Odd Comment In Final Reconciliation

[Frank Bertrand]

Am in the process of doing a review, and the following statement was included in the 'final reconciliation':

"Appraiser feels that the true value of the subject property is higher than that stated in the report, but she/he is unable to substantiate this due to a lack of comparables in this price range"

To me that would appear that she/he is trying to hit a number by using the term 'price range'.

Would it be more appropriate to use the term "subject configuration" of house, barn, 10 acre pond and indoor pool etc.

I think it is poor verbage to put that kind of statement in an appraisal report. What's your reading on this??

Gross adjustments for the grid are all over +70% and two over 100%. Net adjustments are in the 80% range. I suppose that is why the company wants a review.

 

[Larry Lyke]

Frank ~

I don't emote in my appraisals. Just use the gathered facts and present them to support a conclusion.

What the appraiser has written is gibberish.

Perhaps the appraiser didn't use a large enough market area. The size of the adjustments makes the appraisal worthless. It sure doesn't support the appraiser's opinion -- which came from where?

The appraisal has 2 major problems. the way I see it: 1) You can't sell the paper on the secondary market [or buy it back], and 2) nobody's gonna put that kinda stuff in their portfolio.

 

[Farm Gal]

Frank:

It is my opinion that the appropriateness of that specific comment depends in part on what is being said in other sections of the report... did you read the neighborhood section for specific comments that might support that otherwise potentially inflammatory/inflationary comment? OR are there additional summary comments like on an addendum?

I have on occasion used almost identical verbiage in my summary, but it is supported elsewhere with very specific comments about 'low/mid/upper-mid/high end price range' for the area.

For example: "within 10 miles of the subject there were only 6 sales of similar homes in the last 12 months, with a price range of X to Y. Analysis of homes with either more disparate squarefootage or lot size indicates that the subject might well be valued higher, however those sales were considered less appropriate than the ones selected for use in the report due to truly excessive net and/or gross adjustments." blah blah blah: but, man, in some places there just AIN'T no good sales!

I HATE it when some reviewer does a hatchet job on a report after fixating on one sentence.

I hate it even more when they don't bother to read the explanation that doesn't FIT on the one to five lines on the blasted form.

Review the whole report and don't get caught in the trap of second guessing a possibly innocent comment.

The report is either 'good' or 'not so good'. form a balanced opinion.

 

[G-man]

OK, I'm putting up my shields for this one ( =-O ). Anyhow, I have appraised a home where, due to the client involved, a mortgage broker, I used comparable sales which were fairly "review" proof. The subject was 4000+ Sq. Ft. in an upscale subdivision of about a dozen homes with values ranging from $500K - $800k. However, no sales within the last two years in said subdivision. There were, however, two listed sales, one for $600K and $850K. Similar sized homes in other subdivisions within a mile or two ranged from $400K - $500K. As these were the nearest, most similar homes, I pulled my comps from these subdivisions. Report gets sent in. Broker happy, value of $475ish more than makes the deal fly. Two days later the homeowner calls and wants to know why I undervalued his home. He doesn't want it to reflect poorly if he wants to sell it at a later date :question: . While explaining client privilage and all, I stated that although his property may, and most likely is, worth more, I can only state what I can prove. And seeing as though this broker deal will most likely get field reviewed, I felt the most comfortable with sales of similar size and close proximaty to the subject. If I go five to ten miles away for comps, which I would have had to do, I'd bet dollars to doughnots it would have gotten bounced. I have no idea if the homeowner was satisfied with the answer, but haven't heard anything back since.

 

[Wally Jones]

Sounds like the subject was one of those dreaded "unique properties" we see occasionally which we know ahead of time will have nothing really comparable in the market. The appraiser found some sales and attempted to make everything fit into the forms we're most comfortable working with on a daily basis. Only nothing really fit and the adjustments were out of whack with what's normally acceptable. In the appraiser's mind the results were unsatisfactory - thus the statement in the reconciliation.

Somewhere during our training, we need to be taught to think "outside the box", or in our case, "outside the form". Seems like this might have been a good time to write a narrative report instead of trying to make everything "fit" onto a URAR. But we have two problems with that. Most of us aren't comfortable with the narrative and many lenders won't accept it ("What's this?? Where's the appraisal??").

Frank, I interpret the comment just the opposite from your idea. I think the appraiser was trying to avoid the appearance of attempting to hit a number with that statement. As Lee Ann pointed out, what does the rest of the report look like? Was there explanation in another area of the report supporting that statement? Is the data factual? Were the comps the best available? As Larry said, maybe expanding the market search area would have yielded better results. Also, a look back further in time might have helped.

Anyhow, I reckon the statement could have been omitted unless they referred to other areas of the report which provided support for such an opinion. I'm not sure it's worth dwelling on too much in a review.

 

[Frank Bertrand]

Hello All and thanks for the comments.

First, It is a unique property, and there are no comparable sales that remotely support a value as the report suggests.

