The real skinny on why Appraisers use foreclosures to value your home!

Real Estate Appraiser with Lanier Appraisal Service CR004373

Okay first let me BUST a MYTH out there. The administration is telling people that even though YOU are not going to get bailed out while your neighbor who is going through foreclosure is, you should be happy because YOUR home will not suffer further loss in value if we can get these foreclosures sold and no longer sitting vacant, etc.


While there is truth to this it sure does not make those of us who have been working hard to keep our mortgage payments current feel a whole lot better. Many will start falling behind on their payments just to get bailout help...sad but true.

But here is the real deal on how appraisers are dealing with the valuation of your home in this foreclosure crisis. We DO NOT typically use foreclosed sales to compare against your home. We first evaluate your individual neighborhoods, streets, subdivisions and trust me when I tell you it can vary street by street in today's market.

If and only IF your subdivision, street or neighborhood is full of foreclosures, more so than your typical arms-length transactions, then we WILL using foreclosures as our primary source for analysis.  WHY? because these sales have now defined your neighborhood. If there are more sales in your area which are not foreclosures then we will use those sales primarily.

Therefore your home may NOT necessarily decline in value due to a few scattered foreclosures in your area. Now here is where it gets a little muddy in the water....If you have a home right next to yours or a couple of doors down that has been foreclosed upon and especially if it looks "run down" and obviously vacant, this WILL have an effect on the value of your home to some degree regardless of the number of foreclosures in your area. WHY? because if you were looking to buy a home and the one next door to yours is quite frankly and eye sore, this has an impact on how the market perceives your home. Sad and not fair but true!


The foreclosures in your area or on your street and their proximity to yours has an effect from that point outward as if in a circle. The further the foreclosure/s are from your home, the better off you are!

Again, let me repeat, if you only have a few foreclosures scattered about your development, street (unless you only have a few homes on your street) or defined neighborhood, chances are you are not going to be heavily impacted as appraisers will use non-foreclosure sales whenever it is reasonable to do so and is not misleading to the lender to do so.

One thing I want to make clear! Appraisers do not determine the value of your home...Let me repeat this. Appraisers DO NOT determine the value of your home.....The MARKET DOES! We analyze the market and as long as we do this correctly and as long as we utilize properties that are truly comparable to yours and make the appropriate adjustments for any variances, then the market LEADS us to the appropriate opinion of value....So don't blame the appraiser for the value of your home okay? It is the market you need to blame.

One final note. Appraisers are supposed to protect banks from lending risks. Banks need appraisers to analyze NOW more than ever what the market is doing, what the value of the property is currently, what the trends have been and where they are likely headed.

Banks & Mortgage Companies in the past did not really care too much about the fact that we were trying to protect their interests as they wanted to close loans. Sad fact but true and that is why we are in this mess Today. Appraisers many times are considered a necessary evil and Lenders pressured many Appraisers to do what they wanted. Unfortunately many succumbed to that pressure.

Banks are now going the opposite direction and running scared. They are dictating to appraisers what the comparable properties should be. They are non believers in what our reports are telling them. Before they wanted the highest possible value, now they want the lowest. They are telling us based upon some National Report that we MUST report our area as declining! Well here in Georgia there are some area that are NOT declining but STABLE. I personally do not let lenders dictate to me and I know for a fact I have lost business over this...but I digress...

Bottom line is they are still not letting us do our jobs! We have no vested interest in these properties, if they had let us do our jobs from the start, we would not be looking at a Trillion Dollar plus spending bill. Can you tell I am just a little frustrated. I AM!

So as a consumer what can you take aways from all of this. Keep up with what is going on in your neighborhood and do not let lenders determine the value of your home. You get a copy of your appraisal report, review it carefully. If you do not agree with it, protest it! Many banks use review appraisers who either have not even seen your home or who have only driven by your home to refute the original appraisal report. Don't let that happen to you because these review appraisers do not know the home like the first appraiser!

As Realtors, you can do the same thing. You have access to the same information we as appraisers do and even more than we do as you guys see many of the INTERIORS of the comparable properties used by appraisers which we do not see. Sure we have photos of the interiors if you post them on MLS/FMLS but the pictures do not always tell the whole story! So help your clients in this lending process by not letting them reduce or change the value of the first appraisal report without good reason.

Okay I am off my soapbox now, I hope this has helped you to understand how appraisers operate in this market or at any time.

Any questions, just ask!

Mary Thompson-Certified Real Estate Appraiser Custom shows for your next listing!  

