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"Truthful appraisals"?? Really? How is an appraisal "truthful" when an appraisal management company sends out an appraiser who is completely unfamiliar with an area to do the appraisal? I've seen appraisals come in tens of thousands of dollars low (and yes, even come in HIGH) despite the fact that good comparables are available. An appraiser needs to understand local market nuances in order to make proper adjustments. Now with HVCC, many can't. Doesn't mean they are bad appraisers, they just don't have the local knowledge to provide a "truthful" appraisal.
I'm curious as to how many home appraisal's you've dealt with in the last 3 or 4 months that gives you insight into just how "truthful" they are?
I remember back before HVCC when loan officers got to select the appraiser for a particular transaction. When I first got to the valley, I set out to find a "good" appraiser to work with.
The first appraiser I interviewed, I sat down and put a sales contract in front of him for a $100,000 house in Apache Junction. I also gave him an appraisal from a different appraiser that said the property was worth $100,000.
I asked him to look at the contract and appraisal and let me know what he thought the value was. He carefully looked at the contract for a few seconds, then opened the appraisal and studied each page for a few minutes.
After about 10 minutes, he declared "I think that the appraisal is wrong. It is low. I think that this property is actually worth $110,000."
The second appraiser I interviewed, I did the same thing. Told him that I had a sales contract and an appraisal and wanted his opinion of value. The 2nd appraiser barely looked at the sales contract, but studied the entire appraisal for about 30 minutes and then declared: " I think that this appraisal is wrong. I think that this property is worth $90,000."
The third appraiser I interviewed, same story. I gave him a sales contract and an appraisal on the property and asked him what his opinion of value was.
He didn't even look at either the appraisal or the sales contract. But he did get up, close the blinds and then shut the door to my office. He sat back down in his chair, leaned forward, looked me square in the eye and whispered...
"What do the buyer and seller think it is worth?"
It was then that I learned:
Every appraiser has an opinion of value - and many of them are different. Sometimes widely different. And each one has different methodology as to how they arrived at their "opinion" even though they generally have the same "rules" to follow.
Anyway, thanks for taking the time to comment - I have no idea what you do for a living, but if you work in the RE field in some way, you are the lone voice that I have heard about HVCC providing more "truthful" appraisals.
But hey - speak up and be heard! Someone needs to congratulate the smart guys who put HVCC in place if they feel that way. Heck, all the rest of us tell them how insane it is - and they might even be getting tired of us by now.
Appraisers chosen by certain people and work with them a lot, those persons become a biased party. Same thing if an appraiser works within a specific area. What, do they live in the area and have a vested interest in how that area does as far as home values?
An impartial appraiser is probably going to give the most truthful appraisal.
Now the lender has a different outlook (or should) and that is to protect their investment and not get stuck with a bloated loan on a property that isn't worth the "contract" price to someone else. They do not want to get stuck with the losses that they are taking now. There is a lot of emotion in that "contract" price from both the seller and the buyer, the Investor has to take that emotion out it is a business decision for them not a personal decision. Just read a couple of the posts below you can hear these emotions coming out from what I suspect are sellers.
Like I said before, you better go find some gullible cash buyers where you can keep that emotion in the deal.
I do agree that it is all an opinion (but they can be jaded) but aren't most things.
Good post. You make a lot of valid points. Most important is the one that you start with: the appraisal management companies don’t have a financial stake in the transaction, and that’s a good thing. In fact, the same could – and should – be said for appraisers in general.
The emotional aspect that datadude mentions is a very influential component in any real estate transaction, one that in no small part led to artificially inflated prices bringing the bubble to the point of bursting.
One thing that troubles me about this whole controversy is the way in which all AMCs are being painted with the same broad brush.
There are quite a few large and reputable AMCs that have been in the business for decades and whose business model and assignment criteria haven’t changed one iota since HVCC. They only use certified and/or licensed appraisers and use geographical competency as the primary assignment criteria.
I know several appraisers who work for these companies, and they’re extremely capable, knowledgeable folks who work hard in markets they’re intimately familiar with. Their pay scale hasn’t changed post-HVCC, nor has their commitment to USPAP, nor their professionalism.
Of course, HVCC has created a financial opportunity and incentive for a lot of new AMCs to enter the business, and some of these may indeed be randomly selecting appraisers from a pool and assigning them without enough consideration as to their experience level or geographical competency.
The real lesson here is that lenders shouldn’t be shopping out appraisals to fly-by-night operations, but should instead be steering that important work out to AMCs that have proven themselves reliable over many years.
Like the blog. Keep up the good work.
Excellent points and insight. Thanks for sharing with everyone.
Justin
What, you mean that there is a difference in market between QC and Sun City?
