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Appreciation and Lenders

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John Stirling

Freshman Member
Joined
Nov 10, 2002
Doesn't USPAP state that you can not present a report that is misleading :?: If time adjustments are necessary then they should be used or the appraisal will be misleading. If the Lender doesn't like it then they can discount your value estimate. Very often we use time adjustments because there are no recent comparable sales, after all property values increase due to a lack of supply. The appraiser should be considering the available and under contract properties to ensure the market is continuing to increase. But if adjustments are indicated they should be used.
 

Joe Moore

Junior Member
Joined
Jan 30, 2002
Professional Status
Appraisal Management Company
State
Pennsylvania
Time adjustments are accepted when supported. The problem is when across the board adjustments are made with no support, or maybe just a comment "Values are increasing at x% per month" with nothing at all to support the assertion.

How can anyone be expected to accept that values are increasing when there's no data provided from the appraiser to demonstrate support for an increase?

I see similar concerns with across the board adjustments for site size differences, and large outbuildings as well. More and more clients are focusing in on the comparables' sales prices, not the indicated values, and expect support in both areas.

Joe
 

George Hatch

Elite Member
Gold Supporting Member
Joined
Jan 15, 2002
Professional Status
Certified General Appraiser
State
California
This is yet another example of how the opinion of value by itself is not always the most important aspect of an appraisal. One of the things we are supposed to be doing is reporting trends; value trends, supply/demand trends, exposure time trends. As Dee Dee was saying above, if the inventory of listings is growing, exposure times are lengthening, sale prices are 10% or more below the list prices, and the list prices are below the more dated closed sales, then these are pieces of information that should be prominantly relayed in the report. In such a market the listings will represent the upper limit of value.

Appraisers have no trouble checking off the Growth Rate "Rapid", Property Values "Increasing", Demand/Supply "Shortage" and Marketing Time "Under 3 months" boxes on their reports when times are good. But again, I have to wonder how many appraisers are willing to check the "Slow", "Declining", "Over Supply", and "Over 6 Months" boxes when the time comes.....

I can hear the Fannie-heads crying already - "If you mark that box it will kill the deal". Of course, this is completely untrue. Correctly and accurately reporting the value and the trends will almost certainly take a deal out of the 95% LTV program and put it into a 90% LTV program, and rightfully so. The loan programs have guidelines for a reason. The deal can still live if the borrower is willing to put their money where their mouth is. If they don't have the cash to put down on the deal, they possibly shouldn't be buying that property at this time. Maybe they should go for something less expensive. Maybe the seller needs to come down on their price or take back a 2nd; or the broker will agree to a reduction on their commission, or arrange for a buyer for the 2nd. There are lots of ways a deal can work short of the appraiser conspiring to defraud the lender. Why should we be the ones tasked to hold the bag?

Value opinion notwithstanding, if an appraiser fails to accurately report the price trends in their property's market segment, they may well be contributing to an overencumbrance of the property and a subsequent loan failure. Make no mistake about it, a lender will be only too happy to blame the appraiser for a deficiency (which is what happens when there is a short sale) if the appraiser is dumb enough to give them the opening to do so... All they have to do is say "If the appraiser had told us this was a declining market we would have demanded a lower LTV".

Observe and report. How complicated can it be?


George Hatch
 

Mike Garrett RAA

Elite Member
Gold Supporting Member
Joined
Jan 14, 2002
Professional Status
Certified Residential Appraiser
State
Colorado
Hi Joe...good to see you posting once more.

I agree, when we make adjustments....they should be supported; however, we are not required to write a book about how we arrived at the conclusion. Even if we did, most underwriters wouldn't read it anyway.

Wouldn't you agree to the following:

1. Overall, nationwide wide the housing market has trended upward even in a year when all we here is "poor economy, poor economy". Where is this coming from? The stock market has shown a very big recovery over the past 4 months. Housing starts were at a record high. Interest rates are at a 37 year low. Where is the BAD economy?

2. Even if housing did nothing more than keep up with inflation there should be positive time adjustments IF the comparables are more than 3 months old. While this might be moderate...it still is positive appreciation and the appraiser should consider it.

