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Appraisal May Not Have Reflected Value

Discussion in 'General Appraisal Discussion' started by Jungle Boy, Nov 26, 2003.

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  1. Jungle Boy

    Jungle Boy Senior Member

    0
    Oct 30, 2002
    Professional Status:
    Real Estate Agent or Broker
    State:
    Florida
    A good friend of mine is a realtor. ( yes, I associate with the wicked )
    He called me one day and said that one of his sales did not appraise for the contract price ( $155,000 ), and asked me to help explain how appraisers come to their conclusions of value.

    ( appraisal came in at 130,000 and the appraiser said that he pushed it to the limit. There were enough sales in the neighborhood that he could not go outside. The closest communities are newer, with prices in the mid 200's, and the closest comparable commuities with similar homes are farther away, and priced 150's and up )

    I had done an appraisal in the neighborhood of his sale, and told him that that particular neighborhood was underpriced, and that if SKIPPY came along, those houses would sell for 20 - 30 grand more than they are selling for now. Legitimately ! Someone would have to set the market. Maybe a cash deal would set things in motion. He totally agreed. ;)

    I also told him that I wouldn't want to appraise the house in question because there was no support for my opinion.

    HE ended up selling that house 4 times in a matter of a few months. It finally appraised for $145,000.
    The seller received $150,000, because the buyer coughed up the additional 5 grand.

    That neighborhood was underpriced in my opinion.

    How would you gals & guys handle this if it was yours to appraise ?
     
  2. Richard Carlsen

    Richard Carlsen Elite Member

    0
    Jan 15, 2002
    Professional Status:
    Licensed Appraiser
    State:
    Michigan
    First off, send your friend a bill for your services since the friend is now the hero of the neighborhood. If he plays his cards right, there are a lot more listings there for him.

    I agree with you that some neighborhoods "appear" to be undervalued. They are just sitting there, waiting to be discovered.

    But....the simple fact is, these areas have not been discovered by the market and therefore, are not, in fact, undervalued. The potential is there but does not become reality until the market actually puts the money down at a higher price level.

    You may have a very good handle on this area, with a high level of confidence where prices will be going. I would make comments in the report that value levels have been below what would normally be expected based on surrounding market activity, for no obvious reasons. In this case, I would tend to place my opinion of value at the upper end of the indicated value range of the comps with appropriate comments in the reconciliation.
     
  3. Karl

    Karl Elite Member

    0
    Jan 15, 2002
    Professional Status:
    Licensed Appraiser
    State:
    Arizona
    Sold the house 4 TIMES in a few months, apparently U have not taken any classes or read about people going to jail for Flipping. I'm betting if the HEAT is put on your FRIEND he'll be SURE to tell the FEDS who's idea it was to increase this particular market.
     
  4. larryhaskell

    larryhaskell Senior Member

    0
    Apr 23, 2002
    Professional Status:
    Certified General Appraiser
    State:
    Nevada
    Raimo:

    There may be a reason(s) why these properties are not selling for more. Without an extensive analysis to support your claims, you're sticking your neck out more than a Thanksgiving gobbler. Rest assured that your real estate friend will be quoting you to every person he/she can to get the prices up in that development. Hope this little discussion doesn't come back to bite you in the butt.
     
  5. Caterina Platt

    Caterina Platt Senior Member

    0
    Jan 17, 2002
    Professional Status:
    Certified Residential Appraiser
    State:
    New Mexico
    Karl,

    I believe what Raimo's friend actually did was have an accepted contract 4 times with perhaps appraisal issues each time. Not actually close the sale 4 times.
     
  6. Scott Kibler

    Scott Kibler Elite Member

    48
    Oct 7, 2003
    Professional Status:
    Certified Residential Appraiser
    State:
    Illinois
    In an appreciating market someone's got to set the bar. I've appraised many homes where my value did not equal the contract price but the deal closes anyway. Either the buyer puts in more dough or the LTV is low enough that it doesn't matter.
     
  7. Jungle Boy

    Jungle Boy Senior Member

    0
    Oct 30, 2002
    Professional Status:
    Real Estate Agent or Broker
    State:
    Florida
    Yes, that is the story.

    Thanks for the clarification !

    This is NOT a flipping type neighborhood. I am all too aware of those, as have had to review a few of those properties.
     
  8. Pamela Crowley (Florida)

    Pamela Crowley (Florida) Elite Member

    3
    Jan 13, 2002
    Professional Status:
    Retired Appraiser
    State:
    Florida
    I'm with larry haskell on this one. You really do need to be careful about talking to a real estate agent like this.

    You can and I have worked up trends proving that values were increasing along with the marketability of a certain area/project. I've opined the value of a subject to be higher than any of my comps, put my reasons in the report along with some of the statistics I worked up. They've passed the UW muster and closed. If there really is a good solid reason for an area to increase in value, you, the appraiser, should be able to find those reasons and explain them so that they make sense. Simply saying "I think these values should be higher" - or lower - needs to be pretty close to proven within your appraisal and report.

    A few years ago, small condos in a certain area here were starting to really take off after being stable/stagnant for a quite a few years. During the 12 months prior to my doing this particular appraisal, I could see what was happening. The days on market were greatly reduced, no more expired listings, some were getting fast multiple offers. I valued a condo for an FHA purchase for more than anything else similar had sold for, included a long addendum explaining in detail what I did and why. It closed with nary 1 question about the appraisal.

    Since that time, the builders suddenly jumped on this band wagon and have been building condos in that area so fast and at such increasing prices that it's hard for me to keep up with them. Now though, I'm seeing more and more real estate agents, LOs and investors purchasing these condos before they're built, putting them back on the market at greatly increased prices as they are being finished - even higher than what the builder is asking for a new one. What worries me is that I'm now seeing these somewhat inflated 1-2 year old condo complexes selling for less than what they paid for them new - the buyers are jumping on the new ones being built and the existing ones prices have been decreasing. I don't know what to think about them now!
     
  9. Caterina Platt

    Caterina Platt Senior Member

    0
    Jan 17, 2002
    Professional Status:
    Certified Residential Appraiser
    State:
    New Mexico
    Pam,

    The condo situation you describe is really common in areas of my market where there are cheap available sites for builder/developer types, several active builders, and homeowners trying to sell relatively new homes. Competing with the builder who may be offering incentives, the only thing the homeowner/seller really can do is lower the price.
     
  10. Richard Carlsen

    Richard Carlsen Elite Member

    0
    Jan 15, 2002
    Professional Status:
    Licensed Appraiser
    State:
    Michigan
    Seems to me that if there were 4 buyers ready, willing and able to buy the property at near the same price, some appraisers out there have blinders on as to what the market is trying to write in big block letters on the sales agreements: Value is there!
     
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