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This Week's Bad Appraisal Review

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Scott Cole

Freshman Member
Joined
Sep 26, 2016
Professional Status
Certified General Appraiser
State
Maryland
Alright, since I will be heading off on the road for much of the day today, I completed a review last night, and it was a doozy.

It would normally be a pretty straightforward assignment...converted dwelling currently occupied as a salon, to be converted into a dental office. The original improvements are nearly 70 years old. There will be no addition.

Problem 1...property is owner occupied as a salon. As it is to be renovated into a dental office, clearly there will be a new owner or tenant. The report indicates no contract was provided, but indicates no lease contract. The appraiser obviously did not put in the effort to obtain the sales contract, which needs to be reported and analyzed.

Problem 2...The building is small, and sits on less than half an acre. There is room to expand so the appraiser decided to attach value to what he views as surplus land. The problem is, all of the comparable sales were similar...small buildings with similar or even larger land to building ratios. Thus, no support for this surplus land adding value.

Problem 3... In both the "as is" and "as complete" analysis, the appraiser developed all three approaches to value. In both cases, the Cost Approach came in much higher than the Income and Sales Comparison approaches, which had a tight range. In the As Is analysis, no weight is given to the Cost Approach, which came in about 12% higher than the other two approaches. In the As Complete analysis, the Cost Approach is given the most weight, while it comes in 30-40% higher than the Sales and Income. The reason given is that since there is low depreciation, the Cost Approach should be given significant weight. Therefore, we have a problem with consistency and credibility.

Have at it!
 

Eli

Elite Member
Joined
May 12, 2007
Professional Status
Certified General Appraiser
State
Tennessee
That makes my head hurt.
 

Michigan CG

Moderator
Staff member
Moderator
Joined
Nov 1, 2006
Professional Status
Certified General Appraiser
State
Michigan
Cost approach based on how much the new owners are going to spend on the property?
 

JTip

Elite Member
Joined
Oct 12, 2004
Professional Status
Certified Residential Appraiser
State
Pennsylvania
Wish I could get $2,000 assignments.......
 

BRCJR

Elite Member
Gold Supporting Member
Joined
Sep 20, 2005
Professional Status
Licensed Appraiser
State
Virginia
How do you support your opinion the Appraiser did not put in the effort to obtain the sales contract?
Is it surplus or excess land?
 

Gobears81

Senior Member
Joined
Nov 7, 2013
Professional Status
Certified General Appraiser
State
Illinois
How do you support your opinion the Appraiser did not put in the effort to obtain the sales contract?
I caught that too. If it were me, that is probably one "problem" that I wouldn't harp on as much.

In regards to the third issue, perhaps he didn't have great sales/ rental data for the as-improved analysis. If the property is being converted to a different use, weighting one approach higher in the as-is valuation vs the as-improved valuation isn't necessarily a consistency issue. But, between that and the surplus land item, it sounds like he was just being aggressive to get to closer to the expenditures.
 

Eli

Elite Member
Joined
May 12, 2007
Professional Status
Certified General Appraiser
State
Tennessee
The cost approach was not given enough time. The contract would have been given to me or I would have withdrawn and charged them for my services. I don't know enough about the comps and the surplus land issue.

The third problem is unorthodox to me.
 

Elliott

Elite Member
Joined
Apr 23, 2002
Professional Status
Certified General Appraiser
State
Oregon
Scott said, The problem is, all of the comparable sales were similar...small buildings with similar or even larger land to building ratios. Thus, no support for this surplus land adding value.

And you were able to find better sales which had small buildings with excess land?
 

Zephyr999

Junior Member
Joined
Oct 23, 2015
Professional Status
Certified General Appraiser
State
Wisconsin
Funny how it's a 'review of the report' but the conversation is all about 'the appraiser did/did not do this/that' ..
 

Eli

Elite Member
Joined
May 12, 2007
Professional Status
Certified General Appraiser
State
Tennessee
The third problem is bad. So all three approaches on "as is" and another three approaches on "as complete"? I have never seen that.
 
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