Have You Got the Integrity to Be an Appraiser?
We’re talking about downright mad…
Appraising real estate is a tough job, even under the best of circumstances. There are too many occasions where every person involved in the transaction is upset and all eyes are focused on you. Even if you’ve done the best appraisal of your career, had perfect comps, and though you did a great job that no one could argue with; argue they do and at the end of the day, you are the only person screwing up the deal for everyone involved.
And, we’re not talking about being a little upset. We’re talking about downright mad as hell angry. The kind where they will tell everyone they know. They will do their best to hurt you, the way you (in their minds) have hurt them. You single-handily took their dream home right out from under them and how are they supposed to forgive that? It’s not your job to be the know everything better than everybody else, real estate God that never makes a mistake. It’s only your job to complete what the bank needs to get the loan approved. A lot of other people have already figured out the price long before you got involved. They looked at the competition and know what’s going on in the current market. You come along with these closed sales and say that the sellers, the seller’s agent, the buyers, the buyer’s agent, and the lender must all be wrong. The appraiser is basically saying everyone else is wrong and they are right, deal with it. Now that is power!
Welcome to the world of a residential appraiser. Sometimes, not matter your best intentions, the value just isn’t there. You really think the agents must have done a sale’s job on the buyers and the sellers are trying to make a huge profit that’s not even close to what the value of neighboring houses has been.
Sellers overprice a home – anyone ever heard of that?
Real estate agent take an overpriced house just to get a listing – anyone ever heard of that?
Buyer’s love that design or location or something. They are willing to pay whatever, but they want that house. Maybe their best friends live next door, or parents live down the street, or they just have to be in that school district. For whatever reason, they want that house and don’t really care about the price – anyone ever heard of that?
A buyer’s agent go along with what his clients want just to make a commission – anyone ever heard of that?
A lender who only gets paid if the loan goes through – they don’t really care about a house being priced twenty grand over current market value – anyone ever heard of that?
It comes down to motivations…
The question is – what is the appraiser’s motivation?
For the majority of seasoned appraisers (not the ones who came along during the boom years), there is one mandatory goal – price it fair. Nothing complicated about that. The comparables paint a picture, that (even in a rising market) shows a pattern of current market value. The appraiser doesn’t personally decide the value, they just report the market. Appraisers are taught to be fair and honest and not swayed by motivations. They are working hard to protect people who often don’t want their protection. When that loan is sold in the secondary market, if that appraiser doesn’t do their job right, then someone’s retirement account may get the short end of the stick. But that doesn’t seem to happen very often and they are not the ones on your phone and in your face. Buyers and sellers, agents and lenders have an emotional and financial interest in this transaction. Today, they want what they want.
It takes a strong mentality and confidence in your ability to be, and to stay an unbiased appraiser. All these people, with far less training than you have, read your report and tell you where you made errors. Is it really our job to say to them that “because we are smarter than everyone else, you can’t buy this house?” Where do we draw the line?
Seller is mad. Both agents are mad. Buyer loves the house and really just wants to loan to go through. They are mad. Lender is mad and doesn’t get paid unless the loan goes through.
And there lies the appraiser’s dilemma. Do you have the courage to stand in the face of all this pressure and stick to your guns about a value? Do you trust your skills and experience? We’re not talking about a few thousand dollars on a $500,000 contact, none of us are that good. But, how about a $20,000 difference on a $250,000 house? The comps are perfect, you used everything close and used six closed sales plus two active listings.
What would it take for you to change your report?
How much pressure is there to make changes?
Do you have what it takes to stay firm with your valuation?
Should you really care?
If you don’t, maybe you shouldn’t be an appraiser. Yes, it matters. No one wants to bring in a low appraisal. But we also don’t want to see a buyer overpay, even if they are okay with it. If you can hold firm in the face of adversity, then you may have what it takes to be a residential real estate appraiser.
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As a single number an appraisal is neither high nor low, but will get interpreted as such when outside interests are added.
I will be sending off an appraisal this morning (08/17/2016 – $370,000) where a $50,000 remodel has pushed the value out to the $480,000 range. The problem is the borrowers contractor I met did not like my general responses to his interrogation, and in fact called the loan officer to complain while I was still on site. He informed me he always calls appraisers after the report has been submitted so he can ask direct value related questions. Was he lying? Have other appraisers freely discussed value with him without directing him back to the borrower and lender? Stop it.
