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Troubled - Inflated Value's ???

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jtrotta

Thread Starter
Senior Member
Joined
Jan 16, 2002
Having read a few posts here with regards to the so-called;

"Inflated Value" and it appears it's taking on a course of it's own, and similar to one of the old "It's A Flip" and in most instances it isn't :!:

So here's the Quiz - what is your definition of - "Inflated Value" :?:


8)
 

Tim Hicks (Texas)

Elite Member
Joined
Jan 15, 2002
Professional Status
Certified Residential Appraiser
State
Texas
Any value you put on a property. Nah, just kidding. Isn't it quite obvious what an inflated value is? My definition assumes their is fraud and/or incompetence on the appraiser's part. The home is appraised way over what the property would really bring on the open market. We are not talking $1-5,000, we are talking $10-50,000 over valued. I have found many cases where a property is listed for sale over a year at a certain price, then taken off the market. Then the home owner decides they want to refi and they get an appraiser to put even more than what they could not sell the property for in a whole year on the market. It happens, it happens mre often in a refi market and it happens way more than anybody here realizes. Too many appraisers have the "its just a refi" mentality and will put whatever the loan officer needs or whatever the home owner needs on a property instrad of just giving them a fair market value. C'mon do we really need to ask this question? Am I the only appraiser who lives and works in an area where appraiser corruption is rampant?
 

Mountain Man

Elite Member
Joined
Jan 15, 2002
Professional Status
Certified General Appraiser
State
Georgia
Then the home owner decides they want to refi and they get an appraiser to put even more than what they could not sell the property for in a whole year on the market.
Just put a 4 too 5 year marketing period in your report. :wink: :lol:
 

Restrain

Elite Member
Joined
Jan 22, 2002
Professional Status
Certified General Appraiser
State
Florida
An inflated value is just that, a value that IS NOT justifiable and supported by the market. It doesn't matter if its because the condition is ignored, the sales used are outside of the market, or if the appraiser is just lazy and clones an appraisal without paying attention to the value. The problem is that too many appraisers engage in these practices and except for the occasional appraiser, nothing ever happens.
 

Ray Ohler

Sophomore Member
Joined
Jan 15, 2002
What is a flip? What is an inflated value? A value is an opinion. However, the opinion has to be supported and able to be defended. It is a lot easier to spot an inflated value in a market area where 1,000 homes are "virtually" identical (large subdivision or urban neighborhood) with a good measure of recent sales activity. It becomes harder to detect when in a suburban or rural area with a wide variety of housing styles, sizes and lot areas. I have seen appraisals in both that were substantially, for lack of a better word, "overvalued". I recently wrote in another post that I looked at a house in a dense urban neighborhood, approximately 52 houses on the block, at least 25 or 30 boarded up and vacant (some "squatter" occupied), block was a well known heavy drug addict/dealer and prostitute frequented hang-out. An ABUNDANCE (20 or more) of similar row type houses within a 4 or 5 square block radius sold within anywhere from days to 5 or 6 months. ALL within a "reasonable" range ($5,000 to $12,000). Houses on BOTH sides of the subject were cleaned and sealed (boarded-up) by Phila. Licenses & Inspections. Property was reported by original appraiser to be an "arms-length" transaction with no concessions. Appraiser stood on the curbline directly in front of the dwelling to take a front elevation photo, street photo was WAY out of focus but didn't appear to me to be the same street. Turned out, the "sale" was between two family members (brothers) the "no concession" part APPEARED correct. Anyway, the "sale price" was $37,500 - appraiser valued it at $40,000. His "opinion" was based on three sales IN EXCESS of 25 blocks away in a "prime" market area. The property was foreclosed on (closed) within 10 or 11 months meaning a couple of payments may have been made. As far as a suburban "overvalued" house I looked at a dwelling with a water "view" not waterfront. Home was basically similar to other dwellings within the area and lot size was also commensurate, in other words, it wasn't a "one of a kind" property. At any rate, I was supplied with TWO appraisals from different appraisers. One appraiser went 3 miles, 5 miles and in excess of 7 miles for "comps", the other appraiser went in excess of 5 miles for all three "comps". Value opinions? One for $790,000 and one at $800,000. I found three sales within 1 mile that sold within three months, the "best" comparable (almost identical in size, slightly larger lot size, situated directly on the water and within 1/2 mile of subject) sold for $625,000 and was sold within 45 days (under agreement 25 days prior to that), the other two sold for I believe $535,000 and $575,000. The "floor sketch" that both appraisers supplied had the EXACT same dimensions for the dwelling, like the front was 57 feet 7 inches, the side was 32 feet, 3 inches and the addition was 25 feet, 3 inches. They were both "hand drawn". Amazingly, they both had EXACTLY the same square footage of livable area (I believe it was like 2,346 SF) which WASN'T what the tax records had. It was my opinion that both properties were substantially "overvalued" or "inflated". Send three appraisers out to a reasonably "easy" property to value, you should have all three within 5%-10% of each other. Relo companies call for 4%-5% but in the real world I think 10% is acceptable, but DEFINITELY not 30% to 500%.
 

Wally Jones

Senior Member
Joined
Jan 23, 2002
Professional Status
Certified Residential Appraiser
State
Florida
We develop an opinion of value through due diligence which includes all the research, inspection, consideration of approaches to value, crystal ball, et cetera. When we discover a similar property valued higher (or lower) than our expert opinion, we tend to view that property's value as "inlated" or "depressed". How much over or under what our research told us? I don't know. Many seem to feel that once we go beyond 10%, that's significant.

When such an "inflated value" is encountered, if we care enough, more research is called for. Why does it seem to be overvalued? Is it really an inflated value or are we possibly seeing a change in the market beginning an upward trend? Do we keep sufficient records of our market to recognize such a trend?

Inflated values by all involved in a real estate transaction are all too real. However, each event needs to be analyzed a little before we pronounce the sky is falling.

Durn, j, you sure made me type a whole lot more than I intended. 8)
 

Ray Ohler

Sophomore Member
Joined
Jan 15, 2002
the call is made whether its inflated or not. One size does not fit all. Some of the appraisals I have seen were SO ridiculous it was clear. Others may have been slightly overvalued but if the rest of the report was reasonably correct (factual information, "real" analysis of sale agreement, reporting prior sale within last year or more if it was significant and explanation if warranted for higher value, etc.) then maybe the value WAS NOT inflated just a difference of opinion.
 
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