Considering filing complaint for lack of market conditions adjustment on stale comps

[throwaway12345]

Thank you all for the lively discussion. I appreciate getting an appraiser's perspective on my situation and whether you agree with my frustration or not, your points are taken all the same.

Humor me, if you will, and consider a hypothetical counter scenario to illustrate my point. You are reviewing an appraisal with a FMV of $120K, which matches the SC price of $120K. Your comps are the same model as the subject, but all closed a year ago, all at $100K. This indicates the appraiser adjusted the comps up 20% for market conditions. You dig into the 1004MC and the appraiser states that prices, inventory, and DOM have been stable over the past year, but due to a small data set and variety of product sold they are characterizing the market as increasing. Huh, that doesn’t make sense, since the grid shows prices, inventory and DOM are unchanged in the form but maybe there’s some off sheet analysis that I’m missing.

So you dig into some market data. The median price in the county is the same as it was a year ago. The market area median price is the same as it was a year ago. In the specific neighborhood, you scatterplot closed sales prices over the past year for homes and condos with the same # of beds, baths and roughly same SF. Flat as a board. DOM follows the same pattern.

You find three paired sales of substitutable products in the neighborhood (remember, no model matches to the subject have sold in the past year). One pair shows that model A sold for $90K a year ago, and another model A yesterday for $90K. Another pair shows that model B sold for $120K a year ago, and another model B yesterday for $120K. The third is the exact same property sold a year ago for $100K and again yesterday for $100K.

How credible do you find the appraisal with a FMV of $120K?

 

[CGinMN]

Thank you all for the lively discussion. I appreciate getting an appraiser's perspective on my situation and whether you agree with my frustration or not, your points are taken all the same.

Humor me, if you will, and consider a hypothetical counter scenario to illustrate my point. You are reviewing an appraisal with a FMV of $120K, which matches the SC price of $120K. Your comps are the same model as the subject, but all closed a year ago, all at $100K. This indicates the appraiser adjusted the comps up 20% for market conditions. You dig into the 1004MC and the appraiser states that prices, inventory, and DOM have been stable over the past year, but due to a small data set and variety of product sold they are characterizing the market as increasing. Huh, that doesn’t make sense, since the grid shows prices, inventory and DOM are unchanged in the form but maybe there’s some off sheet analysis that I’m missing.

So you dig into some market data. The median price in the county is the same as it was a year ago. The market area median price is the same as it was a year ago. In the specific neighborhood, you scatterplot closed sales prices over the past year for homes and condos with the same # of beds, baths and roughly same SF. Flat as a board. DOM follows the same pattern.

You find three paired sales of substitutable products in the neighborhood (remember, no model matches to the subject have sold in the past year). One pair shows that model A sold for $90K a year ago, and another model A yesterday for $90K. Another pair shows that model B sold for $120K a year ago, and another model B yesterday for $120K. The third is the exact same property sold a year ago for $100K and again yesterday for $100K.

How credible do you find the appraisal with a FMV of $120K?

The analogy is faulty because in this scenario the person preparing the matched pairs is not an untrained, aggrieved, and biased borrower who has interest in the assignment results.

Markets are often nuanced, complex, contradictory, and unpredictable. Your hypothetical is not, and is only presented for your self satisfaction.

Here’s a counter hypothetical to illustrate my point: After a reconsideration of value a lender, an appraiser, and a review appraiser all agree that an appraisal report is credible, but a borrower still questions the appraisal’s credibility. Unsatisfied and frustrated, the borrower involves an appraisal forum in the dispute. None of the participants in the discussion are informed enough to form a credible opinion, so the borrower is still unsatisfied.

Should the borrower involve state regulators in their dispute, which, regardless of the legitimacy of the complaint would admittedly be a real pain for the appraisers?

or

Should the borrower heed their own wise words: I am not owed any support for adjustments if the lender deems it so.

