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The Value Is Right But The Report Is Misleading

Discussion in 'General Appraisal Discussion' started by moh malekpour, Jul 22, 2005.

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  1. moh malekpour

    moh malekpour Elite Member

    0
    May 25, 2002
    Professional Status:
    Certified Residential Appraiser
    State:
    California
    Some appraisers think that all they have to do is just to follow the FNM guidelines and it doesn’t matter if the report makes sense or not.
    The subject is a two-story home with 4 bedrooms, 3 baths, 1765 sqft located on a semi traffic street. There are plenty of comps in the neighborhood but they are from inside tract. We all know that in situation like this, the appraiser is supposed to select at least one comp from the same or similar street to show if there is any adverse traffic noise effect.
    The appraiser has picked up two model matches from inside tracts both of them sold $360,000. He also picked a sale from the same street that was sold $385,000 but it is smaller and has 2.5 baths.
    The adjusted value comes up at $355,000 for two model matches based on -$5000 for their locations and $395,000 for the one on the traffic street based on adjustment for .5 bath and smaller GLA. His concluding value is $355,000.
    Although the value is correct, but the report is misleading. Anyone who looks at that grid, would say the one on traffic street has smaller size and has less bath but has $40,000 more value than those two homes inside tracts that have larger size, more baths and obviously superior locations.
    The important thing that this appraiser failed to search is that the one on traffic street has an addition and upgraded condition that was described in MLS but was not in public records and the appraiser obviously didn’t bother to look at the MLS and was not puzzled that how an smaller home on a traffic street should sell higher than larger homes from inside tract.
     
  2. Pamela Crowley (Florida)

    Pamela Crowley (Florida) Elite Member

    3
    Jan 13, 2002
    Professional Status:
    Retired Appraiser
    State:
    Florida
    And another example of how a bad appraisal is equal to the already blind AVM.
     
  3. Otis Key

    Otis Key Elite Member

    0
    May 15, 2004
    Professional Status:
    Certified Residential Appraiser
    State:
    New Mexico
    Good point Moh. Question. Did the appraiser disclose the traffic problems? Was there a reference to or discussion about traffic count, etc.?
     
  4. Richard Carlsen

    Richard Carlsen Elite Member

    0
    Jan 15, 2002
    Professional Status:
    Licensed Appraiser
    State:
    Michigan
    I just finished a review with good value but sloppy methodology.

    He did not include a similar age ranch style house within 3 blocks of the subject but instead used a 100 year old 2 story situated on the other side of the village. Adding the ranch style house as a 4th comp in the review only supported value.

    The real sloppy part was the lack of comments on the subject's previous sale in October 2004 for $45,000 cash. His appraised value in May 2005 was $75,000. You can see the obvious reason for the review. There was only one small sentence in the report about the prior sale which told the client nothing. A conversation with the owner and the former listing sales person plus a review of the MLS showed that the property was bank-owned, in rough condition from the previous owner and now has all new interior paint, wainscoting, new kitchen floor, carpeting in the bedrooms, new kitchen cabinets and new interior doors. The house sold and closed in 64 days in a market where the average DOM is over 230 days. The house was obviously priced below market levels as the bank wanted it off the books. Buyer got a good buy on the house.

    A short paragraph in the report stating these things would have informed the client what was going on with the prior sale.

    The other really dumb thing about this appraisal was that he did not include any interior pictures. Why? I for the life of me cannot understand why someone can take exterior photos with a digital camera when they are on site but cannot take interior photos and put them in the report.

    The more reviews I do, the more sloppy appraisers I find out there.
     
  5. George Hatch

    George Hatch Elite Member

    302
    Jan 15, 2002
    Professional Status:
    Certified General Appraiser
    State:
    California
    They're not really appraising according to guidelines, they're just trying to make it look that way. Ignoring or not considering a relevant attribute for the subject or the comparables is not acceptable under any appraisal guidelines.

    I got one today - detached SFR on a 4,000 SqFt PUD lot in a 90+ unit PUD with common driveways. So what does our guy do? He uses homes on subdivision lots that have double the lot utility and no HOA dues and tries to pass those off as comps. Yeah, the sales are within the 6-month range and the 1 mile radius, but they are not comps. It only looks that way until you find the sales and the listings from the project.
     
  6. Mike Boyd

    Mike Boyd Elite Member

    0
    Jan 18, 2002
    Professional Status:
    Retired Appraiser
    State:
    California
    Maybe because it is early in the morning and I got a full night's sleep and thus feel overly kind and generous. However, I think Moh, Pam and Richard are nit picking.

