Wall St. Journal - "inflated Home Appraisals Drain Billions From Government Insurance Fund"

[Deleted member 128537]

If you can get within 3% of the sale price of a home on a consistent basis then you are the best appraiser in the world.

For relo work sure. But that is a small segment of appraisals and for the purpose of forecasting a rprice/market value opinon to get that price. It is a different issue than what I or Marion referred to

The point is still the same. 2 appraisers working independently within 5% of the actual sale price. The RELO company sets the price not the listing agent.

Again, RELO result is not the issue The issue is folks saying nobody is "that good" to come within 3% of a sales contract price on a MV purpose appraisal .
If a RELO company sets the price, are they relying on the RELO appraisal value ?If so, and or they price it aggressively, there is a high likelihood the sale price will be within 5% or less of the RELO appraisal $ value opinion.

d. More often than not the RELO company would list the property slightly higher than our appraisal. In one instance they went with the high appraisal and over listed the property. It eventually sold for my appraised value.
So again I ask 3% from what. In the article they are referring to what it would actually sell for. Yes,that’s price. And I’m saying 3% is negligible. When I do review work if my opinion would be 3% difference I don’t even think it is significant.

You are basing your conclusion on RELO work which is different-as you stated, a RELO property sale price is tied in to the RELO appraisal forecast of that price, / aggressive pricing, thus the RELO company lists the property to achieve that, making it highly probable the price and RELO appraisal MVO be within a close range...a generous 5%.

Of course, there are many times in a non RELO situation where the SC price is the market value...but let's not kid ourselves, it turns out to be that way more often than might otherwise, due to external and internal pressure and expectations to make that happen. Which circles back to the corrupt ordering system / party firewall . There are number ot ethical AMC;s and lenders who endeavor to provide a real firewall but they have to compete against other corrupt and lenders and AMC;s. The field should be level for lenders, AMC;s and appraisers. .

Appraisers ( as usual) are in a no win situation. Given some clients (silently) stop assigning work to appraisers who come in "low" except on rare occasion..

Recent papers by Fannie and FHFA suggest they /lenders don't consider appraisals reliable since such a high percent of appraisals ( over 90% per their figure ) meet or exceed SC price. FHFA paper listed options to correct. among which is a third party picks the point value , dropping appraisal s as valuation, or not providing the appraiser with the CS price. None of which bode well for appraisal profession. Absent from their options was correcting the corrupt ordering system .

Have you ever tracked the accuracy of your appraisals by what that property sold for after you did it? I do lots of appraisals for sellers that want to know a sale price. I ALWAYS tell them any value has a certain amount of subjectivity to it. One can’t help it in a rural market. Thus I ALWAYS tell them a probability based upon how good I believe the comparable sales are. After all this is an “estimate” of market value.

I simply do not understand your thinking that somehow you can be consistently closer than 3% on your valuations. You would have to be in a very homogenous market or I would never want you to review one of my appraisals.

In fact I am involved in a legal case next month on an multi-million dollar REO. The first appraiser that did the analysis valued it at 2.5 million. He is an MAI and on the leadership of AI. The bank used that appraisal for setting a sale price. After having the property on the market for over a year it did not sell for that price. And when I saw the list price on it I thought that was too high. One year later I get asked to value the property by the bank. I valued it at 1.5 million. It eventually sold for 1.3 million. So was the first appraisal credible? Was the value supported? I know the first appraiser. He uses all the tools available. And is by no means a Make It Appraise kind of guy. Yet the market demonstrated that 2.5 was not the value of the property. And he readily admits it when we talked about that property. Now I had the easier assignment, because I had the listing history to go by as well as I talked to the agents involved in trying to sell the property. So I could get all kinds of buyer reactions to it.

Ironically the previous owner thinks his property is still worth 4 million and got an appraiser from outside the area to give him that value.

 

[ucbruin]

So some of your “hairs” stood up. Let me explain. I live in an area with lots of subjectivity in values. For example waterfront sites often can have a significant range of value within the credibility limits. So if I’m doing a typical waterfront home; I could easily have a range of value for the site that could range 20,000 to 30,000; especially when the data is often lacking. And for some waterfront sites it could even be more. On million dollar sites the values could have a credible value range +/- 200,000. The choice is often not easy and often highly subjective where one puts that value for that site and then makes it as a basis for an adjustment. I know for some of you this might seem odd, but I deal with it every single day.

You can comb your hair now.

By conservative I mean I’m going to make that site adjustment based upon the lower end of the spectrum. It’s still a credible value and supported.

Thus when I was doing a reverse mortgage I know the inherent risks if I come in too high. I could be jeaprodizing the homeowner in a very bad way. So I’m going to error on the side of caution.

Your "conservative" comment absolutely did not bother me in the least.....

I've been labeled a conservative appraiser on numerous occasions in my appraisal career....

There have been times when I was encouraged to be more "optimistic" when it came to appraising....

Your comment just happened to bring up prior discussions between J Grant and me....