 

[Jayjay25]

It sounds like the OP was hoping for across the board positive time adjustment for all the comparable sales utilized as they are the only comparable sales available. This is most often seen as unacceptable in the eyes of underwriters as they require proof of time adjustments by the sale of a recent COMPARABLE property. Not to mention of all comparable sales are adjusted upward it would result in a non bracketed appraisal which is also an underwriting no-no. Sometimes the appraiser’s hands are tied by a lack of data and underwriting requirements.......don’t hate the player, hate the game.

 

[BRCJR]

You may be able to determine the Scope of Work for the original work product (appraisal development and reporting). A letter of engagement most likely exists.
How do you know the Scope of Work for the lender "review appraiser"? Can you confirm it? Do you have a copy of their job description?
The "review appraiser" might take you to court if you cost them time, money and/or reputational damages.
Just something to think about. This is all in your control.

 

[Tom D]

One of the things that most appraisers don't know it that FNMA's CU will tell the person looking at it that there is/isn't price increases on any time period. CU has a lot of layer's that give the underwriter a lot of info that we can't get. unfortunately, appraisers and normal people don't see that info when CU spits out a report on the appraisal. a lender's own reviewer usually has access to that info. an independent reviewer doesn't see that info. most appraisers do not have the knowledge, or tools, to determine time/price increases over any time period, or over any amount of sales data.

your original post, i'm impressed. you sound more appraisal educated than a lot of appraisers. you have to prove your point. lawsuits take years, and lots of money to resolve. the state could help if they go against the appraiser. do you really have the time (years) and money for this. you want a house, go back looking. just like that book title, the best laid plans of mice and men go astray. besides appraising, i also do appraisal therapy.

 

[RCA]

Greetings AF!

I am considering filing a formal complaint against the appraiser my lender hired and the lender’s in-house appraiser (who conducted the desk review of the appraisal). Before you all attack me for my biased perspective (I am the buyer in this situation) and write this off as another person whining about a low appraisal, I will do my best to lay out the facts of the case in an objective manner. Trust me when I say writing up a complaint is the last thing I’d like to be doing, so before I do so, I thought I’d turn to AF’s wisdom / expertise to make sure I’m not way off base here.

Subject property is a 3 bed, 2.5 bath, ~1,300 SF attached home (i.e., half of a duplex on its own separate lot) in a newer master planned community (built in 2018). The appraiser defined the market as strictly homes sold within the master planned community. The comps selected were three 3 bed, 2.5 bath attached homes in the same master planned community that range from 1,200-1,300 SF (one model match, two slightly smaller). All the comps have sold for ~700K around 8-10 months ago. I agree with the appraiser up until this point.

Where we disagree is that the appraiser believes a market conditions adjustment (between now and 8-10 months ago) is not needed, while I believe it is. The appraiser’s 1004MC says that “while prices for similar dwellings have increased in the neighborhood, the small data sample and variety of product sold in any one period has lead the appraiser to conclude that the market is stable and an adjustment for time is not necessary”. What?! In my opinion, a small data sample is not enough to conclude anything about the market and further analysis of the available market data is required. Nothing other than the 1004MC was included as support for market conditions.

To support my questioning, I provided some analyses and a handful of data sets pulled from MLS (I work in CRE so I have access) to the lender to be forwarded to the appraiser (summarized below):

• County median SFR prices have increased 13-19%, inventory is down, and DOM are down over the past 8-10 months
• Market area (includes subject’s neighborhood and a bunch of others nearby) median SFR prices have increased 8-11%, inventory is down, and DOM are down over the past 8-10 months
• Scatter charts of 3 bed 2.5 bath and 3 bed 2 bath closed sales in the master planned community show an upward price trend and downward DOM trend since 2018 and over the past 8-10 months

Obviously like many other places in the US, the market here is hot. Our offer on the subject property was one of 37 after 8 DOM, and we weren’t even the highest bidder (I’d like to think we wrote a charming cover letter). The seller's agent even met the appraiser at the subject to provide copies of all 37 offers. But sure, maybe the data above are an artifact of medians and coincidentally higher priced homes are being sold more and more recently. So I zoomed in further on the specific neighborhood:

