Acceptable Differences In Appraisals

[Jen Merryman]

I wanted to sell FSBO and knew that I would be limited in sales price by my home's appraisal value. I paid a local appraiser (one of four in our area) to do a full appraisal on 4/7/2005 using both the cost approach and the sales comparison approach method. I live in rural middle Georgia and the estimated time to sell my home was 3-6 months. I got an offer two weeks after I put the sign in my yard. It was for the price I had been quoted as the fair appraisal value so I accepted. Two other individuals tried to make offers in the week after I had accepted the first offer, so I had to turn them away. The buyer's lender went with a different appraiser than mine and their appraiser came in with a value 6% higher than my appraiser did. Our appraiser came in at $176500 and their's came in at $187000. The buyer isn't doing 100% financing, so I don't think the buyer's appraiser had any undue pressure to appraise high. While I realize there is an element of professional judgement, shouldn't two appraisers looking at the same property within a four week period in a slow to mid paced market have a similiar appraisal give or take 1 or 2 percent. In your all's professional opinion, how unlikely is it that two appraisers could reach such differing opinions. I did not make any improvements or changes to the home in the 4 weeks between appraisals. In the past month, only one home in my neighborhood has been sold. I appreciate any appraisers giving their professional opinion.

 

[eric cogswell]

Opinion..... Opinions are Opinions.. Everyone has one. Alot of lending institiutions will have reviews ordered for past appraisals. the orders are to agree with the original appraised value if it falls within 5% of difference Ex. original appraised value $100,000 and review appraiser constructs an opinion of $ 95,001 . The review appraiser would just simply accept the original appraised value since it falls within 5% of range. Again , we are professional fortune tellers trying to predict the future.. But it's all good because we are, or should be, an unbiased eye.

 

[Jen Merryman]

This may be irrelevant to my original posting but my appraiser (we'll call him low appraisal guy) also told me that he could switch the name of his report for use by my buyers for a $50 fee. I just clicked on an FDIC link somewhat inserted in a different post and it looks to me like this isn't kosher which explains why the buyer's bank went with their own appraiser.

 

[Joker]

If each appraiser was off by 3% in a different direction, that will bring about a 6% spread. A range of 6% in value is acceptable, but it may seem that the appraiser did not thoroughly analyze what appears to be an active market.

The practice of "switching names" is not acceptable. In former years in was called a readress or a reassignment. Actually, it wasn't good practice then either but only recently has it been brought to light that it is not an acceptable appraisal practice.

Hopefully, what the appraiser was offering was to do a "new assignment" and appraise the property for a different intended use and a different intended user for a reduced fee. The thoery being that part of his research is done so his time and efforts are minimal in relation to the initial assignment. Lenders should not accept appraisals ordered by the borrower. Most reputable lenders want their own trusted appraisers valuing the collateral they loan against.

 

[Randolph Kinney]

If you have both appraisals, check to see if they used the same comparable properties. If not, that in itself can give you 6% difference.

Also check to see how any differences among homes were reconciled, adjustment values, are they the same?

 

[George Hatch]

I wonder why it is that everyone always assumes the lower appraisal is the one in error. Of the two assignments, the first appraisal was done without a 'target' value, while the second one had a sales price to ratify. Jusy based on that and having not seen either one, I'd be disinclined to automatically assume the first appraisal was signficantly in error. Especially if it was performed by a local.

Another element that can lead to a wider than average variance between appraisers is if there aren't a lot of really comparable sales data to choose from. You say you're located in an area with very few appraisers. That leads me to assume that you might have a more rural location, one wherein there may not be a lot of really similar sales data to choose from. The more limited the comparables are in terms of quality and quantity (comparabilty-wise), the less precise will be the resulting opinion of value. This is especially true if there are some unusual or unique aspects about your property. That's how two appraisers looking at the same appraisal situation can legitimately come up with such different opinions.

 

[Fred]

This thread is an interesting counterpoint to the one called “What’s the highest value you can get?” The latter shows part of the reason mortgage appraisals are higher. Lender pressure. Also, it shows the two-edged sword. Appraisers are quick to dismiss the value difference by saying the value is “just an opinion,” but don’t like it when someone says this “just an opinion” is too low, can you change this "just an opinion" to make it a little higher?

“Switching names” has gotten very overblown the last couple of years. Once the appraiser makes a decision that the first analysis is also sufficient for the second client, that “scope decision" is the creation a second appraisal. The creation of a second report entails slightly more than just “switching names.” However, to those not versed in the trivia of appraisal standards, it very much can appear that the report is simply “re-addressed.” It is better for appraisers to say they can generate a "new report" for $X.

 

[Jen Merryman]

George, Thanks for your posting. You're right. The higher appraisal could be in error. You are also correct on two counts, I live in a desirable middle class subdivision but one without much turnover. And our house is the biggest home in our subdivision (ours is just over 2500 while the others are between 1900 and 2100) with a very different facade and floor plan than others in our subdivision. We knew that the issue constraining our sales price was appraisal and not desire from buyers -- we had our friends friends asking to see it even before we put the sign in our yard. It just really is upsetting to me that our house appraised at 167000 when we bought it 2 years and 9 months ago, appraised at 1765000 last month and then came in a 187000 this month. My husband just accepted a new job in a new area so that I could afford to be a stay at home mom to our 1 year old and to baby on the way. It just makes me cry to think how much we could have used the extra money if the second appraisal was more on target. But you helped me keep in perspective......

 

[Otis Key]

One other consideration Jen, which Craig hit upon and you made it even more clear in your last post, is the difference in time between the two appraisals. That may have resulted in the fact that there were different sales and/or different supply/demand factors for your market. Without knowing your market, it's the best that I, and the others, can come up with at these distances.

Overall, you've still saved a few $$ because you went FSBO and therefore don't have the agents commission to pay. Based upon the current "typical" commission of 6%. The first appraisal indicated what you said $176,000 which, if you had listed with an agent would have resulted in a commission of $10,590 out of your pocket, which would have gotten you a net of $165,910, less other charges as well.

I understand your frustration but the appraisal profession and practice is not a specific science, nor is it carved in stone. It is an art utilizing scientific and mathematical methods.

 

[Fred]

Jen
I didn’t have time before, but I would point out that many residential appraisers work predominantly creating mortgage appraisals and work exclusively with one report form that callls for certain information. I think you likely got a rote and formulistic treatment that could pass minimum standards for a loan. The fact that the person can do as little as “switch names” tells is an indicator of that. However, in my view, value for sale is a different “intended use” than value for lending.

Among the standard premises in a lending appraisal is that value is what the property would already have sold for (today or earlier) marketed in a typical fashion. These premises are not applicable to a sale appraisal. For one, you are not locked into an assumed marketing effort. For example, in analyzing what a home WILL sell for instead of what a home would have sold for, one would look at different listings and look at listings differently. Also, the report could introduce ideas about “staging” a home for sale. This can result in several value conclusions for each of the several sets of premises. A report to a potential seller, in my view, should have stressed that the home is the larges in the neighborhood (which always creates uncertainty) and offered that in a strong market, this could used to create a bidding situation.

A report that considered the above selling issues, would not likely fit on a form that one can just “switch names” on. There is nothing wrong with reporting to the seller, a point estimate of the most likely selling price as of a recently past date, but it seems crucial that a seller know the actual future price could be higher or lower and the reasons that cause these results.