3. Support for a site or lot adjustment comes from the market. If, after all other things are considered, a property sells for, say, $5,000 more than other competing properties...that $5,000 could be attributable to the site. The extraction method is a perfectly acceptable appraisal practice.

4. As a general rule...a purchaser will most likely pay more for a property on a half acre lot then they will for one on a quarter acre site when all other things are equal. Does the appraiser using a form appraisal report need to provide a gridded pairs analysis to prove this point? After all items on the grid on a URAR report are accounted for, it should be obvious the adjustment is supportable if it brings the Final Adjusted Value of the Comparables into a suitable range.

5. Properties on acreage with substantial improvements for horses, etc. obviously have "value in use". These are normally purchased for the purpose of having horses, etc. To say those improvements add little to the value of the property defeats common sense. Try to tell someone who just spent $15,000 on a lighted, heated barn with running water..."it has no value".

The problem lies in the fact the lender is trying to put these properties into a narrow little box for conventional lending. Perhaps there should be a seperate loan classification for this type of property. The same applies to properties with more than, say, 5 acres. This is a huge problem out here in the wild, wild west where such properties are quite common.

Famous Mikie saying
<span style='color:green'>"it is what it is...and I can't make chicken soup out of chicken poop".
</span>It is the lending community that forces the appraiser to "make it fit our requirements" which could, very easily, lead to a misleading report!

Now that said, we as appraisers should be sensitive to those items that will raise RED FLAGS
 

Dee Dee

Elite Member
Joined
Jan 16, 2002
Professional Status
Certified Residential Appraiser
State
Colorado
Just a thought........Although many underwriters have never done an appraisal, the bulk of data on comparable sales in appraisal reports can be verified by checking multiple listings, county records and/or making phone calls to the appropriate listing realtor on any given comp or the subject property (condition, improvements, etc.). Doing a complete analysis on market trends and time adjustments would require significantly more time, experience and resources to verify.

For that reason alone it's easy to understand why many underwriters don't want anything to do with time adjustments.

Bottom line is this, if an appraiser uses time adjustments to hit a sales price or the 'value needed', they had better be prepared to scramble if the underwriter/investor decides to reject that adjustment. It is their right to do so, they are the ones who are being asked to back the loan.

The loan officer will be in panic mode and howling for the appraiser to 'find additional comps' to justify the original value estimate, which has now been unceremoniously stripped of that time adjustment padding. The appraiser won't be able to back up and do the original portion of the report over. It doesn't matter at this point if the time adjustment is justified. The deal is going to go south if those extra comps aren't available or if the loan officer (who by now is hysterical and desperate) can't find a different investor who is willing to accept the original appraisal. That's what the client will remember, and most appraisers only have to go through this spanking once or twice before they realize it's not worth the grief.
 

Joe Moore

Junior Member
Joined
Jan 30, 2002
Professional Status
Appraisal Management Company
State
Pennsylvania
1. Overall, nationwide wide the housing market has trended upward even in a year when all we here is "poor economy, poor economy". Where is this coming from? The stock market has shown a very big recovery over the past 4 months. Housing starts were at a record high. Interest rates are at a 37 year low. Where is the BAD economy?

**I'm not seeing a bad economy either. My guess it's just the 'media' focusing on getting more Democrats elected, but that's off topic.

2. Even if housing did nothing more than keep up with inflation there should be positive time adjustments IF the comparables are more than 3 months old. While this might be moderate...it still is positive appreciation and the appraiser should consider it.

**I agree it should always be considered. However if large adjustments are considered warranted, support has to be provided in the form of recent data.

3. Support for a site or lot adjustment comes from the market. If, after all other things are considered, a property sells for, say, $5,000 more than other competing properties...that $5,000 could be attributable to the site. The extraction method is a perfectly acceptable appraisal practice.

**My concern isn't for $5000 adjustments. What I see are 20-30% line adjustments with no explanation or market support. Or worse, I've been seeing more and more fraud where instead of making a huge positive line adjustment for site, the appraiser compares the subject properties with superior sites, making minimal adjustments (Negative $10,000 on a $500,000 property, for example).

