Smart Appraisers Make Dumb Mistakes?

[RCA]

Bias is inherent to being human, you only what you know and vice versa. I think this is why its critical that the appraiser be a student of the market and provide market based support for everything they do, from comp selection to adjustments. Providing data driven analysis is what can limit the bias. From what I've seen certain appraisers truly think that their opinion matters, I feel that your data matters. As in where did you develop that opinion, did it come in a dream or through analyzing raw data? Far too often I see bias opinion which when unsupported is garbage. I've even seen appraisers quote how many appraisals they have completed in the given year. Who cares? Ego stroking doesnt convince anyone of anything.

Read Hubbard. Some of the most important features of homes are QUALITATIVE. In other words, they are really intangibles. Being good, VERY GOOD, at valuing homes means knowing how to value intangibles. Not only do nearly ALL appraisers not know how to do this, even the so-called experts who write books for the AI, deserve dunce caps.

One of the stupidest things is the grading for Condition and Quality. C1-C6, Q1-Q6. STUPID. You know what mine are? - 0-99!!. Now why do you need so many levels - because when you get into to certain areas of the condition/quality vs price contribution curve, the slope can get very steep - and small changes in quality/condition can result in big changes in value. A good regression program can map these out in fine detail - but only with a more refined scale like 0-99. And, if you have been on this forum for long, you will have come across complaints form many appraisers about these rankings. They have to take up a place in the grid and you have to assign adjustments that are different for the same condition/quality value. It messes up your report big time. "Why did you do <this>?" "Why did you do <that>?"

Clarification: When I say "small changes" can make a big difference in value, I mean "small changes" in the relative ranking of properties on the basis of intangibles such as quality, condition, view and so on. We see this in the Fixers. Maybe only 1-2% of the homes in a neighborhood in a neighborhood of 40 year old homes are in such dire need of repair they would be considered "fixers" Within this 1-2% (of say a population of 300 homes) you might have some that need major reconstruction, others just updating that has never occurred over their lifetime (while the vast majority of homes in the neighborhood have had nearly continual updating over that period) and everything in between. Regression of the residuals can bring out the adjustments to make ... but understand it is based on percentage rank, percent better or worse. The subjective valuation of the appraisers comes into placing the subject within the ranking of comps produced by an ordering of the residuals scored by % better (or worse, take your pick).

 

[Terrel L. Shields]

the appraiser be a student of the market and provide market based support for everything they do

"Market" to some implies only a sale using the sales comparison approach. Did you know that the sales comparison approach was once called the market approach until someone realized that cost data and income data are also MARKET DATA? Cost data is market data. It is the benchmark of sales. Only a fool buys something for more than it cost to build a duplicate on similar site. Income data provides a distinct measure of demand just as surely as the volume of sales. And sales provides us the mood of the buyer. Buyers now have a much different mood that they did in 2010. We need all three data sets. But as far as I can see, some use only one data set thinking sales are the "only' market data. Not true. And Bert correctly points out that the broad range between C and Q ratings are a joke. With only six ranges between garbage and great, at best a single condition or quality rating defines a range as broad as 10-20%. Who is happy when you have 2 properties with the same rating and otherwise identical that are $20,000 to $40,000 different in a $200,000 home?

 

[ZZGAMAZZ]

"Market" to some implies only a sale using the sales comparison approach. Did you know that the sales comparison approach was once called the market approach until someone realized that cost data and income data are also MARKET DATA? Cost data is market data. It is the benchmark of sales. Only a fool buys something for more than it cost to build a duplicate on similar site. Income data provides a distinct measure of demand just as surely as the volume of sales. And sales provides us the mood of the buyer. Buyers now have a much different mood that they did in 2010. We need all three data sets. But as far as I can see, some use only one data set thinking sales are the "only' market data. Not true. And Bert correctly points out that the broad range between C and Q ratings are a joke. With only six ranges between garbage and great, at best a single condition or quality rating defines a range as broad as 10-20%. Who is happy when you have 2 properties with the same rating and otherwise identical that are $20,000 to $40,000 different in a $200,000 home?

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Newbie 101 Question: I recently submitted a 1025 with an opinion of value above results of the SCA and below results of the IA, with plenty of description of my rationale, which to a large extent reflected the implications of your statement above. The FHA "review appraiser" just imposed stips because the result was above the SCA opinion of market value. Should the engagement letter have stated that the appraiser can't "use" the IA, but if not, why bother developing it? {I'm real confused about the role/responsibility/authority of the FHA review appraiser, and don't know if it is an in-house reviewer or a fee panel appraiser, although that shouldn't happen, although I was advised recently on the Forum that the FHA underwriter has total authority to stipulate anything/everything he or she wants . . . for example, my CB4 for a contractor's inspection because of faulty foundation supports was returned to me from the lender rather than to the contractor, as I indicated. It's very confusing not knowing who has the wherewithal to say or do. I realize that I'm the ONLY person responsible to ensure credibility of the report, and don't know if/how that's affected with FHA work, and there doesn't seem to be such a thing as FHA continuing education via any of the course providers, or even via HUD. Please advise if possible though I realize this comment could be the source of numerous threads, most of which probably have been dead for a long time...

