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

[throwaway12345]

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

 

[Terrel L. Shields]

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) for what I believe may be professional misconduct.

You are not the client. There is something you might ask your attorney about - It's called Privity. You will likely get it thrown out of court. So....when did you get your appraisal license?

 

[throwaway12345]

Apologies, professional misconduct is not the right term (editing now)

I do not have an appraisal license, does that prevent me from filing any sort of complaint?

 

[Sadie]

Initial thought is if the review appraiser agreed with the original appraiser, then perhaps the state would agree with the original appraiser. In an increasing market it can be difficult to support market condition adjustments. As to the 1004MC form, it is very likely there is insufficient data for a credible appreciation amount. Its not enough to think the market is increasing, there needs to be a credible indication and indication at what rate. The adjustments need to be supported with credible data. Your matched sales analysis may or may not indicate an increasing market. There are a variety of items that can cause price differentials.

 

[Sadie]

According to the internet, annual appreciation overall for Hawaii is between 5% and 6%. It could be that there is a recent increase in housing prices that has not yet filtered into closed sales. Note that I am not at all familiar with housing in Hawaii.

 

[Ariba]

Calculating appreciation at 1/2% per month for 8 months is +/-$28,000 on a $700,000 house. If you are putting down 5% $35,000 there should not be a problem. How much are you putting down?

 

[George Hatch]

Don't apologize for having an opinion.

It looks like I might hold the minority opinion on this one.

On the face of it and based on your descriptions it seems to me that placing sole reliance on the dated sales without making any attempt to support a decision to make no adjustments by analyzing more current/parallel sales data (even if less directly comparable) is an example of sheer laziness. The other property types might not be among the most similar sales but they probably bracket at least some of the subject's dominant attributes and might be considered by at least some participants in these markets as substitutes for your subject.

It's a simple process to compare the sales history of your subject's project against the sales histories of these other market segments to see what the historical relationships have been. How close or distant did the pricing from these competing segments of the market parallel each other in the past? If they were close in the past that relationship can be brought forward to apply to these more recent sales.

I think hiding behind the lack of recent direct comparables as a rationale for not analyzing the effects of the current market conditions on this market segment is a copout. And while it's true that the appraiser isn't supposed to be playing for your team or going to heroic lengths to rubber stamp a contract price, they also aren't supposed to be taking the lender's side. We're supposed to call balls and strikes over the plate.

I am no cheerleader for the current market conditions (I think a lot of people are taking a lot of unnecessary risks), and I wouldn't criticize another appraiser's judgement out of hand, so it's very unusual for me to side with a complainant in disputes like this. IF everything you're saying is as you're saying it then a lender blowing this off is not doing their job. Responding to a request to consider the current market conditions is not an example of appraiser-shopping.

For all I know, the appraiser's decision to not apply an upwards adjustment for market conditions may be entirely justified, but in the current market if they didn't show their work in the report to support that decision then they're not doing their job and they're not serving the legitimate interests of their own users. Expressing a conclusion isn't the same thing as supporting it, particularly when that conclusion is being challenged.
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With all that said, if you do submit a complaint you probably won't be getting a speedy resolution. Depending on the state it can take 6-12 months before they even look at the complaint in any detail and even then they may have a tough time meeting the burden of proof it would take to demonstrate a violation.

 

[Alsie35]

Don't apologize for having an opinion.

It looks like I might hold the minority opinion on this one.

On the face of it and based on your descriptions it seems to me that placing sole reliance on the dated sales without making any attempt to support a decision to make no adjustments by analyzing more current/parallel sales data (even if less directly comparable) is an example of sheer laziness. The other property types might not be among the most similar sales but they probably bracket at least some of the subject's dominant attributes and might be considered by at least some participants in these markets as substitutes for your subject.

It's a simple process to compare the sales history of your subject's project against the sales histories of these other market segments to see what the historical relationships have been. How close or distant did the pricing from these competing segments of the market parallel each other in the past? If they were close in the past that relationship can be brought forward to apply to these more recent sales.

I think hiding behind the lack of recent direct comparables as a rationale for not analyzing the effects of the current market conditions on this market segment is a copout. And while it's true that the appraiser isn't supposed to be playing for your team or going to heroic lengths to rubber stamp a contract price, they also aren't supposed to be taking the lender's side. We're supposed to call balls and strikes over the plate.

