Must appraisal GLA be based on city records GLA?

[Michigan CG]

Why doesn't the OP hire someone local to review the appraisal under dispute.

http://www.appraisalinstitute.org/findappraiser/Default.aspx

Don't pick an MAI, they do mostly commercial.

 

[mark hurlock]

Gavin,

My suggestion would have been to get an independent review. The cost would have been well worth it considering all the time and aggravation you have enjoyed.

I am not suggesting that you shouldn’t be free to spend your time the way you prefer. I'm just saying, that is what a review is for.

 

[23Degrees]

Very possible, but I really dislike the idea of buyers relying on the appraiser to confirm that their purchase price is reasonable.

I agree but see certification 23 -

Putting the appraiser into the role of property inspector, zoning compliance coordinator, and price approval officer just seems wrong to me. The appraiser's duty should be only towards the lender. Buyers and sellers should rely upon their own experts for their decisions.

I agree as well. Very much so. My perspective is for the appraiser not to attempt to fulfill those roles. Unfortunately the form forces us into a check box world that can cause us to place responsibilities on ourselves that are clearly beyond our scope in cases where a governing entity does not own the calls in question such as this one.

In a perfect world, the prior sales price would be a valuable example of market reaction to the subject property. Unfortunately, in the real world, you're right. The previous sales price could have been influenced by the appraiser, either above or below market depending on the appraiser's opinion.

0123456789

 

[23Degrees]

Everyone else: is an appraiser responsible for any of the concerns Dan mentioned above (faulty wiring, substandard construction)? That strikes me as odd. Doesn't the phrase "Additions done without benefit of permit" put the onus on the one reading the appraisal to decide how to proceed? Couldn't a statement such as "Appraiser cannot attest to construction quality" remove any implied warranty offered by the appraisal?

Gavin

The appraiser's concerns in this regard are real but are addressed via mechanisms separate from how much value is opined for the area in question. You've probably become a bit familiar with the standard appraisal form during this process and as much as the form is despised by many it is the framework through which we have to operate the vast majority of the time. By disclosing that the area is unpermitted the appraiser has protected himself in that regard and remains protected as long as the zoning compliance question was answered correctly. If the appraiser errantly checked "legal" then it could still become an undesirable issue for them in the event of a law suit or buy back effort from one of the government agencies. These are government agencies that pass off all due diligence for appraisal reports back to the lender, who will often attempt to be made whole again by going after the appraiser.

Appraisers are protected from items of a legal concern and items of a health and safety concern through the presence of statements 1 and 5 respectively within the report. But that protection becomes questionable and arguably non existent in cases where vast discrepancies from public records, such as this one, are not properly disclosed and accounted for in the report, including making bad unilateral calls on zoning compliance in cases where no government entity has taken responsibility for the area in question via documented public records or permits on file.

If the area in question was properly disclosed as to its permit status and not improperly classified as to zoning compliance by the appraiser then the appraiser has taken the steps necessary to protect his or her self with regards to the issues of concern brought up by the appraiser in this case. And this would be so whether they found that the market gave such areas limited value or comparative value to GLA. That does not mean that an appraiser that goes "as is" in cases like this will not be vulnerable to attack on the basis of the value applied whether it be from parties that view the value opined as too low, or from parties that view the value as too high.

That is why many, if able to do so via consultation with the lender, would choose to proceed "subject to" rather than "as is" in cases like this to avoid the potential ambiguity of the "legal" call as well as to avoid the often difficult task of defending the value opined for bootleg construction or modifications.

You asked earlier what would it be worth if it were permitted. In this case the appraiser and client agreed on proceeding "as is" which is an appropriate path but if the appraiser and client had instead agreed on a scope of work that involved basing the report on the hypothetical condition that it were permitted then this question would have been answered. The bad news is that the form mechanisms we are bound by would have then put the onus on the lender to either waive the resulting requirements to get the area in question retro permitted, or put the onus on the borrower to go about the business of working with the city to get the retro permits needed. And that could be a very expensive proposition, or a $50 fee, depending on geography and the extent to how badly or how properly the unpermitted area was put together both from the perspective of outside the walls and inside the walls. In that case you would have received the answer as to what the property would be worth if there was no permit issue, but would likely not have proceeded towards the refinance either without addressing the permit issue directly with the city.

 

[KD247]

Very possible, but I really dislike the idea of buyers relying on the appraiser to confirm that their purchase price is reasonable.

I agree but see certification 23

Yeah, I know. But having appraisal contingencies on the standard purchase offer form and the constraints of the UAD are taking the profession in a bad direction that's rife with unintended consequences.

In fact, during the real estate bubble we got a glimpse of those consequences with buyers who would pay any price they could borrow against and sellers who quickly learned how to work the system and share the windfall with those who went along. Sorry, but it's hard not to imagine that we'd all be better off without the secondary market for mortgages. Just dreaming.

 

[gavin]

Regarding the prior sale, the property was listed at $1,100,000.
There was no appraisal of the property prior to people making offers, so appraisal valuation had no impact on what potential buyers thought the property was worth.

The property needed a significant amount of work. Disclosure package mentioned "lower level not performed with benefit of permits." All potential buyers new this.

