In the current real estate market downturn, precipitated by the sub-prime initiated financial meltdown, declaring bankruptcy has become an all to often unavoidable reality under certain circumstances. An accurate appraisal report is an important element in any bankruptcy proceeding.
Whether you are allowed to file a chapter 7 liquidation or a chapter 13 repayment plan can have a huge impact upon your ongoing financial situation.
Your house is certainly worth (market value) what its worth, based upon the most recent and similar comparable sales, adjusted for relevant differences on a direct sales comparison grid.
Market value or fair market value is the most probable price that a property should bring (will sell for) in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller, each acting prudently, knowledgeably and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: (1) buyer and seller are typically motivated; (2) both parties are well informed or well advised; (3) a reasonable time is allowed for exposure to the open market; (4) payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto; and (5) the price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale.
Credibility of the appraiser/valuer and his or her appraisal is of the utmost importance in a bankruptcy petition.
There are many forms of valuation evidence available, however the key in a bankruptcy proceeding, particularly when the difference between a chapter 7 or 13 is the credibility. The trustee and/or the judge will be the final arbiter.
Credibility is often dependent upon the type of valuation reporting format utilized as well as the experience and reputation of the appraiser / valuer.
Here is a list of valuation reporting formats listed in the order of their respective credibility (in your bloggers humble opinion - listed lowest [top] to highest [bottom]).
1. Free online value service.
2. Paid AVM [Automated Valuation Model].
3. Raw comparable sales without analysis.
4. Desktop Appraisal [no inspection of subject property].
5. BPO [broker price opinion] or CMA [competitive market analysis]
6. Exterior only [drive-by] appraisal [no interior inspection of subject property].
7. Complete appraisal with exterior and interior inspection.
The experience, license/certification level and reputation of the appraiser is also crucially important. The more experience the appraiser posesses it stands to reason the more credible their report will weigh in the eyes of the trustee or judge. Licence/certification level is equally important.
The following are the license/certification levels in NY (highest [top] to lowest [bottom] - from TITLE 19 NYCRR, BOARD OF REAL ESTATE APPRAISAL PART 1101 SCOPE OF PRACTICE
§1101.1 Scope of practice for certified general real estate appraiser
A certified general real estate appraiser may appraise all types of real property.
§1101.2 Scope of practice for certified residential real estate appraiser
(a) The scope of practice for a certified residential real estate appraiser is limited to:
- (1) the appraisal of 1-4 family residential units without regard to value or complexity; and
- (2) the appraisal of vacant or unimproved land that is to be utilized for a 1-4 family residential unit without regard to value or complexity, or vacant or unimproved land for which the highest and best use is a 1-4 family residential unit without regard to value or complexity.
(b) A certified residential real estate appraiser shall not appraise a residential subdivision, except that a certified residential real estate appraiser may appraise individual properties within a subdivision.
§1101.3 Scope of practice for a licensed residential real estate appraiser
(a) The scope of practice for a licensed residential real estate appraiser is limited to the appraisal of noncomplex 1-4 family residential units having a transaction value of less than $1,000,000 and complex 1-4 family residential units having a transaction value of less than $250,000.
(b) The scope of practice for a licensed residential real estate appraiser includes the appraisal of vacant or unimproved land that is to be utilized for a 1-4 family residential unit or vacant or unimproved land for which the highest and best use is a 1-4 family residential unit. In either case, the scope of practice is limited to the appraisal of vacant or unimproved land having a transaction value of less than $1,000,000.
§1101.4 Scope of practice for a licensed real estate appraiser assistant
(a) The scope of practice for a licensed real estate appraiser assistant is the appraisal of those real properties that the supervising appraiser is permitted to appraise.
(b) A licensed real estate appraiser assistant shall be directly supervised by a supervising real estate appraiser who shall be a State licensed or certified real estate appraiser. The supervising real estate appraiser shall be responsible for the training and direct supervision of the appraiser assistant by:
- (1) accepting responsibility for the appraisal report by signing and certifying the report;
- (2) reviewing the appraiser assistant's work and reports; and
- (3) personally inspecting each appraised property with the appraiser assistant until the supervising appraiser determines that the appraiser assistant is competent to conduct inspection on his or her own.
(c) An appraiser assistant may have more than one supervising appraiser, but an appraiser assist must have at least one supervising appraiser for each appraisal assignment.
Photos used or lack thereof in the appraisal can also add to or detract from credibility. Photos of the subject property should be as of the effective date of the appraisal or explained why not. The should be crisp/clear and at minimum should include front, rear,street and sufficient interior photos to allow the reader to understand any adjustments made for condition or degree of modernization. If repairs are needed, descriptive photos of same add credibility. Photos of comparable sales should reflect the comparable as of the date of sale as accurately as possible - when using MLS photos, an explanation [why] should be included [I typically include both my photo and the MLS photo - with explanation, when there are signification changes subsequent to the sale.
It is imperative that you choose the most credible valuation alternative as well as the most credible appraiser, particularly when the difference between chapter 7 and chapter 13 hangs in the balance.
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