Appraisals

tmare_IHB

tmare_IHB

New member
A friend just had her house fall out of escrow for the second time in 2 months. They accepted an offer for 505K, the appraisal came back one week before escrow was to close at 476K. The buyer was spooked and didn't even want to negotiate any further. They had a backup offer of 450K and although it was significantly lower, they decided to just take it and move on (this is actually their 3rd escrow, the other one fell out a year ago and they took the house off the market). This time, the appraisal came in at 406K, just a month after the 476K appraisal. I find this incredibly shocking that the appraisal came in 15% lower in just one month. They asked for another appraisal which subsequently came in at 430K. They were pretty fed up and felt that they wouldn't have enough money to purchase a larger house and decided to take it off the market entirely. What is going on with appraisals and is there any chance that these problems are going to be fixed soon? Everyone seems to want the market to bounce back but how is this helping anyone?
 
[quote author="tmare" date=1248868952]A friend just had her house fall out of escrow for the second time in 2 months. They accepted an offer for 505K, the appraisal came back one week before escrow was to close at 476K. The buyer was spooked and didn't even want to negotiate any further. They had a backup offer of 450K and although it was significantly lower, they decided to just take it and move on (this is actually their 3rd escrow, the other one fell out a year ago and they took the house off the market). This time, the appraisal came in at 406K, just a month after the 476K appraisal. I find this incredibly shocking that the appraisal came in 15% lower in just one month. They asked for another appraisal which subsequently came in at 430K. They were pretty fed up and felt that they wouldn't have enough money to purchase a larger house and decided to take it off the market entirely. What is going on with appraisals and is there any chance that these problems are going to be fixed soon? Everyone seems to want the market to bounce back but how is this helping anyone?</blockquote>
It's not helping. Based upon the conversation that I had with the listing agent that I'm in escrow on with my buyers...the appraiser is required to use closed short sale comps, closed foreclosure comps, and short sale/foreclosure listings along with regular closed comps. In a neighborhood that has a lot of short sale and foreclosure activity it may cause appraised values to be a bit volatile.
 
[quote author="usctrojanman29" date=1248869461][quote author="tmare" date=1248868952]A friend just had her house fall out of escrow for the second time in 2 months. They accepted an offer for 505K, the appraisal came back one week before escrow was to close at 476K. The buyer was spooked and didn't even want to negotiate any further. They had a backup offer of 450K and although it was significantly lower, they decided to just take it and move on (this is actually their 3rd escrow, the other one fell out a year ago and they took the house off the market). This time, the appraisal came in at 406K, just a month after the 476K appraisal. I find this incredibly shocking that the appraisal came in 15% lower in just one month. They asked for another appraisal which subsequently came in at 430K. They were pretty fed up and felt that they wouldn't have enough money to purchase a larger house and decided to take it off the market entirely. What is going on with appraisals and is there any chance that these problems are going to be fixed soon? Everyone seems to want the market to bounce back but how is this helping anyone?</blockquote>
It's not helping. Based upon the conversation that I had with the listing agent that I'm in escrow on with my buyers...the appraiser is required to use closed short sale comps, closed foreclosure comps, and short sale/foreclosure listings along with regular closed comps. In a neighborhood that has a lot of short sale and foreclosure activity it may cause appraised values to be a bit volatile.</blockquote>


That's the rub... that is what is selling, gotta use the most recent comps, especially if the majority of the neighborhood has distressed sales.



tmare, you should write your congressman/woman, Barney Fife, Christopher Dumb, and Andrew Cuomo for their over zealous reaction to the appraisal process. If you would like help, from a former industry insider, on why this process is a joke, I'd be more than happy to help contribute. I'm all for getting the fraudulent appraisers out, and those that helped create them, but I know this is not the way. There is no way that an appraisal will drop $70k in one month with appropriate comps.
 
[quote author="graphrix" date=1248873665][quote author="usctrojanman29" date=1248869461][quote author="tmare" date=1248868952]A friend just had her house fall out of escrow for the second time in 2 months. They accepted an offer for 505K, the appraisal came back one week before escrow was to close at 476K. The buyer was spooked and didn't even want to negotiate any further. They had a backup offer of 450K and although it was significantly lower, they decided to just take it and move on (this is actually their 3rd escrow, the other one fell out a year ago and they took the house off the market). This time, the appraisal came in at 406K, just a month after the 476K appraisal. I find this incredibly shocking that the appraisal came in 15% lower in just one month. They asked for another appraisal which subsequently came in at 430K. They were pretty fed up and felt that they wouldn't have enough money to purchase a larger house and decided to take it off the market entirely. What is going on with appraisals and is there any chance that these problems are going to be fixed soon? Everyone seems to want the market to bounce back but how is this helping anyone?</blockquote>
It's not helping. Based upon the conversation that I had with the listing agent that I'm in escrow on with my buyers...the appraiser is required to use closed short sale comps, closed foreclosure comps, and short sale/foreclosure listings along with regular closed comps. In a neighborhood that has a lot of short sale and foreclosure activity it may cause appraised values to be a bit volatile.</blockquote>


