Question on how adjustments are determined on appraisal

Discussion in 'Ask an Appraiser' started by lnhp1, May 4, 2012.

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  1. lnhp1

    lnhp1 New Member

    0
    May 3, 2012
    Professional Status:
    General Public
    State:
    New Jersey
    Hello. We are in the process of doing a refinance and our appraisal just came back. It was much lower than expected and once I reviewed it there are items I can't reconcile. I got the lender as a recommendation from my neighbor who just refinanced, and their home appraised at 60K more than ours and ours is more updated than theirs - we have all new appliances, new hardwood floors, our basement is finished, and we have about 300 more sqft on first floor than them). Our home would not be considered over-improved for our area.

    So my questions:

    1) one home that was used as a comp is on a busy street - we are on a cul de sac and all homes are noted as Nres. I pulled up our original appraisal when we bought our home, and a similar home on a busy street was used as a comp, and they put in a 58K positive adjustment. My neighbor let me look at their appraisal, and their appraiser used the same comp as our appraiser did this go around - they got a 49K positive adjustment.

    2) Surprisingly our area is not plagued by short sales/forclosures. One of the other comps was a short sale/foreclosure and no credit was given and it is noted as an arms length transaction. It was sold almost a year ago, and there are closer more recent comps than this that I think should have been used. I called the realtor that we initially used and she thinks it sold for about 70K less since it was not well maintained and a bank sale. The appraisal itself notes that foreclosures are not a factor in our area.

    3) All homes have a negative adjustment for market timing. The report states that he did a lookback, and is stating that the prices have further dropped 25% in the past few months. The realtor gave me the list of sales for the past 6 months, and here is where I am stumpped. There were three high end homes sold in Nov (845K-1.2mill) and then a sampling of other homes. Then in Jan and Feb there were no homes over 700K sold, but two homes for 60K and 80K( super tiny camp homes) . If I take out the extremities from both times, I come up with average prices increasing 6%. So it seems that by having the higher end homes sell in one period and then having the two low end homes sell in the next period it is really throwing off the %. Our area has a few small lakes/ponds and on one there are older camp homes and trailers - and the rest of the town are typical homes, with pockets of high end homes mixed in. It is a smaller town, so there are not hundreds of sales each month.

    The adjustments made to our home were in the range of a negative 20K-50K for market timing.

    So my question is shouldn't the extremities be taken into account when calculating the sales trend? The realtor said that the home prices are generally stable for 3 to 4 bedroom homes. Only the higher end homes over 4000K sq feet are starting to decrease since a more just came on the market and there are generally not as many buyers for those.

    The cost to build came up at 110K more than the appraised amount, and then it notes that the sales approach is the most reliable indicator.

    My gut told me that the appraiser is not from the area - I looked him up and he is from 30 miles away - but I realize that does not necessarily mean that he is not qualified to appraise here since I don't know the markets he deals with.

    The lender gave me a reconsideration of value form to fill out so any input you can provide would be appreciate.
     
  2. fritzvogel

    fritzvogel Senior Member

    0
    Dec 16, 2004
    Professional Status:
    Certified Residential Appraiser
    State:
    New York
    A lot of questions on a Friday, answers for Free.....maybe a Fee
     
  3. Koya

    Koya New Member

    0
    Feb 8, 2008
    Professional Status:
    Certified General Appraiser
    State:
    California
    Following are generic comments which might not be applicable if given more data:

    1) A busy street vs cul-de-sac adjustment is usually real, but the quantity is variable depending on area. In my area, I might use $30-200K depending on specifics. Not using any is possibly supportable, though perhaps unusual.

    2) If your area does not have a high percentage of distress sale situations, then it's possible it may not see much if any adjustment for those factors. A condition adjustment for the sale you mention might be more appropriate than any distress sale adjustment. In other words, distress sales might not affect your market enough to warrant a specific adjustment, but specific and quantifiable condition issues would generally do so. The problem here is that condition is arguably more subjective.

    3) A 25% time adjustment over a few months is unusual and requires some real analysis. I can't say it's not possible, for example, let's say pre- and post-catastrophe, but it certainly deserves some analysis and narrative. Without significant events and with sparse sample populations, I would be skeptical that an appraiser had reasonably considered the underlying issues.

    In your case, the typical recourse is to provide alternative comparables that better represent your subject within the current time period (3-6 months). If the comparables are sparse, extreme or atypical (e.g. high value in one period, and low value in another period with a handful of data points) then it will be hard to support as it comes down to a disagreement about statistical analysis when there is limited data.

    If you believe there are better comps, provide those in your reconsideration input. It will be harder to challenge the appraisers adjustments though.
     
  4. Marion Rhodes

    Marion Rhodes Elite Member

    34
    Feb 26, 2006
    Professional Status:
    Certified General Appraiser
    State:
    Pennsylvania
    Cost does not equal value. Are they building new homes by you? If not, it could be because it's much less expensive to buy a resale then to build one.

    There are some very fine appraisers in NJ. Maybe instead of talking to a sales person, you should seek the advice of a local appraiser who has the training to determine these things, as salespeople are not trained in appraising.
     
