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Appraisal - Sunk Cost Fallacy

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No wrong or right answer. Basic discussion.

1) What is an appraisal hired to do?

2) Is the current process of an Appraisal of Real Property, appraiser, forms, etc (the entire processes) a sunk cost fallacy model to the end users? This can mean, GSE's, the Government, banks, etc?

Please respond to each question separately. If need to combine your answer, use the notation "3."
 

Terrel L. Shields

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2. It is a compliance document for banks. They don't rely upon it. It tells you what something is worth today assuming you even trust the appraiser, but tells you nothing about its value at the end of the loan term, even if only a five year balloon. And can't because you cannot see into the future. The banks, et al, cling to it because they fear the alternatives proffered by legislation might be even worse. GSE's cling to it because to admit this system doesn't accomplish much would be tantamount to admitting appraisers were not the cause of the collapse rather their own greed and bundling of mortgage securities led to their own downfall.
 
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2. It is a compliance document for banks. They don't rely upon it. It tells you what something is worth today assuming you even trust the appraiser, but tells you nothing about its value at the end of the loan term, even if only a five year balloon. And can't because you cannot see into the future. The banks, et al, cling to it because they fear the alternatives proffered by legislation might be even worse. GSE's cling to it because to admit this system doesn't accomplish much would be tantamount to admitting appraisers were not the cause of the collapse rather their own greed and bundling of mortgage securities led to their own downfall.


If I’m aloud my take. We are in agreement.

Only my take:

It seems as if appraisals are a sunk cost fallacy.
 

Carnivore

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3. Don't really know what you may be looking for, but maybe the place to start is with a borrower and a Lender. What is a borrower - the borrower is simply a person or entity that needs money for something and they don't have enough cash to accomplish what they want to do now. Lender is the answer. Pawn shops were some of the first lenders. You need cash and they were willing to give it to you if you gave them a item as collateral. Pawn shops evaluated(appraisel) your collateral; a toaster oven and loaned you a portion of the value of that item based upon the pawn shop owners personal appraisal of your toaster oven future value. Since the risk is high the interest rate was high to account for you might not come back and get it by paying him the money he loaned plus his expected profit on the money. The pawn broker also covered his risk in the event you did not come back The future value was discounted to cover all the cost; holding, loss of use of the cash, and other expenses and liquidation.

To get to the forms and all the BS. 2. the lender is the same as a pawn broker. Forms etc exist because the Lender does not know you(he lives 10,000 miles away) and he also does not know anything about the collateral for the loan.. He doesn't know really anything about you except what others are telling him. That's why he hires all of us, attorneys, credit bureaus etc Home town bankers of long ago didn't need a lot of paperwork about anything, including you the local borrower. The banker knew your boss, he knew where you went to church, he knew if you had a wife and kids, he also knows the sheriff and that you may or may not have spent a Saturday night in the jail.

So in conclusion again I am not sure what your trying to learn or possibly foresee. I could speculate, but I will let others try to do that.

But wait I do have something else to say. The process on the lender side is not based on emotion.
 

Mr Rex

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It is a sunken cost intended to limit potential future losses. What is wrong with that?
 

Carnivore

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Sunk Cost Fallacy | Economics Help
https://www.economicshelp.org › Economics help blog › economics
May 22, 2017 - The sunk cost fallacy is when we continue an action because of our past decisions (time, money, resources) rather than a rational choice of what will maximise our utility at…

Mike another way to say this(and I like your way also)

The Sunk Cost Fallacy. The Misconception: You make rational decisions based on the future value of objects, investments and experiences. The Truth: Your decisions are tainted by the emotional investments you accumulate, and the more you invest in something the harder it becomes to abandon it.

Gee, Maybe that could be applied to RE Appraisers!
 
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