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Chris Oliver
Century 21, Preferred Properties - Reynolds Plantation, GA

Good post Mary, I do a lot of BPOS and can't tell you the number of times the asset manager has come back saying 'your numbers are too high/low' Well if they wanted a particular number, they should have done it themselves. Comps are comps and those numbers don't lie. They either sold for a certain amount or they didn't. I am seeing more and more valuations come in below what the home could be built for too. Appraisers, agents, banks etc. The upside of this is the fact that when inventory sells down, due to the skimpy number of housing starts and lack of building activity, the prices will rise again. Hopefully, not to 2005/06 levels though. There needs to be some realism here too.

Mar 04, 2009 01:21 AM #59
Lyn Sims
RE/MAX Suburban - Schaumburg, IL
Schaumburg IL Real Estate

Your flip-flopping on the issue. The banks are dictating?? Well then that takes out the 'unbiased' part of your job as an appraiser doesn't it.  Who cares what the banks think about the market - there job is to lend money and they obviously don't do that right either!  The market is what it is - where it is.  I get upset when there are no other comps but foreclosures because right now that is all that is selling.  There was an odd comment at an office meeting recently where one agent said that 'it is our job to keep prices up for the sellers'.  Huh?? Where is that rule in life? Buyers set the market just as you say - there is nothing that Realtors or appraisers can do about the slide downward.

Mar 04, 2009 01:37 AM #60
Mary Thompson
Lanier Appraisal Service - Flowery Branch, GA
Lake Lanier Appraiser in North Georgia

Hello All, thanks for all your comments and by the number of them it is very clear that this is a very real and troublesome issue. This is why I wanted to put it out there so there was no confusion about how appraisers SHOULD be conducting property valuations.

Lyn: I am not flip flopping. I am just telling it like it is, as part of my post I stated I have lost business because I will not let banks dictate to me...just to clear this up. I agree we should care less what banks think, but they are our client and appraisers must walk a fine line! This is why the NEW HVCC which takes effect May 1, 2009 was developed in part. Which leads me to Dave's comment

Dave: Bingo on the AMC's(appraisal management companies). Due to the New HVCC regulations, which I did write a post about here: banks are going with these companies to distance themselves from the appraisal ordering process. This is a problem as you noted for many reasons.

There may be a way out of this. Our appraisal software company Alamode has the Mercury Networkwhich will act like an AMC but NOreduction in fees. In this world you get what you pay for and yes the AMC's want to pay us 50% of our fees. I only work for a few of these companies for this very reason. 

 If interested in the Mercury network for your lenders send me an email. You can have your lenders sign up, set up their own appraiser fee panel and then send appraisal requests which will go to those appraisers the banks select and still comply with HVCC.

Lynda: I quote: "For me personally, I can't ever do enough to provide accurate data for the appraisers I meet at properties. I'll turn over every rock I can to come up with as much as possible. Then hopefully the appraiser can just verify the info for him/herself to confirm the value paid by the buyers."

In answer to this point and some other questions here, sure if you have sales especially recent ones that are not showing up on FMLS or MLS or was a private sale that you know about that we many not have access to as it has not yet been recorded, then we will accept this information no problem, however, appraisers have access to the same information you do and we do not just verify and confirm what Realtors have provided to us. Sure in essence whatever a buyer pays and a seller accepts determines market value, but sometime we are dealing with UNINFORMED or uneducated buyers out there and just because the sales price is $200,000 that does not mean we will make the appraisal work and appraise the property for $200,000. It could be lower or higher!

We appreciate your help, no doubt, but we are still not to be swayed one way or the other by the sales price, we must make sure that the information Realtors have provided us are truly comparable. I have recieved sales and listings from Realtors many times and sadly they are far from being comparable to my subject property.

Thanks again for all your commentary and I am glad that is has been helpful!





Mar 04, 2009 02:31 AM #61
Susan Manning
Realty Executives - Temecula, CA

Congratulations on being an ethical appraiser.  It is refreshing to hear someone who stands up for what they know is right and true for them in the market!!  It is sad how the banks and more specifically the people who represent the banks want what they want when they want it for no regard to the reality of the situation - putting a square peg in a round hole.  I think that if more people worked like you do, Mary, then at least a larger group of responsible decision makers would be hearing the truth and not just what they want to hear.  Good luck in your endeavors!!  Best, SM 

