Are Appraisals Really Relevant?

[Joyce Potts]

An interesting post I ran across on LinkedIn from a CRE investor. Can't say he's flat out wrong. Thoughts?

What could be more exciting than talking appraisals on a Sunday afternoon?

"Question to the market, what value do appraisals add today?

20 years ago, massive value add. The appraisal was a collection of data that was not readily available. Local sale comps, local rent comps, local vacancy rates, etc etc

With a handful of keystrokes any and all data in an appraisal is readily available on the internet (thank you Al Gore).

If you are in the CRE business, debt or equity or intermediary, and are relying on an appraisal to determine value…get out of the CRE business.

Every appraisal was wrong in 2007, and again in 2008; they were wrong again in 2009 through 2011. Wrong again in 2021 and 2022. Probably wrong again now. As one of my mentors said, “appraisers know the price of everything and the value of nothing.”

Not an equity investor nor lender on the planet that is going to their stakeholders after sustaining losses and saying, “oh but the appraiser said…”

I get it, appraisals have been part of the process since before I was born…but given the world we live in today are they really relevant?"

No, appraisals are no longer relevant for lending purposes. The appraisals were not necessarily wrong. How could they be if the values were based on recent market data. Given technology, perhaps the definitions of price vs. value needs to be re-addressed.

Lastly, Al Gore is not to blame for the free give-a-way of residential market data, appraisers are. Appraisers stood by and did nothing as AI Ready, FNC and the GSE's changed the certifications and ushered in the demise of the 'value and/or price of the appraiser'.

 

[Non Sequitur]

True, but wouldn't they be interested in the Condition of the property also?

But do they need an MAI who only sells by the pound for that?

I'm not 100% on board with the poster, but it is interesting reading his side's point of view. And IMO what's missed, at least a little, is how appraisals tend to moderate an out of control market. When money is flowing on the lending side, if appraisals are bypassed the market has no top or brakes. I know Phil Crawford takes heat from the AF peanut gallery for his opinions, but I agree with him that waivers and the less than full appraisal products just added gas to the pandemic boom on the residential side.

 

[Carnivore]

These firms often pay above market value in hot zones or below market value in distressed areas—depending on their strategic thesis. Either way, the price reflects their investment value, not a neutral market consensus.

So for example the charlotte metro area is seeing population growth due to migration from other areas of the country. I have to make some assumptions they are leaving high income tax/property tax states. Like NY. Plus our climate is great and energy cost are much lower.

 

[Non Sequitur]

Sounds like a member if the disgruntled investor club who didn't get the number he needed for a cash out refi. Robert Bruss may be feeding the worms, but his type is still complaining in the media and social media. Those types are good at one thing, they can hold a grudge and not let go.

True, there are more than a few coach systems teaching equity stripping with the hopes that the market will bail them out eventually. One of the strongest arguments for appraisals.

 

[Non Sequitur]

I think if this were really true at present, realtors and appraisers would be less in demand, at least in part. Why, in 2025, do people still use realtors? They don't hold the keys to market exposure anymore. If the data eventually becomes very public and available, sellers and buyers would likely be more informed/knowledgeable in their market. NAR doesn't want that. MLS doesn't want that. CoStar doesn't want that.

Good point. I think real estate is still a relationship business. People want to deal with people, that's not to say people also love doing their own research online and questioning the people they deal with.

 

[djd09]

anyone thanking the goracle must be one disturbed person...

 

[djd09]

Mortgage Lenders Push Ahead With Appraisal Reviews—Despite Trump-Era Rollback​

Nearly 1 in 4 homeowners who challenge an appraisal end up winning a higher valuation, according to the relocation firm Dwellworks.

It’s a sign that appraisal mistakes are far from rare,

https://www.realtor.com/advice/finance/mortgage-lenders-keep-appraisal-reviews-trump-rollback/

oh look...with all the available data we are still wrong

 

[Joyce Potts]

But do they need an MAI who only sells by the pound for that?

I'm not 100% on board with the poster, but it is interesting reading his side's point of view. And IMO what's missed, at least a little, is how appraisals tend to moderate an out of control market. When money is flowing on the lending side, if appraisals are bypassed the market has no top or brakes. I know Phil Crawford takes heat from the AF peanut gallery for his opinions, but I agree with him that waivers and the less than full appraisal products just added gas to the pandemic boom on the residential side.

If an loan applicant has a stellar credit score, history and net worth, what more could a lender ask for. Maybe a $50 Door Dash inspection? <shrug>

 

[Vermonter]

The gap between the benefits of an appraisal over not having one has been shrinking since I started appraising 28 years ago. Irrelevance is inevitable.

Alternative valuations don't have to be better than what an appraiser can provide, they just have to be good enough for the end users needs.

 

[Non Sequitur]

If an loan applicant has a stellar credit score, history and net worth, what more could a lender ask for. Maybe a $50 Door Dash inspection? <shrug>

Good point. And in that case I bet everyone in the transaction would agree to 86 the 3 pound 4 or 5 figure appraisal. I'm sure the MAI who lost out on the $$ would disagree, but given most will not offer something less, why should the transaction participants care about the appraiser?