I recently came across Are REOs real comparables? by Orlando Masis and before that it was Appraisals: Behind the Scenes in the Appraisal Wars by Kathy Godin. Both of these posts were about REO properties being used to value equity sales.
While Orlando, who is an appraiser, was resolved to using REO's as equitable comps for equity sales, Klem, the appraiser in Kathy's post, was outraged at the way that lenders and appraisal review boards were replacing his equity sale comps for an equity sale subject property with REO comps.
Here in Los Angele & Ventura counties, we are still in a declining market that is absolutely saturated in REO's and short sales however, in many areas, we are still seeing a percentage of equity sales. When the subject property is an equity sale and there are equity sale comps available, then these appropriate comps need to be used first (with applicable adjustments) before resorting to REO's. Unfortunately though, this not happening.
Most lenders are requiring at least six comps: 3-solds, 2-pendings and 1-active (or some similar guideline) and so often, I am seeing the AMC's appraisers are choosing the six lowest comps regardless of what the other comps are.
Quite a few times, I have seen appraisals where the equity sale subject property has appropriate equity sale comps to choose from that were within the 90 day timeframe and less than .50mi from the subject property.
For these appraisals for equity sales, the AMC's appraisers completely ignored all of the equity sale comps and instead used all REO comps to value the equity sale.
It's no coincidence that many of the equity sales that were not used were often the highest comps and many of the REO comps used were the lowest comps. It's as if the AMC's are ordering their appraisers to use the six lowest comps (with applicable adjustments) regardless of the subject property features and/or the features of the other comps.
It's been my experience that the only way to get the AMC's and their appraisers to even consider the most appropriate comps, we have to start appealing the appraisals and start justifying why the other comps must be used. If the subject property is a meticulously maintained equity sale that has been totally rehabbed or upgraded with high-end features, I assure you, until we start fighting back against unjustified low appraisals, the AMC's and their appraisers are going to continue to ignore the most appropriate comps. If you're already in a declining market, then recovery becomes a never ending uphill battle.
BUYERS: If you've found a wonderful property, in great condition, that is just perfect for you and/or your family and you want to call it home - don't just walk away from a low appraisal - fight it. If you feel that you and your Realtor/agent put together a really fair market offer, then fight that unjustly low appraisal or it's back to searching for another perfect property. God knows how many other offers you'll have to negotiate before you get into escrow again. Ask yourself: "isn't the home worth fighting for? Do you really want to start looking again"?
REALTOR/AGENTS (listing & selling): Unless you and your client want to put that home back on the market or you and your client want to start looking again for that perfect property, then I strongly suggest, do what you have to do to fight that unjustly low appraisal. Realtors/agents: justify that sales price you fought hard to negotiate for your clients!
Until buyers and sellers and their Realtors/agents start fighting these unjustly low appraisals, the AMC's and their appraisers are going to continue to churn them out. Yes, it takes a little bit of time, energy and resources to appeal appraisals but until we take the time and energy to fight back, we are going to continue to see either declining sales and/or declining median sales prices. While this scenario may not be indicative of so many other markets across the country, this is our reality here in Los Angeles & Ventura counties and we need to start being more proactive about changing this around.
Yes, we're working harder these days than ever before and appealing appraisals is hard work but I assure you, when we start doing this, many of our buyers and sellers will probably appreciate us stepping up and going to bat for them. It's been my experience that we may not always be able to hit it out of the park (get the value we were shooting for) but we'll definitely be scoring points (keeping the escrow active) and may ultimately win the game (getting to the closing table).
The home buying process is not a simple process and it's because it can get really complicated and convoluted, that borrowers today need real professionals working on their behalf. If you have any questions and/or concerns, please feel free to contact me, Donne Knudsen, at 805.2069123 or donne4loans@earthlink.net. That's what I'm here for and I would love to be able to assist you in any way I can.
Photos courtesy of flickr: koyume appraisersbr bali-jm giacomomacis
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