraiser uses and separate them literally. Comparable sold analysis, new construction and income approach. Why not have each one done separately and independently as well and the three averaged and there is your pricing.
WHAT IS FAIR OR NEUTRAL?
By isolating and separating the approaches and the appraisers, the focus now goes entirely on ascertaining a neutral value. Under the current system, it comes down to an agent and their seller at odds with the banks appraiser with the buyer waiting in the wings. If the lender is taking the risks, then current mindset says to err in the lenders favor but is that neutral or fair?
RENTS, CONSTRUCTION, LAND COST, AND COMPARABLES
What property rents for using the income approach brings the rental values to bear and causes them to stand alone for value. Same with the cost to build new and land value. The county assessor gives land value history and local builders will tell you what the cost to build is. That would leave comps which are self explanatory even allowing for plus or minus dynamics
CONSIDER THIS BEFORE COMMENTING
Under my suggestion, there is no favor or bias and challenges to value would be mitigated considerably. The process could become even streamlined and sellers and their agents would spend less time on trying to agree on pricing and perhaps focus more on getting in or out of the transaction more efficiently and effectively..
It certainly would put an end to over-pricing strategies
Comments(4)