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My Ongoing Irritation with Appriasers-LONG - Posted by Old Pro
Posted by Old Pro on October 15, 2007 at 16:03:00:
if any appraisers are plugged in here, please chime in. I’m anonymizing myself, just in case…
I have been reading RE appraisals for over 20 years in different capacities. a few observations:
-
appraisers have an uncanny habit of concluding that a property is worth just a hair above the deal price. My guess is that 90% of more of the apps I have read are 0-5% above deal price. maybe 3% come in below deal price. once in a blue moon will one come in 5-10% above. never more than that.
-
never have I seen an appraisal come in significantly over deal price. I suppose this makes sense. Why should an appraiser stick his neck out when he does not have to? If he comes in at 4% over, everyone is happy. the bank is happy. the buyer is happy. the seller is happy. who cares if the property was really worth 22% more than deal price??? [I care. see below]
-
I observed this a long time ago. In cahoots with my banker one time, we fed incorrect information to a well-regarded appraiser. I was doing a deal for several properties. my price was 275K. I believed they were worth 385K. for fun, my banker informed the appraiser that the deal price was 385K. miraculously, the app came in at 388K. [bank not adversely impacted. their commitment to me was 80% of deal price].
anyone want to calculate the odds of that appraiser coming in at 388K if he knew the real deal price was 275K???
- SO WHY AM I IRRITATED? 2 reasons. (a) I have to PAY for these stinking appraisals, and they USUALLY UNDERSTATE the value of what I’m buying. (b) My borrowing deal with my banker is not limited to 80% of appraised value.its the lesser of 80% of appraised or 90% of deal price. and I can manipulate deal prices higher with renovation credits.
consider the following:
I make deal for 7 properties for 245K, with a renovation credit of $18,000. net deal price is 227K. but that renovation credit is buried in the attached schedules and not seen (or ignored) by banker. properties are really worth 280K. and lets assume I fake out the appraiser and report a 280K deal price. and he plays the game and appraises at 282K.
90% of my deal price is $220,500.
80% of the appraised value is $225,600
based on the results, I get a loan for $220,500
if you do the math, that’s actually a 97.14% loan (taking into account the renovation credit)
it MAKES A DIFFERENCE.
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Re: My Ongoing Irritation with Appriasers - Posted by Natalie-VA
Posted by Natalie-VA on October 17, 2007 at 07:32:25:
In my area, appraisals seem to come in exactly at the deal price. No one wants them coming in any higher, because the seller might think they undersold.
IMO the appraiser works for the lender and he is not so much trying to come up with a value; he is trying to justify the contract price to ensure the lender is secure in their investment.
–Natalie
Re: My Ongoing Irritation with Appriasers-LONG - Posted by Mary (CA)
Posted by Mary (CA) on October 16, 2007 at 13:25:58:
I’ve dealt with appraisers in purchases, sales, re-fis and in a law firm dealing with probate properties.
In a purchase, I had an appraiser tell me she wasn’t allowed to appraise more than purchase price. (Buying @ $260k; fmv $334)
Told the appraiser that we were appraising probate properties for estate tax value - they came in low (by our opinion).
I consider them a necessary (? - not by me, but by the banks) evil. If there’s a way to avoid them, I will.
Mary
Re: I’m an appraiser - Posted by Brian (NoCA)
Posted by Brian (NoCA) on October 16, 2007 at 10:32:00:
I’m a commercial appraiser. To answer the question of telling the appraiser the purchase/contract price, it is a requirement of the appraiser to review these numbers. However, it is also a requirement that the appraiser review any offers made on the property in the past three years, as one poster inferred did not happen in his case.
If you think your market value is higher than your purchase/contract price, tell you appraiser that but also, if you can, provide any data to show that. I am never opposed to hear what people think their propety is worth. Sometimes they are way off, but the more information you give to the appraiser, the better. It’s certainly ok to have you own opinion of what the property might be worth and relay to that to the appraiser, with reasonalbe supporting data. Any good appriaser should consider this, however there are many very bad appraisers out there. Also I suspect the things everyone is talking about are more prevalent on the residential side rather than commercial.
You should know that on Oct 5 a bill passed in CA which prohibits any person from improperly influencing an appraiser to reach value. The link is below. However, feeding your appraiser facts/comps is perfectly acceptable. Again, open communication with factual data.
http://www.leginfo.ca.gov/pub/07-08/bill/sen/sb_0201-0250/sb_223_bill_20071005_chaptered.html
Point is, you need to be on the same page as the appraiser just like you would anyone else in a real estate transaction.
Re: My Ongoing Irritation with Appriasers-LONG - Posted by Bob Smith
Posted by Bob Smith on October 16, 2007 at 09:17:06:
I have the opposite issue with appraisers: they rarely appraise low when warranted. If the deal price is way over comps, they should ignore the deal price. It stops a lot of fraud, too.
bad system - Posted by Gene
Posted by Gene on October 16, 2007 at 08:49:55:
I think this is a large problem.
Here in CA the majority of the problems was opposite of you take…appraisers were coming in way to high…this helped perpetuate the mortgage fraud we saw saw often. They were forced to “Hit the mark” if they wanted to be called again.
It seems to me the Appraisers should be fire-walled from basically everyone involved that can influence them. I also believe that they should not have access to the “target price” interested parties are looking for.
They should just go in and come up with a fair value range off the comps. Clean and simple.
