Shame on Us – Appraisal FAILS Replace LOW Appraisal
Appraisal under contract price…
Appraisers,
The blame game just won’t quit. Now instead of dealing with a ‘low appraisal’, it’s now a “FAILED appraisal.”
It’s always “our” fault properties don’t sell – when the contract sale price is higher than the appraised value.
It’s never the fact that the home may have been over-priced, the buyer was desperate or over-emotionally involved, or the seller super greedy.
The latest example highlighting “our” deficiencies:
Excerpts from the Mortgage News Daily article:
“…collateral problems are consistently the third most frequent cause of loan denials.”
“…appraisals coming in below the contract selling price is common. Data from other sources show 10 to 13 percent of appraisals nationwide come in below the contract sales price…”
“…CoreLogic points out that the frequency of too-low appraisals in Michigan at 20 percent and Hawaii at 18 percent are very close to their failed collateral percentages…”
“Most states show a small-to-modest decline in the number of appraisals that come in under the arms-length contract price as the recession recedes, but they nevertheless stay close to the 7-9 percent range.”
“As of November, nearly one in five appraisals in Florida and Michigan come in under contract price.”
“Mayer concludes that due to its reliance on sales comparisons, the quality and accuracy of home appraisals can only be as good as the availability and quality of the appraiser’s comps. The pool of available comparables can be impacted by many factors such as local sales activity, level of housing distress, whether the subject property is itself distressed, and where the property falls in the price tiers. These, along with appraiser experience, can all influence the appraisal accuracy.”
Actually folks, just keep doing credible reports, based on accurate market based data. The fact that someone wants to pay more is not your problem.
Ijust went through an assignment situation where a property had an escalation clause addendum, which raised the desired purchase price $10,650 over the original contract price. I appraised it for the original price, because that’s what the data told me was correct for market value. This property just sold for $2,000 over the original contract price – after lots of hand wringing and attempts to get me to increase the value – by everyone involved.
If you stand your ground and have proper data to support your value, you will stand tall. Might not be totally pleasant, but you’re protecting the lender and the overall financial situation. Although the selling agents might have to sell another property to get enough green to make their ‘beamer’ payment next month, or take their trip to Cabo. That’s not your problem, either.
Dave Towne on e-AppraisersDirectory.com
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“Mayer concludes that due to its reliance on sales comparisons, the quality and accuracy of home appraisals can only be as good as the availability and quality of the appraiser’s comps. The pool of available comparables can be impacted by many factors such as local sales activity, level of housing distress, whether the subject property is itself distressed, and where the property falls in the price tiers. These, along with appraiser experience, can all influence the appraisal accuracy.”
This is one of the silliest things I’ve read. It assumes that the contract price is the measure by which the accuracy of the appraisal is to be determined. As appraisers we must hold our ground by analyzing the best data available while applying appropriate appraisal practices. The result will tell us whether the contract price accurately reflects the market data and conditions…not the other way around.
I’m going to respond to value challenges with alternative facts.
Almost every realtor, that I have appraised the homes for market value, have argued when the sales price was not in line with current market value. Why is that. Are they appraisers. No. They are VERY interested 3rd parties, emotional and financially involved. Most think that the arms length sales agreement determines market value. Can you imagine the stupidity of these people. ???
Realtors are people who basically just got by in high school, went looking for a job, saw the want adds, and decided they would spend their time, NOT getting paid, If the deal doesn’t close. Can you imagine the stupidity of these people. ??? Yes there are good ones, those are the ones who spent years selling.
But the new ones….OMG.
And they actually try to argue with appraisers who are trained to REPORT MARKET VALUES.
They use to complain that 99% of appraisals came in at “sale price” so why get one. What percentage of reports come in OVER the contract price? Anyone tracking that?! Probably about the same percentage as under.