 

[Deleted member 128537]

Your "conservative" comment absolutely did not bother me in the least.....

I've been labeled a conservative appraiser on numerous occasions in my appraisal career....

There have been times when I was encouraged to be more "optimistic" when it came to appraising....

Your comment just happened to bring up prior discussions between J Grant and me....

Understand. Thanks.

 

[George Hatch]

It seems to me that FHA's first line of defense in these is the LTV. If they are facing losses on these deals the simplest fix is to dial back the LTV so their loans aren't so exposed to losses from the real estate cycles and deterioration of the physical condition due to the owners not having enough cash flow to keep up on the maintenance.

 

[Mark K]

Thus when I was doing a reverse mortgage I know the inherent risks if I come in too high. I could be jeaprodizing the homeowner in a very bad way. So I’m going to error on the side of caution.

I'm not sure why you think that you are jeopardizing a homeowner more on a reverse mtg than a standard mtg.

Often, the homeowner is dead when the reverse mtg problem rears it head; not sure they can be jeopardized much beyond this.

However, on a std mtg, the owner is usually still alive and can suffer economic losses if an appraiser chooses an advocacy position.

 

[Mike Kennedy]

Better yet, end reverse mortgages which are based upon a whole lot of assumptions many of which are fallacious. I think they are the worst scam in the lending industry and never advise someone to do them. If you can’t afford to live in your house then time to scale back. A senior would be better off selling and using the money from the equity to live comfortably by renting an apartment or owning a smaller more affordable house.

I’ve also seen the cost of some of these loans. They are outrageous. The poor senior is losing a ridiculous amount of money just in closing costs.

The Winning Post.

 

[J Grant]

I simply do not understand your thinking that somehow you can be consistently closer than 3% on your valuations.

Homesweethome, I never said nor wrote that, and especially not the consistent part. Some of the interpretations of what I write come back so bizarre, like this one, makes me wonder if people have a reading problem, or I have a writing problem.

What I have posted is that it is possible when there is a SC price in a purchase appraisal, an appraiser can , when market shows it,r arrive at a market value opinion that might be 3 % higher or lower than a SC price. That's it, nothing more and nothing less. It does refute what same say that nobody is "that good"...to be 3% "off" a SC price, which in my experience is false.

If the SC price is 100k and highest adjusted value is 97k, assuming nothing else relevant shows otherwise, the MVO is 97 k, a mere 3k "off" the 100k price. What do those other appraiser do to get the value from 97kk to 100k to match the SC price in that situation.?

 

[J Grant]

It seems to me that FHA's first line of defense in these is the LTV. If they are facing losses on these deals the simplest fix is to dial back the LTV so their loans aren't so exposed to losses from the real estate cycles and deterioration of the physical condition due to the owners not having enough cash flow to keep up on the maintenance.

That, and set aside an escrow for maintenance with inspection every 5 years and if items are deteriorated call for repairs. The seniors after all are getting the benefit from all the cash every month so having to make needed repairs should be part of the deal.

 

[Meandering]

I simply do not understand your thinking that somehow you can be consistently closer than 3% on your valuations.

Homesweethome, I never said nor wrote that, and especially not the consistent part. Some of the interpretations of what I write come back so bizarre, like this one, makes me wonder if people have a reading problem, or I have a writing problem.

What I have posted is that it is possible when there is a SC price in a purchase appraisal, an appraiser can , when market shows it,rrive at a market value opinion that might be 3 % higher or lower than a SC price. That's it, nothing more and nothing less. It does refute what same say that nobody is "that good"...to be 3% "off" a SC price, which in my experience is false.

If the SC price is 100k and highest adjusted value is 97k, the MVO is 97 k, a mere 3k "off" the 100k price. What do those other folks do to get the value from 97kk to 100k ? I wish they'd tell me. Having reviewed inflated appraisals., I have an idea of how appraisers accomplish that, but would be interesting to hear it from them.

I've seen highly motivated sellers that sell well more than 3% below market value, just so they can get out from under.

It does no one any good to sit and wait for market value, when you can't afford the next mortgage payment and there is a low ball offer on the table.

It also does not mean that the market value is now the same as the low ball offer, simply because everyone not the seller in the transaction believe it to be an "arm's length", "market value" sale.

As the economy tightens and those student loan interest rates keep increasing, appraisers will be wise to remember to interview the sellers, if the sale price seems lower than the comps.

Just a heads up, because you know those headlines about "over valuations" are going to be out there in a declining market.

.

 

[Terrel L. Shields]

A senior Rev mortgagor who dies weeks or a few months later may have just given their equity to the lender. Seniors think they are avoiding being a burden on their children, may in fact, be creating a burden if the child(ren) are unable to refi yet the children are left burdened with probate, funeral expenses, etc. I know one now with no funeral and the funeral home wants their money first...family cannot afford it and aren't going to redeem the reverse mortgage. Counseling "required" is a joke. Nobody understands it.

Another was in poor shape and the administrator couldn't get agreements with the siblings and back it went.