Re: My Ongoing Irritation with Appriasers-LONG - Posted by Jimmy
Posted by Jimmy on October 16, 2007 at 01:18:54:
This is not surprising, considering how appraisals on owner occupied properties are done. Since the appraisal value is based upon what others in the area paid for “similar” property, it is quite easy for this value to be inflated or deflated based upon which sales this property is compared to. As a result there really is not much to reign in an appraiser’s innate bias toward delivering a report that satisfies his employer. This is also a major reason why values got to bubble up so much in the past few years, as each overpaying buyer got to reassure himself with an appraisal based upon other buyers overpaying.
Better or more consistent and fact-based appraisal methods exist that calculate the value on the potential rental income minus operating expenses of the property, the restoration cost minus depreciation, or the rebuilding cost minus depreciation. However those methods are not likely to even remotely support current price levels in most of the country and to be fair it cannot measure the emotion-based price premium, no matter how uneconomical, a person is willing to pay to be a homeowner; consequently they are not generally used for owner occupied residential property.
My recent Irritation with Appriaser - Posted by JD
Posted by JD on October 15, 2007 at 21:36:06:
I almost always buy at foreclosure auction, hence no appraiser cares, and usually does not know, what I paid for the property when I resell because it is understood that it is was a foreclosure, a special circumstance. Last year I decided to buy a property at a public REO auction. As a result the REO auction price becomes public record ($70,000). I put a ton of improvments into it, and listed it for sale at $142,000, I get contracts at $142,000 and $137,000 which fall through due to the buyers, I also get a few offers in the $128,000 to $132,000 range which I reject as too low. I reduce the price to $134,000 to get it sold quickly, I get a contract at $134,000. Time goes by, the buyers miraculously get credit approved. But the apprasial comes back at $120,000!!! The appraiser can support that value using recent comps of similar size, but the condition of the comps are grossly inferior to the condition of my virtually new property, but the appraiser gives only a few thousand dollars of credit to my property for condition relative to the comps. Despite the fact that I have had a half dozen offers to purchase the property well in excess of the appraiser’s opinon of value of $120,000, I can’t sell the property to these buyers, because this one apprasier thinks the property is only worth $120,000, despite the multiple opinions of value from real market buyers at $130,000+. So why did I mention the purchase price at the beginning of this post?.. because I am convinced that the apprasier reverse engineered his opinion of value based upon my purchase price, and that he is making a social statement that an investor should only make a certain amount of money on an investment property.
ps: the buyers are out $450 for the apprasial and another few hundred bucks for loan related expenses, and they are greatly disappointed
Re: My Ongoing Irritation with Appriasers-LONG - Posted by Rich-CA
Posted by Rich-CA on October 15, 2007 at 18:54:56:
I had one house I was going to rehab come in at the ARV price with an appraiser and the lender held up the application because they wanted more inspections as something clearly had to be wrong with the property. Submitted my repair budget. Lender claimed we couldn’t get the price lowered for those things, it was an old (1977) house. Leaned on appraiser who change the condition from “good” to “fair”. Lender wouldn’t lend for a house in “fair” condition.
The appraiser did try and work with us, but its a real balancing act and in some states the regulators jump on appraisers if they over appraise as there apparently was at one time collusion between buyers (who pay their fee) and appraisers to over appraise to get a lower effective down payment.
Re: My Ongoing Irritation with Appriasers-LONG - Posted by Tai
Posted by Tai on October 15, 2007 at 17:44:06:
Agreed. But then sometimes this can be an advantage:
several years ago I did a cash-out refi. the appraiser
asked me what I would like the number to be. I gave a
high number. He went with it, and the bank ok’d a nice
refi and cash out. As a result, I asked for the same
appraiser on one other property (cash out refi with
same bank). And I recommended him highly to every one
who was looking for refi’s.
of course this was in the good old days of being able
to do cash-out refi after 1 year in booming CA.
Re: My Ongoing Irritation with Appriasers-LONG - Posted by Kristine-CA
Posted by Kristine-CA on October 15, 2007 at 17:02:06:
Old Pro: good points regarding deal price vs. appraisal price.
Can one order an appraisal with no deal price? If a lender is REALLY
looking for value vs. hoping to be able to close, why do they give the
appraiser a number at all?
My experience is that when I’ve ordered appraisals on my own, I’m
asked what I’m hoping/looking for the value to be. If I made them
work without my number, I wonder what I would get.?
Re: My Ongoing Irritation with Appriasers-LONG - Posted by Kristine-CA
Posted by Kristine-CA on October 16, 2007 at 13:45:50:
My experience has been exactly the same. What I don’t understand is
how the purchase appraisal will be the same as purchase price but low
and behold on the cash out refinance it will be so much more. It’s not
just appreciation, it’s the starting number they are given.
Re: I’m an appraiser - Posted by gene
Posted by gene on October 16, 2007 at 18:53:52:
>>>>>>>To answer the question of telling the appraiser the purchase/contract price, it is a requirement of the appraiser to review these numbers>>>>>>>>>>>>>>>
That is exactly my point: Its a flawed system. My post was about what the system should be…not a questions about the current system. I think no info should be given. The appraiser should come up with a value range based on the comps.
>>>>>>>>>>You should know that on Oct 5 a bill passed in CA which prohibits any person from improperly influencing an appraiser to reach value. The link is below. However, feeding your appraiser facts/comps is perfectly acceptable. Again, open communication with factual data.>>>>>>>>>>>>>
Yea…I think that is a step in the right direction.
Geno
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