• Pending sale of another attached home with a 770K SC price (I verified by calling the selling agent). This showed up in the appraisal at list price (735K), but was given no weight as it wasn’t a closed sale. I won’t argue assigning it no weight, but this is an informative data point (IMO) showing SC price well above list and both well above 700K
• 3 bracketed paired sales (2 model matches, 1 sale-resale of the same SFR) of 3 bed, 2.5 bath 1,100-1,500 SF detached SFRs and condos (I would argue substitutable competitive products based on beds, baths, SF & price point) that occurred at points across the past 8-10 months, each showing a CAGR of 10-30% (point to point it's 8-17% growth over 6-9 month periods)

Despite my best attempts over the past week to ask for any data supporting a stable market (via email routed through the lender), the appraiser refuses to change their FMV (700K) or provide support for their lack of a market conditions adjustment. Fine, I’m not their client, the lender is. When I asked my lender for a desk review, they said they already did one and agree with the appraiser’s conclusion and aren’t willing to order a second appraisal as they’re “not supposed to value shop”. I feel like I’m taking crazy pills in believing, based on the data, that market conditions are fundamentally different than 8-10 months ago and that a non-zero time adjustment is required. After feeling backed into a corner, the seller and I have agreed to split the difference to salvage the deal.

I am having a difficult time believing that using non-time adjusted prices, while the neighborhood data shows near double digit growth, can be classified as USPAP 1-3 compliant. Give it to me straight AF, am I (the armchair appraiser) off-base here or do I have a legitimate complaint? Does failure to support a lack of an adjustment (in light of all the market data) qualify as worthy of a complaint?

throwaway12345

You are right, pretty much. If you want to conclude prices have either headed up, down or stayed flat, you need the best evidence in each case. This appraiser is biased in terms of no price change. He calls this "stability" or "stable" perhaps. But, in fact, we know that the markets are not stable when there is an imbalance between supply and demand exacerbated by fears of a worsening pandemic that makes buyers act hastily rather than take their time searching the market - even if the the market provided more selection.

What you are seeing here is the impact of statistical courses based on Gaussian or parametric statistics taught by the Appraisal Institute and other appraisal education providers. This form of statistics isn't even suitable for Real Estate. They should be teaching non-parametric statistics. Parametric statistics makes the assumption that the data you are using is a sample from a population with known parameters such as the Normal Distribution. This is almost never the case in typical complex markets that are the backbone of most high density markets composed of mixtures of very old, old, medium aged and newer homes of all styles and design, including condos, townhouses and subdivisions, with and without HOA fees. Our data does not fit parametric distributions. When we lack sales we have to data mine for sales data wherever we can find it, spanning property types, dates and locations. We have to deal with chunky data. And we get so little, we deal with the entire population, not a sample.

So, we don't need to talk about "small" data sets providing "inconclusive" results. Small data sets are all we have and we need to extract every bit of information we can from them and use it to provide the "best" conclusion of value regardless of its reliability. The client wants the best indication of value. "Best" certainly does not mean perfect. It just mean best. So, we engage in data mining techniques using tools like MARS.

The statistics courses for appraisal need to be fundamentally changed.

The Appraisal Institute, TAF and others have been guided for years by Real Estate Statisticians's who have Ph.D.'s from third rate universities and simply don't know what they are talking about. They are writing books for a virtual audience.

Caveat: There are a few simple markets around, where things are sufficiently simple enough to use simple averages and means and multi-linear regression. But don't try that in the SF Bay Area.

And in this day and age, ..., well I was just talking to a realtor in Mill Valley who said that buyers who are able to buy are coming in with enough cash to pay 30% - 40% down on $1M - $2.5M homes. They get snapped up fast; - and he said, if buyers have that much cash, how important are interest rates, really? And, if the appraiser wants to be able to deal with these issues in many areas, he needs to be adept at dealing with non-parametric statistics just to stay afloat in a sea of erratic complex decision making often by highly intelligent individuals who need certain functionality specific to their situation in terms of family (children?), relatives and guests, business considerations, first and foremost, followed by quality, condition and other less important considerations.

