Misguided Reviewer?

[Richard Carlsen]

We had an interesting exchange with a reviewer at an AMC today. Thought I’d share this with you and see if anybody else has run into this. It may just be because of the way I do things. Here’s how it went.

*****************
(This is the final statement in the Reconciliation section of the report in question)

“Income Approach N/A. Sales Comp Approach and Cost Approach mutually supportive in indicated value range. Sales Comp Approach is given the greatest weight. Lacking a true comp, the weighted adjusted sales price is considered a good indicator of value. Final opinion of value influenced up by good maintenance and additional buildable lot attached.”

*******************
(This is the email we received from the reviewer at the AMC this morning)

“Hi,

In this report, your final appraised value came at $190,000 and you have noted that the sales and cost approach were used; however, the sales approach was $185,400 and the cost approach was $182,135. Please either fix your appraised value or explain what other factors were used to arrive at the final value.

Thank you,”


**********************
(This is Judy’s reply to the reviewer)

“The appraiser is out of the office doing appraisal visits. I will make sure that he gets this email but in the interim I may be of some help. Please note the comments in the final reconciliation that state "Lacking a true comp, the weighted adjusted sales price of all comps is considered a good indicator of value. Final opinion of value is influenced up by good maintenance and additional buildable lot attached". Also please note that the range of adjusted sales prices on the comps is $171,080 to $195,900. The appraiser's opinion of value is within that range.

Again, I will see that the appraiser gets this email as soon as he is back in the office.

Thank you,
Judy Carlsen
Office Manager”


**********************
(This was the reviewers comeback to Judy’s reply. I find the last part especially interesting[underlining mine])

“Hi,

Looking at the comments underneath the grid, I do understand now how the appraised value was reached; however, could you match the appraised value with the sales approach value so the report will be accepted on the secondary market.
Thank you,”


**********************
( And finally, here is my reply to him after visiting 8 properties and 1 glass of Burgundy)

“I was in the field all day today but I think Judy stated our procedure clearly. I think you are wrong in assuming that because in the Sales Comparison Analysis section of the URAR, an Indicated Value by Sales Comparison Approach indicates one value, that the same value must be used for the Opinion of Value. I know of no such Fannie Mae requirement.

On the contrary, Section 417 in Chapter 3 is very clear that in the Final Reconciliation section where I as the appraiser pull together all of the information I have on the property in order to form and state an Opinion of Value, each and all approaches to value must be considered. This section reads as follows:

----
'Section 407 - Final Reconciliation

The reconciliation process that leads to the estimate of market value is an on-going process throughout the appraiser's analysis. In the final reconciliation, the appraiser must reconcile the reasonableness and reliability of each approach to value and the reasonableness and validity of the indicated values and the available data, and then must select and report the approach or approaches that were given the most weight. The final reconciliation must never be an averaging technique.

If the appraiser has provided a comprehensive and logical analysis of the neighborhood and the property, the lender's underwriter should be able to reach a sound conclusion on the adequacy of the property as security for the mortgage.'
----

In the case of the report you question, indeed I took into account the Cost Approach and the Sales Comparison Approach. The Sales Comparison Approach number is actually the weighted adjusted sales price of all comps, entered on this line due to the lack of a true comp from the immediate neighborhood. I also took into account the extraordinary good condition of the property and the fact that the additional lot next door and included has no improvements and therefore can be sold off. It was, and is my conclusion, that the upper end of the indicated sales range of the comps used in this report best represents the subject's value.

If you have secondary market rules that require the Appraisers Estimated Value, as defined, to be the same as the Indicated Value by Sales Comparison Approach, please provide a copy for me.

Until I am provided proof of the secondary market requirement, my report and the values contained therein will remain as is.

Regards

Richard Carlsen”

*************

Anybody else ever run into this problem when your Estimate of Value is different than the Indicated Value by Sales Comparison Approach?

 

[Pine Tree]

Richard,

Looks to me like you have it well in hand.
I am always heartened when an appraiser maintains his / her right to BE the appraiser and not give'em what they want, just because they THINK they want it.. I hooted with glee when I saw that you used his own mis interpretation if his guidelines to support your position. These kinds of this requests aggravate me as a great big waste of my precious time.. but you and Judy handled it with grace.
BTW, does Judy have a brother? :lol: Rock On! Wendy

 

[jtrotta]

No, most times IMHO there should be a difference, as there is a difference between "Market Value" and the "Reproduction and/or Replacement Cost" approach.


If they were the same, that would cause me to look very carefully at the whole report B)

h34r:

 

[Ghost Rider]

Only thing I would have done differently was to have left off the last part of the statement

If you have secondary market rules that require the Appraisers Estimated Value, as defined, to be the same as the Indicated Value by Sales Comparison Approach, please provide a copy for me.

