When are we ever going to learn

[David M. Swaim]

I recently received and order for an appraisal. I went out and inspected the property, comparables and so forth. Got back and started working on it Thursday night and finished it Friday. Sent it to the lender who called and told me they already had one done and they were very sorry it had been double ordered. Well the sales price was $269,900 and I couldn't come in more than $245,000 tops so I submitted my report and bill anyway. I have lived in the area for over 20 years and work it day in and day out and know it hopefully pretty darn well by now. Well the loan agent said they got an appraisal in at the sales price. There is no way in the world this home was worth $269,900. I must have had 16 or 17 comps, numerous other pending sales and current listings. I utilized every data source available and yet this person rubber stamps it. This is happening every day of every week of every year across the country. Way too many appraisers now are rubber stamper form fillers. It used to be a small percentage of appraisers but it has gotten out of hand today. It doesn't matter how many regulations, licenses, seminars on fraud or etc. come down the pike a lot of appraisers are just flat out ignoring the warning signs and are ruining this once highly held profession all for the sake of that appraisal fee. Yes some will get caught but that number is far far fewer than those who are commiting the offenses. It is no wonder the lending industry wants to get rid of us once and for all. What do you need an apprisal for if the darn thing hits the target every time and that is what Freddie and Fannie are saying! Wake up you people. Its time to start turning people in when these types of gross violations are being commited. I'm not talking about nit picking some poor appraisers report for crossed t's or dotted i's, I'm talking about these rubber stampers who wouldn't know how to value a property if they didn't know the sales price or value needed to make a loan. Its disgusting.

 

[William Harmon]

I have seen this in Michigan, I at the current time head to head with another appraiser who makes everything work with one of my clients, He does not care he is placing people upside down. The company just got one of his appraisals for over $38,000 over market he ignored the Comparable next store to the subject, I appraise it for $100,000, he appraises it for $138,000 with stick builds as our subject is a manufactured. They called me in when the underwriter said what the $%##. The Loan Company has removed him from the Approved list, as they have nothing but bad reviews from this Guy, Justice prevails sometimes. On the double order use the fax as evidence, Tell The LO you ordered it baby. They may not pay right away but the court will see things your way. Hang in there and get paid. This double order crap has to stop. I recently took a company to court that double ordered, we had check day before court date, as they did not this coming out in open court

 

[Tom Hildebrandt]

Quark

I sense your frustration and hope that the post helps, I also hope that you get paid! That should also help.

Regarding the value issue. I take it the property was listed (MLS or FSBO) at $269,900 and it sold at that price. How long was it on the market?

If the property was adequately exposed, and sold for 10% ($24,900)above what your opinion ($245,000), it may well be that you missed something that the market identified as having value in the property, or that the market is moving up, at least in that neck of the woods.

I do not mean this in a demeaning way, just that we as professional appraisers are not omnipotent or omniscient.

As an example, I am currently in the process of selling my personal residence. I felt the upper end of my value range was $215,000 but felt something above $200,000 would be about right. I personally retained two appraisers, whose work I respect, who independently appraised the home within 1% of each other in the low $190,000 range. I listed it for $210,000 and three weeks later accepted the first written offer at $204,000. The week after the contract, two additional parties were shown the house, and both said to notify them if the deal does not go through, that they would offer the list price. This was a FSBO, no market exposure other than a sign in front of the house.

I do not think either appraiser undervalued my residence, but by the same token, I do not think an appraiser who sees $205,000 will have over appraised the home.

The key issue for appraisal professionals is to recognize that the value conclusion per se is not what makes a good or bad appraisal, it is whether the appraisal process is correctly followed and that the work product is adequately developed. We must remember also that the more complex the assignment, the more divergent we can expect the value conclusions to be.

Regards

Tom Hildebrandt GAA

 

[Austin]

Tom: Two points on your above comments: First: The appraisal question is; "if the subject property was exposed to the open market for the normal marketing time prior to the date of appraisal, what is the most probable price it would have sold for." That is past tense, not future tense. Second: Based on this definition, it is not possible for prices to ever rise. If prices are rising, them somebody is cheating. Third: The numbers on your house are within 3% of the appraised price. Buyers can't make that kind of market price distinction. That is why we have variance in the market. I have found that in $200,000 houses it is normal to have a variance about the most probable price of up to 12% due to normal variance alone. If in the story above about the high appraisal some one had used 30 comparable sales and graphed the predicted prices, they would have had a picture of the price spectrum and could see exactly what the bad appraiser did. He/she did what about every other appraiser is doing, he/she estimated the highest price and not the most probably price by selectively choosing the comps from the top of the price range. By only using 3 comps, you can come with about any price you chose.

