I recently came across Are REOs real comparables? by Orlando Masis and before that it was Appraisals: Behind the Scenes in the Appraisal Wars by Kathy Godin. Both of these posts were about REO properties being used to value equity sales.
While Orlando, who is an appraiser, was resolved to using REO's as equitable comps for equity sales, Klem, the appraiser in Kathy's post, was outraged at the way that lenders and appraisal review boards were replacing his equity sale comps for an equity sale subject property with REO comps.
Here in Los Angele & Ventura counties, we are still in a declining market that is absolutely saturated in REO's and short sales however, in many areas, we are still seeing a percentage of equity sales. When the subject property is an equity sale and there are equity sale comps available, then these appropriate comps need to be used first (with applicable adjustments) before resorting to REO's. Unfortunately though, this not happening.
Most lenders are requiring at least six comps: 3-solds, 2-pendings and 1-active (or some similar guideline) and so often, I am seeing the AMC's appraisers are choosing the six lowest comps regardless of what the other comps are.
Quite a few times, I have seen appraisals where the equity sale subject property has appropriate equity sale comps to choose from that were within the 90 day timeframe and less than .50mi from the subject property.
For these appraisals for equity sales, the AMC's appraisers completely ignored all of the equity sale comps and instead used all REO comps to value the equity sale.
It's no coincidence that many of the equity sales that were not used were often the highest comps and many of the REO comps used were the lowest comps. It's as if the AMC's are ordering their appraisers to use the six lowest comps (with applicable adjustments) regardless of the subject property features and/or the features of the other comps.
It's been my experience that the only way to get the AMC's and their appraisers to even consider the most appropriate comps, we have to start appealing the appraisals and start justifying why the other comps must be used. If the subject property is a meticulously maintained equity sale that has been totally rehabbed or upgraded with high-end features, I assure you, until we start fighting back against unjustified low appraisals, the AMC's and their appraisers are going to continue to ignore the most appropriate comps. If you're already in a declining market, then recovery becomes a never ending uphill battle.
BUYERS: If you've found a wonderful property, in great condition, that is just perfect for you and/or your family and you want to call it home - don't just walk away from a low appraisal - fight it. If you feel that you and your Realtor/agent put together a really fair market offer, then fight that unjustly low appraisal or it's back to searching for another perfect property. God knows how many other offers you'll have to negotiate before you get into escrow again. Ask yourself: "isn't the home worth fighting for? Do you really want to start looking again"?
REALTOR/AGENTS (listing & selling): Unless you and your client want to put that home back on the market or you and your client want to start looking again for that perfect property, then I strongly suggest, do what you have to do to fight that unjustly low appraisal. Realtors/agents: justify that sales price you fought hard to negotiate for your clients!
Until buyers and sellers and their Realtors/agents start fighting these unjustly low appraisals, the AMC's and their appraisers are going to continue to churn them out. Yes, it takes a little bit of time, energy and resources to appeal appraisals but until we take the time and energy to fight back, we are going to continue to see either declining sales and/or declining median sales prices. While this scenario may not be indicative of so many other markets across the country, this is our reality here in Los Angeles & Ventura counties and we need to start being more proactive about changing this around.
Yes, we're working harder these days than ever before and appealing appraisals is hard work but I assure you, when we start doing this, many of our buyers and sellers will probably appreciate us stepping up and going to bat for them. It's been my experience that we may not always be able to hit it out of the park (get the value we were shooting for) but we'll definitely be scoring points (keeping the escrow active) and may ultimately win the game (getting to the closing table).
The home buying process is not a simple process and it's because it can get really complicated and convoluted, that borrowers today need real professionals working on their behalf. If you have any questions and/or concerns, please feel free to contact me, Donne Knudsen, at 805.2069123 or donne4loans@earthlink.net. That's what I'm here for and I would love to be able to assist you in any way I can.
