• Welcome to AppraisersForum.com, the premier online  community for the discussion of real estate appraisal. Register a free account to be able to post and unlock additional forums and features.

How conservative is TOO conservative?

Status
Not open for further replies.

JSH123

Thread Starter
Freshman Member
Joined
Jan 23, 2008
Professional Status
Licensed Appraiser
State
Arizona
I was trained by a gentleman who was not very conservative, when valuing properties. Of course the market has drastically changed since I started my training. I am not sure about the market, in states other than Arizona, but in 2005, there was more demand than supply and property values sky rocketed. People would pay way more than the asking price and the average marketing time was 1-30 days.

A lot of people made a lot of bad decisions, AND a lot of money, by valuing properties too high.

Realtors, mortgage people and appraisers, all contributed to the crash of the market, that the government, is still trying to peice back together.

This caused a lot of people to get foreclosed on, and for appraisers and the mortgage industry, in Maricopa County, to come under the microscope.

I have now found, that I value real estate, more conservatively than any other appraiser I have talked to. I have done review appraisals or houses that were appraised a few months prior, and for the life of me cannot figure out why some appraisers give properties the inflated values, that they do. I have done foreclosures and have also caused properties to be foreclosed on. In my opinion some of these families would not have lost their home if some appraisers would not have valued the property too high in the first place.

I always research active listings in the immediate market area, and if there is 10 similar properties on the same street as the subject listed for $220,000, I appraise the subject lower. At that point comparables assist very little in developing my opinion of CURRENT market value.

There is always somewhat of a window that you can either appraise a little high or a little low, and I always shoot VERY low. Lately I am questioning myself if I am valuing these properties TOO low.

I base my appraisals on a 3-6 month marketing time and I am not very good at predicting what will come in the next 6 months. I anticipate the change, the decline and the competition and I hit the homeowner's HARD.

Is anyone else as conservative as myself or have I gone from one extreme to the other?

You guys are my new mentors and I apprecitate any input or advice you have for me.
 

Greg Bell

Senior Member
Joined
Jul 7, 2006
Professional Status
Gvmt Agency, FNMA, HUD, VA etc.
State
Louisiana
DEFINITION OF MARKET VALUE:
The most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller, each acting prudently, knowledgeably and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: (1) buyer and seller are typically motivated; (2) bothparties are well informed or well advised, and each acting in what he or she considers his or her own best interest; (3) a reasonable time is allowed for exposure in the open market; (4) payment is made in terms of cash in U. S. dollars or in terms of financial arrangements comparable thereto; and (5) the price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions* granted by anyone associated with the sale.
 

Diego Lopez

Member
Joined
Sep 11, 2006
Professional Status
Certified Residential Appraiser
State
Florida
Either extreme is bad. I don't believe that properties have one value but rather a range of value, unfortunately if your doing a residential appraisal for a lender then they want you to give a single numerical value for the subject.

If you are appraising a house that is under contract, and the contract price is within the probable range of value, then the contract price is probably a good indicator of value.

If appraising for a refinance transaction I always ask my self "based on the available data, if I were to buy this property today, how much would I be willing to pay for it? And "based on this data if I were to sell this property how much will I sell it for?"


Hope this helps.
 

Marcia Langley

Senior Member
Joined
Aug 26, 2005
Professional Status
Certified Residential Appraiser
State
Missouri
JS,

From you post I would get the opinion that you were not being unbiased in your appraisal development. Purposely appraising below market value is just as bad as purposely appraising above market value.

That said, it is possible that you don't realize how bad your remarks sound.

Your assignment is to opine current market value and you must take all of the value indicators into account (and it sounds like you know what those are). But your opinion of value must always be as of the effective date, not some date in the future.

You need to include an evaluation of the exposure time that led up to your effective date and you need to consider the important trending information.

But it is not your job to predict the future, only to report and analyze the existing hard data. This is true in a rising market, a stable market, and a declining market. The appraisers who you feelovervalued in the rising market may have been trying to predict the future. Don't make that same mistake that would lead to an opinion of value that is not credible.

Clients are aware how current market trends, if they were to continue, may affect the future value of a property and may draw their own conclusions about that. Many clients are reducing LTVs or taking other steps to do just that. If you distort your opinion to try to discount for what may happen in the future, the client will still take their extra steps. That would certainly distort the lending decision.
 

Marcia Langley

Senior Member
Joined
Aug 26, 2005
Professional Status
Certified Residential Appraiser
State
Missouri
JS,

Again, I don't want to read more in to your post that what you meant.

When you said:

I always research active listings in the immediate market area, and if there is 10 similar properties on the same street as the subject listed for $220,000, I appraise the subject lower.

You were describing how you take current listings into account. It is, of course, appropriate to take them into account and that is a part of the existing 'hard data' you have on hand to analyze as part of your current trending. That is not predicting the future.
 

Tim Schneider

Member
Joined
Feb 8, 2007
Professional Status
Certified Residential Appraiser
State
Wisconsin
I have done foreclosures and have also caused properties to be foreclosed on. In my opinion some of these families would not have lost their home if some appraisers would not have valued the property too high in the first place.

What have you done that "caused" them to be foreclosed? Your inaccurate appraisal may have caused a deal to go through that shouldn't have, but nobody forced them to sign the contract or the loan papers. The ultimate responsibility needs to lie with the borrower, because they are the ones who didn't make the payments. That is something that appriasers, realtors, loan officers, and certainly our government should not be blamed for.
 