I am no cheerleader for the current market conditions (I think a lot of people are taking a lot of unnecessary risks), and I wouldn't criticize another appraiser's judgement out of hand, so it's very unusual for me to side with a complainant in disputes like this. IF everything you're saying is as you're saying it then a lender blowing this off is not doing their job. Responding to a request to consider the current market conditions is not an example of appraiser-shopping.

For all I know, the appraiser's decision to not apply an upwards adjustment for market conditions may be entirely justified, but in the current market if they didn't show their work in the report to support that decision then they're not doing their job and they're not serving the legitimate interests of their own users. Expressing a conclusion isn't the same thing as supporting it, particularly when that conclusion is being challenged.
------------------

With all that said, if you do submit a complaint you probably won't be getting a speedy resolution. Depending on the state it can take 6-12 months before they even look at the complaint in any detail and even then they may have a tough time meeting the burden of proof it would take to demonstrate a violation.

Agree with George here. As busy as it is right now, and as big a pain as they are when they 'drop into your lap', I take the time to review each ROV (reconsideration of value) request in detail. If I find that I just missed a comp that would have made a difference, I do not hesitate to slide it into the grid and adjust my appraised value accordingly. (He**, I did it just yesterday on a report).

We are not perfect, nor are we omniscient - no appraiser is. If there is a question about the market analysis, I will take the time to redo my entire data pull and look at the analysis '6 ways til Sunday' to see if there was something I missed. The ability to admit when we may have been mistaken - and then to correct course - is a 'superpower' of a very valuable sort in life.

Having said that, I have no idea if the appraiser's market conclusions here are supportable or not. I am seeing lots of market areas in my own state where general upwards trends are not always supportable within a specific market segment that I am appraising. It happens, and it could be what is happening here.

Now he could have elaborated on the matter very easily by just revising the report to include a more detailed market analysis. I agree with George that it looks like perhaps laziness is at work. That's a bad look. At worst it might be an unwillingness to do the extra work. I also agree that if the report passed a desk review done by another appraiser, its less likely that the analysis was faulty - perhaps just not explained in enough detail.

 

[throwaway12345]

Initial thought is if the review appraiser agreed with the original appraiser, then perhaps the state would agree with the original appraiser. In an increasing market it can be difficult to support market condition adjustments. As to the 1004MC form, it is very likely there is insufficient data for a credible appreciation amount. Its not enough to think the market is increasing, there needs to be a credible indication and indication at what rate. The adjustments need to be supported with credible data. Your matched sales analysis may or may not indicate an increasing market. There are a variety of items that can cause price differentials.

Thank you Sadie, I appreciate the feedback.

I agree 100% that's it's tough to support an adjustment in an increasing market and that the data included in the 1004MC is insufficient on its own to prove appreciation. I guess where I'm struggling to follow (probably because I'm not an appraiser) is where the distinction between a credible indication and non-credible is. My assumption was that the same exact property sold six months apart for 8% more and a couple of other model matches sold around that same time period for 8-10% more is indicative of an increasing market, but maybe that's not enough. Agree that there are a handful of things that can drive price differentials, but I thought the sale-resale at 8% higher is textbook Case-Shiller-esque as the only differences are the passage of time and six months of depreciation if you want to attempt to be precise lol.

And even trickier is nailing down a specific rate. I can't pretend to know what the right rate is, but based on all of the data I've looked at, I have a hard time believing it's zero.

According to the internet, annual appreciation overall for Hawaii is between 5% and 6%. It could be that there is a recent increase in housing prices that has not yet filtered into closed sales. Note that I am not at all familiar with housing in Hawaii.

I sent over some broader market data similar to this, but the argument seems to be that increasing growth rates in aggregated data is spurious. Which could be true, so I stopped citing it as an indicator of growth on its own and turned to more precise data to support my ask.

 

[throwaway12345]

Calculating appreciation at 1/2% per month for 8 months is +/-$28,000 on a $700,000 house. If you are putting down 5% $35,000 there should not be a problem. How much are you putting down?

Too much lol, I'm now at 20% after making up a significant gap in cash. Fortunately I had cash on hand, but I also recognize that not all first time homebuyers are as lucky. The biggest hurdle to homeownership in Hawaii, especially for first time buyers, is coming up with the cash for a down payment. If this 0% market conditions adjusted MV is in fact low, it represents yet another hurdle to overcome and a potential dealbreaker for others not as fortunate.