Mar 04, 2009 02:52 AM #62
L. J. Good Real Estate

I appreciated your post.  However, there is more.  First hand experience.  In the middle of a refi. Using Countrywide, which I would not recommend to anyone.  They orderd the appraisal.  I recieved a call from the appraiser, he lived and worked on the other side of the state.  I made some calls.  They cancelled that one and ordered another, this time using a local appraiser.  The appraisal came in $100,000 lower than a recent CMA, which was based on recent sales in our nieghborhood. I wanted to challenge the appraisal.  Here's where the clincher comes in.  Their polocies do NOT allow anyone to challenge the appraisal.  The company who does the appraisal is owned by Countywide.  Is it just me of does something smell bad here?  For more on this whole fiasco check out my blogs.  Caution: Only those with a strong stomach should look at that blog.  Oh.... almost forgot, the first appraiser was cancelled but showed up anyway. He called my office and told me that I was a "no show" and that he would send in the pics he took.  I informed him that he had been cancelled and asked, "if you call me a no show do you get a fee anyway?....... silence on the other end......... "well, I get a trip fee". 

Does anyone out there have any sense of right or wrong any more?  Is there anyone acually more concerned with ethics and morals than they are with the almighty dollar?

Mar 04, 2009 03:18 AM #63
Patty Mortara REALTOR CRS | Hunterdon County (NJ)
Hunterdon County Homes - Flemington, NJ

You Wrote... Appraisers do not determine the value of your home...Let me repeat this. Appraisers DO NOT determine the value of your home.....The MARKET DOES!

I think we could use some bumper stickers that say this =) 

What is sad is that there are agents that ignore the comps if they are "distressed sales"... foreclosures, short sales etc - because they feel the property sold below market value. Hmmm, I still don't follow that train of thought at all. Thats like saying we shouldn't use any relo properties either because the owner's needed to move out of state.

Mar 04, 2009 03:23 AM #64
Mary Thompson
Lanier Appraisal Service - Flowery Branch, GA
Lake Lanier Appraiser in North Georgia

Patricia: Love, love that idea on the bumper sticker!

L.J.There is definitely a SNAKE in the woodpile on that story! With the new HVCC coming along, the only way you will get a new appraisal ordered is if the first one is determined to be FLAWED. So you can protest, you just have to have good documentation to back it up.

I just learned today though that the National Brokers Assoc is suing over the HVCC, so stay tuned!! I will keep you posted

"The National Association of Mortgage Brokers (NAMB) filed a complaint against the Federal Housing Finance Agency in February 2009 regarding the Home Valuation Code of Conduct (HVCC), claiming the HVCC will force mortgage brokers to rely on lenders and their affiliates to obtain appraisals for customers, drastically reducing the ability of brokers to provide consumers with an efficient cost-effective means of obtaining a mortgage. 

The suit claims this will disrupt the established business practice of mortgage brokers, decreasing the efficiency of the marketplace and increasing costs to consumers."

Mar 04, 2009 05:08 AM #65
Sarah Maus
Charles Rutenberg Realty - Land O Lakes, FL
Your Florida Suncoast REALTOR®

  I think it would be wonderful if our local MLS would/could do automated CMAs for us based on the information we typed into the system and on the market for that particular address/date.  That, in effect, would save us a lot of time racking our brains for what we think could be the best comps.

Mar 04, 2009 05:12 AM #66
Craig Chapman

I 2nd what you said about the comp situation in relation to REO sales.  I also want to point out that other value issues can also influence which comps the appraiser might use.  As a certified residential appraiser & agent I realize that sometimes its just not easy.  Say you have a neighborhood with a few REO sales, but most are still regular sales.  However; the REO sales are typically in less than avg condition while the regular sales are at least avg if not in good condition.  This is not uncommon.  Then you get an appraisal assignment in that neighborhood for a homeowner who has a house in need of some rather significant repairs.  Which comps are the most similar to the house you are appraising?  Yes, probably the REO sales, even though the one you are appraising is not an REO.  One of the main principals found in appraisal is called the "principal of Substitution", which states that a buyer will not typically pay more for a property than what they can get an equally satisfying substitute for, or something like that. So if you were a buyer in that neighborhood looking for a house to buy & fix up, would you pay more for the regular one that needed work just because it was not a REO?  There might be other considerations, but probably not.  The appraiser would probably want to include non-REO comps in the report too & adjust for condition. 

Some of these value issues we have to deal with in this rapidly changing market are not always easy.  Sometimes we have to put different hats on while doing our analysis so as to see things from different perspectives.  But never forget the principal of substitution.  It will guide you through some tough analysis. 

Craig Chapman, certified residential appraiser / agent,  Mesa  AZ


Mar 04, 2009 05:26 AM #67
Mary Thompson
Lanier Appraisal Service - Flowery Branch, GA
Lake Lanier Appraiser in North Georgia

Craig: Of course, absolutely I totally agree!