That's the rub... that is what is selling, gotta use the most recent comps, especially if the majority of the neighborhood has distressed sales.



tmare, you should write your congressman/woman, Barney Fife, Christopher Dumb, and Andrew Cuomo for their over zealous reaction to the appraisal process. If you would like help, from a former industry insider, on why this process is a joke, I'd be more than happy to help contribute. I'm all for getting the fraudulent appraisers out, and those that helped create them, but I know this is not the way. There is no way that an appraisal will drop $70k in one month with appropriate comps.</blockquote>


I guess since it's not really my issue, I probably wouldn't write congresspeople, but I'd sure be mad as hell if I were an agent or my friend trying unsuccessfully to sell her house. I will make the suggestion to my friends. It's just baffling that during this time when they want people to buy, the consequences of trying to fix the appraisal situation are only making the market worse for both buyers and sellers.
 
[quote author="graphrix" date=1248873665]There is no way that an appraisal will drop $70k in one month with appropriate comps.</blockquote>


Yeah there is - it's more art than science. The appraiser has a lot of levity on coming up with a number, and now that the appraisers motovations are different (it's better to be low than high these days) it's not like you're gonna scare off any business with the way the appraisals get doled out by the new automated system.



This is exactly what I was trying to describe to IPO and Janet re 78 Fringe Tree.
 
[quote author="usctrojanman29" date=1248869461][quote author="tmare" date=1248868952]A friend just had her house fall out of escrow for the second time in 2 months. They accepted an offer for 505K, the appraisal came back one week before escrow was to close at 476K. The buyer was spooked and didn't even want to negotiate any further. They had a backup offer of 450K and although it was significantly lower, they decided to just take it and move on (this is actually their 3rd escrow, the other one fell out a year ago and they took the house off the market). This time, the appraisal came in at 406K, just a month after the 476K appraisal. I find this incredibly shocking that the appraisal came in 15% lower in just one month. They asked for another appraisal which subsequently came in at 430K. They were pretty fed up and felt that they wouldn't have enough money to purchase a larger house and decided to take it off the market entirely. What is going on with appraisals and is there any chance that these problems are going to be fixed soon? Everyone seems to want the market to bounce back but how is this helping anyone?</blockquote>
It's not helping. Based upon the conversation that I had with the listing agent that I'm in escrow on with my buyers...the appraiser is required to use closed short sale comps, closed foreclosure comps, and short sale/foreclosure listings along with regular closed comps. In a neighborhood that has a lot of short sale and foreclosure activity it may cause appraised values to be a bit volatile.</blockquote>


Active (or even pending) listings of any sort (REO, short sale, standard sale) should never, ever be used as comps. List prices are picked out of thin air-they can be too high or too low.



I see no problem using REO closed sales as comps. Other than the fact that the house might be trashed, REO sales are not all that different from standard sales, and not every REO is in bad shape. Some standard sales are in poor shape as well-adjust for the condition of the property, not the type of sale.



Short sales, on the other hand, take forever to close. I would throw them out or increase their valuefor comp purposes due to the long time it takes to close them (which deserves a discount to the purchaser of the short sale, IMHO-not everybody can wait three or six months to close a short sale).
 
I don't think anyone is arguing that short sale and foreclosure list prices shouldn't be used, I think the problem is as USC said, using them has become a REQUIREMENT.
 
[quote author="tmare" date=1248910694]I don't think anyone is arguing that short sale and foreclosure list prices shouldn't be used, I think the problem is as USC said, using them has become a REQUIREMENT.</blockquote>


Might be, but I think they always considered them before. Our perspective is skewed because from '99-'06 there were no foreclosures to speak of, so none were factored in because there weren't any.



