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An Appraisal Is An Estimate Of Value Right?

Discussion in 'General Appraisal Discussion' started by PaulShiver, Dec 4, 2003.

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  1. PaulShiver

    PaulShiver Sophomore Member

    0
    Feb 5, 2003
    Professional Status:
    Appraiser Trainee
    State:
    Alabama
    I feel like ranting this morning. I may be wrong and if I am someone please enlighten me.

    Appraised a single family residence for a construction loan 5 months ago. Let's say it appraised for $115,000 then.
    Now construction is complete and I appraised it again for a purchase. The purchase price is $111,500. I used newer comps this time and came up with a value of $113,500, a difference of $1,500. Lender wants to know why it appraised for less this time(I didn't tell them what it appraised for before, they got a copy somewhere). In my opinion it doesn't matter what it appraised for last time, it was for a different lender, different borrower and different purpose.

    What gets me is the fact that it is a difference of $1,500, what's the big deal. If an appraisal is an estimate and not a pinpoint value then isn't there room for this kind of change in value? Also, it still appraised above the sales price.

    Sorry for ranting but this type of thing really gets to me.
     
  2. Richard Carlsen

    Richard Carlsen Elite Member

    0
    Jan 15, 2002
    Professional Status:
    Licensed Appraiser
    State:
    Michigan
    Tell them the answer is simple. The differences are:

    1) The 5 months passage of time when the market was not static

    and (this is the killer)

    2) Their UW guidelines which require the use of the most recent and relevant sales known.

    Remember to smile when you tell them that.
     
  3. Austin

    Austin Elite Member

    1
    Jan 16, 2002
    Professional Status:
    Certified General Appraiser
    State:
    Virginia
    Paul:
    There are two schools of thought on this subject:

    The older theory is known as the Santoraian School of Thought. Under that theory appraising is the process of predicting what a property will eventually sell for as of date of appraisal. Time is not a factor because cost and depreciation are figments of the imagination. Notice anything unusual about that last statement? (market value as of date of appraisal is a prediction of what it will sell for in the future?) Try reconciling that line with AO8 of USPAP.

    Then there is the more enlightened and modern Austin School of Thought, which reflects modern thinking, is in harmony with the question asked in the definition of market value and in tune with FIERRA Title XI not to mention the spirit of USPAP. Under this enlightened theory, appraisers do not make predictions of market value as of a certain date, appraisers formulate opinions of value as of date of appraisal based on market data as defined and under the conditions dictated in the definition of market value. Under this school of thought Fair Value is defined as a prediction of what a property will sell for in the future under defined conditions and involves a completely different methodology.

    In summary, you appear to be a member of the Austin School of Thought proving beyond any reasonable doubt that you sir are a scholar and a gentleman.
     
  4. PaulShiver

    PaulShiver Sophomore Member

    0
    Feb 5, 2003
    Professional Status:
    Appraiser Trainee
    State:
    Alabama
  5. Ben Vukicevich SRA

    Ben Vukicevich SRA Senior Member

    0
    Feb 9, 2002
    Professional Status:
    Certified General Appraiser
    State:
    New Jersey
    Paul,

    Since you're dealing with the mortgage morons..they'll never understand the aforementioned schools of thought..too heavy for them.

    Just ask them if stock prices and the Dow fluctuate everyday..they may get the picture/idea then...same economic principles. They usually go away after hearing that.



    Ben
     
  6. JSmith43

    JSmith43 Elite Member

    22
    May 5, 2003
    Professional Status:
    Certified General Appraiser
    State:
    California
    Good day Gentlemen & Scholars,

    And, good day to any other readers of this thread.
    The underwriter is just trying to do his/her job (CYA) and wants a file stuffer from the appraiser. UW guidelines on some loan products hinge on words such as "declining market", etc. Maximum financing terms may or may not be available, depending upon this distinction. If there is evidence of such, it should be discussed. That discussion is being requested.

    No doubt, the words they want to here are 1. the market is declining, 2. the market is increasing (& I-the appraiser-didn't do a good job last time), 3. the market is essentially unchanged since $1,500 difference is insignificant & no profound conclusions should be based upon this small difference in value estimate.

    Of course, what then might cross the underwriter's mind is: It is an opinion that has changed. Why has the opinion changed if it is within the margin for error?
    Another reason that market value should have remained an "estimate" & not an opinion.
     
  7. Indiana Jones

    Indiana Jones Member

    1
    Oct 16, 2002
    Professional Status:
    Licensed Appraiser
    State:
    Indiana
    The UW is probably just wondering why you actually did another appraisal on this instead of just cloning the original! :rofl:
     
  8. PaulShiver

    PaulShiver Sophomore Member

    0
    Feb 5, 2003
    Professional Status:
    Appraiser Trainee
    State:
    Alabama
    Yep, this is a lender that very seldom sends any work our way.
    The only reason we got this one is because they were hoping we
    would just changed the name of the client and give it to them.
     
  9. Scott Kibler

    Scott Kibler Elite Member
    Gold Supporting Member

    70
    Oct 7, 2003
    Professional Status:
    Certified Residential Appraiser
    State:
    Illinois
    BINGO!
     
  10. Dave Smith

    Dave Smith Senior Member

    0
    Jan 14, 2002
    Professional Status:
    Certified Residential Appraiser
    State:
    Wisconsin
    An appraisal is a "snapshot" of the value on the effective date.
    When effective dates change, the values may change too.
    "It's the dynamics of the market place," whatever that market place may be.
     
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