I recently complete an appraisal for an FHA refinance for a client. While at the home, the customer gave me a copy of his appraisal from when he purchased the home in 2006. The customer was fully prepared that home values in the Orlando market have certainly declined - but I was mostly surprised by what I saw in his appraisal report from the time he purchased the home!
What I found was that the home was originally appraised by a trainee appraiser under supervision of a Certified Residential appraiser. The supervisor indicated that he did not inspect the home and only reviewed the work.
The home was purchased in 2006 for $385,000 and now, had a value of only $310,000. That is no surprise given the current Orlando market.
What did surprise me, was that the appraiser, in 2006, reported the home market to be "increasing, a shortage of supply, and marketing times under 3 months."
It seemed everything was going just fine in 2006, huh? Except when I went back to review the statistics for this neighborhood - I found just the opposite!
It was pretty clear at this time that the market was declining! You can see from the chart that the average price per square foot for home sales, leveled out in the 1st Quarter of 2006. By the 2nd Quarter, the market had begun to turn. Sometimes that is hard to gauge...but certainly by the 3rd Quarter (when the home sold) the market was declining.
With the recent AP Article detailing major problems in the appraisal industry - now more than ever - lenders, brokers, Realtors, and even homeowners should expect more from the appraisers they engage.
So what are you seeing? When you get your appraisal report - check to see what level of reporting is being done. Is the appraiser just checking the boxes and making blanket statements like
" the subject is in a typical residential neighborhood with average appeal to the market."
What the heck does that mean?
Don't accept descriptions like "average to the market" with no other indications of what "the market" is. How do you as the reader of the report know what IS average - unless the market is first detailed? How about conditions? Has the appraiser made a comment like:
There were no functional or external inadequacies noted during the inspection of the subject. A full interior/exterior inspection of the subject was performed by the appraiser. The subject was found in average condition. No deferred maintenance items were noted.
So what does that really mean to you? By reading a statement like that - does that really describe the improvements?
Expect more from your appraiser!
In the case of our unfortunate homeowner above, fortunately he has the financial resources to outlast this downturn in the market. But what if he was better informed at the time of his purchase? What if the appraiser had told him that the market was declining, an over supply was forming, and days on market were creeping up over 3 months? Perhaps he would have renegotiated? Perhaps he would have walked?
Or even - he would have come to the table with more cash should the seller prove to be unwilling to budge. Pay now or pay later - that is the outcome. But wouldn't it have been nice to know up front - rather than 18 months later?
Certainly I have seen many homeowners losing their homes when they now owe more than the home is worth, they cannot refinance, and they cannot sell. Hindsight is always 20/20 - but sometimes it IS the appraiser - not doing a good job of researching and reporting the market as "an unbiased opinion of value".
Changes are coming to the appraisal
industry in the months ahead.
Expect more.
- Insist on a quality, credible, and thorough appraisal when making valuation decisions.
;)
;)
