Question from potential private customer re reconciliation at sale price.

[CGinMN]

When it comes to the waiver decision, I assume the GSEs AMV uses a range, not a point value. Meaning if the borrower's estimate (or the contract price) is $100,000 but the AVM gives a point value of $99,000, then I assume the waiver will still hit. In effect, they are changing the LTV, although the GSEs deny this because they say the borrower's value estimate was "accepted." So, what is the tolerance? 5%? Another way they stack the deck against appraisers.

 

[alebrewer]

I always thought the appraised value should be a range of the adjusted sales, not an "exact" number and let the lender make the final decision. No one's that good...

IMO - point value appraisals are a misnomer. At any given point in time a property will always express a range of value. Price is a point - value is a range. (again, IMO).

 

[TerryRohrer]

I don't think I'd say its a universal thing, but I'm absolutely sure some appraisers fall into this category - hence the reason users of our services believe they can create a model that works better than we do. As an aside - just got back two appraisals on the same property - one is at $750k and the other is at $950k. I don't blame the appraisers for being so far apart - I blame an industry that has rewarded mediocrity for several decades.

I agree 100%. Change has to start with appraisers, but so far no indications suggest that will happen. There seems to be an attitude among appraisers that if you call out a deficient appraisal, you are undermining yourself and all appraisers. That enables the continuation of the games. The reality is that only an appraiser can police appraisers. Only an appraiser with access to relevant data can consistently find the games being played by appraisers. I do think the alternative valuation models could instigate some change as there is no longer the need for blindly acceptance what an appraiser claims. If that were coupled with completely divorcing the GSEs from taxpayer protections, requiring lenders to retain ownership of at least 25% of their loans, and revamping appraisal boards to enforce appraisal standards, some gains could be made.

 

[Mark K]

This discussion has ZERO to do with AMC's and comingling of fees, J. Those kinds of rants are especially tedious when the topic doesn't even involve AMC's.

Tedious, but expected these days. Surprised she didn't find a way to blame Trump for something.

 

[The Bob]

Anchor bias in appraisals is a red herring.

Our reports and the values we come up are a reflection of what well informed and typically motivated buyer's and seller's are doing. Where are they agreeing on price. If you think about it logically, of course most appraisals are going to be at or very near the contract price since that is an accurate reflection of what the market is doing. Almost every appraisal I've done that did not match what the buyer and seller agreed to was because of something outside of what the property was worth....seller concessions, buyer preferences on new construction, etc...

 

[alebrewer]

I agree 100%. Change has to start with appraisers, but so far no indications suggest that will happen. There seems to be an attitude among appraisers that if you call out a deficient appraisal, you are undermining yourself and all appraisers. That enables the continuation of the games. The reality is that only an appraiser can police appraisers. Only an appraiser with access to relevant data can consistently find the games being played by appraisers. I do think the alternative valuation models could instigate some change as there is no longer the need for blindly acceptance what an appraiser claims. If that were coupled with completely divorcing the GSEs from taxpayer protections, requiring lenders to retain ownership of at least 25% of their loans, and revamping appraisal boards to enforce appraisal standards, some gains could be made.

I think there has just been a great lack of consistency WRT how appraisal methodologies and tools are applied. This is, of course, the result of allowing every wahoo with 3 years' experience to train the next gen. Folks like to bust on the proverbial 'adjustment cheat sheet' but the fact is that most appraisers STILL approach the appraisal problem with at least a mental cheat sheet, and when asked to demonstrate HOW they arrive at their opinions and conclusions, they really don't know. They don't know how they did it (other than their mental cheat sheet) and they don't know how to demonstrate it to their users. Again - not their fault - its the result of the users of our services not requiring proficiency. The 'acceptable for our intended use' bar has been set WAY too low for WAY too long.

 

[Mark K]

In the case of a refi with no contract or 'bullseye', I think a spread of about 10% for 10 different appraisers would be expected, at least to me. Now if the subject was in some cookie-cutter subdivision I'd expect a tighter range but outside of those areas, 10% would not surprise me at all.

CGMN's first graph is statistically offensive. No way should it be that skewed without outside influence or bias.

 

[CGinMN]

I don't think it's offensive. I think it is the exact outcome that should be expected.

 

[TerryRohrer]

I think there has just been a great lack of consistency WRT how appraisal methodologies and tools are applied. This is, of course, the result of allowing every wahoo with 3 years' experience to train the next gen. Folks like to bust on the proverbial 'adjustment cheat sheet' but the fact is that most appraisers STILL approach the appraisal problem with at least a mental cheat sheet, and when asked to demonstrate HOW they arrive at their opinions and conclusions, they really don't know. They don't know how they did it (other than their mental cheat sheet) and they don't know how to demonstrate it to their users. Again - not their fault - its the result of the users of our services not requiring proficiency. The 'acceptable for our intended use' bar has been set WAY too low for WAY too long.

This has never been more clear than over the past four or five months following FNMA's pronouncements that market conditions adjustments (0 or other) must be supported. Nearly all of the discussion was, "which program can I buy that will provide the answer so I don't have to think about it". This not only confirmed what FHFA concluded, but also confirmed an intent on the part of appraisers to ignore the root of the problem and continue muddling about making adjustments they don't understand.

 

[CGinMN]

If appraisers had to work blind, with no idea what the list price or contract price was, the tide would go out and we would quickly see who isn't wearing any shorts. It would also humble everyone here.