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Appraisals....

Something that has been bugging me lately is appraisals. It would seem to me that in times like the one we're in now we would underwrite and determine "value" a different way. We've always use comps to determine "values" but when neighbor B and neighbor D looses their home to a short sale or foreclosure the only comps are those and therefore is an unfair assessment when determining value. Which in return is killing our deals!

Why not go on the cost approach in times like these - the actual true cost (material, labor and etc.) of replacing the home + land. It would make more since to the areas that are getting hit hard with short sales.

What do you think?

Posted by Will Amorin on 12/06/2008 11:39 AM

Comments (6)

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6 Comments on Appraisals....

DEC

2008

Will,

Would you pay what it cost to build a house in area that foreclosures cause the comps to be lower?

not sure if that is the way to go?

Just because a Bank came in and let the home go for 70cents on the dollar doesn't make the actual home worth any less. It still cost the same if not more to replace the home.

I'm sure there will be a lot of comments regarding my posting and all I'm saying is we need a different way to adjust in these times!

I'm an appraiser and the answer is the Cost approach is far more subject than what a market reflect. Physical deprection on a home is difficult to determine. Cost does not always equal value, etc. Now a short sale or foreclosure may not be a true comparable eithere unless that just simply is what the market reflects in the neighborhood. Good luck as we struggle with good data and comparables. I fight this battle myself as an agent when it comes to appraisers. I just prepare for the battle in advance and usually can convince the appraiser about the condition differences, etc. Tough market!

Tough call Will. I agree one can buy an existing home far cheaper than building a new one.

I agree, something has to be done...we are having a hard time even getting sales let alone having them kicked out before closing by the Underwriters...I can appreciate the Lendors being cautious, but we need to reach a happy medium here and soon...

Our Industry will have to go and look for a bailout from the Government, as it is a whole industry that is at risk right now...2000 Agents in my community....

DEC

2008

I don't know if that makes any sense Will. If the borrower that you fund the loan for does not pay the loan.... then the bank needs to be able to at least sell the home for how much the borrower owes.

The home would be put on the open market and therefore subject to "market value". If a nieghborhood is a foreclosure driven market, then why would the average buyer pay higher for one home, when he/she can buy it for cheaper because of the bank owned property four houses down? Because of this, the non-bank owned home that is for sale at a higher price does not sell. THIS is why Appraisers utilize REO's and short sales as comparables. It DOES directly affect the homes value.

Hope this helped you in understanding that it is all connected..

-Aaron
http://www.sandiego-appraiser.com

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