I am having appraisal issues!!

By
Real Estate Broker/Owner with Housing Market Realty

 

Ok, so here is the latest appraisal issue, I need some feedback here.  We have a house that we purchased about three months ago and fully renovated.  Our buyer was excited about the property and offered full price: $75,000.  The buyer went to a local big box lender and submitted a loan application and paid the app fees and appraisal fee.  The appraisal comes back at $58k.  We were all shocked!!  Turns out the appraiser used amongst other comps, a foreclosure that had termites, wood rot and a bay window that was falling out!  This property sold to an investor for $30k.  Keep in mind our house has new paint, carpet, laminate, stainless appliances, new doors, etc., etc, etc.!  A retail property. 

Now, here is the real issue. Within days of the appraiser submitting the appraisal to the bank, that $30k house SOLD for $70,000!  Of course, because it was repaired and sold retail, just like we are trying to do!! 

We promptly contacted the lender to submit this info; we had written proof of the sale and were told that we were creating "undue influence" by even suggesting the appraiser review the work!!  I was floored at this point!

We are not asking for new comps, just ACCURATE ones!

But here is my real point:  who paid for this appraisal? the bank? NO, the BUYER!  Is it accurate? NO.  Should the buyer have the right to an accurate appraisal if the buyer paid for it?  I think so, what do you think?

We have an alternate creative way to finance this deal now and don't need the bank anymore, but I believe that the bank should require the appraiser to adjust the appraisal to reflect accurate information or refund the appraisal fee!!  Am I wrong in thinking this way?   Also I am not suggesting that the appraiser did anything wrong, but if the info is wrong, fix it! 

Thanks in advance for your feedback!

Charles

 

 

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  1. Janice Roosevelt 04/14/2009 01:00 PM
Topic:
Real Estate Market Trends
Groups:
All Things Florida
Florida Real Estate Investors
Investing in Real Estate
REO
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Rainer
7,545
Debbie Fleming
Douglas Elliman - Riverhead, NY
Don't get me by phone don't hesitate to text me!!!

I was taught in appraisal school not to use Foreclosures as comps.

Apr 14, 2009 12:58 PM #1
Rainer
23,573
Matt Heisler
Heisler & Mattson Properties - Southborough, MA
Real Estate & Investor Services

Not everyone is an expert in their field; those of us who have done some deals have seen appraisal battles before and will again.  I tried to use appraisers to settle a dispute about a homes value - two appraisers, completely different comps, and 100K apart in price (on a home worth $500K).  Instead of helping, it killed the deal!!

Apr 14, 2009 01:05 PM #2
Rainmaker
175,403
Randy Landis
Retired in Samar - Tupelo, MS
Overseas Retirement Consultant

Charles, I too have recently had issues with an appraiser.  During a phone call today from a local appraiser, they indicated to me that property value is derived from, get this...'time on market'.  How absurd!  They explained that the buyer determined property value with their offer

I had a recent potential sale that did not materialize at full market list price, when the purchaser couldn't sell their home.  The second offer on the house is what determined the value (according to the appraiser), to the tune of a 12% decrease in value.  This is what happens when appraisers can't locate comparables and, instead of constructing a 'cost' approach, they shoot from the hip.  I asked the appraiser to construct me a comparable, by virtue of lot size, location, and amenities and they wouldn't even offer up a try.  They Couldn't do it! 

I say a major ingredient of value is still in the eyes of the beholder!  A .50 cent gold fish is worth $1.00 as long as someone is willing to pay it!

Apr 14, 2009 01:12 PM #3
Rainmaker
1,068,048
Rob Arnold
Sand Dollar Realty Group, Inc. - Altamonte Springs, FL
Metro Orlando Full Service - Investor Friendly & F

The appraiser shouldn't be using short sales or REOs as a comp unless your property was also distressed.  This is just a plain mistake on the part of the appraiser. Maybe the lender could get that comp kicked out.

