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Have Appraisers Lost Touch With Roots?

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Austin

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Jan 16, 2002
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Certified General Appraiser
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Virginia
The AI’s April 03 issue of The Appraisal Journal is online at their web site. There is an excellent article in this issue entitled The Academic Roots and Evolution of Real Estate Appraisal. I found this article interesting because it quotes some of the brain trust that founded the real estate profession and explains their contributions. This was very interesting because it pointed out the gulf between the present state of appraisal practice and the thinking of the intellectual vanguard that determines the course and future of the profession.
Some of you may not be able to read the article so I will quote some examples for general discussion:

Richard Ratcliff PhD wrote on defining market value as most probable price, which is probably why our definition of market value specifically states most probable price. I have had that argument many times on this forum. Ratcliff says market price cannot be defined by any other method because market price is never certain. The implication of this is that our accepted method of using a limited number of comparable sales makes it impossible to estimate the most probable price, thus our state of appraisal practice is out of step with the underlying theory. The purpose of appraising property is to determine the most probable price but our appraisal regulatory structure is enforcing methods and practices that make it impossible to answer the question asked in the definition of MV.

James Graaskamp PhD believed that highest and best use to be an arrogant and unrealistic term that presumed more sophistication, creativity, and time for analysis than was really possible in any appraisal. In other words, for those of you who follow USPAP and do H & BU analyses, you are hypocrites.

The author them addresses AVM and states that AVM will average out any appraiser bias but reports that human manual appraisals are exact matches for the purchase price 50% of the time, and according to Freddie Mac, rarely under the purchase price. They then state if this bias is not addressed and taken out of the process it is goodbye appraiser and hello AVM. As I have stated many times on this forum-if you don’t come up below the sale price 50% of the time and report that number you are biased.
 

Carnivore

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Professional Status
Certified Residential Appraiser
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North Carolina
Originally posted by Austin@Apr 19 2003, 10:37 AM
The author them addresses AVM and states that AVM will average out any appraiser bias but reports that human manual appraisals are exact matches for the purchase price 50% of the time, and according to Freddie Mac, rarely under the purchase price. They then state if this bias is not addressed and taken out of the process it is goodbye appraiser and hello AVM. As I have stated many times on this forum-if you don’t come up below the sale price 50% of the time and report that number you are biased.
Austin,

Thanks for posting this article. I would like to address only the last point.

Quite frankly, the good doctor has not done his homework. We all know the reason the purchase price comes out to be the same as the appraisers value. Its because we come in lower, they then change the contract to the NEW selling price. Hence, the statistic he relied on only tells part of the story. So my question is: What else has he not done?
 

Elliott

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Apr 23, 2002
Professional Status
Certified General Appraiser
State
Oregon
Andrew,

I remember a time right after the S&L Bailout, when FNMA
set some new rules....no loan officers could communicate
with appraisers....no sales prices were to be provided the
appraiser.

Those were heady days. Fees were good. Appraisers were
treated with more respect, designations meant something.
But then the loan/bank side of the process weasled
there way back into the process (probably
to fit more closely with FNMA's growth projections)....also
national certification came along.

When an appraisal has to contain a certification from the lending
side that says, "The Loan Company certifies that we only want
a good accurate appraisal and we will not pressure the appraiser
for a set value, and we will not tolerate any member of our organization
deciding to not use an appraiser because he didn't make a deal work."
Then appraised values won't always be the same as sales price.

On an academic level, market value is a bell shaped curve function, my
intuition says that probably 12% of sales prices are probably too high
because they are not informed purchasers or have pushy realtors or have
bought from an owner who cut a fat hog. In practice I've found I come in
low about 5% of the time on sales....it would be a higher percentage, but
the hassle isn't worth it....explaining to a realtor why you came in $1000
low.

elliott
 
Joined
Jan 28, 2003
Professional Status
Certified General Appraiser
State
North Carolina
Austin,

One of my takes on the most probable price is that it should be a round number. It should not be something like $100,400; instead $100,000. Of course there might be exceptions where market evidence is tight and points to such a precise value.

When I see an appraisal of, say $100,275, and the contract price is the same, I get very suspicious.


Elliott,

I don’t know that you want to tell us that “In practice I've found I come in
low about 5% of the time on sales....it would be a higher percentage, but
the hassle isn't worth it....explaining to a realtor why you came in $1000
low.”