Many do not realize just how much analysis goes into one single report especially in today's marketplace. They see us inspecting the home and leaving thinking that was the easiest $300.00 or $400.00 dollars that appraiser made....but I am quick to advise that my inspection is just the tip of the iceberg. What comes after that in order to put together a credible, USPAP compliant, non-misleading report is the HARD part and takes much longer than the inspection process, I know you will agree with that!



Mar 04, 2009 06:04 AM #68
Craig Rutman
Helping people in transition - Cary, NC
Raleigh, Cary, Apex area Realtor

Great post Mary!

This information is invaluable for anyone regardless of whether they are buying or selling.

Congratulations on your featured post status.

Well deserved!

Mar 04, 2009 06:13 AM #69
Tony Field
Charles Rutenberg Realty - Fort Lauderdale, FL

I can truly say there has been a ton of compelling and well-thought out posts on here. I do feel that we, as real estate professionals cannot determine value, as the market always dictates that. I fully agree with the Principal of Substitution noted here by Craig, as I also stated in a prior post on this blog.

Other factors to consider are supply and demand, and competition, which are a basic principles in economics. Further, we also need to consider the line between the costs associated of owning a property vs. renting, and where is that breaking point. We are not the price keepers, rather facilitators in ensuring a fair and equitable process for all parties concerned.

Best Regards,


Mar 04, 2009 12:01 PM #70
Dale Falkowski
Remax Town & Country - Woodstock, GA
The Honest Agent Full Time Pro

It is very hard to determine value for many reasons. Market Value is not only based on other comps.  I find it depends on the buyers motivation. If someone has a deadline to get moved they will almost always pay more. Investors will always pay less. If Appraisers could tell not only what was paid but who bought and why, it would make a lot more sense. I'm quite familiar with the car business and you have Retail, Broker, and Dealer prices. It's quite common to have a 40% spread on the same vehicle. Houses are becoming the same way. Investors with cash can get a bank bargain on a ditresees property and when it gets posted as the selling price and used as a comp it hurts the value. I know there is no simple solution but somehow adjustments must be made to the system. Maybe Appraisers could give a Retail Owner Occupied Price and a sell it today Investor Price opinion. Then the Lenders could decide how much to lend based on who is buying.

Just a Thought........

Mar 05, 2009 01:20 AM #71
Mary Thompson
Lanier Appraisal Service - Flowery Branch, GA
Lake Lanier Appraiser in North Georgia

Dale: In today's market many times appraisers are called upon to give a "fire sale" value in other words lets say the typical days on the market for a home is 120 days (that would nice!). They want the typical market value and a 30 day market value for a quick for fire sale.

Also when we appraise property if foreclosures are not influencing values significantly,we do try to use what we call arms length transactions involving true market value, which means you have a willing buyer, a willing seller, who do not know each other and under no undue duress involved ie; impending divorce, foreclosure, have to move due to relocation, etc. and the home has had adequate exposure on the market.

I agree the reasons for the sale and the buyers involved ie; investors can have an impact on the value of the home and we should understand these circumstances and find out if there were any extenuating circumstances involved.

So what you offer as a thought is already being incorporated in our day to day appraisal tasks and it really depends upon the needs of our client as to which approach we are going to take in the appraisal report.

Thanks again to everyone for your great discussion here and commentary, I can see it really sparked some interest.

Mary Thompson - Your Active Rain Appraiser!


Mar 05, 2009 11:14 PM #72
Robin Turner
Happy House Real Estate - Cocoa Beach, FL
Robin Turner

Here in FLordia they have definitely gone in paranoid mode. 3/2/2 1500SF Houses that were selling for $180 K, now getting offers for $90K, don't sell because some appraiser only gives it $45K..

Mar 07, 2009 07:04 AM #73
Mike Henderson
Your complete source for buying HUD homes - Littleton, CO
HUD Home Hub - 303-949-5848

Great information.  I'm incorporting parts of it into my listing presentation.

Apr 29, 2009 07:36 AM #74
Mary Thompson

MIKE: Fantastic IDEA!


Mary Thompson


Apr 29, 2009 07:53 AM #75


I have a problem I hope you might help me with. I have been searching all over the web for answers and came across your blog. HARP..We qualify for Harp as we have not been late on payments and Fannie has my mortgage. We just applied to do the refinancing in order to get the 4.8% fixed and get off the 6% 5 year arm. We took the arm for one reason. Our home in Florida had a pending contract when we purchased this one. We paid 370,000 and put 70,000 down in August 07. I am in Paulding County Georgia. 2 days after we closed here, the deal there fell through! That was 18 months ago..My husband is still there and I am here busting it in order to pay 4,500 in mortgage payments. The arm was fine, since we figured after the sale of the house in Florida, we could decide if we wanted to drop that junk and refy or not. Anyways along comes HARP. I pd 350.00 for an appraisal and she was out last week for about a half hour. We bought through Wells Fargo and had been looking for  a year around here to buy. We knew the market had fell and we were comfortable figuring it didn't fall below the 295,000 we owe.

