Comments on: Why All Appraisals are Always Wrong

By: Allen R. Cook on Facebook

Allen R. Cook on Facebook — Tue, 24 Mar 2015 12:28:47 +0000

Has anyone seen this before?

New UW conditions: I was asked to clarify why my information from county records and MLS did NOT agree. County records and Realtors have been putting in there records that a home has more bedrooms & bathrooms then they actually have! County does it to increase TAXES & the REALTOR does it to increase sales price.

Example recently completed a 4 bedroom 4 bathroom home with a basement of say 2000 sf, main level of 2000 sf & 2nd level of 2000 sf. Realtor shows as 6000 sf with 6 bedrooms & 6 bathrooms (at $300 sf), county shows as 4,000sf with 6 bedrooms & 6 bathrooms and I’m left to explain why. It did not end there even with a sketch & measurements I was asked to clarify whom was correct. 29 years over 12000 appraisals and now I have to prove my existence. Is this a deliberate or just a coincidence? Except it has happened more then once and now that reviewers are getting UW information on a property that is tainted from the county and the REALTOR where does that leave the appraiser. rhetorical. The assessors job is not to follow fnma/fha/va guidelines of reporting above ground sf! The REALTOR only want more money no matter if the living space is above or below ground and the assessor only wants more TAX money and the appraiser’s are left where

By: Baggins

Baggins — Fri, 20 Mar 2015 20:33:34 +0000

There is always something wrong with the appraisal, if the lenders risk factors don’t add up they way they would like. But as I don’t create risk, I cannot control risk. The thing about over regulation is that an appraiser can’t win. Sometimes I say; I wish I was good enough to do the job correctly. Well of course I am, but that is sarcasm which illustrates the illogical emphasis on the appraisal as the ultimate safegaurd for lending viability. If lenders were not backed by taxpayers funds, and the FED which controls the rate not a private institution ran by those very same lenders, well, you know how the story goes.

By: Baggins

Baggins — Fri, 20 Mar 2015 20:30:18 +0000

Good article, but disagree with the premise. It’s the aggressive parties who play the market that set the stage for the rest. Silent partner LLC, foreign investors, flippers and floppers and everything in between, including lending rate manipulation, which is a sellers game. They pump or dump the price, and that’s the wave the rest of the market follows. Then you’ve got external pressures which alter the effective market valuation rates and purchasing power, through income analysis. A subsidised person can quite often pay more than an unsibisided one. As the HUD rental price scales are tied to area median incomes, as incomes go up, so does rent, so does subsidies, so does purchasing power, so does area rental costs from little individual section 8 voucher homes to major corporate entities who run multiple section 8 or subsidised projects. Subsidy happens on multiple levels, and hence we get purchase value misalignment, market to market, quite often based on the populace demographic and the ratios of subsidies. Home price hardly has anything to do with actual cost anymore, especially considering the restrictions to market entry for a guy who just wants to build his own home. Enter the PUD’s, a control mechanism which promotes larger building projects. Then cost comes into play because the entire new home construction market rides those mv and income waves as well. They calculate affordability, and make sure they’re at least the same or more expensive than the rental markets. Cost figures rise yearly. And it all revolves around inflation, rate control, and the effective value of the dollar. External influence drives the appraisal valuation points. I’m just the analyst who reviews current market data to make sure the purchase agreement is aligned with existing market trends. But somehow the appraiser is blamed for rising markets when they utilize existing data points as proof. How does it go again? Oh yes; in a normal open market scenario with buyers and sellers acting prudently? What is prudent? Who defines that? Not the appraiser, that’s for sure. We have such a limited participation in the bigger picture of lending, that focus on the appraisal as the culprit of rising market trends is completely illogical. We apply the process of checks and balances to individual market deals, not the larger market. The larger market is controlled by the Fed, whom controls the value of the dollar, the rate, the purchasing power of buyers, and hence, the price. If you show me data misrepresentation, quality misrepresentation, extremely out of range contract offerings, etc, I’ll catch that for you and make sure you’re protected. Put me into an appraisal scenario with constant market over valuation trends, and there is not a dang thing I can do about it except to report that such trends are ongoing. Lenders make the lending decisions. I just look at the data.

By: Clint

Clint — Sat, 07 Mar 2015 23:20:24 +0000

That sounds exactly like what I need. Thanks for providing the link. Only problem is they make it for Total, but not Aurora. I guess I’ll have to upgrade.

By: AppraisersBlogs Team

AppraisersBlogs Team — Sat, 07 Mar 2015 15:56:14 +0000

In reply to Clint.

Clint, a la mode is actually releasing a new free tool called SmartAddress. It automatically looks for prior uses of the subject and comps and flags for inconsistencies. For more info click on this link.

By: Clint

Clint — Sat, 07 Mar 2015 15:46:39 +0000

There is no difficulty in determining c1, c2, c5 or c6. It’s the difference between c3 and c4 that’s difficult to decide when the home is around 20 to 30 years old that’s the problem. Fannie should simplify the whole thing so that there are categories…new, like new, major updates, some updates, no updates, fixer upper. That makes the most sense. Plus it’s easy enough to figure out by looking at Realtors comments and photos on the MLS. The majority of homes will fit in the “some updates” category, and make our lives easier. I just want to know what most appraisers use for a home with no kitchen or bathroom updates, but in good condition; having been well maintained, when the home is 20 to 30 years old. Is it c3 or c4? Or a home with an updated bathroom, but no kitchen updates, or a home with updated exterior..siding, windows and doors, but no cosmetic updates. Furthermore, what if you have a home with only a new roof on the exterior and in the interior it is completely remodeled? Call me an old timer, but the old way made sense to me, now I have to think and waste more time hoping that I choose the condition rating that my peers will. It takes hours longer to complete an appraisal nowadays because lenders require more comments due to all the extra stuff Lenders keep throwing at the appraiser, mostly which has nothing to do with value.