    Maybe the appraiser could not find comps to support a significant value increase because of the addition. Maybe the addition was owner built with no permits or an all-weather room of metal and plastic, we do not know much about it. If he obtained his square footage data on the comp with the addition from public records, if permitted, it should show that as total GLA. Superior condition? How do we know that except from the fluff of the MLS printout?

    The fact is, he had two model matches that support the value and a 3rd comp on the same street with an adjusted value in excess of the purchase price. He had a sales contract equal to his reasonable final value. I agree that the report should have contained comments on the addition but without any other sales on a traffic street and a sales price $40,000 higher than his final value, the conclusion is justified. That's the bottom line, is it not? In my opinion, we get paid to do a summary report, not a narrative report. What would it have accomplished to make questionable and subjective comments about an addition that may or may not have been permitted? Or, not to use it if it was the only sale in the same market area along a traffic street?
     
  7. Jonathan Anderson

    Jonathan Anderson Sophomore Member

    0
    Jun 24, 2005
    Professional Status:
    Certified Residential Appraiser
    State:
    Tennessee
    Definately a case of over analyzation as far as I'm concerned.

    Ever been an underwriter?
     
  8. Mike Boyd

    Mike Boyd Elite Member

    0
    Jan 18, 2002
    Professional Status:
    Retired Appraiser
    State:
    California
    Jonathon........that is what we get paid to do, anlalyze all the facts and details, possibilities and probabilities and draw our conclusions accordingly.
     
  9. moh malekpour

    moh malekpour Elite Member

    0
    May 25, 2002
    Professional Status:
    Certified Residential Appraiser
    State:
    California
    Mike and Jonathan,
    This comp was not the only sale on the same street. As a matter of fact there was another sale on the same street that was slightly larger but sold for $355000. I don’t know why he didn’t use that one. Problem with that comp that he used is that it makes the reader confused. When a reader looks at two sales on the grid that are model match and located inside the tract wit adjusted value at $355000 and another sale that is smaller with less bath but located on a traffic street with adjusted value $40000 more what do you think that reader should conclude? Shouldn’t the reader conclude that homes on Traffic Street must sell higher than homes inside tract but we know that it not true as the other comp that is on the same street was sold much lower. No logical mind can accept the smaller house on a traffic street should sell higher than larger homes from inside tracts in the same neighborhood unless there is a reason for it. That reason could be addition to that house that doesn’t show in public records, upgrade of the house that doesn’t show in the public records, buyer’s insanity or some hanky funky between buyer and seller. Whatever the reason is, the appraiser should find it out and if it cannot be found, the appraiser should dismiss the comp as sometime the buyer’s insanity or secret deals between buyers and seller are difficult and sometimes impossible to discern. But in this case, the reason was in the MLS. It says the property has 2000 sqft not 1600 sft and has been upgraded. To me, this is a good reason for that property to sell $40000 more with or without permit. At least appraiser can deduct that the buyer was willing to pay $40000 more for that extra 400 sqft and extra upgrade. What is important is to find why the buyer paid that much higher for the smaller property that was located on a traffic street.
     
  10. Fred

    Fred Elite Member

    0
    Jan 15, 2002
    Professional Status:
    Retired Appraiser
    State:
    Virgin Islands
    :rofl:

    George
    Absolutely. That’s part of what I call form-think.

    There is a guy who appraised for 20 years in my area who should be in the hall of fame for this. If he thought the 2,000 sf, 4-bed house was worth $300k, he would use a sale of those dimensions and that price as a comp no matter what else was different. He would even leave out of the report that the comp had two units: a 1,600-sf, 3-bed with a 400-sf, 1-bed, detached in-law apartment. :rofl: This guy's sales grid never had an effective age over 10 and size differences were maybe 5% of sf price. His gross adjustments were usually less than 5%. The reports contained a wonderful comment about the emphasis placed on finding the “right comps” rather than making adjustments. :rofl:

    There is a reasonable question as to whether or not “they” should be trying to make it look like they followed the guidelines. It's a form of "defensieve appraising." Guideline deficiency is often what will excite the impulse to review further and ensnare the appraiser into useless follow-up calls explaining a value that is "right" anyway. Someone had a post on here yesterday about getting a value changed in review, because he used sales that had basements but were over one mile from subject. The review replaced those sales with ones that didn’t have basements, but were less than one mile away. Fannie only has a distance guideline, but not a basement guideline (form-think).

    Suppose we had a modest regression or paired analysis of 20 sales. Which are the “three best?” Are the best the ones that pass some technical test of minimum variability; or the three that would cause someone looking at the report in the context of Fannie guidelines the least concern?
     
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