Yesterday the appraisal came back at 257,000! and I blew a cork! I owe 295,000 and needed that in order to qualify for HARP, I knew property values had dropped but there is noway I can accept that it dropped 30+%! My Home being a custom built home 3200 sq.ft. in the 350,000 range can not be compared to a 250,000 2000 sq.ft. cookie cutter builder grade home, you just can't adjust for that correctly.

Everything in paulding county that I have searched says 10-12% drop, so I knew we would be fine. After looking at this appraisal, we find she used the house across the street that sold in Aug 08 has a foreclosure for 245,000. not only is it a foreclosure but it is a Builder grade home on 3 acres that needed about 30,000 just to fix back up. Ours is custom built on 3 acres by the builder who built it for himself. It is solid and has all the upgrades. She also used one up the street, another builder grade that is on the market for sale at 250,000. She used 2 others that are up for sale and 2 that sold in August 08. I am not in a neighborhood where everything is cookie cutter. We are on one street and everyone has acreage and all homes differ. There really is no comps that even can be used on this street. All the homes she used sold or are for sale, for less then 250,000 and they are rightfully 250,000 homes. I have no problem with that and don't degrade them in anyway. They are neighbors and everyone keeps their houses up, if they don't all the woods hide them.

In Aug 07, the comps that were used on that appraisal were 350,000 to 400,000 and homes that were up to a couple miles away as we are in the woods and there isn't allot of homes within the mile. BUT those houses reflected more of what my house is. My house is not a 250,000 home!

After looking this over some more, I see her description of mine is wrong also. She has marked 1 story, I have 2, she marked 1 fireplace, I have 2, she marked Public GAS, I have Electric, she marked sewer, I have septic, She marked fiberglass baths, I have marble, She marked pull down stairs to attic, I have walk in through standard size doors, she marked frame siding, I have Hardiplank, She marked Screens/average and I don't even have screens, they are on order but she don't know that. She gave me 2,000 for upgrades, I would assume that covers the granite counter tops and custom solid Oak Cabinets..are you kidding me?

So my thought now is if she can't even get the description right how on earth could the appraisal be right? Why weren't homes in the 300,000 to 400,000 price range used? There is a huge difference between a 250,000 home and a 350,000 home and it's just not all about square feet. I have 3200 heated and 1900 in the basement. If you use the dollar cost for that, it comes down to 80.00 a square foot, less then all her comps she even used. I have 8 rooms, 3 bedrooms and 2-1/2 baths, hardwood and tile floors, nice smooth ceilings, no popcorn, crown in every room even on the porch and around the outside of the house. Bathrooms and Kitchen had been upgraded in 06-07. I am just so livid over this. This is our retirement home, we are not selling, we are staying here. BUT I needed the 300,000 in order to refy. I was a Realtor in Florida back in the 90's before all the boom and I know everyone thinks their house is worth more then it really is. Like I said I thought realalistically it would have dropped to 325,000 or somewhere around there, but 257,000 is a insult to my intelligence here, and there is noway homes have dropped that much in paulding county. Yes there is allot of foreclosures, the bulk of them are the lower end homes, that do not affect the higer end as much and they aren't even around me. Our mortgage guy is the same one that we used when we bought the house in Aug 07 and he was shocked, he has not seen one come in this bad. He was scared to even call me over it.

I just feel she did not do this appraisal correctly, given the comps and the wrong info in our description and want to know what I can do about it? There has to be something, this is basically certified by her to be as accurate as possible and it isn't even close.

What is my recourse here? I can not afford to miss out on this HARP program for this reason.

Sorry so long, but I am still fuming! When it comes to messing with my family or my money, I don't take it to well!

Thanks, Marilyn


May 02, 2009 03:10 PM #76
Scott Taylor
Realty Center - Orlando - Ocoee - Orlando, FL

Great post Mary!

Jul 07, 2009 07:17 AM #77
Rick Phillips
Frankly Realty - Old Town - Alexandria, VA
I care about you and your transaction.

I can't find the certificaton regarding the issue of "distressed" properties; however, in the definition of Market Value, on the AI form, the number one item is that the "buyer and seller are typically" motivated.

In a bank sale, the seller ususally is not.


Apr 12, 2010 01:49 AM #78
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Lake Lanier Appraiser in North Georgia
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