To refresh, Janet said 78 Fringe Tree would comp at $799k, and I said that wasn't correct, the comp was the foreclosure auction price of $480K. While I was being hyperbolic, if you live in a neighborhood with a bunch of properties that just went to auction at a 20-40% discount where the current listings are, <em>don't expect your home will appraise were the current listings are, no matter where people are getting bids at.</em>



Also remember, just because the auction requires you to bring cashiers checks to do a transaction, <strong>there is no cash discount in real estate</strong>. Eventually somebody writes a check to get a property through escrow. If you're the bank, and you pull comps, and you see twenty REO auction transactions at 480K and six at 600K and a bunch of organic listings at 780K, where are you confortable lending money?



FWIW, when I worked in the industry, we had our own internal appraisal department. They were on salary and thier job was to make sure they got the comps right to cover the bank from losses.
 
[quote author="tmare" date=1248868952]What is going on with appraisals and is there any chance that these problems are going to be fixed soon?

</blockquote>
They are not problems. They are comps. They are appraisals based on comps. They are comps and falling home prices. It is not a problem. Falling home prices are a solution. Realistic appraisals are a solution. Appraisers are now appraising realistically instead of based an offer and a lender blackmailing the appraiser into an unrealistic appraisal. Your friend's desire to get more for their home than the market will bear is not a problem with appraisers. The best way to think of what a home should be appraised for is to think of what would a home sell for to a cash buyer. If the sale price is dependent upon a loan approval, the price is not just the price, but also has extraneous factors priced in. A property is worth what the highest bidder will pay, not what the most somebody can borrow for it. Now that the lenders have to keep their paper and depend upon being paid back, they want realistic appraisals. Home appraisals are starting to reflect a purchase price rather than a speculative price.





[quote author="tmare" date=1248868952]

Everyone seems to want the market to bounce back but how is this helping anyone?</blockquote>
Not everyone. And falling home prices are helping me quite a bit. Not only do I plan to buy a home for much less in a few years, but we also just got our rent reduced by 7%.
 
I don't have a problem with falling home prices but I do have a problem with a broken system that appraises the same house for 70K (15%) less in just 4 weeks. Two families who were almost finished with escrow and ready to start a new life in their new homes are not now because the system is so incredibly broken. Maybe it would make sense for appraisals to be completed and paid for by the seller prior to listing the home or at the very least within a few days of the accepted offer. At least this would give them an idea that this type of thing wasn't going to happen just days before close. This might avoid this crazy guessing game that everyone is playing right now.
 
[quote author="tmare" date=1248919519]I don't have a problem with falling home prices but I do have a problem with a broken system that appraises the same house for 70K (15%) less in just 4 weeks. Two families who were almost finished with escrow and ready to start a new life in their new homes are not now because the system is so incredibly broken. Maybe it would make sense for appraisals to be completed and paid for by the seller prior to listing the home or at the very least within a few days of the accepted offer. At least this would give them an idea that this type of thing wasn't going to happen just days before close. This might avoid this crazy guessing game that everyone is playing right now.</blockquote>


Look at sold comps. An amateur can do it from the other side of the planet. Type the address into Redfin and look at Redfin's automated sold comps, the $/sq ft average for the city/neighborhood, and Zillow/Cyberhomes/Epprasial's numbers. If they are all more or less in agreement, that's what it should sell for.



It's quite possible that between the first appraisal and the second, one or more houses in the neighborhood sold for prices that lowered the second comp. It's also possible that the two different appraisers compute comps in slightly different ways, resulting in different figures. If you gave us the exact address, or even just the city/neighborhood, we could give our opinion as to what is going on in this specific case.



Your proposal won't work. The appraiser works for the lending bank, not the seller, not the buyer. The buyer always has the option of paying all cash and ignoring comps completely. The bank is protecting it's butt by asking for an appraisal, so it doesn't lend more on a property than it's worth.
 
tmare, I can understand how this might be frustrating to sellers and neighbors/owners... but isn't this is great for buyers? One of the things that got us into trouble in the first place was aggressive appraisers. I agree there is something wrong with the percentage discount, but that is great if they have to follow new rules and regulations. The only thing I can see bad about this to buyers is in this case the sellers took the home off the market, taking one more organic sale off the market...
 
[quote author="Geotpf" date=1248922205][quote author="tmare" date=1248919519]I don't have a problem with falling home prices but I do have a problem with a broken system that appraises the same house for 70K (15%) less in just 4 weeks. Two families who were almost finished with escrow and ready to start a new life in their new homes are not now because the system is so incredibly broken. Maybe it would make sense for appraisals to be completed and paid for by the seller prior to listing the home or at the very least within a few days of the accepted offer. At least this would give them an idea that this type of thing wasn't going to happen just days before close. This might avoid this crazy guessing game that everyone is playing right now.</blockquote>


Look at sold comps. An amateur can do it from the other side of the planet. Type the address into Redfin and look at Redfin's automated sold comps, the $/sq ft average for the city/neighborhood, and Zillow/Cyberhomes/Epprasial's numbers. If they are all more or less in agreement, that's what it should sell for.