Serge
 

Carnivore

Elite Member
Supporting Member
Joined
Jan 15, 2002
Professional Status
Certified Residential Appraiser
State
North Carolina
Originally posted by Serge Paquette@Apr 19 2003, 11:57 AM
When I see an appraisal of, say $100,275, and the contract price is the same, I get very suspicious. ...


Serge
Serge,

Think of it this way.

If the indicate range is comp #1 $97,000 to comp #3 $103,000 and the middle is 99,800. The borrower has negotiated $100, 275.

I state:

"The contracted sales price falls within the indicated range of value and is adopted for the final estimate of value. "

Whats to get suspicious about? Most definitions of market value indcates that the borrower/buyer and seller are knowledegable.
 

Terrel L. Shields

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Joined
May 2, 2002
Professional Status
Certified General Appraiser
State
Arkansas
James Graaskamp PhD believed that highest and best use to be an arrogant and unrealistic term that presumed more sophistication, creativity, and time for analysis than was really possible in any appraisal. In other words, for those of you who follow USPAP and do H & BU analyses, you are hypocrites.

I agree to some point. HBU is often determined by the buyer. I have seen property after property sell and immediately change to a new highest and best use as the buyer converts the property. When that conversion occurs miles from public services or even paved roads, it is hard to determine that it will develop into a rural subdivision selling for 3-4 times per acre for rural buiding tracts. I'm an appraiser not a magician or mind reader. :blink:

When I see an appraisal of, say $100,275, and the contract price is the same, I get very suspicious.

If you have a contract for $100,275 and your market evidence calculates to $100,000 (almost certainly well within the margin of error of your estimates) then I am suspicious of anyone who did not arrive at $100,275 as the final value estimate. That "deal" is PROBABLY going to happen Right? Then the contract IS the MOST PROBABLE price. <_<

according to Freddie Mac, rarely under the purchase price

Duh! When does Freddy Mac :rolleyes: ever see appraisals below the purchase price. If it comes under the sales price Freddy Mac is never going to see it or the price is going to change. The lender will pull the ap and go with a conventional loan or other funding mechanism if nothing else. A high percentage change the purchase price if close and the real estate agent may kick in rebate on his commission or the seller carries a second.

USPAP and the Foundation in their effort to make appraisers into engineers has apparently a goal of "perfect" appraising, i.e. - the margin of error will be so small and the comparables so defensible, that "judgment" ;) no longer means anything. It appears to be the goal to replace "judgment" with statistical science. From being a tool of the profession, statistics will be the goal of the profession....It sets all of us up for failure on many levels and the legal liability along with it. :(
 

Elliott

Elite Member
Joined
Apr 23, 2002
Professional Status
Certified General Appraiser
State
Oregon
Serge,

Are you saying you don't give the benefit of the sales
range to the sales price most of the time?

I live in a 4 appraiser market. By only coming in low 5%
of the time, and giving the benefit of the doubt to sales price,
I, with 20 years of experience and a couple of designations,
most realtors don't want to use 'elliott' cause
they like that new appraiser who was trained by the drunk
for one year and then went off on his own who ALWAYS
hits value. We don't live in a perfect world.

elliott
 
W

walt kirk

Guest
Austin,
If an appraisal doesn't support the purchase price than the loan is not made. If the loan is not made then the appraisal will never be seen by anyone. How can the Freddie's complain about appraisals only supporting the purchase price when the only appraisals that they see are those used in closed mortgage deals?
 
Joined
Jan 28, 2003
Professional Status
Certified General Appraiser
State
North Carolina
I just don't think a final estimate of market value should be such a precise number as, say $102,002 even in the face of a contract for that amount. If the contract is arm's length and a good indicator of market value, give it weight, but don't try to convince me that the most probable price is 102,002. It may be the contract price, but we are not simply being asked to validate the contract but to provide an independent, unbiased opinion of market value regardless of who it will offend. I realize what I'm saying is not "real world" because nobody wants to rock the boat for such a small amount, but a precise number such as $102,002 which is supported by a contract price and by market evidence is still not the most probable price and therefore, in my opinion is not an appropriate estimate of market value. It has to have a high probability - the highest probability.

You could do it with an even more asinine estimate such as $100,000.75. Don't try to tell me that's your final estimate of value. I simply don't buy that that is the most probable price unless there is overwhelming evidence that the market works in these increments and that the market data clearly points to such a precise estimate of value.
 
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