Photos courtesy of flickr: koyume appraisersbr bali-jm giacomomacis
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Donne Knudsen
Realtor® - CalState Realty Services
DRE#: 01364050 / NMLS#: 249822
805.2069123
Serving low-medium income individuals and families as well as first time buyers with both their real estate as well as their mortgage needs including down payment assistance
Los Angeles County -- Ventura County
© 2010 - All Rights Reserved
Hi Donnie, I agree...until a very loud cry is heard from the consumers, the housing market will continue to suffer. The AMC's have hit so many aspects of our industry, not only in low appraisals but dragging their feet on corrections since they know they cannot be contacted directly. It should not take 4 days to correct the spelling of a street or tax parcel ID or whatnot which translates into holding up the loan process and losing precious time.
Thanks for the post!
Donne, I agree. There are certainly appraisers out there who know the market. But, when I get one from over 60 miles away, I have to scratch my head. Let's bring back the good old days! The days when we could use competent appraisers.
And of course the condition of the REOs and the cost to rehab them is ignored totally. The problem comes when the appeal is sent out to the same appraiser who simply will not budge because his ego is at stake.
Donne: I am having the opposite problem....perfect homes here are getting higher appraisals than the REO's so buyers want the perfect home for the bank owned home price.....Standard sales eventually sell and appraise higher....????
Appraisals are tough in some places and you are right, as Realtors we have to try and do what we can to fight for the price we set, (as long as it is within the justified comps). I haven't experienced too much of an issue here in San Antonio or Schertz, TX. I do agree that like should be compared with like if at all possible in the appraisal.
Good information Donne.
Donne: As a former appraiser, I see both sides. Like any profession, there are those that step-up-to-the plate and do their job well. Then there are others. And as with all the real estate professions, the bar for entry and licensing is not high enough. The problem mentioned above in regards to appraisers coming from long distances is not the real problem. The problem lies with the amount of effort that appraiser will apply to doing a good job. If you are well-acquainted with an area, the job is somewhat easier. If you are not, you have to do more research and put some real time into it. Again, some are willing to do that. Others not. In the appraisers defense, they've seen so many changes and so many "hits" to their pay, that's it easy to see why they might have a bit of a "tude". And yes, I think the big banks have contributed mightily to that. So many issues are involved in this problem. Until we get all these messes straightened-out, we're going to all suffer and have to deal with the fallout. You do well to offer-up the topic for real discussion ...
Gene
Donne, I have not had much of a problem with the properties that I am doing loans on appraising. But I have had to try to appeal an appraisal of two in the past, but each time without any luck. Hope you have more of a success than I did.
I'm glad that our area is not experiencing that... and appraisals are still only using 3 sold comps. It's always a guessing game as to where the appraisal is going to come in, though.. so far we've been fine, but I do my homework before hand.. :)
Oh, I remember fighting back once, when the underwriter came in $100K under the appraiser. Where do you go then. We dropped that lender like a hot brick and found another one that got the job done with sane people in 3 weeks.
Donne - It sure is tough working with so many distress sales. Our market has over 40% bank owned foreclosure sales, plus another 15%+/- short sales. It's very hard to come up with enough sales comparables without using these distress sales. There are so many layers to this market!
Kelly - Good grief! Don't even get me started on trying to get flat out error corrected. I once had an appraisal with the the wrong address too! We have to start holding the AMC's and their appraisers more accountable for mistakes and negligence.
Suzanne - I know, I really miss the great appraisers I used to work with.
Maya - I've found that by appealing to the appraisal review board that if I make a sound enough case, they will simply instruct the appraisers to make some revision like including the comps that I recommend. They, of course, have to make the appropriate adjustments but at least I get some of my comps in.
Gene - Ah, my friend, I was hoping you would stop by. I don't know what your market is like or what kind of appraisals you are seeing but so many of mine just have no ryhem or reason. I've had two different appraisals from two different AMC's (for two different lending sources) for two different borrowers buying properties in the same neighborhood and the comps and adjustments were very different even though the subject properties were very similar.
It's just wacked Gene and it's become obvious that there are just some really bad appraisers out there and unfortunately, so many of us are getting saddled with their incompetent and sloppy appraisals. Every time I have appealed an appraisal, I have been able to get a higher value. I might not have been able to get the value I wanted but I got more than I started with. Until we start fighting back and justifying values, nothing is going to change. JMHO
George - Well whether or not I have been successful appealing appraisals depends on your definition of success. As I mentioned to Gene, I haven't always been able to get the value I was appealing for but I have always been able to get a higher value than what I was initially given. While that may be considered successful, I do consider it a small victory.