It's quite possible that between the first appraisal and the second, one or more houses in the neighborhood sold for prices that lowered the second comp. It's also possible that the two different appraisers compute comps in slightly different ways, resulting in different figures. If you gave us the exact address, or even just the city/neighborhood, we could give our opinion as to what is going on in this specific case.



Your proposal won't work. The appraiser works for the lending bank, not the seller, not the buyer. The buyer always has the option of paying all cash and ignoring comps completely. The bank is protecting it's butt by asking for an appraisal, so it doesn't lend more on a property than it's worth.</blockquote>


I think you are a little bit behind on what is truly going on with these appraisals right now. I'm talking about rearranging what is actually happening right now in 2009, not what used to happen. Things have changed drastically in appraisals just in the past few months. Just because a seller pays for an appraisal, doesn't mean that they actually place the order and pay directly to the appraiser, it just doesn't work that way anymore. These appraisals come from people no one knows, nor can they even speak to them or tell them what type of offer is on the table which in itself, is not a bad thing. Yes, there are mitigating factors, but again, 70K in four weeks? A friend recently saw an appraisal come in and the comps weren't even from the same neighborhood, the appraiser came in from LA with no knowledge of the area and used mid Santa Ana comps for a Floral Park home. All I'm really saying is that there is something seriously wrong here and it seems that at least graphrix agrees.
 
Freddie Mac came out this week saying that there isn't a requirement to use SS or REO closings in an appraisal. The plain and simple issue is that a closed sale at any price no matter if it's a SS or an REO is the value of the home. Sure an REO might have had $10k worth of damage, but appraisers make adjustments for it.



I've had one appraisal already this month come in $19k under the negotiated price. The appraiser could not use any pending SS's because most of them went into escrow in February at WTF prices, knowing that after 5 months they are never ever going to close, much less appraise if they get a SS approval.



If we are at a floor in pricing, then the overshoot closings - those REO's that closed well below actual value - are going to be the only comps an appraiser can use until additional closings happen closer to a consumers perception of values in the area. This happened in 1996 when we were coming out of the last big RE crash. This is nothing new.



Home Valuation Code of Conduct has, IMHO as a person in the mortgage biz, been no issue. It helps sellers see how really delusional they are and forces intoxicated buyers to snap out of their Kool-Aid induced coma. Yes, a few sales will collapse because some measure of reality is being imposed on a wild west enviroment of pricing. That's not a bad thing here.



My .02c



Soylent Green Is People.
 
[quote author="tmare" date=1248923356][quote author="Geotpf" date=1248922205][quote author="tmare" date=1248919519]I don't have a problem with falling home prices but I do have a problem with a broken system that appraises the same house for 70K (15%) less in just 4 weeks. Two families who were almost finished with escrow and ready to start a new life in their new homes are not now because the system is so incredibly broken. Maybe it would make sense for appraisals to be completed and paid for by the seller prior to listing the home or at the very least within a few days of the accepted offer. At least this would give them an idea that this type of thing wasn't going to happen just days before close. This might avoid this crazy guessing game that everyone is playing right now.</blockquote>


Look at sold comps. An amateur can do it from the other side of the planet. Type the address into Redfin and look at Redfin's automated sold comps, the $/sq ft average for the city/neighborhood, and Zillow/Cyberhomes/Epprasial's numbers. If they are all more or less in agreement, that's what it should sell for.



It's quite possible that between the first appraisal and the second, one or more houses in the neighborhood sold for prices that lowered the second comp. It's also possible that the two different appraisers compute comps in slightly different ways, resulting in different figures. If you gave us the exact address, or even just the city/neighborhood, we could give our opinion as to what is going on in this specific case.



Your proposal won't work. The appraiser works for the lending bank, not the seller, not the buyer. The buyer always has the option of paying all cash and ignoring comps completely. The bank is protecting it's butt by asking for an appraisal, so it doesn't lend more on a property than it's worth.</blockquote>


I think you are a little bit behind on what is truly going on with these appraisals right now. I'm talking about rearranging what is actually happening right now in 2009, not what used to happen. Things have changed drastically in appraisals just in the past few months. Just because a seller pays for an appraisal, doesn't mean that they actually place the order and pay directly to the appraiser, it just doesn't work that way anymore. These appraisals come from people no one knows, nor can they even speak to them or tell them what type of offer is on the table which in itself, is not a bad thing. Yes, there are mitigating factors, but again, 70K in four weeks? A friend recently saw an appraisal come in and the comps weren't even from the same neighborhood, the appraiser came in from LA with no knowledge of the area and used mid Santa Ana comps for a Floral Park home. All I'm really saying is that there is something seriously wrong here and it seems that at least graphrix agrees.</blockquote>
Buyers pay for the appraisals that the lenders order.
 