4. As a general rule...a purchaser will most likely pay more for a property on a half acre lot then they will for one on a quarter acre site when all other things are equal. Does the appraiser using a form appraisal report need to provide a gridded pairs analysis to prove this point? After all items on the grid on a URAR report are accounted for, it should be obvious the adjustment is supportable if it brings the Final Adjusted Value of the Comparables into a suitable range.


**A gridded pairs analysis isn't generally necessary, certainly not when adjustments are minimal (less than 10%, unless of course we're talking about a scenario like I've noted above). However citing support, for example, "12 Rural Street, 30 Acre Parcel located 2 miles for the subject, sold 11/10/2002 for $40,000, and another sale of a 25 acre parcel, 13 Hickory lane, located 3 miles from the subject, sold 8/5/2002 for $30,000" is helpful. The problem isn't one sale being brought up or down to support value, it's all three sales being brought up to indicate a value range that is far above any sales price provided. These are the kinds of reports that are rejected by investors.


5. Properties on acreage with substantial improvements for horses, etc. obviously have "value in use". These are normally purchased for the purpose of having horses, etc. To say those improvements add little to the value of the property defeats common sense. Try to tell someone who just spent $15,000 on a lighted, heated barn with running water..."it has no value".

**Now we're getting to what I'm talking about. I'll see the report with a $15,000 across the board adjustment (or worse $50,000) and NO explanation, and left to wonder if the amenity will add any value at all if sold as a residential property.

The problem lies in the fact the lender is trying to put these properties into a narrow little box for conventional lending.

**I think the narrow little box only becomes that way when similar comparable data is unavailable. Too few appraisers are willing to put the effort into EXPLANATION, demonstrating support when the sales data doesn't match up well with subject, with the argument being "you just don't know my market." Again the investor rejects the report.

Perhaps there should be a seperate loan classification for this type of property. The same applies to properties with more than, say, 5 acres. This is a huge problem out here in the wild, wild west where such properties are quite common.

**I just had this same discussion with a large lender looking for this exact thing a few weeks ago.


Joe
 

Mike Garrett RAA

Elite Member
Gold Supporting Member
Joined
Jan 14, 2002
Professional Status
Certified Residential Appraiser
State
Colorado
Spanking? <perk> <perk>

I don't disagree.....the simple solution...use very very current comps. I, personally, don't care to use time adjustment because of the hassle it causes..BUT..if they are warranted and needed to accurately reflect the market, then I say..."we should be the one to determine if they should be used..not some underwriter".

Perhaps more deals should be rejected for poor appraisals and inflated values. Our worth might become more appearent to the lending process. Today it is ..."hit the value with the least amount of things that will trigger red flags". If we don't they just find an appraiser who will. Sad fact of life, isn't it?
 

Dee Dee

Elite Member
Joined
Jan 16, 2002
Professional Status
Certified Residential Appraiser
State
Colorado
George,

You mean to tell me that there are still lenders out there who are lending on more than an 80% LTV? Wow....it's been at least a year since I've seen that around here. :roll: :?

Had an interesting chat with a mortgage lender who has a sizeable office down in Denver yesterday. He told me that the underwriters are picking apart loans and appraisals like never before. According to this lender, he heard it straight from someone at Fannie Mae that currently around 13% of their loans in the Denver area are delinquent and heading for default.
I pray to God this guy was pulling my leg or was greatly misinformed.
 

Frederick R. Ruffell

Senior Member
Joined
Jan 21, 2002
Professional Status
Certified General Appraiser
State
California
Susan,
I appraise in San Diego county and use time adjustments all the time!! I have used paired sales in the past but the San Diego regional chamber of commerce publishes "Housing Price survey - Percent change in value" for "Communities, cities and areas within San Diego county". Get a hold of the latest publication (every 6 months) of the chambers's "Housing Issue". This is Good Data as they re-appraise the same property in different neighborhoods every 6 months to arrive at their conclusions. I site this source in my reports and have never had it questioned.
 

Mike Garrett RAA

Elite Member
Gold Supporting Member
Joined
Jan 14, 2002
Professional Status
Certified Residential Appraiser
State
Colorado
Dee Dee darlin...... unfortunately what you heard is correct. I know because I am getting a pot load of Fannie Mae liquidation appraisals...8 this month alone. Back up the truck cuz the fecal material is headed for the ventilation device.
 
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