Why Do Appraisers Keep Overreporting…?
Another friend has provided a copy of an appraisal on the friend’s home.
Good golly, miss Molly… Why do appraisers keep overreporting comparable property data, which really isn’t comparable?
This subject property is an 1,100 sq.ft. single story home, in a near-beach side community, with partial marine view, not on WFT, in a suburban location. Similar ‘comps’ are extremely limited (no more than 6 sales and 2 listings) due to its GLA, location, age, etc., based on the appraiser’s report, and my own research from multiple searches which proved similar comparable properties are almost non-existent.
The report has 4 sales and 2 listings.
This is what the appraiser has indicated on report form page 2:
The MC Form has this:
When actual COMPARABLE properties are no more than 6, this appraiser has stated in the report that there are 99 COMPARABLE sales. How is that possible? The appraiser has also reported 27 COMPARABLE listings, when in reality, only 2 or so exist.
Then, let’s consider the appraised value, which is not quite $282,000.
How is a $90,000 or a $1,275,000 property, or a listing up to $1,499,000 even remotely COMPARABLE to the subject?
They are not.
What the appraiser has done is disregard the requested data on the forms, and drawn a circle around the subject location, and reported ALL the properties in that area. An incorrect procedure. Reporting ALL properties is absolutely NOT what FNMA and FrMAC (and everyone else) expect us to do, or for that matter, the lenders who pay us for correct data, but are not getting it.
In other words, the appraiser is not selectively searching for appropriate comparable properties to report on these parts of the appraisal report form.
This is not the first time I’ve seen this overreporting of non-comparable property sales and listing data, and written about it. I suspect it is a chronic misconception among appraisers.
The correct procedure is to report COMPARABLE data, not everything including the kitchen sink. If your MC form only has 1 sale, or even ZERO in a particular column, so be it. Report accurate COMPARABLE data.
And quit overreporting.
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Another reason why the 1004MC is garbage as it can not be completed the way it should be due to the underwriters and clients requesting data that isn’t comparable just so their forms check the boxes on their QC end.
The 1004MC is misleading and incorrectly interpreted by the clients. The Neighborhood Description has NOTHING to do with the 1004MC. Values in a neighborhood and in your Comparable Price Range may be increasing; however, the data in the 1004 MC might “appear” to be declining based on a small sample and declining inventory.
Over reporting is often a consequence of automatic and hurried research methods, so are MC inconsistencies quite often. My research is standard; whole market, several different portions, the final cut of most pointed examples. For each set there is always a standard approach and workfile print, including MC. When someone may claim ‘competency area’ or geographical restriction, you can always counter; Same detailed method, different location, that’s old hat. If you’re thorough you can apply the proper principals to any data research set and be competent anywhere. Dave is right on with this one, the above grid figures should be a logical reflection of competitive standing and potential, not mass data. Users of appraisal services should be able to rely on above grid figures to reflect upon the highest and lowest reasonable pricing for their exact home as if it was hypothetically either trashed or absolutely perfect. The numbers should not exceed those considerations. The data entry is a reflection of the appraisers skill and attention level, or lack there of.
For many markets the 1004MC is credible. Don’t throw the baby out with the bathwater. For all those who don’t like the 1004MC, take a class and learn where it could be your BFF. For unique or rural properties, it’s never going to work. We get that.
The title of “over reporting” is a poor choice of words. The article is really addressing ‘mis-reporting’ or use of properties that are not comparable in the Sales or Income Approach and/or the 1004MC. Big difference.
You also need to know that not every market has a reliable MLS system as I hope there are some out there with accurate data. Here in the Chicago market I can not depend on the MLS data to be accurate for example if my subject is a 3 BR 2 Bath Ranch 1200sf I can not just search for those characteristics as the realtor may have input one of their sales as a 4 BR 3 Bath Ranch being 2400sf but is truly a 3BR 2 Bath Ranch with a finished basement consisting of an additional BR and Bath and being only 1200sf above grade. So if properties were input correctly I might have only 7 true comps but because I need to read through all their crap I end up with 27 sales to consider and to satisfy the Underwriter it needs to match that misleading 1004mc.
Yeah that’s the new headache, total gla reporting instead of standardized assessor style separated agla and bas. Gets me when I try zillow rental research every time, forgot to include the basement, run it again, drive it again. That’s how data aggregators work lately. When dealing with massive quantities of data, simplifying gla helps them be more consistent so they can apply more dynamic tools to parse the data. Meanwhile, we’re tied to the form and so is value, but total gla is becoming a new Realtor norm. Total gla is for investment landlords, agla is for regular people.
I see this a lot in reviewing appraisals, it is as if the appraiser does not read the preprinted description! The form is asking for comparable properties that are listed or sold in the neighborhood, not every property in the neighborhood or the market area. Just keep it in the neighborhood that is delineated in the Neighborhood Section and just comparable properties. If none, explain it.
First, the MC form itself forces apples and oranges comparison by comparing 3 months, 3 months and than 6 months. Was there not enough room on the page to make it 3/3/3/3?