Apr 14, 2009 01:19 PM #4
Rainer
39,427
David Daniels
Owner of FlyersToYou, Inc. and former Top Realtor - Hemet, CA

Charles,

I'm curious as to what KIND of appraisal it was??? If the lender was a local bank, chances are it was only a "drive-by" performed by an internal appraiser...and not much investigation goes into those. They rarely clarify or make accurate adjustments in the comps.

Or...was it a mortgage company, whereby the likelihood is that the appraiser was an independent and certfified apprasier??

It definitely sounds like a bank appraisal to me. The whole "undue influence" thing sounds like a bank's typical reply to bringing question as to the appraiser's abilitites. Also, Debbie's right. A REAL appraiser typically will never use a foreclosure in determining value, unless it's simply the only comp available of like property. Even then, the appraiser will make adjustments for condition, etc.

But I have a question for you...

(the information below was edited, as I hadn't noticed that the appraiser was already asked to recertify value with the new information. I had originally asked why not.)

If that $30,000 property recently sold for $70,000....the appraiser  has an obligation to modify the original appraisal as long as it's within six months (usual timeframe). They'll do that for a nominal fee, and the borrower has every right to request it. Once again...it sounds like "big box lender" was probably a bank, using an in-house appraiser versus an independent fee appraiser. And in these kinds of situations....that's usually not a great idea.

Hmmm...my last concern might be that the borrower is a high credit risk for whatever reasons, and that the bank is artificially manipulating the value in order to justify the requirement of additional down payment?? Is that a possibility??

In any case...good luck with the whole situation!! I hope everything works out!

Dave

Apr 14, 2009 01:24 PM #5
Rainmaker
330,684
Rosalinda Morgan
Brookville, NY
"The Rose Lady"

I find most appraisers are not from the area they are appraising and do not know the value of the house.  I usually offer comps from the area that they can use.  Good luck and I hope things work out.

Apr 14, 2009 01:53 PM #6
Rainmaker
384,640
Mark Hall
Realty One Group Cascadia - Vancouver, WA
Homes for Sale Vancouver Washington

I have been struggling with the exact opposite problem lately with short sale listings that we have. As you know, when an offer is submitted the bank orders either a BPO or an appraisal. It seems that these appraisalsalways come back high. Hmmmm.. a bit suspicious don't you think? The appraisals always seem to benefit the lenders.

Apr 14, 2009 01:56 PM #7
Rainer
25,014
Charles Fischer
Housing Market Realty - Merritt Island, FL
Professional Real Estate Services

Debbie: THANK YOU!  I believe the same thng. Thanks for the support!

Matt: definitely not my first battle certainly not the last, In fact this is deal number 2 this appraiser has killed for me! 

Randy: I agree, for the most part, a property is worth what someone is willing to pay ( and continuing paying for...)

Rob: I agree with you, too. Our sale would have been a retail sale of a "pretty" house not comparable to a nasty REO!!

David: It was a full appraisal by a local independent appraiser. not a drive by, however, the appraiser did not go in any of the houses, OBVIOUSLY!!  Interesting about the obligation to modify, but should they charge me for a couple days!?!?

Rosalinda: I wish it was as simple as a out of town appraisal, but this appraiser is local and been here for quite some time!

Mark:  Hmmm. that is very interesting... Its all about who's in control, me or the big banks? right/

 

Apr 14, 2009 02:12 PM #8
Rainer
157,179
Tom Boos
Sine & Monaghan Realtors, Real Living - Grosse Pointe Farms, MI
Providing the very best of service to Sellers and

If there are NO COMPS for the home in question, then I would assume the appraiser must use foreclosures to formulate his assessment of value.

Apr 15, 2009 01:23 AM #9
Anonymous
Fern

Hi Charles -

Number 1, in 'Mortgage Land', even though the BUYER pays for the appraisal, the work product BELONGS to the lender.  I'm not saying I'm agreeing with this, but it's a fact.

Number 2, if there are NO COMPS, while one might think that appraisers must use 'distress' sales, that is not the case.  I am finding some lenders will let appraisers exceed the guidelines for distance (NOT FOR TIME because of the declining market).  However, this is at the lender's discretion.  Also, the appraiser MUST do a really good job giving details, in an addendum, explaining WHY exceeding the guideline for distance is called for, and also giving detailed explanation why the comps chosen are indeed comparable.

