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1) Condition 2) Condition 3) Condition

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Pam

Thread Starter
Junior Member
Joined
Jan 15, 2002
Professional Status
Certified General Appraiser
State
Washington
Condition has replaced location as the hack appraiser's favorite method of inflating values. Lenders, investors, etc. are wise to the old trick of using comps from superior locations to inflate values. Hence, the often repeated request for "an additional comp from the subject's subdivision."

Now the hacks are using comps from the subject's immediate market area, but the comps are of superior condition. "Across the board" condition adjustments abound. When questioned as to how the subject can be "average for the neighborhood" but all the comps are superior, the hacks have yet to give a credible answer.

Now the courts are stepping in. "The U.S. Court of Appeals for the Fourth Circuit, applying principles of South Carolina law, has held that an appraiser may be sued for negligent misrepresentation if his appraisal of “as is” market value is “materially inaccurate and negligent” and a third party “detrimentally relied” on the opinion of value." a recent news article noted.

I've looked into my crystal ball and I predict these suits cropping up all over the country. Lenders, buyers, and anyone else who has lost money over a house in substandard condition will be looking to the appraiser (and the appraiser's E&O insurer) for relief.
 

George W Dodd

Senior Member
Joined
Jul 9, 2002
Professional Status
Certified Residential Appraiser
State
Virginia
Pam,

I am not sure I follow your reasoning. Are you saying that the appraisal has used sales from the neighborhood that were superior in condition and then adjusted for this factor?

Or are you saying that the appraisal did not adjust for this factor, and compared a substandard condition home to homes in good condition without adjustment?

Were the adjustments made reflective of the market, or where they artificially low?

Just wondering.
 

Pam

Thread Starter
Junior Member
Joined
Jan 15, 2002
Professional Status
Certified General Appraiser
State
Washington
I'm saying that the appraisers are using comps of average condition and comparing them to homes of substandard condition. The appraiser calls the subject "average" and does the appraisal "as is." The adjustments do not reflect the actual market response to the substandard condition of the subject property. Therefore the final estimate of value does not reflect the actual value based on the actual condition of the subject property.
 

Randy Beigh

Senior Member
Joined
Jan 16, 2002
There must be a "Dummies Guide to Fraudulent Appraisals" book out there. Condition and location are the primary places these folks can produce false and mis-leading reports.

Some of these people become so good at what they do, that you can't read the report to find the fraud. I have one appraiser in this city that I won't do a desk review on, because of that. He's like an artist. Only when you see the subject and comparables can you find where the fraud is. I enjoy doing reviews on this person because he is so good at what he does.
 

Blue1

Elite Member
Joined
Jan 14, 2002
Professional Status
Certified Residential Appraiser
State
California
The truthful answer is that the lending industry will not generally accept any appraisal where the subject is "below average" and will not usually accept a "subject to repair" appraisal. "Below average" or "average-" descriptions for the subject will automatically "kill the loan" in most cases even if the appraiser describes the inferior condition and a "cost to cure" is minimal. This puts (in my opinion) undue pressure on the appraiser to NOT describe the subject as "below average."
 

Pam

Thread Starter
Junior Member
Joined
Jan 15, 2002
Professional Status
Certified General Appraiser
State
Washington
If appraisers bow to pressure, then we deserve all the lawsuits, all the lack of respect, and all the regulation enforcement we get.

If the lender requires the subject property to be in average or better condition, there's a simple solution: Do the report "Subject To" the repairs necessary to bring the subject up to average condition. This solution will also keep you from being sued under the precedent set by that Fourth Circuit case.
 

Jim McGrath

Junior Member
Joined
Jan 25, 2002
Professional Status
Certified Residential Appraiser
State
Florida
The truthful answer is that the lending industry will not generally accept any appraisal where the subject is "below average" and will not usually accept a "subject to repair" appraisal. "Below average" or "average-" descriptions for the subject will automatically "kill the loan" in most cases even if the appraiser describes the inferior condition and a "cost to cure" is minimal. This puts (in my opinion) undue pressure on the appraiser to NOT describe the subject as "below average."

Blue, what do you do when your REO appraisal has bids of $35,000 in repairs and a severe mold problem, and they say to do the appraisal as if the mold does not exist, and not subject to any repairs?

Jim
 
Joined
Jan 13, 2002
Professional Status
Retired Appraiser
State
Florida
Blue, what do you do when your REO appraisal has bids of $35,000 in repairs and a severe mold problem, and they say to do the appraisal as if the mold does not exist, and not subject to any repairs?

"THIS APPRAISAL AND REPORT IS BASED UPON A HYPOTHETICAL CONDITION OF THE STRUCTURE BEING IN AVERAGE CONDITION WHICH, IN REALITY, IT IS NOT. SEE ADDENDUM FOR EXPLANATION OF SUBJECT'S ACTUAL CONDITION."

What do you think?
 

Blue1

Elite Member
Joined
Jan 14, 2002
Professional Status
Certified Residential Appraiser
State
California
Jim,

You tell your client that you will not commit fraud and you WILL mention the mold on the report. Be sure to disclaim that you are not an environmental inspector or a mold expert and recommend an inspection by a qualified professional.

Pam,

My post referred to "undue" pressure in regard to letting the appraiser know that anything other than "average" will not be accepted. To me, this is coersion, just like giving a value to "hit." You're right about "subject to" but here we have to be careful that we know if items have been adequately repaired.
 

Restrain

Elite Member
Joined
Jan 22, 2002
Professional Status
Certified General Appraiser
State
Florida
The flip side of the 'Condition' adjustment is the upwards adjustment for "Upgrades" in semi-custom and custom neighborhoods. I have seen this used to pump values. Typical - had a $300K home adjusted up $50K for 'Upgrades' to make sale price of Subject. Called realtor - turned out it had the same bells and whistles as the Subject - no upgrades at all.
 
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