Haha.
Yeah, I have seen that same thing happen.
Thanks for taking the time to comment!
Justin
-Tyler
Thanks for taking the time to comment. I agree that it makes everything a bit more complicated -- but the thing that is worse is the randomness of it all. I find that the randomness is what drives people more crazy.
Great point about the people putting it in place probably had good intentions -- I don't disagree with that. I think much of what we see can be attributed to the "law of unintended consequences".
Justin
They had one question, "Have you heard about this appraisal mess, like we heard them discussing on WMAL radio?"
I had to assure them that appraisals are nothing new for buyers getting financing and that we needed to price it within the recent comps in the neighborhood (now about $550k and they paid $125k). But I did mention my recent experiences (one was $10k low) and that we will have to cross that bridge when we negotiate any offers and prepare for the appraiser's visit.
I'm not a complainer, but when an appraiser does not adjust for obvious upgrades because they were doing too many appriasals too fast, and they are scared s-less to take an easily verfiable list of improvements with dates because it may give "an appearance of influence", then the consumer isn't being served.
Thanks for sharing - I think you bring up a good point about appraisers being "scared" for whatever reason. Replace that word with "overly-cautious" if you want, it is splitting hairs.
Great point!
Justin
Hopefully there will be some adjustments to solve this problem.
I live and work in the county NE of Scottsdale city limits. Rio Verde Foothills has over 1000 homes that are custom and semi-custom and predominatly horse properties, every single one different. We're dealing with appraisers who don't know the value of wells, barns, paved roads, mountain views, etc, etc. Whenever possible, I meet the appraiser at the house to answer questions.
I've had a few appraisals re-introduce the negotiation process once the appraisal came back low... but what do you expect? it's real estate, Seems like every month I get surprised with new formalities
"...Seems like every month, I get surprised with new formalities."
Well said.
In my experience, in real estate over the last 18 months - only one thing is constant: change.
Justin
Thanks for stopping by!
One of the frustrating things is that there is no feedback loop for what is working and what is not working regarding the HVCC rules. As with most things, there are some good things about it (I really like the fact that people can't expect me to get an appraiser on the phone and "fix" an appraisal that comes in low) and some bad.
But there isn't a process of continual improvement to evaluate what is working and magnify it while throwing out the part that isn't working.
But it should be interesting to watch over the next year how it all plays out. If nothing else, it will be entertaining reality TV.
Justin
It sounds like you are seeing first hand some of the same problems we are here in AZ. As soon as some of the super-thinkers down here come up with a solution that we can get some legislator to sign off on, we will be sure to let you know.
Justin
It amazes me that appraisal management companies think it is a good idea to "import" an appraiser from a different area.
I suspect that it is an issue of lazyness on the part of the AMC -- they are probably just picking someone who is the easiest to contact rather than do their research and get someone who is familiar with the area.
Just a guess -- but the "importing of appraisers" is a problem -- and it sounds like it is a bi-coastal problem... not just out west.
Thanks for stopping by and commenting!
Justin
I'm new a reader and subscriber to your blog. I really feel like you hit the nail on the head when explaining some of the true problems with the HVCC program.
When someone is forced to have a 3rd party company control everything and have their wages and business impacted immediately you can tell that there will be a significant decrease in quality of appraisals.
The appraiser's i've had relationships with for a long period of time are planning on getting out of the business if they already hadn't. It's not because they weren't doing there job's it because they have no control over getting business other than submitting themselves as a slave to some random computer system.
Thanks for the comment!
The third paragraph about many appraisers you know are planning to get out of the business -- I can tell you that I also see that as well. HVCC gave all of the appraisers in America a "boss" and a big part of the reason they were appraisers in the first place is that they liked the idea of being their own boss.
And don't forget that the "new boss" doesn't really make any sense. The first thing the new boss did was to reduce everyone's pay. Then he took away their ability to talk to most of their customers. Then he changed the rules so they really can't go solicit new business except through him. And lastly, he decided that even if they do a great job and customers love their work, they won't promise them more work unless the "boss is in the mood" to give them more.
No wonder they are leaving the business!
Our house mysteriously dropped $34,000 right after the HVCC was handed down in May. The two appraisals were required to purchase were only a few weeks apart - $10,000/week in price drop? I find that hard to believe.
We couldn't believe that it blew out our deal and that the 'review' appraiser was from Phoenix and compared our house to foreclosed disasters in bad neighborhoods with only minimal adjustments for condition. Knowledge of the area - no way. I really hope that HR3044 gets passed soon. Cuomo screwed the pooch on this one.
http://oursazlife.blogspot.com/2009/05/its-valu...
Your check its in the mail for saying such great things!
Justin