My point is, the contractor has sold other parties on the belief the property is worth $70,000 more than it really is. The owner, their agent, the loan officer, and the contractor have already moved forward with their next flip plans, but with my value, the next down payment will not be there. Its funny how all of these other parties can clear tens of thousands of dollars in these situations, but yet the appraiser has the power and makes a few hundred. I look forward to the avalanche of activity post submittal, and the 2nd meeting with the contractor (1004D).
Dead spot on !!!!
Here’s another angle to the same issue the author brings up (new school / old school social media). During the process of a residential assignment it was brought to my attention directly from the borrower that they were not happy with the value, and that as a result they were going to express as such to the Better Business Bureau (BBB). The pressures we face are not singular in nature (this one assignment), but rather can result in removal from a panel (or just never used), or public shaming.
Although it was expressed to the BBB that the borrower is not my customer, they were not the intended user, they did not pay me directly, dictate what product they needed, give me a due date, provide me with a scope of work, nor could I give them a copy of the report, nor discuss at length in great detail the value componets of the appraisal, their top council said it didn’t matter as it was considered a “market place interaction”.
Our enemies are many.
Good article.
My go to line is this; It is not the lenders responsibility to provide additional lending credit over regular market value, so a particular buyer can best the other buyer competition. The lender only loans current to the day market value, and if buyers want to beat the regular competition whom is also relying on lending extension, they need to bring cash contribution to the table. In Colorado, competition is high. In many instances, the market valuation ceiling and high sale points keep climbing, due to cash contribution clauses in contract. “Buyer agrees to pay X cash amount over appraised value, to the contract price or in the maximum amount of X”. Something like that. Cash contribution is the legitimate mechanism by which market pricing increases. It is not appropriate for lending credit alone to drive increasing market valuations and pricing. When buyers starting watching offer after offer fall flat, and markets continue to rise, they draw the simple line from A to C, A being yesterdays price, B being today’s price, and C being the expected market price only a half year or less from now, and the buyer offers C, not A, Not B, they offer C. But the appraiser cannot credit them a value in the future, they can only credit them a value now. o if they fail to bring cash the appraiser ‘kills the deal’, because the appraiser says; I’m instructing the lender that fair market value as of today is B. Buyers end up being in a position where if they would have just offered high yesterday, they’d be paying less than today. But irregardless of that, many buyers fail to secure purchase opportunities, because they are competing on credit alone, no cash contribution to best the competition of note. Additional downpayment does not count as offer strength to the seller dealing with multiple competing offers. To the seller, walking cash is walking cash, irregardless of the buyers position. Buyer needs to borrow more, and provide contingency to go cash over market value, if they want to beat the competition in a competitive purchasing environment.
Don’t get me started on pricing via predictive movement of pricing in the near future, and trying to explain caps and bracketing to aggressive agents.
Good points. What I’m seeing is the appraisal itself is being in essence eliminated by way of promising to pay the contract price regardless of the independent value (the appraised value). This requires cash on hand but people have no problem legally agreeing to it by signing their name on the contract. I had one the other day, although a lower percentage of the total price, where the market value was nearly $50,000 less than the purchase contract. The issue becomes the appearance of a true market value sale (MLS, arms length transaction, bank loan, etc.), while in reality the sales price was significantly inflated over market value. Agents often like to put sassy comments in their MLS listings (low appraisal, appraiser issues, etc.) when market value is below the contract price, but in all my dealings I have NEVER seen an agent explain it when the opposite is true.
Answer: Obviously integrity is not requirement to participate in this “profession”. How many appraisers do work for AMCs. Those guys certainly threw their integrity and self worth out the window years ago.
Most of the guys I knew with integrity clocked out of the residential side of the “profession” years ago. They now do commercial work, brokerage, home inspection, remodeling, construction, banking, etc. because they refused to compromise their ethics.