The problem is inexperienced appraisers who are afraid to appraise to the true definition of Market Value “The MOST Probable Price”, inexperienced appraisers have been predominately exploited by Fannie Mae who now have puppets in appraisers appraising to risk which is not the equivalent of Market Value as Sales on the same street very rarely equate to a comparable sale if there is a true apple comparable to your apple that is two miles away in the same market is the best comparable vs a sale of an orange on the same street with subjective adjustments. Experienced appraisers who know how to appraise to a market perspective are a dying breed and as Fannie Mae uses their dominant presence to slowly erode the appraisal culture in segmented phases of fear and intimidation will forever change the true meaning of Market Value to Fannie Mae’s Value of the Market. Most appraisals come in low because appraisers the newer generation are in fear of losing their livelihood to Fannie Mae and AQM. Realtors are our friends they have the most influential lobbyist of any base in politics and we should urge Realtors that through Fannie Mae’s phased in approach to Value control sooner than later there will be no Market to report or competition to grow on. Fannie Mae is the true cause of inconsistency in Market Value and the Market perspective and Fannie Mae is once again causing Financial Famine throughout the real estate sector causing true divide in their self interest gains. We should all quit calling out each other and Realtors and see the true problem in the real estate sector for what it is which is Fannie Mae. Remember that their Charter prohibits them from any activity in the Primary Market they provide a service of securitization in the secondary market , CU is a review of appraisals in the primary market which they have an interest in it violates Valuation Independence as there is no requirement or mandatory policy to sell loans to Fannie Mae but yet they are reviewing all conventional appraisals for loans that may or may not be securitized by them. Realtors and Appraisers need to stand up to this travesty that is occurring slowly forever changing real estate and not for the better
Another great thought provoking article by Dave Towne coupled with fact based appraiser observations.
Lets all understand one fundamental “fact” concerning the above article.
CoreLogic is not remotely qualified to be citing statistics on how many appraisals are are ‘low’ or not.
They are data aggregators. They are not competent or qualified analysts whose ‘opinions’ or views on appraisals are deserving of credibility.
Aside from lacking any degree of competency in appraisal CoreLogic is also a vendor for competing alternative ‘valuation’ products.
Here Here! Corelogic quite literally tried to ‘patent the valuation process’ a few years back. Now they’re sweeping up MLS systems nation wide, soon to stake out a non-free market monopoly right there in Colorado.
This article in other words; 10-13% of all deals put together by Realtors in this country are assimilated well over and above existing collateral valuation for their perspective markets. Aka; 1 in 10 Realtors is assembling fraudulent deals in an attempt to secure a sales commission by defrauding lenders.
Cash drives markets, not credits. If a buyer wants to best the competition over and above existing collateral value points already clearly defined in the market, they need to; Bring cash. Cash contribution sets new highs, not credit.
How about reporting in a mortgage backed transaction 10% – 20% of the purchase contracts written by real estate agents are above market value?
We all have been there. Appraisal was $10,000 below contract price and realtor went ballistic. Buyer came up $5,000, seller came down $5,000, property closed and voila you have value. Again realtor complained to everyone they could against me and after everyone, that was legally able to do so, found nothing wrong with my report the property sold. During the process the lender called me said what are you doing and I told them protecting your dairy air. I don’t care what the realtor wants, I don’t work on buyers/sellers emotions, I give MY opinion of value. They said thanks.
Everybody in the process should already be aware of that. I been doing every report like I’m going to get called before the state board and I’ll keep on doing that until proven wrong.
Kudos Koma! You are absolutely right. The real problem is if one of the self serving loons actually does turn the report into the state. Though you may have done ‘everything right’; in MANY states they’d still find something wrong.
There is NO UNIFORMITY in USPAP comprehension or enforcement among the 57 states and Federal Territorial jurisdictions..
Example; They complain about value; MAYBE you even gridded their alternate comparables intending it to be nothing more than an addendum to an original report. Lender comes back and insists that you need new signature date so they can distinguish “between the two report versions.”. You agree for whatever reason.
Now the state has TWO different reports with two different dates. Did you disclose in the ‘second report’ signed certification section that you did a prior appraisal merely days before? Most likely not since you never intended this to be anything other than an addendum BUT YOUR STATE REGUALTORS need to justify their existence. Even though the addendum references the original report…it is NOT in the signed certification.
Though they may have little to no appraisal experience outside the state agency, they have been TRAINED to CATCH this exact type of ‘egregious violation’. While it was never part of the complaint to them it is a technical omission that they can hang a $5,000 to $10,000 fine on. Especially if you are certified.
While no significant ‘USPAP violation’ ever took place; and most of your peers would argue NO violation took place, that isn’t how they see it. You find yourself charged with competency, ethics, SR1 and SR 2 violations. To them you have prepared and delivered a report that is ‘deceptive and misleading’.
Sound far fetched? The majority of the more than two dozen cases referred to me in the past year had similarly silly complaints being alleged. Good thing you have E&O because after they tell you to accept the settlement stipulation, and you say no they will pay up to $2,500 of your more than $10,000 in legal defense fees!
Can’t believe a USPAP compliant appraisal review and impartial investigation could go this far astray? What makes you think anyone has done a USPAP compliant review? THEY think they are exempt even when their own state laws require ALL appraisals to be USPAP compliant!
