Possible vs. Probable
Refusing to ‘rubber-stamp’ a purchase price with an appraised value to match.
Recently, there was a news story out of Atlanta, highlighting an appraiser who had refused to ‘rubber-stamp’ a purchase price with an appraised value to match. What followed was an increasingly disturbing trend to find another appraiser who would. According to the story (which was full of holes and unknowns), the second appraiser ignored comps in the subject’s neighborhood and found sales in a superior location to help support the purchase price.
This situation was talked about on social media and a man who identified himself as a real estate agent commented,
“The value is what the buyer is willing to pay. The appraiser gets the contract and it is their job to find data to support whatever THE BUYER agreed to pay.”
Hmmm. Why hire an appraiser in the first place then? If this agent is correct (which he is obviously not), a buyer should be able to show the purchase contract to the bank and a loan should be issued on the spot.
Though the agent’s shortsighted comment was blatant (frankly, I question the authenticity as it just seems so completely nuts to me), this kind of thinking is not isolated to a few individuals. It is often played out as I speak with agents and homeowners, and it is not confined to purchases. Many people mistakenly believe that value for a property is based on what an individual is willing to pay for it. Market value, rather, is defined in part as, “…the most probable price which a property should bring in a competitive and open market” (Fannie Mae Selling Guide). In other words, an appraiser is looking at value from the standpoint of what the average buyer would most likely pay given current market conditions – not what a single or even a select few are willing to pay.
What is possible, is not always what is probable. A good way to look at this is not from the perspective of how high a price a property might sell for, but how low. If you were a potential buyer, would you be willing to purchase the current house you live in for $1? Of course you would. Does that mean it is only worth a $1? Of course not as you would be unwilling – as the owner – to sell for that price. Likewise, you would likely be willing to sell your current residence for $10,000,000, but good luck finding a willing buyer at that price. Value is not based off of what a single person is willing to pay, but rather what is MOST LIKELY given the law of substitution (a buyer’s agency to pick another, competitive property).
This principle also plays out, not just with total property values, but with smaller components as well. I work in a fairly rural area. It is not uncommon to have a homeowner ask me, “I am thinking of building a shop on my property? Will that bring my value up?” Well, in most cases the answer to that question is, “yes.” However, it is very unlikely that the value gained by the shop will exceed the cost to build it. That fact does not always dissuade them from forking out the cash to build their shop however (because the utility to them is high), but the typical buyer will not pay a dollar-for-dollar value increase because the ‘average buyer’ will fall somewhere in the continuum between the person who loves shops more than the house itself and one who despises shops and wishes they were all burned to the ground.
Appraising is all about market conditions. Market conditions are all about probabilities and not necessarily possibilities. So no, it is not the appraiser’s job to find the comps to support whatever a single buyer is willing to pay.
- Be Nice or Be Quiet - July 2, 2021
- Being Liberal with Values Hurts Homeowners - June 28, 2021
- Why Are Appraisers Banned? - April 15, 2021
Spot on. Does the NAR read this?
Welcome to Atlanta where fraud and poor appraisers will rubber stamp anything as long as they get paid. As a Certified Appraiser here in The Atlanta Metro area I see it all. Rubber stamping is very common down here as many appraisers are either not experienced enough, feel the pressure from lenders or are accepting cheap fees that they don’t want to deal with the lenders or AMCS with stips. HELL some appraisers are in bed with the Realtors around here. 1 company, D.S. Murphy is owned by the appraisal boards President. He has licensed appraisers and SRA appraisers on his team( he has offices in ga, Fl) that go around inflating pre listings for sellers and realtors all while doing shitty basic appraisals that would get any appraiser in trouble with the boards. Problem is you can’t turn HIS appraisers into the state because HE IS THE PRESIDENT. I know an appraiser who was recently told by the realtor they had a DS Murphy appraisal done. (Oh and they made it clear that it was D.S Murphy and he is God of appraisers in GA) Value of the pre list appraisal was 580k. The licensed Appraiser used 1 comp in the sub and the rest from other areas when there were 7 good comps in the sub. The appraisal for the loan/bank came in at 545k. Oh yeah forgot to mention the contract price was 550k after being listed for 579k due to that garbage appraisal done by a licensed appraiser (and people want to change the education requirements HOW STINKING CUTE). But this 30k over appraised report can’t be turned in to the state.