Disclosures also mentioned active leaking windows, in places the walls had "carpet underpadding" staple-gunned onto them as some form of decoration (or a cheap manner of covering the large holes in the plaster, some as large as 3 ft diameter). the flooring was a mishmash of crap. Many of the other walls had large holes. The staircase to the finished attic was very steep and potentially dangerous for little kids (this is the third level of the house, not one of the two main levels. The finished attic is ~1000 sq-ft, constructed to a minimal level of quality. We use it nicely for 2 bedrooms, my 11-year old son and a live-in nanny. it has windows, carpeting, electrical, heat, etc. There was no credit in the appraisal for additional finished attic area, but i'm not going to sweat that).
The house had likely not been well maintained for 20 years.

Three offers were received, all 3 below the asking price, and all 3 > $1,000,000.
This was 4 years ago.

Ours was the highest offer and selected. Inspections showed foundation work was needed, fireplace unsafe, electrical box not proper, leak from the front raised entryway to room below, etc. The eventual agreed to price was $1,005,000.

The appraisal was then done, and showed a value of ... (wait for it) ... $1,005,000 - exactly the purchase price! Remember those days?

We spent the first month having the place fixed up with variety of contractors, repairing staircase, replacing windows, hardwood floors throughout on two main levels, repair walls & ceilings & paint throughout, replace light & plumbing fixtures, add solid wood doors, etc. you get the point. later had the foundation work done. All told spent almost ~$70,000 improving the property.

The market at that time thought the property was worth > $1,000,000, even with significant work needed (every offer, 3 of them, in this range).

To summarize, the appraisal had no effect on what the market thought the property was worth, did not "distort" the perceived value. I think the best test of value is determined by what price a group of people are willing to spend.
Gavin

 

[gavin]

To respond to a couple of other items:
Area of San Francisco: Potrero Hill

Hiring my own appraisal to challenge: I asked the question of my broker, and was told that it would be meaningless. The lender is under no obligation to consider it, and would likely view it as a biased appraisal of minimal value, due to the obvious conflict of interest the secondary appraiser would have.
Anyone else, thoughts on usefulness of this? I'm about the start the refi process all over again.

Legality of the lower level: I believe the conversion would be 100% legal as far as use, zoning, etc. (but as mentioned earlier, i'm not an attorney). Whomever did this work could have had permits pulled, this is completely fitting with the rest of the neighborhood. Our immediate neighbors have a similar house, their lower level is currently set up as a separate rental unit, completely permitted.
Thanks, gavin

 

[Mike Kennedy]

Three offers were received, all 3 below the asking price, and all 3 > $1,000,000.
This was 4 years ago.

"Ours was the highest offer and selected. Inspections showed foundation work was needed, fireplace unsafe, electrical box not proper, leak from the front raised entryway to room below, etc. The eventual agreed to price was $1,005,000.

The appraisal was then done, and showed a value of ... (wait for it) ... $1,005,000 - exactly the purchase price! Remember those days?"

The Leprechauns cannot imagine HOW that happened.......

Query: local market value, and property sub-market, decline, stability, or increase since 2008? WHERE is the property located?

 

[KD247]

... Three offers were received, all 3 below the asking price, and all 3 > $1,000,000. This was 4 years ago. ...

Ok, now if you're really lucky, you might find a couple of generally similar properties that also sold four years ago and then recently sold again.

By establishing a relationship between the sales prices from four years ago, you would have some support for the relationship between the recent sales prices and your market value. As previously pointed out, there are unknown influences in every sale and that's why an appraisal must incorporate varied data and at value from several perspectives. An appraisal can never be based on just one piece of data, but on the other hand there's no arguing that a sale involving the subject property should be ignored.

(One must also consider changes in the market between four years ago and now. As a more profound example, at the very height of the bubble, say seven years ago, it was common for buyers to completely ignore defects and deficiencies in a house because they were anxious to purchase anything they could get their hands on. To really nail down the relationship between your property and neighboring properties, you might even want to see if there is a pre-bubble sale of your house.)

By the way, for a property like yours and if I were in your area, I'd personally want to charge at least $1,500 for a complete analysis. And that would be a bargain, because it would be easy to spend a solid week on this appraisal. It would be typical in the current environment for an appraiser to have constraints which would limit the time available for this appraisal to less than a single day.

 

[mark hurlock]

To respond to a couple of other items:
Area of San Francisco: Potrero Hill

Hiring my own appraisal to challenge: I asked the question of my broker, and was told that it would be meaningless. The lender is under no obligation to consider it, and would likely view it as a biased appraisal of minimal value, due to the obvious conflict of interest the secondary appraiser would have.
Anyone else, thoughts on usefulness of this? I'm about the start the refi process all over again.

Legality of the lower level: I believe the conversion would be 100% legal as far as use, zoning, etc. (but as mentioned earlier, i'm not an attorney). Whomever did this work could have had permits pulled, this is completely fitting with the rest of the neighborhood. Our immediate neighbors have a similar house, their lower level is currently set up as a separate rental unit, completely permitted.
Thanks, gavin

The fact that you said, “Hiring my own appraisal to challenge” is a problem.

You should not be doing it to challenge anything. You shouldn't even disclose your concerns with the reviewer. You should allow them to discover whatever they need to tell you. You can ask them about your personal opinions after they have finished. You are supposed to be doing it to get an honest independent opinion so you can make a decision. At best it would influence your lender to get their own review conducted if your was credible.

This is why the industry has no credibility because everyone thinks appraisers are hookers on street corner to be paid to please the client.