Mike,
Thanks for the compliment. As to your point the only thing I can see myself doing is education, education, education.
My mentor was 35 years into this business before he retired three years ago, but about 8 years before that he was pulled before the board for something a RE agent was unhappy with. I watched when called in front of the board he was prepared with rapid responses and it seemed like he danced circles around them (to me anyway). I was just in awe of his knowledge and with that they thanked him for his appearance. If I remember correctly 6 months later he was informed it was a closed matter with no action taken against him.
So, again all I can do is be aware, up to date and educate. Hopefully that will carry me through this profession I enjoy so much.
Koma
He was blessed by being in one of those states that still maintain personal and professional integrity among regulators. There ARE a few left. Unfortunately, there are more than a few that go the other way.
States that have already proven on more than one occasion that they do not understand or even adhere to USPAP themselves are: Minnesota; Maryland, Illinois, Texas (past Boards-may be different now), Oregon (remember the infamous ‘late reports equal USPAP charges? TAF/ASB both say state was wrong. State claims they aren’t wrong until Administrative law judge adjudicates issue-never mind what the creators of USPAP THINK compliance is!) and California.
It would be naive and risky to think it is only these six that are seriously problematic. I’ll be writing an in depth article on this in late August or early September with case file citations.
I was read the riot act by an owner who was also a doctor. He demanded to know why the exact same model and year recently sold for $50,000 more than my estimated value for his home. I suggested that the next time he bought a home to buy on the water instead of across the street. He still didn’t get it.
Your doc shouldn’t feel bad; Barron Von Drumpf still hasn’t figured out that he’s been elected as president. Now demanding that the CIA do a head count with his inauguration aerial photos to prove that he had more people attend than Obama AND wanting to use tax payer dollars to launch an investigation of why he lost the popular vote.
I’m not sure about your doctor’s problem but Drumpf’s comes down to mental illness.
Please take the political commentary elsewhere. I’d like to have at least one page where I can escape from the political sniping.
And……………………. Follow up.
Wow retired appraiser! That has absolutely NOTHING to do with this conversation. Who’s mental?
Appraisers lost around half of their income because of Washington’s horse shit political games. I would say it has a great deal to do with appraising….especially when your new administration has been caught spinning “alternate facts” three times in less than a week.
Who is mental you ask?
Donald J. Trump and the fools who elected the orange dictator wannabe.
RA Im going to be as apolitical but as factual as I know how on this one though most long time readers know my weird beleifs.
The actual collapse of 2009 started under a GOP administration however it was opposing party Senators and House Members that set the policies in motion that brought the system down. HVCC was created by a democratic Attorney General (now a Governor). Under President Obama C&R fees were addressed and a CFPB was created. NEITHER of which had any teeth. We more than any other group in America should understand that one. NOW, two of the only three states that have made meaningful efforts to enforce C&R fees is under lawsuit from FTC Commissioners appointed under a prior administration.
No one side is to blame for any of our appraisal problems. BOTH Sides however either contributed directly, or failed to do anything once bad polices and laws were identified. FIRREA which was the last good finance reform and appraisal legislation passed, has been chipped away at by special interests for over 28 years now. By BOTH SIDES!
Imho Gary Miller is right on this one. We serve ourselves better recognizing historic facts and keeping the political or partisan hyperbole out of it.
I’ve found great appraisers in both parties as well as independents.
My President is going to dismantle Fannie Mae and Freddie Mac and save us all
Please guys, let’s stay on message and not politics.
Do you guys honestly believe there is no connection between the rape of the appraisal industry and politics in Washington? Keep those heads buried in the sand….that will keep safe.
You are retired. Retire.
Bryan. Have a problem with honesty? Call me. The blog owner has my number.
***This comment was edited by AppraisersBlogs Team. Profanity is edited out because it’s inappropriate within the context of this blog.***
I’ll definitely contact him but not for your number.
And how did that work out for you?
Proverbs 12:15
Retired Appraiser, it is so ironic that you would be the one to post Proverbs 12:15…hmm.
Look up.
+1 at Appraiser BJC. Does Fannie’s CU harvest data from reports they do not purchase? You mentioned this, and I had no idea! I liked your comment noting how FNMA is changing, or manipulating, the definition of market value. (or trying, intentionally or inadvertently!) I need to investigate this CU harvest for loans Fannie does not securitize (that profoundly shocks me!). Sure, if FNMA backs it, Id understand they would subsequently input a report’s data into the CU metadatabase.