Now you also have a board that won’t do SHIT about AMCS. Here In GA. They like their AMCS and I’m sure the board president doesn’t want to lose work from them either by pissing them off with fines etc. (ga needs a new board president)
back to appraisers rubber stamping. It runs wild in Atlanta. AMCS shop the appraisal orders to find the lowest fee. Guys who don’t know the area are are inexperienced. Companies that will do anything the AMC or lender wants. Appraisers are in bed with the builders and preferred lenders to make value. Hell I can show you where we and other fellow peers have done appraisals for lenders that didn’t appraise for contract and yet somehow 2-3 weeks later it appraised for contract and sold.
Again welcome to Atlanta. The city that will once again lead the nation in fraud, overpriced homes, and foreclosures when the market tanks.
Mr Harris, great article.
This is the cash out of pocket vs borrowed monies argument. When a person has cash, they are free to spend and drive the markets as they so choose in a pure free market. When a person must leverage or take on a debt commitment in order to purchase, they are including additional parties in their risk management decisions. Buyers are appropriately restricted to common participatory standards. Buyers still have the option of selecting a regulated loan from an insured lender or one from a hard money lender, or their neighbor, or their mother, or the payday loan center, etc.
It is not a lenders responsibility to extend funds so a buyer can secure the purchase opportunity ahead of competition. The legitimate mechanism by which price and value climb in is by cash contribution. Anything other than a low risk loan would be unacceptable and unethical business practice under the umbrella of taxpayer backed fdic insured mortgage loans.
Sounds like this particular agent has a buyer with no cash on hand. Perhaps he should cultivate stronger personal money and risk management understanding with his clients. Colorado is feverish and we have a sellers market. With a dozen offers at a time and constantly climbing prices, many buyers are eventually priced out if they do not secure a buy. The rising price is driven by the buyer whom has the cash contribution to secure the purchase opportunity ahead of others. Credit does not drive free markets. Cash drives free markets. When I flip my silver dollar coin, it still reads as a dollar on the other side. Not sure what ‘coin’ Newman is talking about here. If I could flip a coin and make it worth more on the other side… Dang Newman, have an extra one of those to spare for me!?
I remember once when the value came in over the contract price and I was told by the lender to lower it to the sales price. Dhuuuu. I told them “you should be happy it’s over contract, gives the bank more security”. They didn’t have a clue… and I never changed it.
Well said, Dustin, as always! If the buyer wants to (over) pay using his or her own cash, he or she can go right ahead and do it all day long, no appraisal needed. But when you are asking for a mortgage from a federally-regulated lender, we taxpayers have rights too. We need to have confidence that this buyer is not the only one in the market willing to pay the same sales price if the buyer goes into foreclosure. Many major banks were declared “too big to fail” in the recent recession, and we taxpayers don’t want to bail out the lenders again anytime soon.
As the least paid person on any single transaction (agents, home inspector, loan officer, underwriter, AMC exec. etc.) its unfortunate that often times its the appraiser who must also be the educator. Since the petitions in early 2008/2009, court transcripts (New York versus eAppraiseIT (Washington Mutual), and countless other times where appraisers have offered the truth, its meaningless as no one seems to care (its ignored). Why is Wells Fargo suddenly under the microscope for a few million fake accounts while their owned AMC (RELS – since sold 50% at 50+ million) was left to hide the facts and collect hundreds of dollars a pop on millions of appraisals (2008/09 +)? Why was the practice and the truth ignored? Why do lenders need to hold weekend conferences in get away locations to discuss the health of the appraisal profession? Are they ignoring the truth (higher liability, lower pay, scope creep, AMC involvement, TRID (predetermined fees), etc., to focus on lowering standards (AQB board) to increase the supply (shortage)? Do they know its not a license issue? Per the Collateral Underwriter the powers that be have the ability to specifically know how many individuals are completing appraisal work versus the total number of licensed (hint is about 50% of total licenses). If 50% are choosing not to practice (see reasons above), why not address their reasons so the fake issue (shortage) can be addressed both short term (no wait to get licensed), and long term (actual issues solved)? Dustin, your comments bring up a legitimate ongoing issue, however the REAL issue involves the FAILURE of many parties (lenders, regulators, FDIC, Treasury Dept., AI, individual states, etc.), to listen to those who speak the truth. Seek it.
The problem with trid is that amc’s and some lenders are using it as an illusionary line in the sand. They say it’s impossible to allow any fee movement because they already stated to customer. They could adjust the standard consumer disclosure numbers up if they chose to do so. The catch play is that most lenders have a range of appraisal service fees disclosure, not just a singular number. Call into the lender like a customer, ask what the maximum figure is per standard disclosure, and that’s your ready to go peak number which can be approved without any paperwork shuffling or simple terms re disclosure. If you have a friendly desk manager in a direct scenario they’ll probably tell you and you could negotiate a permanent right there. It’s an easy way to identify where your position could be, without having to even engage with the distribution people. Or alternatively to strike a better deal after you’ve been recognized as being premier or sufficiently reliable, etc. Coming prepared and well researched with a targeted individual sales approach usually brings better results in less time compared to mass solicitation. But either way, all appraisers need to do is keep their options open. The hard part is finding the client, then selling a permanent deal. That’s how to hop on the gravy train and ride the tracks longer. Bidding per diem is to build your business around a question mark. Appraiser vendor management is a misnomer. I manage my own engagements.
