Modifying a Recent Appraisal

[Ruth Potulin]

Hi,

I have been reading your posts with great interest and thought I would weigh in on this topic.

I have an appraiser friend who was taken off the approved appraiser list of Indy Mac's because she came in too high on her value of a high end home that was for sale. Why would she have intentionally come in too high unless the value was there, since she knew it would cause her trouble to be higher.

For my own curousity and to give my friend another opinion of her appraisal, I did a field review of the appraisal. Her value was right on the mark. It was very obvious what the value was and her comps were perfect. The sales price was just lower than the property was worth and, when I talked to the listing agent, it was obvious to me that this Realtor had no idea what the value of homes in that area were.

Since Indy Mac dropped her, she was having to turn down appraisal assignments from her regular clients when they were funding the loan through Indy Mac. I started doing her Indy Mac properties on a split fee basis so that she could continue to service her regular clients, and be able to get a percentage of the fee in the process.

What astonishes me is that instead of the lender or mortgage officers saying to themselves, "Well, the appraiser is the expert on market value and would know the value better than the listing agent, so the sales price must be too low." Instead, many of them immediately suspect the appraiser of wrong doing or incompetency.

I have been an appraiser for 10 years and many times during that period I've been told by appraisers I work for, "Never come in too much higher than the sales price or the appraisal will be thrown back at you or possibly loose the client. I have yet to understand what the problem is from the standpoint of the lender or the mortgage company when a value is higher than the sales price.

Regarding coming in at the contract price: I appraised a new construction vacant custom home and while I was at the subject property the buyer was there measuring for flooring. He was about 25 years old and he told me that his grandfather told him that all appraisers come in at the contract price, no matter what the value really is. He politely asked me to please appraise the property for what it was really worth, because he knew it was worth more than the sales price (which it was) and that he wanted to use the appraisal at the true higher value to reduce PMI and get funding for landscaping.

What bothered me the most about that conversation was that even an ordinary John Q. Public knew that many appraisers hit predetermined values instead of appraising the property for what it's really worth. It is my hope and, even my dream, that all appraisers will join together and all at the same time refuse to make values, refuse to be pressured and refuse to appraise another property for any value other than the true market value.

This website is so fantastic in allowing all appraisers to share thier information and learn from each other. I have posted a topic under the heading "Improving the Profession/Political Actions" called "We Appraisers Finally Have Our Own Union." Please stop by and read the posts under that topic when you have a chance to.

I truly want to be able to be free as an appraiser in order to appraise a parcel of real property by gathering all necessary information about the property and then utilizing that data to try to "zero in on" what the free market was trying to tell me. Appraising used to be an art and a science. That's why the word "opinion" is used in the definition of appraising. Appraisers are trained to develop an "expert opinon" and we should regain the respect appraisers once had as the "experts" in determining the market value of real estate. The word "market" being the key word here. Our job is to find out what the property is worth to the open, free market. Not what it is worth to the closing of loans or the loan structures.

In order to regain our profession, we appraisers are going to have to join together 100%, in conjunction with a powerful entity, so that we can take back our integrity and take back our place as professional "experts" of real estate valuation.

Sincerely,
Ruth Potulin

 

[JeffMann]

In reading the postings on this subject several items come to mind.

First, we all put a single number on the value of a property when in reality there is no single number for the value. In actually, a property has a range of value. This is what we develop when we do an appraisal. Say on a single family home we reach a conclusion, after analysis, of a value range of $85,000 to $100,000. We are now asked by our client to put a single number in the lower right hand corner of the 2nd page of the form. Any number between $85,000 and $100,000 would be correct. Just where in this value range the appraiser puts this number is dependent not only on the 3 or more sales presented but the totality of the analysis and his/her experience in the market.

Second, the sale price of a property is a significant piece of evidence that must be analyzed and considered in the appraisal. If one does not have a compelling reason for being above or below the sale price when the sale price is in the range of value then perhaps the sale price is what should be put down for the final value.

In our office, on both refinances and new construction, we have been above the sale price. I do not know of any one with an interest in the transaction that has come back and asked us to reduce the final estimate of value to the sale price.

Just some items for thought.

Jeff

 

[George Hatch]

We get requests all the time to push value or lowball value, depending on the use of the appraisal. As far as where the value falls within a range, we are supposed to appraise the same way for each assignment. It is what it is. If you lowball an appraisal for an estate that probably means that one of the heirs is going to get the shaft, or the IRS is going to get cheated in the taxation. If you push an appraisal in a mortgage transaction, that means the property is going to overencumbered, a hazard to both the Client and the borrower. Either way, it contributes to the public's perception that our opinions are open to negotiation and/or subject to our mood that day. This is hardly the mark of professionalism.

The client that asks for the appraisal to reflect no more than the sales price is either looking to streamline the underwriting, so they don't have to include an explanation of the difference in their writeup; or they are looking to reduce the LTV at the borrower's expense. Neither of those conditions are appraisal issues. I say let them do their own dirty work.

I think we all can agree that listing price, contract price or a recent sale price is relevant data in an appraisal and should not only be disclosed in the report but also reconciled with the final opinion of value. Anytime I have a sale, I use the following comment:

"The subject's pending sale price was also considered in the Sales Comparison but is outweighed by the other market data."

I use this regardless of how the appraisal comes in compared to the sale price. I have had a couple clients comment on higher appraised values and ask for changes to the report to reflect no more than the sales price, but that was a long time ago.

On the other hand, missing a sales price in appraisal by less than 2% (either way) requires an extremely high degree of confidence in the appraiser's data and analysis.

George Hatch