Mike Kennedy

Elite Member
Joined
Sep 28, 2003
Professional Status
Certified Residential Appraiser
State
New York
I always research active listings in the immediate market area, and if there is 10 similar properties on the same street as the subject listed for $220,000, I appraise the subject lower. :huh:

At that point comparables assist very little in developing my opinion of CURRENT market value. {assumes you meant CLOSED SALE comps}

There is always somewhat of a window that you can either appraise a little high or a little low, and I always shoot VERY low. :Eyecrazy:

I base my appraisals on a 3-6 month marketing time and I am not very good at predicting what will come in the next 6 months.:nono:

I anticipate the change, the decline and the competition and I hit the homeowner's HARD.:new_shocked:

have I gone from one extreme to the other?

Suggest re-reading the bold above......... slowly...... and you will find the answer you seek.
 

David Wimpelberg

Moderator
Staff member
Moderator
Joined
Mar 30, 2005
Professional Status
Certified General Appraiser
State
New York
In our office, we say "it is what it is." It' neither "agressive" or "conservative"...it's our unbiased opinion of market value.

Anything else isn't market market value.
 

Ross (CO)

Senior Member
Joined
Jan 17, 2002
Professional Status
Certified Residential Appraiser
State
Colorado
It sounds like you're telling us that you might be preferring to disassociate yourself from this mentor, or that one might see an affiliation with them in past years whereby you want to create a climate of....distance....between them and you. As the national marketplace turns there are certainly more and more who wish they could wind back the clock, or maybe simply go back to that time when things in this business were....not so hectic and not so rushed and where exuberance of many types was restrained. You can't un-ring a bell !

Now, about this "always shoot VERY low" stuff. Such should concern anyone. Have you considered giving it the perspective that the better value to conclude is the one which is straight down the middle, neither too high or too low ? In the case for many of us that surely comes from knowing that the more-thorough analysis of local market data (sales, pendings, listings) is required, and that one should never deviate from the truest mark for a report done right......by selecting comparables which are most-recent, most-similar and most-proximate to the subject. Then, we just tell it like it is.

When a python eats a small pig....sometimes it has no natural option but to find a secluded location, lay there for weeks, and let the slow digestion process run its course. This realty and credit mess which is unraveling is much the same as swallowing many small pigs. There is no regurgitation. There is no quick government fix. The pangs of bad decisions and a near-total lack of realistic Q.C. can not fix things now. Warnings were given, and any deflection of implied biases, coercion and undue influence simply resulted in THOSE appraisers.....finding themselves standing squarely on the OUTSIDE !

Are we having fun yet ? Amazing how it is that a proverbial minority were successful at really screwing things up.....for the certain majority. Alternative career options are a prudent decision for those who can not tolerate the disrespect and continued bad decision-making when $45 Desktop Valuations are called.....appraising. What....two years ?....three years before such toxins can be purged ?
 

Terrel L. Shields

Elite Member
Gold Supporting Member
Joined
May 2, 2002
Professional Status
Certified General Appraiser
State
Arkansas
"The bias of no bias is a bias"

Your terminology bothers me. I think, from reading your post, it has affected (biased) your thought process.
For instance,
have also caused properties to be foreclosed on.
I can't do that because I didn't "cause" them to be upside down in the first place. All I can do is appraise it.

I agree that the end product which we describe as a point value is probably best described as a range of value and that range varies according to the quality and quantity of data we have, including listings. When the uncertainty is large, then we have a choice. UP or DOWN. I do not think that you have made a bad choice to arrive at a final estimate of value that is within the low portion of that range on the average house in a down market where there is lots of competition. But a house you might be impressed with which seems to have above average 'curb appeal' might lead you to move the dwelling into a higher part of that range.

On the other hand, bias is built into us all and your bias seems to be showing with words like "hit the homeowner hard" "I always shoot [low]"

To avoid the "too conservative" label, test yourself. First, disabuse yourself of terminology like "hit" "shoot for low" etc. Once you have a range of value (the high-low indicators in sales) try to decide if the house should go into the higher or lower brackets. Why did Comp A sell better than Comp B? Was it a better location? Better curb appeal? Better amenities? Or simply because it had a spiral staircase that was narrow and the market was older empty nesters? How does the subject compare. Blindly picking the bottom part of the range isn't reconciling the sales, it is a systematic bias.
Next start a "howamidoing.xls" file. On property where you appraise which later sells, compare your appraisal with the sales price. Adjust for any concession in the price. track that. After about 30 - 50 sales, if you see that your values are consistently lower than the sales price then you are "too" conservative...adjust accordingly.
None of us can see the future, but we can predict the overall trends anyway and can do so with a reasonably high degree of reliability because the RE cycle is no different than it has been over the years. We are in a down market and will stay so until inventory is reduced. If we watch those trends (i.e.- you watch the listings and offerings available) you will see what direction the market is headed. When it starts up, listings are priced higher than the sales of last year...you know that the direction of bias has changed. You monitor the market's bias but not inject your own as best possible. Again, everyone has a bias.
 
Status
Not open for further replies.
Find a Real Estate Appraiser - Enter Zip Code

Copyright © 2000-, AppraisersForum.com, All Rights Reserved
AppraisersForum.com is proudly hosted by the folks at
AppraiserSites.com
Top

AdBlock Detected

We get it, advertisements are annoying!

Sure, ad-blocking software does a great job at blocking ads, but it also blocks useful features of our website. For the best site experience please disable your AdBlocker.

I've Disabled AdBlock
No Thanks