  5. Webbed Feet

    Webbed Feet Elite Member

    2
    Feb 11, 2005
    Professional Status:
    Certified Residential Appraiser
    Absolutely, fill it out and ask the involved appraiser your questions. Then when the involved appraiser defends everything to the death and you don't get anywhere, demand the lender use the same appraiser your neighbor got for a reappraisal. Then have both appraisals professional reviewed. After determining which appraiser is incompetent, file a state board complaint against that one. Of course, if you sway like most of the public and commissioned real estate folks, only the appraiser with the lower value is ever "incompetent" because everyone likes high values better.

    Good Luck to You ;)
     
    Last edited: May 6, 2012
  6. Learner

    Learner New Member

    0
    Apr 29, 2012
    Professional Status:
    General Public
    State:
    New Mexico
    A question that might help

    Hi,

    i am not an appraiser, know little to nothing about appraising, and am here to ask and learn.

    But I am curious about the Federal Housing Finance Administration's (FHFA) Housing Price Index (HPI) based on same house sales of homes financed through Fannie Mae or Freddie Mac. (Note to others: Please correct anything that is wrong.)

    It is not available for your neighborhood, but probably is for your market area.

    Question for appraisers: House relevant is the index to a neighborhood? Does it depend on circumstances?

    Thanks for any assistance.
     
  7. lnhp1

    lnhp1 New Member

    0
    May 3, 2012
    Professional Status:
    General Public
    State:
    New Jersey
    Thanks to those that provided meaningful comments.

    I get that the homeowners that come on this site are mostly going to be complaints/or “why is my appraisal so low” but my concerns are valid.



    I am not sure what value I would gain to pay for another $500 appraisal out of my own pocket if there is nothing that the bank can do with it - it would make more sense to go with another mortgage company and pay another $500 for their appraisal since that can actually be used towards a refinance.

    The distressed home was a forclosure. The realtor got more info and they are putting on their letterhead so I can pick it up tomorrow and send to the lender. There was water damage so the “finished basement” - it had no sheet rock, carpets were torn up etc. so not a finished basement other than maybe the ceiling and they still need to remediate some issues. Portions of first floor need to be torn up due to pet urine damage and the former owners were also nice enough to literally rip out the kitchen sink - I thought that was a joke and so did she, but nope, she has a picture of the missing sink to include. And there was NO condition adjustment or foreclosure adjustment made from that home to ours, just a significant negative timing adjustment


    I took the sales from the realtor and calculated the % change - I get a 24% decrease. If I take out the two highest the one month and two lowest the other I actually get a 6% increase in sales price. If I just look at 3-4 bedroom homes, I get a 8% increase, so I don't think the realtor is just saying things. Since it is a smaller community, I would expect the appraiser to know have looked at the prior sales.

    There were not many land sales - only one last year and two "psuedo" land sales prior year where they torn down a smaller home and rebuilt. The area is surrounded by a lot of protected lands, so not a lot of land left to build on. Just seems like a difference of over 100K between cost versus sales approach is pretty high when it is not a million $ home.

    The lender called me back later on Friday and said their reviewer had Fannie run through a check at 80K over the appraised value and it checked out just to get a better sense of things. He said he could not give me specifics but said there were a few other things that were suspect and that this may be a rare case where they will be able to order a new appraisal and they added on an additional 14 days to the rate lock until they get this sorted out.
     
  8. DMZwerg

    DMZwerg Senior Member

    0
    Mar 25, 2009
    Professional Status:
    Certified Residential Appraiser
    State:
    Wisconsin
    If a comp receives a positive adjustment it means that the appraiser feels the inferiority of the comp in that circumstance needs an adjustment. If you are correct then both appraisers felt the busy street was a negative influence on value and made adjustments. If you are saying that the most recent appraisal did not adjust and the other two did then you may want to consider hiring a local appraiser to review the appraisal as we can not analyze such things remotely and as professionals do not work for free (doctors and lawyers are also professionals).

    Again, to analyze a report you need to hire a local expert.

    Given you already talked to one type of local expert (aka, your Realtor) you do have courses of action you can take. If you think there were more comparable sales the appraiser should have considered then you may want to bring them to the attention of your lender to submit to the appraiser for consideration. If you think there was a factual error (indicating the same condition if there was indeed a difference) then that is another thing to bring up. A third is for clarification on why that property was used and adjustments or lack there of were not sufficiently discussed in the report.

    Reference "Dodd-Frank" Sec.1472. Appraisal Independence Requirements,
    § 129E. Appraisal independence requirements, (c) Exception (1)(2) & (3)


    See above, as that is all the "help" I can give you. If you need more look up the reference in Dodd-Frank and see if your local Realtor can help you out some more.
     
  9. lnhp1

    lnhp1 New Member

    0
    May 3, 2012
    Professional Status:
    General Public
    State:
    New Jersey
    The information from the realtor was sent and an internal review was done at the lender. They set up to have another appraiser come out at no cost to us last week and the appraised value came in at 77K higher than the first. This appraiser specifically stated that they did not include the bank home due the condition and the unknowns and therefore was not a comparable. The house on the main street was included, and a positive 43K adjustment applied towards our home.

    I think the initial appraisal is going to some appraisal board - it seems that the only way they could have another appraisal performed on our home was if there were gross errors or neglect. Our loan officer said that this was only the second time he has seen an second appraisal being performed, so my suspicions that the first had a lot of inaccuracies were correct.
     
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