I’ll continue to question the allowability of these services. Like any industry, the question of personal ethic has profound and lasting connotations regarding the future path the appraiser may take. Some go the hard way, others go the easy way, some are strictly in it for cash and gamble risk vs volume. It’s long since overdue that lenders be asked the specific question of what type of appraiser they really want to work with. Then again, as long as they don’t take risk, minimum standards will continue to take first place. I’d like to imagine that FNMA CU will eventually expel the appraisers whom use these services. How can you say there has been quality review applied to what is otherwise a completely generic automatic report with minimum appraiser influence? XML review gained tremendous speed in terms of efficiency and quota of reviews with these systems. But at what other expense? How far have the unintended consequences of this business modeling gone? As a group, would we all rather outsource everything possible, or train quality staff and have an internal support network? I’ll remain mystified why appraisers would even consider these services.
(tried to link an ieimpact solicitation pic. aka typing services.)
I do understand. I completed an appraisal of a 2 bedroom, 2 bath home with a living area of 1,320 sq. ft. The home is 44 years old and located on a 60′ X 157′ lot. There is a portable metal double carport. No fence, no outbuildings. Next door is a beauty shop and next to that is a dog grooming place and adjoining that is a church. The population of this city is about 13,000 folks. There are several single family homes along this street as well as duplex, multi-family, etc. The tax office has the home valued for tax purposes at about $50,000. Now this is not New York or Orange County, California. This is a dinky old as hell subdivision in a rural East Texas town. My estimate of value was $55,000. I researched 40 comparable sales (pitiful but best available). The lender (working on a commission) indicated that he thought that I had done a very bad appraisal and should have been at least $50,000. more. he indicated that he wants to send the report to the state as a complaint.
My response is that Gee….I do not want your client to pay for an appraisal that has come in lower than what they need to refinance. Please… just disregard my invoice and order another appraisal! (what they do NOT know is that it will be a very cold day in HELL before I ever accept another assignment from that bank). This particular bank already has a bitch of a time finding any appraiser who will work with them. Adios! to those stupid SOB’s!…Hopefully my competitors will grab this wonderful client! LOL
As just another thought…we market ourselves to consumers as well as to our peers. As an Appraiser and a Real Estate Broker I attempt to obtain assignments from a variety of sources. Yes, the view is different from each of our windows. I am lucky in the fact that I have more business than I need. Most of my competitors are also my personal friends. These guys/gals refer business to each other on a daily basis. The designations and/or licence status is almost a mute deal…no one cares! I have an MAI buddy and also a licensed buddy…the one with the license charges more that the MAI buddy! No one in our area knows what the MAI stands for and he takes any AMC work that comes along! Pitiful!
Just my opinion…but if you are feeding the AMCs you are the problem!
What I don’t get is that when I come in at $20,000 less than contract price why is the buyer angry at me. They should be praising me that I just saved them $20k and also just gave them a new negotiating tool to go back to the sellers. Hoping that their realtor added the proper language in the contract.
In a perfect world…. The sellers will just relist and make it someone elses problem. Buyer will have to hit the road again. Buyers agent wants that commission too. The only rule for a buyer navigating the real property purchasing process is; Caveat Emptor. If the buyer had effective negotiation position and representation, the appraiser would have never been in that position in the first place. Real estate is financial warfare, and especially in volatile or quickly moving markets, there are winners and there are losers. The deal with many appraisal rules and structures regarding well informed buyers is just a necessary label. The real deal for many buyers is a roller coaster, and they just wait for the ride to stop.
The train wreck is rooted in simple concepts; If every loan was no more than 80% LTV, buyers would be better positioned with more skin in the game to make more critical purchase decisions. And they’d have cash leeway to negotiate if necessary. You sort of lose your negotiating power when your first step is based on a 98% LTV position, and every commission based person in the mix knows it. We are normally appraising in a credit debt based market. Many real estate participators of the day cannot perform cash equivalent analysis based on exact term, nor could they analyze a silver based real property transaction. The three forms of value, and the 3 million billion trillion forms of price…. In our grandparents time, there were no less than 3 forms of greenback, and silver contracts were only then finally being busted out by the fiat based system. My grandpops bought his first home on a 10 year note, because the 5 was just a little too aggressive of payments. There is talk out there of 60’s coming soon. I’m refusing to appraise any term over 30. They all ask about my coverage area, tat and fee, but I wish they’d ask about my coverage terms. I’d only appraise 15’s or less if that option existed.