 

[Joe Birrell (NY)]

This is so commonplace that I'm zoned out from it, Day in day out non-stop. What to do ? Unfortunately I don't think there is any realistic solution, I could spend 40 hours per week writing complaints to a state board that could care less.

 

[David S. Roberson]

Quark,

You are right about the rubber stampers. I used to think their fraudulent practices would catch up with them. How knaive I was.

 

[Restrain]

Most Lenders don't care as long as the loan makes, cause they're going to sell the loan to FANNIE MAE. FANNIE MAE doesn't care as long as losses are overall low. State regulation boards don't care unless it is gross fraud, i.e., 50% over value. So the property is 10% over market. No one will care except you. Sorry, but that's life.

 

[Tom Hildebrandt]

Austin

I understand the point you are making about the value being based on historical data and that it does not look forward beyond the effective date of the appraisal. However, if you are using historical data that "looks forward" to a current effective date, and you have missed an upward trend which is presently occuring, you can understate "market value". The key issue is how big an upward movement and how dated are your comps.

However, the primary thrust of my comments was to the issue of the variance in value.

We agree on this issue as I also believe that, in my market at least, there is easily over 10% of market variance in homes over $200,000, and as the homes get pricier, the variance gets larger. Even in cookie cutter type homes of $100,000, the variance is seldom less than 8%.

Stated differently, assuming that two appraisers are blessed with reasonably good data, and make the same basic assumptions regarding the property, there is nothing wrong with there being two differing value opinions regarding the most probable price.

As you suggest, you can graph the price of 30 sales and see the trend, as a staight linear regression. This would show a general range before adjustments. In the case cited by Quark, the subject would be at or near the upper end of the variance, perhaps even outside this range. But as you know, this is not the entire picture. It is not until you see the price line, adjusted for all factors which impact value, do you get the real picture.

I agree that selecting three sales (judgmental sample selection) and then adjusting is not very good as a statistical analytical tool. In fact, it is only as good as an individuals judgement as to what may or may not be an appropriate sale and is further compromised by the judgement as what factors impacting value.

But the same problem exists in more empirical statitical analysis methods, including multiple linear regression modeling. The key problem is identifying all those issue which impact value and having the statistical model treat them equally, ie, purely empirical statistical models that sample all data (or random data) within a population have difficulty with properly measuring more subjective issues such as design and appeal, condition, effective age and location. If it were not so, AVMs would work all the time. In fact, I have heard it said that pure empirical multiple linear regression analysis can only accurately account for 60% of the value factors.

I know you would argue that statistically such items have relatively high variance with little statical relevance, as opposed to GLA which has the opposite general attributes. You can then conclude that they should not truly be considered in the adjustments. But appraisers, brokers, buyers and sellers know these issue impact marketability and sales price. So the real question is how do you consistently statistically measure such issues.

I say that it is in the reconciliation of these issues that requires our professional judgment. Since each appraiser brings a unique set of "beliefs and opinions" regarding these issues, it is not surprising that we have a widely disparate views on how to treat them and their impact on value.

Hence, I do not find it hard to accept legitimate value ranges well outside the statitical range of variance, particularly if a given appraiser can cite examples in general support of his opinions. By the same token, if several appraisers are speaking on the same page, they should also be able to conclude independent opinions within the range.

Which method is correct? I do not know. My cut is that so long as an appraiser understands the concepts and can defend his position (not prove but support it) he/she has done the job as required by USPAP.

I also think, and I am sure you agree, that any appraiser who is doing his work by only using three comps, and not using statitical analysis to periodically validate his judgement on the most basic issues which can consistently be measured (such as GLA), is not moving forward in this profession but is falling behind.

Regards

Tom Hildebrandt GAA

 

[Dave Doering]

In regards to "Rstahans" post that lenders only want the value to make the deal: This appears to be a growing problem. Perhaps the root of this is that fewer and fewer lenders are in a position of having any responsibility for a bad loan. This became even clearer to me when a very successful mortgage broker explained to me that the difference in the loan discount between a loan with and without recourse (where the orginal lender has some liability in the case of default) may be as little as 1/8 of a point.

This particular lender is very aggressive and admittedly rarely uses our firm because we appraise "by the book" and that he can find others who will "work with him". With more and more loan officers on commission, even larger banks are doing this. Why worry about due diligence if you are never going to be held accountable for a bad loan.

IMHO part of the answer to the lender pressure and the ongoing problems of less than reputable appraisers is to eliminate the "no recourse" loan.

 

[jtrotta]

With reference to; Fannie / Freddie issue-they write the rules, but don't have to live by'em; similar to the politicians 8O they go in any direction they please, it's only us who have to play by the rules :?