I have been an appraiser prior to licensing, and owned a large company in L.A. 42 years!
Many lenders and attorneys have attempted to have me change the value. If you can afford it, the most important thing is to stand behind your value. Your reputation for honesty will spread, and you definitely will get more work.
No substitute for honesty.
Dave I wish that were true. I have lost clients because of being honest, but I would rather sleep at night. 🙂
Me also Diana. I think that means they are dishonest from the beginning. Best to be straightforward and honest, as you know, from the beginning.
Truer words are not often spoken. Bad clients may get mad and leave, but those that remain in the business often (usually) come back when they get tired of other’s consistently poor quality affecting all their deals.
I learned that from my mentor “MJV” (name voluntarily omitted because I’ve embarrassed him enough with my political views, and tilting at windmills for years. To his credit he never held it against me).
No one can prevent any and all complaints . How they are dealt with determines your reputation though. USPAP does not require perfection. IF you make a mistake understand it; accept it & correct it. If you did not make a mistake then do not let anyone attribute the alleged deficiency to you no matter what it takes. A reputation can be ruined overnight. It takes many years to establish one.
On a separate note, via Mortgage News Daily (Primer on Appraisals – ASB, TAF, BPO, AVM, AQB, HVCC, AMC, and HUD’s Changes) author Rob Chrisman has weighed in on the appraisal profession. I would personally offer my comments on that site, but my opinions as filtered through my profession (appraising) are not wanted, and have been blocked.
A few quick points.
Mr. Chrisman refers to passing AN EXAM, however depending on your license level; four exams may need to be passed. He refers to an internship of 2,500 to 3,000 hours and then goes on to indicate 75 weeks – without a vacation, however in my state (CA) the 2,500 hours (Certified) must be completed over NO LESS than 2.5 years. His lack of understanding as it relates specifically to my state and requirements, underestimates the trainee time commitment by over a year.
Mr. Chrisman makes mention of HVCC – and says “which Fannie and Freddie must use”, however his misuse of that term (sunset 2010?), perhaps shows his lack of current understanding. In my opinion, his reference to “the old days” and on the low end $250 appraisal fees, may also show his lack of understanding (my fees were $450 in 2008/09). Are $250 appraisal fees from the 1980’s? Mr. Chrisman also indicates “borrowers are being RIPPED OFF to get an appraisal in a reasonable amount of time”. As independent business owners, how when offering a fee and turn time (accept or decline Mr. lender), is the appraiser ripping anyone off?
Mr. Chrisman makes reference to a reported 80,000 licensed appraisers, but does he understand many of the issues he speaks of are not license related? The collateral underwriter has given each individual appraiser a specific number to monitor their work (think social security #), and the results appear to show that roughly only 50% are actually practicing. The issue Mr. Chrisman is not to lower standards to increase the supply, but to address the 40,000 who are licensed and not working under the current environment.
Other issues discussed included BPO’s, AVM’s, etc.
The scary part about Mr. Chrisman and his thoughts, is that per AppraisalBuzz (Rob Chrisman discusses lender barriers to appraisal reform) he will join other industry stakeholders at the Valuation Expo in Las Vegas (Nov 11th), IN GIVING THE KEYNOTE ADDRESS. Although my opinion can’t be offered by way of comments on his site (blocked), I would suggest as many people as possible provide input there before he takes the floor on Nov 11th.
Good one Bill. You still bother to watch them? Mortgage News Daily language update: Work Smarter Not Harder.
Unless you’re an appraiser, in which case, just work harder and never ever see an income increase for the rest of your life.
Cheers. Mortgage news daily management. They blocked comments for me years ago, never went back. There is no greater way to discredit yourself than to censor free speech.
Aloha Mr. Johnson,
My appraisal business was located on Wilshire near downtown. Having 35 appraisers plus clerical staff drove me to Hawaii. Good appraisers are able to find employment anywhere if they truly are qualified.
After arriving on Kauai, I flew to Honolulu for interviews with chief appraisers at the major banks. I was approved, and they are still my major clients.
Ignore that jerk Chrisman, he’s just an unqualified fool who should be a salesman.
So like what happened to Newman? Where’s Newman at? Any more pearls of wisdom from that guy?