Speaking of metadata, how about Corelogic’s stockpile via .env files through Appraisal Port? How about Corelogic’s backed proprietary databases (for eg, I think ValueQuest, or its like)? For those of you doing mortgage finance work, have you received the call or email stating “Xyz data aggregator says your square footage is wrong, and your comparable analysis should include 121 Main, 122 Main, 143 Oak…”, et. I had to write up a clarification request because some 3rd party, proprietary metadatabase noted my subject property was 600sf larger than my ANSI guideline, first-hand measurements. After some digging I saw that a Realtor had listed my subject 5 years prior to my effective date (while listing my subject as a Rental!). My assignment was for the purchase of said property. I think it was Chase who was buying the loan and sounding the alarm (these emails from my client had red flags, asterisks, high priority, et, noting they needed clarification ASAP). This was a condominium so the Assessor did not report the data. Long story short, the onus was on ME to defend my work. Why wasn’t the realtor who listed this property for rent called? The putz flippantly entered an exaggerated gla/size within their listing. (One of many examples and reasons I don’t embrace any kinship with realtors -yes, there are a few good ones, but they are the exception).
Why doesn’t FNMA share CU? If their goal is to improve the quality of appraisals, share it! I don’t think appraisers’ objectivity would be compromised or predisposed. A shared CU database would help in countless ways. Personally speaking, CU would be (potentially) a great tertiary, supplemental source for discerning condominium GLA for competitive properties.
Im all over the place, but in a nutshell I wanted to give Appraiser BJC a +1. One last thing, do any of you ever feel like responding to a bogus revision/stip with “Hey man, roll the dice on this loan. If you trust your metadata, don’t approve the loan and send my report to the state (here is the state board’s email _____). However, if you trust your expert in the field, quit bothering me with your nonsensical requests for clarification”.
The writing has been on the wall for years now. Im actively searching for a new job. I like to think Im an excellent Residential Appraiser (modest, yet confident in my abilities). Scope creep has removed any semblance of work/life balance. I used to operate a small appraisal firm, but now Im back to kicking bricks as it’s difficult to maintain a decent staff to meet client demand. I have many good clients, but I do have to take some AMC work as they serve-up the brunt of it. Time for me to roll-the-dice on a new gig. An experienced appraiser’s skill-set is no longer valued (for the most part -some clients do reward expertise, but they are the minority). Thank you Dodd-Frank, and Lord FNMA.
Good luck everyone!
Rick
I’ll go one step further with this as I have researched and that is there is an surprising link between the executives at Fannie Mae, Arch Capital, and CMG Financial and how Fannie approved Arch Capital acquisition of CMG. Now follow me here cause CMG Financial is an approved Mortgage Insurance writer for Fannie, which now Arch has obtained, but surprisingly for the past several years CMG requires all appraisal reports including FHA reports to be uploaded to Fannie UCDP now they hide this in stating a successful SSR is needed for FHA reports prior to FHA ead but this is not so as a typical FHA report will get a hard stop so this is in my opinion executives at the highest level filling CU with all appraisal data because there is not enough appraisal data for conventional loans to accurately give assurances to CU analysis and the appraisal waivers or rep and Warranty relief for appraisals we are now seeing. One step further Arch also provides reinsurance on securitized loans a extra form of risk sharing. Certain Lenders at Fannie Mae’s direction are misappropriating our appraisals of all kinds i.e., conv, fha, usda, etc. into UCDP for Fannie Mae’s unlawful conversion of our appraisal assignment results to their CU database, all in unjust enrichment for their gain at our expense not just stealing our data but tortiously interfering with our business relationships in contractural review work. More appraisers and other industry professionals such as realtors need to see CU for more than just Fannie Mae’s face value of stabilizing the market , NO it stabilizes and grows their bottom lines in the secondary market disguised in the primary market as a collateral risk tool. CU is socialistic technology only doing one party any good and it is Fannie Mae’s is the socialistic dictatorship type policies that have destroyed the market before and I predict within 5 more years will crash it once again right before Fannie and Freddie dismantle and combine Policies in their common securitization platform as part of their joint LLC in Common Securitization Solutions, LLC. We as appraisers do not pay attention to the bigger picture but I urge everyone to research this theirselves and make your own judgement after seeing the facts hidden from the headlines of the future and we as appraisers should call on our realtor friends and encourage them to speak to their boards and the most powerful realty lobbyists in the country to keep Fannie Mae and their destructive policies in the secondary market where they belong and out of our pockets in the primary market.