Until I am provided proof of the secondary market requirement, my report and the values contained therein will remain as is.

.....Knowing underwriters, instead of actually realizing they are wrong, and sending the report through, they will spend all day searching for some little scrap of paper of "underwriting guidelines (not requirements)" to prove their point, and this could go on for a long time to come......I NEVER make the offer to change my opinon for any reason, until I have a chance to review anything - If they give me 3 comps on the same street that I missed, I won't promise them that I will change or modify my opinion of value until I fully review everything - Gets dangerous saying "I will modify my opinion of value if......"

 

[xm39hnu]

It may not help the LO you're dealing with much. She sounds like a ditz. But you could try adding another page of comment addendum, quoting therein her original query, and the substance of your answer. She'll have to show that report to whomever she has to justify killing the deal. If it does nothing else, the addendum will show her manager where she's got her head stuffed, and you won't have to deal with her on this subject again.

 

[Jim Bartley]

Call me crazy, but I see the reviewer's point. Why not just weight the higher end of the value range ($195,000ish) and be done with it. Of course technically you're right, but this is one of those cases, IMO, that it is better to punt and go on. They have probably just never seen it done this way.

 

[Steve Owen]

Richard, I had a hard time with this when I first read it. I was starting to think I might side with the underwriter. Using layman's logic, I wondered how the two approaches to value could both indicate values lower than your final opinion of value.

Re-reading it, I decided that, based on the limited facts we can pull from the exchange, you are right. However, consider Mr. Bartley's comments carefully. I have always considered it to be a sort of unwritten rule of appraising that the information in the report must be understandable to the non-technical person reading it on the other end.

If the adjusted range of comps is, in round figures $171 k to $196 k, and the cost approach indicates, $182 k; assuming you believe the property is of a higher value than the cost approach (something that is a little unusual) why can't the weighted average of the sales approach also be higher?

Not being able to see the whole of your work, it's a little difficult to comment on the appraisal itself. However, I'm wondering if there should not have been some additional excess land value in that cost approach, which would have raised it. I know you are a good appraiser from seeing previous posts and I don't want you to take offense at this comment, but if it was mine, I think I would look askance at the cost approach to be certain that there was no error there.

 

[Mountain Man]

Add a couple of lot sales in an addendum to support your adjustment. If you can't bracket with similar home sales featuring an extra lot, then the lot sales at least will help 'splain your opinion for the adjustment.

 

[liznindy]

Richard,

I believe the reviewer probably does not come across any appraisals in which the final reconcilation is more than the sales comparison approach analysis. It could be somewhat confusing to the reader of the report when the final reconcilation is higher than the value to both approaches used in the report.

We, as appraisers, understand your reasoning.

However, did you give consideration to the double lot and condition of the subject with adjustments for these value influencing components in the sales comparison approach? If so, I would think that the sales comparison value stated would reflect this and could then be raised to final reconcilation.

Just my 0.02.

 

[Restrain]

Sorry, Richard, but I have to agree with the UW. You have given a Direct Sales Comparison Approach estimate of $185,400 and a Cost Approach of $182,135, yet you went above both estimates of value to $190,000. From a reviewer's standpoint, you haven't supported your estimate of value. As a reviewer, I would be looking more at $185,000 than $190,000. Here's why.

You have stated that your range in your Direct Sales Comparison Approach went up to $195,900, but the indicated value by that approach was $185,400. If you are using a weighted average approach, I first would have a problem with $185,400 as opposed to $185,000 just from the fact that it would indicate that you are tending to average rather than reach an estimate of value. $185,400 is awful specific with a range of $25,000 +/- across the comps. Second, if you have weighed the comps and reached an estimate by the market of $185,400, why would you change your estimate up to $190,000 because more weight was given to the upper end of the comparables used in the report. The weighing of the comps should have already been done in the Direct Sales Comparison Approach. You have stated that the upper end of the comparables range is more applicable to the subject. If that is true, the value by the Direct Sales Comparison Approach should reflect this with more weight given to the upper end.


The verbage in your response is correct in that the various approaches to value should be weighed and considered in the final estimate of value. The problem I would have as a reviewer is that the various approaches to value are not weighed and considered, but rather you have gone back and reconsidered the Direct Sales Comparison Approach in your final estimate of value. This is not appropriate for the Final Reconcilliation but rather the Sales Comparison Approach. If you are weighing the reliability of the Cost Approach and the Direct Sales Comparison Approach, the value should be somewhere between $185,400 and $182,135.

In final review, IF the best indicator of the sales is approximately $190,000, the Direct Sales Comparison Approach should have reflected this in the first place.

Roger Strahan, IFA