Thx for stopping by folks; I really appreciate it. Have a good night now and a great weekend too. :)
Jane - Now that's a little wacked! LOL Perfect homes in great condition that have been maintained should be valued higher than run-down, dilapidated, dumpy REO's. Even my little first timers know how that works. Sounds like the buyers in your market need to be better informed and educated.
Brenda - I too am a strong advocate for basing value on recent comps but like you said, the comps need to be appropriate. If you have a run-down, dilapidated, dumpy REO's with some serious deferred maintenance as well as major structural damage, that type of property isn't even in the same league as a really nice, well maintained, equity sale with high-end features and upgrades. I don't care if they are a block from each other and they're the same size and age. If there are other really nice equity sale comps available, those are the comps that need to be used.
Judi - Good for you for doing your homework! Frankly, all Realtor and agents need to be doing their homework and then making a stand against appraisers. Everyone seems to think you can't fight appraisers and that you just have to be stuck with whatever they say and that is simply not true, especially if you can prove them wrong.
Jane - GOOD FOR YOU!!! I would have done the same thing! Now, that's what I'm talking about folks! FIGHT BACK WITH EVERYTHING YOU GOT!!!
Karen - Our market is very similar down here too but some areas are seeing a rise in equity sales, like the Conejo Valley and even here in Simi Valley. We're actually seeing some small increases in median prices in a few small pockets of areas.
So, when I see some appraisal where the appraiser is intentionally not using appropriate comps, you bet your @$$ I'm going to fight it. If we continue to accept unjustified low appraisals, then we will continue to see our area depressed. When I see an area starting to bounce back, like #%!! if I'm going to let some incompetent, lazy and sloppy appraiser bring the area down with their appraisal.
Thx for stopping by ladies; I really appreciate it. Have a good night and a great weekend. :)
OMG I had an appraisal on one of my listings in an odd subdivision yesterday. You see it isn't as distressed as most here. The appraiser had no ekey and needed in chop chop. He came late and brought a child to the appraisal. I am wondering HOW SERIOUS this person is about their career path. Rather scary!
I work a similar area inundated with short sales and foreclosures which, of course, is messing everything up.
Sounds like things are much worse up there than they are down here. We have some problems here and there but nothing significant that I know of or have read about.
Renee - A CHILD!!! SERIOUSLY??? Good grief! I wonder where the AMC found that bozo.
Jill - It's a total mess here too but we are starting to see equity sales picking up here. I feel so sorry for those equity sellers because they're nice homes are being compared to a bunch of run-down, dilapidated, dumpy REO's.
Jim - It's good to hear that you're not having some of the same issues we're having up here. Unfortunately, the only way to combat some of this nonsense is to fight back.
Thx for stopping by folks; I really appreciate it. Have a good night everyone and a great weekend too. :)
Great blog Donne! When appraisals come in low and an agent has done their homework on the value of a property, I do believe that "It ain't over til it's OVER! There are so many obstacles to overcome nowadays, it's just gotten to be a huge dilemma at times.
Keisha - I couldn't agree with you more. There are times when everyone in the transactions had done their homework and due diligence in not only pricing the property but in submiting a purchase offer and then have an appraisal come in considerably lower, then something is seriously wrong.
The last thing an appraiser can do is unjustly under-value a property because some AMC is pressuring them to come in as low as they can. I have absolutely no problem going after incompetent appraisers for sloppy appraisals. If my buyer wants to appeal an appraisal, as long as everyone else in the transaction is on board with it, I will support them.
Thx for stopping by Keisha; I really appreciate it. Have a good night Keisha and a great weekend too! :)
This is a very important post. Suggested. You are right that recovery is impossible if situations like this keep happening. Great advice to fight it. But I've found when I fight an appraisal with certain lenders, it just fails miserably!
Coral - Depending on your definition of success, I believe I have been successful. I don't always get what I was appealing but I have always gotten more than what the original appraisal was valued at. To me, those are small victories.