[quote author="tmare" date=1248923356] All I'm really saying is that there is something seriously wrong here and it seems that at least graphrix agrees.</blockquote>


T, I love you like a sister. What was wrong was 2002-2008. The system is now operating correctly, abiet in a highly disjointed and nutzy way.
 
[quote author="usctrojanman29" date=1248926521][quote author="tmare" date=1248923356][quote author="Geotpf" date=1248922205][quote author="tmare" date=1248919519]I don't have a problem with falling home prices but I do have a problem with a broken system that appraises the same house for 70K (15%) less in just 4 weeks. Two families who were almost finished with escrow and ready to start a new life in their new homes are not now because the system is so incredibly broken. Maybe it would make sense for appraisals to be completed and paid for by the seller prior to listing the home or at the very least within a few days of the accepted offer. At least this would give them an idea that this type of thing wasn't going to happen just days before close. This might avoid this crazy guessing game that everyone is playing right now.</blockquote>


Look at sold comps. An amateur can do it from the other side of the planet. Type the address into Redfin and look at Redfin's automated sold comps, the $/sq ft average for the city/neighborhood, and Zillow/Cyberhomes/Epprasial's numbers. If they are all more or less in agreement, that's what it should sell for.



It's quite possible that between the first appraisal and the second, one or more houses in the neighborhood sold for prices that lowered the second comp. It's also possible that the two different appraisers compute comps in slightly different ways, resulting in different figures. If you gave us the exact address, or even just the city/neighborhood, we could give our opinion as to what is going on in this specific case.



Your proposal won't work. The appraiser works for the lending bank, not the seller, not the buyer. The buyer always has the option of paying all cash and ignoring comps completely. The bank is protecting it's butt by asking for an appraisal, so it doesn't lend more on a property than it's worth.</blockquote>


I think you are a little bit behind on what is truly going on with these appraisals right now. I'm talking about rearranging what is actually happening right now in 2009, not what used to happen. Things have changed drastically in appraisals just in the past few months. Just because a seller pays for an appraisal, doesn't mean that they actually place the order and pay directly to the appraiser, it just doesn't work that way anymore. These appraisals come from people no one knows, nor can they even speak to them or tell them what type of offer is on the table which in itself, is not a bad thing. Yes, there are mitigating factors, but again, 70K in four weeks? A friend recently saw an appraisal come in and the comps weren't even from the same neighborhood, the appraiser came in from LA with no knowledge of the area and used mid Santa Ana comps for a Floral Park home. All I'm really saying is that there is something seriously wrong here and it seems that at least graphrix agrees.</blockquote>
Buyers pay for the appraisals that the lenders order.</blockquote>


Exactly. The seller has nothing to do with it. The buyer, other than paying for it, has little to do with it. The appraisal is merely to protect the bank from loaning too much on a house.



Basically, if a bank doesn't want to loan on a particular house, that's their right. Period. The buyer can go to a different bank or pay cash.
 
Do they do two types of analysis per appraisal - comp sales & rental equivalent? I would imagine that the rental equivalent number would be more stable.
 
[quote author="winstongator" date=1248932826]Do they do two types of analysis per appraisal - comp sales & rental equivalent? I would imagine that the rental equivalent number would be more stable.</blockquote>


Stop trolling, please.
 
[quote author="no_vaseline" date=1248926608][quote author="tmare" date=1248923356] All I'm really saying is that there is something seriously wrong here and it seems that at least graphrix agrees.</blockquote>


T, I love you like a sister. What was wrong was 2002-2008. The system is now operating correctly, <strong>abiet in a highly disjointed and nutzy way.</strong></blockquote>


I guess that's the part I'm having trouble with. BTW, the Floral Park sale I discussed previously eventually sold but only AFTER the seller agreed to pay for a second appraisal which subsequently came in close to 100K higher than the previous appraisal (one week difference in appraisal dates). The seller had to pay but the same procedure was followed (no discussion or knowledge of the appraiser was provided to the seller), they just knew that the first appraisal was sooo WTF away from what it should have been. I'm sorry, but this is NOT operating correctly. Love 'ya too, no_vas %-P .
 
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