 

[J Grant]

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Newbie 101 Question: I recently submitted a 1025 with an opinion of value above results of the SCA and below results of the IA, with plenty of description of my rationale, which to a large extent reflected the implications of your statement above. The FHA "review appraiser" just imposed stips because the result was above the SCA opinion of market value. Should the engagement letter have stated that the appraiser can't "use" the IA, but if not, why bother developing it? {I'm real confused about the role/responsibility/authority of the FHA review appraiser, and don't know if it is an in-house reviewer or a fee panel appraiser, although that shouldn't happen, although I was advised recently on the Forum that the FHA underwriter has total authority to stipulate anything/everything he or she wants . . . for example, my CB4 for a contractor's inspection because of faulty foundation supports was returned to me from the lender rather than to the contractor, as I indicated. It's very confusing not knowing who has the wherewithal to say or do. I realize that I'm the ONLY person responsible to ensure credibility of the report, and don't know if/how that's affected with FHA work, and there doesn't seem to be such a thing as FHA continuing education via any of the course providers, or even via HUD. Please advise if possible though I realize this comment could be the source of numerous threads, most of which probably have been dead for a long time...

Please read the limiting conditions and cert pages on the 1004 ( which is also used for FHA) It says right there the value is based on the sales comparison approach. IA or CA can be developed but in a supporting role, we certify we based our opinion on the SCA. With respect to Terrel/other st gens who do no or little lender work, their advice without meaning to can get a res appraiser doing lending work in trouble, since they assume we can just rely on IA or CA at our option. (when we certify we did not.)

Some of your posts are kind of scary, in that you are doing fannie and FHA and URAR work without seeming to know the policies /guidelines or even what the URAR states we must do. That could inadvertently get you into a USPAP violation or complaint situation. For your own good do some reading on the FHA and fannie appraisal guidelines (search for them online ) and read the URAR page by page, esp the limiting conditions, lots of good info right on the form that we tend to skim over.

 

[J Grant]

below from the URAR limiting conditions and certificans page: # 4

APPRAISER’S CERTIFICATION: The Appraiser certifies and agrees that: 1. 4. I developed my opinion of the market value of the real property that is the subject of this report based on the sales comparison approach to value. I have adequate comparable market data to develop a reliable sales comparison approach for this appraisal assignment. I further certify that I considered the cost and income approaches to value but did not develop them, unless otherwise indicated in this report.

If an appraiser wants to ""think outside the box" or base a value on an income approach, then dont' do lender work where you certify you based your opinion of market value on the sales comparison approach. It is that simple, and not up for debate with URAR work

Appraisal can involve creative thinking for problem solving but is not really a creative field. Like a sports game with rules and have to keep the ball within the lines or it is a foul. We can do art or music on the side where there are no rules and we get to do what we want !

 

[Econobot]

below from the URAR limiting conditions and certificans page: # 4

APPRAISER’S CERTIFICATION: The Appraiser certifies and agrees that: 1. 4. I developed my opinion of the market value of the real property that is the subject of this report based on the sales comparison approach to value. I have adequate comparable market data to develop a reliable sales comparison approach for this appraisal assignment. I further certify that I considered the cost and income approaches to value but did not develop them, unless otherwise indicated in this report.

If an appraiser wants to ""think outside the box" or base a value on an income approach, then dont' do lender work where you certify you based your opinion of market value on the sales comparison approach. It is that simple, and not up for debate with URAR work

Appraisal can involve creative thinking for problem solving but is not really a creative field. Like a sports game with rules and have to keep the ball within the lines or it is a foul. We can do art or music on the side where there are no rules and we get to do what we want !

This is why I have my own certification....the pre-printed form certification is garbage, gimme a break.

 

[Terrel L. Shields]

we certify we based our opinion on the SCA

Nothing in Fannie Mae or FHA prevents an appraiser from making an adjustment in the sales approach based upon cost related or income related methods. Nothing.

 

[ZZGAMAZZ]

Ok so what about a stip of a FHA report because both SCA and IA were replied upon to determine the opinion of value above results of the SCA, with mucho explanation concerning buyers' motivation, local market dynamics, the 1025 cert that cites both SCA and IA appraoch, etc., etc., etc., ectc.?

 

[Michigan CG]

...just that I've heard them 13,000,000,000,000,000,000,000,000,000 times and just can't do it anymore!
Even worse...almost every gig I play BOTH of those are, inevitably, requested.

I am 52 years-old. I don't want to hear the new 2019 REO Speedwagon song that I will never hear on the radio. I want to hear "Golden Country" or "Heard it From a Friend" or another song that I grew up with. I want to hear Styx play "Suite Madam Blue" or almost anything from the Paradise Theater album.

Free Bird or Stairway to Heaven is never bad at a concert. We went to the Heart concert in September and they played Stairway to Heaven and Barracuda. It was the best part of the concert. They played some songs that I had never heard of and I was bored.

Play to the audience. What the band wants does not matter; what the audience wants is what matters.

 

[Terrel L. Shields]

o what about a stip of a FHA report because both SCA and IA were replied (?) upon to determine the opinion o

You can rely upon the SCA and say the income (or cost if applied) approach supports the value determined by the SCA. FHA is pretty explicit about the value has to be predicated on the SCA....but you still can use cost related methods income related methods to make adjustments...just remember to show your work and/or source.