Another +1 Appraiser BJC. Fascinating stuff (rather, shocking). One thing Id like to note from personal experience with realtors is the fact that maybe 1 in 20 know what CU is. Just the other week I met with a realtor, one of the rare ones I respect and enjoyed working with, and despite her excellent knowledge of many things real estate, as well as a respect and appreciation for appraisers -the realtor had no idea what CU is! I sent realtor a bunch of links and said spread the word. But give it a litmus test you all -make it a point to ask realtors if they know what Collareral Underwriting is. Again, from my experience Id say 5% (or less). Back to your point Appraiser BJC -you are 100% correct in the sense the NAR is one of the largest (if not the largest) lobbies in D.C. They’re surprisungly bigger than Pharma, Oil and Gas, many industries/PACs that you might think were much bigger (nope, NAR “trumps” them all -maybe with the exception of finance?). Id have to look. Great post BJC (thanks, Im going to be looking into this!).
Good luck Rick!
There was a time I’d have tried to talk any serious appraiser out of quitting the business because we cannot afford to keep losing the good people.
Now? How can I in good faith and honesty encourage anyone to stay in this business any longer?
I only do it because at 65 years of age I’ve developed a stubborn streak that will not permit me to allow others to drive me out of my profession.
Why just this afternoon I spotted a whole new army of windmills just begging for a joust.
Rick, FNMA does not now, nor did the in the past purchase the data up through 2014 that went into CU up until it’s release. There are past articles on this blog about it, but I read and reread their original approved patent application for the CU process.
(1) Not one of the seven software /CU system designers was a licensed appraiser when the program was announced. A couple had expired or no longer active lower level licenses. (January, 2015)
(2) Less than two weeks after the release of the first version of CU FNMA announced that because a majority of appraisers appeared to appraising to line item adjustment “guidelines” that they were discontinuing those guidelines (FNMA Lender Letter February 2015).
(3) FNMA KNOWS by the language of their licensing agreement with lenders requiring unspecified “human review” but not necessarily a review by an appraiser for comparable sales disputes that they have created a built in PROBABILITY of widespread USPAP violations.
(4) CU as originally designed could have been an exceptional tool in the hands of trained and experienced appraisers but perhaps FNMA was aware even then of how easily abused it was.
(5) The current version either has less than one full years data, OR includes all the bad pre 2015 data that FNMA was compiling (data from appraisals adjusted to guidelines rather than reflective of market perceptions). you know…the original so called “peer” data.
(6) The current version also couples with FNMAs own proprietary or adopted AVM or DAY 1 valuation software. They are not about to admit to Congress that the system is garbage. The Federal Regulators that KNOW the system FNMA is suing, is garbage are also not going to upset the apple cart.
The BEST thing taxpayers can hope for is that FNMA and Freddie be severed from ALL warranties from the U. S. Government.
Its worth going back and reading old blog articles on CU.
Gary,
In the land of the blind the one eyed man is king.
This explains why appraisers agreed to enslavement to Andrew Cuomo. It also explains how Hitler and Drumpf came to power.
How much resistance did you put up to being enslaved Gary? Any?
I have learned a few important lessons in my nearly 60 years on this earth. One thing I’ve learned is that I don’t have to accept every invitation to an argument I receive. Another is not to engage in a fight with a fool because he will drag you down to his level and beat you to death with experience.
Don’t feed the trolls. Not that I don’t appreciate a good meal. But…
Heck yeah Rubin, and having a good quick fire talking point set regarding CU is a helpful conversation tool every time. ‘You know, why the reports have Q’s and C’s now.’ You break into that conversation by inquiring regarding how often they read appraisal reports. Then segway into standard peramiters, bracketing and closed sales rules 1-3 within range, and then cinch it all together with mass assimilation of data and master FNMA approval based on blind peer group tracking. Yep, always a wonderful conversation. Great tool for taking control of a specific value conversation though. If I can’t bracket it 1-3 sold, the FNMA CU XML review system will either fail score or hard stop the auto review. Cash drives the markets, people on credit merely follow that. Valuation conversations are as easy as direct categorical questions. So tell me, do you have the hardwoods, granites, 3 car, developed lot, revamped utility like electric, heating systems, plumbing, etc, tell me what’s going on with your home. People don’t mind getting fair value, just remember to gauge the leniency of the market and talk about that. In some markets those improvements are necessary just to compete, in other more lenient markets a new linoleum roll and some blow in can make you a star.
B, I don’t yammer on too much because you know it might come back (in a lawsuit) to bite you in the arse. You know if they’re not happy their going to try and hit you any way they can. Just saying.