Hope this helps.

Fern C. Burr, Loan and Real Estate Goddess, Sanford FL

Apr 15, 2009 01:41 AM #10
Rainer
39,427
David Daniels
Owner of FlyersToYou, Inc. and former Top Realtor - Hemet, CA

Charles,

Hmmm....I did some research on Florida's USPAP (Uniform Standards of Professional Appraisal Practice). The appraiser might not be obligated to reconsider value if he/she believes it was accurate on the date submitted. Most will upon request, and many will not charge to reconsider an updated comp (especially one so soon after). But it does not appear they're obligated to.

In most cases out here in California, the resolve would be for the lender to simply contact the appraiser and make the request. The appraiser relies on the continued good will of his/her relationship with the lender...and thus is often willing to do whatever it takes for the lender to be successful (short of fraud, of course.) That goes without saying.

I think I'd contact the manager of the lending office, express your concerns and see if they'll assist in getting the appraiser to reconsider the value based on the new information. It's hard for me to imagine that it was the manager who said it would be undue influence. Sounds like a processor's statement.

Undue influence would be more of a "If you don't being it in at value, we'll never send you another deal" type of thing...but certainly not what your situation is!!

Sheesh...it's the reconsideration of value based on new comps information. It should be a slam dunk!

Good luck with that!!

Dave

Apr 15, 2009 04:05 AM #11
Rainer
15,135
Charles E. Jack, IV
Charles E. Jack Appraisal & Consulting - Las Vegas, NV
MAI

One thing you can't forget...

If foreclosures and / or short sales dominate the market in a typical neighborhood - then they become the market and they must be used.  You tell me - if 95% of the neighborhood's market is short sales and foreclosures are you going to try and price your property above that level if you know your client can't compete in the market if they don't price at that level?  I guess out here in Las Vegas, a lot of short sales and foreclosures are in pretty reasonable shape and they often compete pretty well with owner-occupied sales.  Maybe some landscaping and exterior yard issues but often not much else wrong with the property in comparison with an owner-occupied listing.  Unfortunately, this situation is extremely common in Las Vegas right now. 

I use the converse argument with Las Vegas Boulevard South (i.e. "The Strip") land appraisals.  If assemblage motivation and premiums are common and typical of the market, they no longer are anomalous - they become part of the market and should be used to value other properties that could be assembled in a similarly competitive Strip Frontage location. 

Sincerely,

 

Charles E. Jack IV, MAI

Apr 21, 2009 07:48 PM #12
Anonymous
Greg

I want to agree with the last poster.  If the market is being driven by short sales and REO's like most markets are (or had been until fairly recently) out here in CA, than it is prudent to use REO's and the like as comps.  Typically I believe you should use the most recent sales of similar homes and use your regular arms-length sales to set your high end and use the recent nearby REO's as the low end and reconcile somewhere in the middle.  If your job is to estimate value for the home as if it were on the market and REO's are dominating the market, than you have to consider these REO's as competition to your property (principle of substitution) since buyers will consider both regular and REO sales and to assume that the subject would sell for top dollar in a declining REO dominated market is going to draw a red flag from the lender as the investors are going to be wary of funding a loan in a down market anyway.  Better to be conservative and appraise it at a value that factors in the distressed sales as well as regular sales.  This is of course assuming that the appraisal is for a refinance.  My opinion for purchases is that if there is support at a contracted sales price at all and the sale is arms length and was listed on the open market, then go ahead and use only regular sales and ignore the REO's (as long as the regular sales are truly similar to the subject and the value supports the purchase price after adjustments).  Why kill a deal when there is evidence of market support and a willing buyer?  Just because there are sales that came in below the subject's sales price doesn't mean they have to outweigh the sales that do support it.  The market has spoken in this case the definition of value for the subject has been established.

Jan 26, 2010 03:14 PM #13
Rainmaker
101,176
Rick Phillips
Frankly Realty - Old Town - Alexandria, VA
I care about you and your transaction.

So what happened?...

Jun 24, 2010 03:19 PM #14
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