The appropriate method for this type property is the cost approach. After all the book says,

"...The decision to use reproduction cost...is often dictated by the age of the structure, its uniqueness, and any difference between its intended use at the time of construction and its current highest and best use..."
(Appraisal of RE 12th ed)

Yet I feel this guy's pain as I recently did a new construction and the dippy lo's wanted sales comparables that don't exist. They wouldn't take the cost approach, owners went to a different bank who had an in house appraiser who used bizarre comps to make it fly--but that's another story!!

As a reviewer, I can't accept the comps as they go WAY over any norms, and there no comps that approach the subject's perceived value.

 

[Farm Gal]

Frank:

As long as you looked at "the rest of the story" I am sure you did a good job on the review.

But you scared me with the : THIS sentence thing.

I have written two rebuttals to hard sweated reports in the last year that consisted of
"item a - please read the report see addendum page 2 paragraph 1, line 3
item b - plese read the report see addendum page 1 paragraph 3 in it's entireity..."
The so-called reviewer OBVIOUSLY didn't bother with the assigned task of actually reading the report.
That stuff surely wouldn't fit on the form, and it is a SUMMARY report but I summarized big.

Square pegs are hard to place in round holes.

You can find a round hole BIG enough for most square pegs,
but narrow (minded) lenders with thier own'forms' to fill can't jump the hurdles.

Most lenders in my area refuse to accept (or pay for ) narratives.

Some properties are perfectly marketable despite being a tad unique in one area or another.
I use pictures as well as more description of the 'problem(s)'.
After that it is the lenders headache not mine. :twisted:

specially if I warned 'em in advance <_< , and charged extry for my time n trouble :usa:

 

[Caterina Platt]

I hate these ones. I'm faced with these situations about once a month it seems, it's unique enough that no other sales existed to support it.

The big item of concern in my mind would be- is it overbuilt? Does the appraiser make any comment or offer any supporting evidence of similar dwellings in the area. I often have to state something to the effect of 'similar dwellings existing nearby and supportive of subject size and value, however transfer of same is infrequent.' Then I'll either offer a listing, expired, custom construction comp or old sale as a non-weighted additional comparable.

Have you located any more suitable comparables?

 

[Phil Rice]

I have more questions than answers, but based on what has been said so far, my comments are:

The sentence by the appraiser about lack of "comps in a price range" can be interpreted 2 ways:

1) There is no truely comparable data available - I think we have all been there, or
2) The appraiser searched for comps using sales price as the parameter - I think we all know that this is the wrong way to do it, but we also know that it happens.

You are entitled to your opinion, but I do not agree that the cost approach is the thing to lean on. If you do that, you will be just as wrong (wronger?) as the appraiser IMHO.

It is just as wrong to undervalue a property as it is to overvalue it.

It is easy to criticize someone else's comps, but not so easy to come up with better ones. If you forget about lender guidelines, and think about how to arrive at the "correct" value, what are the best available comps? If you have to go 10 or 20 miles to find something similar, then you have to sort out what is the most important criteria (proximity, GLA, quality, etc) and do the best you can with what you have to work with.

If you think that the appraiser ignored a good comp and used a bad (less similar) one to try to support an unrealistic value, then say so and let the chips fall where they may. I would encourage you to be specific about which comps are better, and why.

If the intended use of the appraisal is for refinance, the normal scope of work does not allow an appraiser to make a career out of any one report. In theory, this is no excuse for shoddy work, but in practice, 6 hours work is about the limit for any one report.

 

[Frank Bertrand]

Well, the subject of the review is one of those "trophy" houses that are built by people with more money than common sense. You have a feeling about these as you drive up the lllooooonnnng driveway, see 6 SUV's in the gargage area, 4 snowmobiles, outdoor pool, 1000 gal propane tank for heat, generator shed for uninterruptable power supply, etc. I usually start talking to myself about then and mumble through the whole inspection as I see overvalued heating, cooling, auto window darking equipment, massive stone fireplaces with heat o lators, radiant ceiling and floor heat and of course the customary "Tropical Cloudburst shower" adjacent to the hot tub. One of these trophy owners, a building contractor thought he would impress me by saying that instead of customary 14 AWG wiring he had 10 AWG wiring and the house was worthmore. Plus the fact that he had 2, yes TWO septic systems insalled so that if one failed, the other was available immedlately. All piping was schedule 40, screw fasteners used where practical, etc. DIdn't faze me a bit.

I would like to use the cost approach as presented in bills by the contractors, then subtract for functional obsolescence, superadequacy, etc, to where a motivated person with too much cash and not enough common sense will buy. Marketing time: 18 months. As for the report, I feel for this guy as I know he's trying to pump water out of a dry hole.

I know there aren't better comps, but do I have to swallow 114% gross adjustments? I think I will contact the lender on monday and give him a few options: a long narrative or a short narrative!!

I do like the earlier statement put forth by Caterina that "...similar dwellings exist in the county but are not frequently seen on the market.."

I usually throw in the statement: "Custom homes are usually put together by the homeowner who assembles the lot, well and septic, engages architect, contractors for the home. Since these homes are built for the residence of the owner and not for resale, new homes are rarely seen in this market, and the best available comparables within time, distance and configuration are used"

And when using the cost approach, I add 3-5% as cost to assemble all components to a functioning home.