Another Caveat: Many will decry that appraisers are simply neither smart enough nor equipped with the tools to handle non-parametric statistics. Deal with it.

 

[NC Appraising]

I am going to make this quick, as I have a 9 am appoint. Keeping it "real" here.

Appraisers fear people like you....just enough info to be dangerous. LOL.

1. Should you turn him in. Yes and no. No because he came in low, seems like a honest appraiser. Would you have turned him in if he came in high or above the contract price? No. The number hitters or unethical appraiser rarely gets turned into the board because they make everyone happy. Yes, if there are other multiple mistakes. There are several different appraisers....conservative, number hitters, volume churn and burn, etc. Like in any profession.

2. This is a screwed up profession. Like others have said, we were trained to check the middle boxes...stable, in balance, etc. I really do not know why, I guess it avoids lender buy backs, better rates for the borrowers, and keeps the UW happy.

3. Fannie Mae has came out and said for appraisers to make market condition adjustments.

4. As others have said, UW hate across the board adjustments. Blame the lenders too. ALTHOUGH, I have been making across the board market condition adjustments for over three years. I once had a UW tell me that I could not make market condition adjustments for 0-3 month time period. I said show me that appraisal theory or guideline...they could not. See the STUPID crap we put up with??

5. In my market, the past two months have seen rapidly increasing market trends. We are talking $20k in a month in some markets. So it is not a linear appreciation rate. So how does one account for that with no sales. Many have appraisal waivers (borrower will pay the difference or are paying cash).

6. It appears that the appraiser should have made market condition adjustments, even if it still came in below the contract price.
If he was a number hitter, he would have used superior comparable sales to meet the contract price. It appears this appraiser was either honest and was just trained to not make market condition adjustments or is a "Skippy" churn and burn volume AMC appraiser that produces a canned appraisal. Skippy uses canned statements, marks stable, makes very little adjustments.....more adjustments=more explanations. The thing above Skippy appraisals is that on the surface it looks like a clean and great appraisal!!! But it is worthless. So take a close look to see if it is a Skippy appraisal. If it is, TURN him into the board.

Skippy appraisal: neighborhood section can be anywhere USA. Zoning, anywhere USA. Minimal or no adjustments for condition, quality, end unit, and other factors. They typically only adjust for GLA.

 

[RCA]

I am going to make this quick, as I have a 9 am appoint. Keeping it "real" here.

Appraisers fear people like you....just enough info to be dangerous. LOL.

1. Should you turn him in. Yes and no. No because he came in low, seems like a honest appraiser. Would you have turned him in if he came in high or above the contract price? No. The number hitters or unethical appraiser rarely gets turned into the board because they make everyone happy. Yes, if there are other multiple mistakes. There are several different appraisers....conservative, number hitters, volume churn and burn, etc. Like in any profession.

2. This is a screwed up profession. Like others have said, we were trained to check the middle boxes...stable, in balance, etc. I really do not know why, I guess it avoids lender buy backs, better rates for the borrowers, and keeps the UW happy.

3. Fannie Mae has came out and said for appraisers to make market condition adjustments.

4. As others have said, UW hate across the board adjustments. Blame the lenders too. ALTHOUGH, I have been making across the board market condition adjustments for over three years. I once had a UW tell me that I could not make market condition adjustments for 0-3 month time period. I said show me that appraisal theory or guideline...they could not. See the STUPID crap we put up with??

5. In my market, the past two months have seen rapidly increasing market trends. We are talking $20k in a month in some markets. So it is not a linear appreciation rate. So how does one account for that with no sales. Many have appraisal waivers (borrower will pay the difference or are paying cash).

6. It appears that the appraiser should have made market condition adjustments, even if it still came in below the contract price.
If he was a number hitter, he would have used superior comparable sales to meet the contract price. It appears this appraiser was either honest and was just trained to not make market condition adjustments or is a "Skippy" churn and burn volume AMC appraiser that produces a canned appraisal. Skippy uses canned statements, marks stable, makes very little adjustments.....more adjustments=more explanations. The thing above Skippy appraisals is that on the surface it looks like a clean and great appraisal!!! But it is worthless. So take a close look to see if it is a Skippy appraisal. If it is, TURN him into the board.

