Appraisal Bias

[alebrewer]

If you were able to simulate the marketing and sale of property among different/distinct buyer pools on the same effective date, we would see a bell curve arrangement of the 10 different contract prices, the same as if we had 10 appraisers render an appraisal of the same property we would get 10 different results also on a bell curve.

Fully agreed - possibly a skewed bell curve, but a bell curve nonetheless.

 

[Elliott]

Can anyone point me to a class they took, a USPAP standard, or an appraisal article that is the basis for developing and supporting a 'range of values'?

 

[glenn walker]

I kinda go with the flow as a Broker since 1984 I have never had a client call and ask me what the value of a property is. They may ask whats it worth or what are they asking for it. On a CMA or a analysis to establish a listing price they may say you think we can get X$ Price.

Outside of appraisal industry value is just not a word or term used by market participants.
My issue with the term "Value" is its really never correct because Value is not a fact and often
only relevant to a particular buyer and property yet its made by only one person.

When the appraiser comes in below the Sales or Contract Price a buyer may ask, so who does this appraiser think they are ? where they can tell me what value it has to me at a price they only think its worth and not the market participants.

Many Years ago at S & L our Underwriters were allowed a 3% to 5% Variance on the Single Point of value but most never used it because they feared that if the loan went south they would be blamed. If the Appraiser had signed and "Certified" a Market Value or Price Opinion Range of $500,000 to $510,000 I have no doubt many Underwriters may have opted to use a $505,000 to determine LTV. What we really did was place the appraiser into a corner with a Single Point of Value when in reality that appraiser really believed it was not a reliable static number. A Single Point of value also makes it easier today for someone to say that appraiser had a Biases towards the lower ranges because of that persons race , color or gender. The Fannie Value Acceptance Waiver eliminates all the human Biases out of the equation and unlike a Appraisal if a Borrower wants they can decline lender using the waiver and get a full appraisal completed.

 

[George Hatch]

You can't reconcile to a final number within a range without first identifying that range, which we do in each comparative analysis we do. So in that respect everything leading up to that point is standard stuff.

Just the fact that we acknowledge that the one number is not the only way to express value is self-explanatory as being a recognized concept and application

 

[glenn walker]

Can anyone point me to a USPAP does not address a single point of vlaue or a range. class they took, a USPAP standard, or an appraisal article that is the basis for developing and supporting a 'range of values'?

USPAP does not address a Single Point of Value or a Range. Both would be user guidelines and or assignment conditions.

 

[CGinMN]

If you were able to simulate the marketing and sale of property among different/distinct buyer pools on the same effective date, we would see a bell curve arrangement of the 10 different contract prices, the same as if we had 10 appraisers render an appraisal of the same property we would get 10 different results also on a bell curve.

Fully agreed - possibly a skewed bell curve, but a bell curve nonetheless.

Yes, and hopefully those two sets of distributions look similar, but not always. Then you have to consider the typical scenario (1 contract, 1 appraisal) is just one random data point on the appraisal bell curve, and one random data point on the purchase bell curve, and you can see why reporting a range would be useful.

 

[glenn walker]

One problem is there is a inherent biases even at the beginning of the appraisers career and that is he is told to not be a number hitter and some old timers I knew owuld go so far as to even come in a little belle contract price to show they had not been anchoring the sales price. We witnessed that when appraisals were coming through with a sales price of $400,000 and apprasier coming in at $398,000 or $399,000. I have even had some tell me because they could and they were the appraiser and for me to go F-Off.

 

[alebrewer]

One problem is there is a inherent biases even at the beginning of the appraisers career and that is he is told to not be a number hitter and some old timers I knew owuld go so far as to even come in a little belle contract price to show they had not been anchoring the sales price. We witnessed that when appraisals were coming through with a sales price of $400,000 and apprasier coming in at $398,000 or $399,000. I have even had some tell me because they could and they were the appraiser and for me to go F-Off.

One thing that has always intrigued me is that, post crash, the powers that be decided it was ok for appraisers to have access to the PC (I'm guessing that is because USPAP requires review of it?), but allowing an appraiser to know the value needed for a refinance was paramount to committing the unpardonable sin. Either appraisers have integrity - or they don't. And it is precisely because we are required to report a point value that (in my opinion) we should be privy to refinance information as well.

Case in point: Purchase price is $400,000. Appraiser's range of value is $391,000 to $402,000. $400k is within the appraiser's range and is just as credible as any other point in that range, so the appraiser reconciles to the contract price. Everyone is happy.

2nd scenario: refinance appraisal where $350,000 is needed to execute the refinance. Appraiser's range of value is $342,000 to $351,000. Not knowing the value needed, the appraiser reconciles to $345,000. Loan is lost - no one is happy.

Ok - I'll get off my box now.

 

[J Grant]

Let's flip the script. Hypothetically speaking what if Fannie/Freddie revised their reporting requirements to include a range in addition to the point.

Would you comply and think nothing of it?​

or​

Would you comply under duress and coercion?​

or​

Would you refuse all those assignments on the basis of considering the range to be an unacceptable assignment condition?​

I already did a range with the adjusted comps, I can highlight or paste it or whatever
I would be happy to do a range of value assignment, where are they lol?

 

[glenn walker]

As Grant told me I should not even have a license LOL