On another note, does anyone use alamode’s comp database? I have a major complaint about that. When I sign a report I have the option to choose to import the comps into the comps database, but when it finds that a comp has been used in a previous report, it doesn’t tell me the q or c rating used on it, so I have no idea whether I picked the same q or c rating for it as I have in a previous report. Since Fannie is checking you’d think alamode would want to make certain that we don’t mistake these fields. Why can’t the software check to see if we have used the comp while it is being entered. There’s an idea. After the address is entered a quick check in the database would ensure the information pertaining to the comp is consistent.

So I’ve ranted enough. Sorry to be such a grump, but I really hate how this industry is constantly being blamed and not trusted.

By: Mike Ford, CA Cert. Gen Appr., AGA

Mike Ford, CA Cert. Gen Appr., AGA — Sat, 07 Mar 2015 01:12:14 +0000

Mr. King’s article is excellent and remarkably applicable in all areas except the conclusion. With respects to our associate “Clint”, who disagrees, the description and applicability of each appraisal technique is spot on. We may quibble on the uniform applicability of the income approach on sfr’s, but the rest is very accurate. (Clint-there is no need to wonder what a C2 or C3 ‘looks’ like. FNMA has pretty well spelled out what THEY thin it entails. I don’t like their UAD system at all, but I have zero difficulty in understanding or applying them).

It is the article’s conclusion I disagree with (strenuously). It is not the appraisal or the appraisal process that is the fault. The ‘fault’ is in the ambiguity of enforcement language at all levels of the process.

“Reasonable & customary” is the most abused. Fees are ridiculously low and only “customary” as a result of price fixing and artificial price suppression by AMCs that ‘take their cut’ for doing banks administrative appraisal management out of the appraisers side of the total fees paid.

Faster and cheaper has been the mantra of all mortgage banking and traditional lending sources. FNMA & other GSEs are complicit in that they keep removing entire sections of meaningful appraisal (cost approach) techniques instead of requiring US to demonstrate their inapplicability when applicable.

Put the price of a non complex FNMA conforming loan appraisal up in the $650 to $950 fee range where it belongs and require all three approaches, and appraisal quality WILL improve across the board.

Prohibit ALL lenders from owning ANY share in AMCs (Such as Wells Fargo in Rels). Prohibited pressure is unavoidable; as I will be writing to WF’s Executive Board about, next week for an extremely well documented case of alleged pressure to hit a number; suspension for failing to do so, and then making a loan based on an over valuation of $100,000. Of course they are welcome to call me about it first. Mike Ford (714) 366 9404, American Guild of Appraisers Peer Review Committee.

By: Clint

Clint — Fri, 06 Mar 2015 23:39:20 +0000

This is just a bunch of BS. Tell me how the cost approach is relevant to anything that has depreciation. Afterall, we give an effective age to each property we appraise, which should theoretically assist with estimating depreciation for the cost approach, but is that number going to be the same for every appraiser, no. Is every appraiser going to come up with the same site value, no. The Cost Approach is too subjective in nature to be a reliable indicator of value. Just like c3 vs c4… We have 4 appraisers in our office who have varying opinions on what a c3 looks like vs a c4. We decided to just make all homes between 1 and 5 years old c2, all between 6 and 20 c3, all over 30 c4. Unless completely remodeled – exterior, interior and mechanicals, then use the condition rating proceeding its age group, and use c5 for homes with issues that need repair, and never use c6 because that’s basically a tear down. To hell with Fannie Mae and her stupid nonsense rating system. The more variables that have to be considered the less reliable the opinion of value/confidence level. There is no exact science to what we do because the market is imperfect. If you are looking for a value range, just look at the adjusted or unadjusted range of sale prices for the comps used in each report. If you have truly comparable properties in your report they should provide a range of value that should represent a reasonable selling price range-assuming buyer and seller are equally motivated, and market conditions are stable, and so on. Any number within that range should be acceptable. This whole idea that we have to be precise with adjustments or else the value could be flawed is wrong. The value range is an exact science, the number within that range is an OPINION. The opinion of value isn’t and should not be an exact number because as was stated the market is imperfect. It’s full of uninformed buyers who think it’s ok to pay more for stupid things that shouldn’t add value, like staging, paint colors, landscaping, door knobs and handles, light fixtures….minor cost items which don’t have a significant impact on value, but may help marketability. Just compare home sales to electronics.. You have three phones. Each has everything the other has, but one is blue one is black and the third is sparkly. The black one is on sale for 100 dollars and is the one that most consumers are buying. The blue one is 110 and the sparkly one is 120. But this is a decision you have to live with and you really want a blue phone, so even though the smart thing to do is buy the black one, you end up overpaying for the blue one because it has something you want more…the color is blue, and the sparkly one is more expensive. So one appraiser will say the phone is worth 100 dollars because that is what the market shows with the most buyers, and one appraiser will say it’s worth 110 because that is what the buyer is willing to pay for it, and one will say its worth 120 because that is also a reasonable price, after all the only difference is the color preference. So now we have three different opinions. It doesn’t matter what opinion you have as long as it is in that range. ????

By: Retired Appraiser

Retired Appraiser — Fri, 06 Mar 2015 15:23:11 +0000

NOW FOR THE CONUNDRUM
Technically speaking however, an appraisal can never be wrong IF it an appraisal is an “opinion of value”.

In the end the value most similar to value sought by, the Realtor, the bank, or FNMA is seeking is the “right value”.