Skippy appraisal: neighborhood section can be anywhere USA. Zoning, anywhere USA. Minimal or no adjustments for condition, quality, end unit, and other factors. They typically only adjust for GLA.

Yes. What I said is true. Yet, I can add another caveat:

Market Value is not what is really important. As appraisers assigned to provide an opinion of Market Value that is what we do. In an erratic market though, one can question whether what the lenders, FNMA or rather the taxpayer wants is really Market Value. I would maintain what they want is rather what is sometimes called a "Stabilized Market Value", one that is predicted to provide a reasonable market value for the next 5-8 years.

Otherwise, the "system" winds up engaging in a kind of double talk. They want something the system doesn't allow. So, FNMA needs to try to come up with a better definition of Market Value. Oh, but now that would really require the statistics. Appraisers would have go engage in considering interest rates, economic conditions, the probability of catastrophes and all kinds of things like that. Although, there are companies that do all of this and the stats and probabilities could be supplied to appraisers to integrate into their statistical software.

The Germans have "stabilized market value". It just make sense. The problem is figuring out how to calculate it.

More work needs to be done at a higher level, but we don't have the necessary expertise where it is needed. - Just a bunch of fat asses running around decrying non-existent rascism coupled with leftist hysteria and politics, thereby extorting money from the public to support their trips to luxury hotels around the planet. They do far more harm than good and someone should just get rid of them, i.e. fire them -- and go to Stanford and Princeton Math Departments and ask them for advice.

 

[alebrewer]

Put yourself in the shoes of the appraiser. Would you (as the appraiser) consider it reasonable for a home buyer to potentially ruin your career over a single appraisal? If you (the appraiser) really don't understand valuation methodology - including support for making the determination of whether a market is appreciating, stable, or depreciating, then the answer should be yes (for you, the home buyer). If, however, you (the appraiser) believe the motivation to be one of spite or revenge, the answer should be no. Which is it? An honest desire for this appraiser to be better trained, or a motivation of revenge/spite for the appraisal not meeting your expectations?

 

[RCA]

Put yourself in the shoes of the appraiser. Would you (as the appraiser) consider it reasonable for a home buyer to potentially ruin your career over a single appraisal? If you (the appraiser) really don't understand valuation methodology - including support for making the determination of whether a market is appreciating, stable, or depreciating, then the answer should be yes (for you, the home buyer). If, however, you (the appraiser) believe the motivation to be one of spite or revenge, the answer should be no. Which is it? An honest desire for this appraiser to be better trained, or a motivation of revenge/spite for the appraisal not meeting your expectations?

I am sure the state boards understand the problems and probably won't fault an appraiser unless he is completely egregious in his observations and calculations.

Yet, this situation is just going to get worse. The world is getting more complex, not less. And this all goes back to the impact of another possible economic catastrophe on our financial institutions and consequent disruption to our social welfare (read social security) system.

We like to close our eyes to certain possibilities; yet they do come with increasing regularity it seems, like the 2007-2008 meltdown, the 2011 Tohoku Tsunami in Japan, COVID-19, and so on. We are just waiting for a major earthquake to hit California ... anytime.

And now it really looks like we are hitting a trade war with China. In fact both Europe and the US are in a major trade war that is getting worse.

China attacks Western nations, firms over Xinjiang cotton boycott

Officials warn companies against ‘politicising economic behaviour’ amid Western concern over forced labour in Xinjiang.

www.aljazeera.com

Yep, all in due time.

And the news seems to just get worse.

The third world countries are banding together to form their own blocks to counter the predominance of the US and China in world poltiics. They are getting more sassy and rejecting Washington's liberal politics. I just watched this:

Listen to it. This is the new attitude.

Looks like we are also going to be getting a new "British Empire" = Britain, Canada, Australia, New Zealand, .....

And of course ASEAN. These countries will tighten bonds to form essentially larger conglomerates that act in unison as one country.

The world is changing.

And we need new strong leadership.