Second, just as your most similar comparables- which are on the report’s sales comparison grid (and should be included in the MC count)- have a range of original sales price based on their differing features. Your sales in the MC grid will have a range in original sales price. The MC Report implies that because one section shows most similar sales closed $20,000 more than another section there has been an increase in market value. However it does not take into account the differing features which you adjust for on the sales comparison grid. It does not necessarily mean there has been an increase in the market value. It could mean the majority of those that sold 6 months ago had superior features.
The MC form only considers the original sales price and does not take into account the adjustments that would be made for differing features.
Therefore, unless you have a cookie cutter neighborhood with very few differing features, the MC form is misleading.
Personally, I have yet to appraise one of those cookie cutter neighborhoods but maybe they are out there.
Spot on! Well said.
The 1004MC was and still is garbage. The few instances where it coincidentally provides limited value comparable statistics are so few as to not be worth the time spent on it or trying to justify it.
There was a time when ‘neighborhood’ (now competitive market area) required that a range of ALL properties be provided until 1004MC obfuscated the issue.
Think about it. The point was to determine where the subject ‘fit’ within its own competitive market area; and to identify characteristics about the area. It had nothing to do with comparable sales statistics.
In the example above, it appears to include extreme outliers which most appraisers used to filter out. Even so, it is a huge range spread. At best an extremely eclectic area. The suspicion is very little homogeneity is present. What is the median price? Clearly a very detailed neighborhood description is required. Those take time however.
That brings up the ‘why’ part of 1004MC’s creation. Far too many appraisers were boilerplating neighborhood descriptions so that the same verbiage used for a multi million dollar estate was applicable to an entry level shack. All properties were apparently within acceptable distance from supporting community services as it turns out; and none had potentially negative neighborhood influences.
That sloppy work led FNMA to try to ‘fix’ it. As is often the case when those that know little about the topic of appraisal attempt to fix it, they simply cover up one problem while creating myriad others. Now, a basic tenet of real estate appraisal (proper neighborhood analysis) has become an inconsistent, meaningless FNMA limited applicability process that reduces appraisal quality and meaning to little more than a generally meaningless statistical snapshot… taken through a drinking straw.
Lets stop citing FNMA as any kind of appraisal authority. They are not. They are a quasi private enterprise using other peoples money with little of their own skin in the game. They have been whittling away and generally accepted sound appraisal practices for years through inappropriate micro management.
Anyone remember the 10%, 15% 25% guidelines? Now declared to be a ‘bad policy’ by FNMA (since February, 2015) for decades these same guidelines coerced compliance to guidelines rather than analysis of real market conditions practiced by buyers and sellers. Oh sure, the appraiser could always go outside guidelines and explain themselves and pretty well assure themselves of a fight with UWs (real ones), staff reviewers and early AMCs. That’s why my form reports tended to range from 30 to 60 pages. Pesky explanations.
Dave pointed out an example of undeniably careless appraisal work in his example. But the problem goes far beyond. The very concept of appraisal has become corrupted.
Look at any recent ‘hybrid’ form from ACI/First American or Solidifi’s Alamode version of a “Summary Desktop Appraisal Report” intended to be done in only 45 minutes!
The process itself has become corrupted (systemic as opposed to dishonesty… though that’s a factor too).
If we (ALL the professional peer groups, state coalitions and legislative leaders) don’t take meaningful and immediate steps to fix it we are doomed to repeat the S&L crisis that led to FIRREA, and the 2008 TARP crisis.
Huge Wall Street losses, pension fund failures, 401K erosion and world wide economic upheaval led by the U.S. will result.
As one economist predicted (accurately as it turns out) the greatest risk is not in periods of economic downturn, but rather in periods of perceived growth and low unemployment just when generally accepted risk factors appear lowest (paraphrased with apologies to H. Minsky).
I think we are all curious about what is in one of those “Summary Desktop Appraisals”; can someone please publish one so we can actually see where they are going with the new relaxed rules concerning banks providing some security to the country that they are not lending on crap, disguised as the average home in the neighborhood?
If we don’t share what is going on, we are doomed to be without any work. None of us can do this work without adding addendum to clarify and inform us as to why we need to stay away from this work which degrades us and our profession. Many of us are renewing our licenses, taking continuing education, changing our software from ACI to another provider and paying for MLS, E&O, professional dues and other operating costs when the realtors are getting phony designations that confuses the public, making them think that is equivalent to a REAL professional designation.
Please publish one of these so we will have ammunition to expose what fnma is doing to engineer the next bailout. The public and appraisers are being fleeced, all so banks can make more profits, and in an environment where the president of the country is degrading all experts by putting in cabinet members that are selected based on their philosophy, rather than any qualifications to head up their agency or department. Pretty soon, none of these homes will have clean water, and removing regulations from banks is being lead by a bunch of crooks. Wake up appraisers, we are a dying profession! People with no skin in the game are dictating what we get for our jobs, starving appraisers are lowering fees to put food on the table, and our credibility is being questioned by people who have never done one appraisal, but they know better than we?????????
Be sure to check out pictures used for the second referenced hybrid too!