But one of the questions is: what is the "market?"
There are "regular" standard sales, where the owner has a margin of equity or full equity, there are short sales, there are previously foreclosed properties now being sold as bank-owned, or "REO" properties. When it comes to an appraised value, the results depend so much on recent local area activity, and which properties are used for comparison to the home being appraised, and last but not least, the experience, knowledge/ability and professionalism of the appraiser, including his/her adherance to the Uniform Standards of Professional Appraisal Practice.
Both buyers and sellers should be aware of current basic issues about appraisals. A 2007 lawsuit initiated in New York brought about the Home Valuation Code of Conduct (HVCC) and the ultimately controversial use of Appraisal Management Companies , an intervening layer between the buyer's lender and the appraiser who does the report for that lender. Appraisers are supposed to be independant licensed real estate professionals who are trained to give an independant analysis (under various guidelines including FNMA's) of the value of a property. The New York lawsuit came about because of pressure exerted on appraisers there (in this case by Washington Mutual, now gone) to fraudulently inflate home values. So the HVCC was developed and mandated to be used nationwide by FNMA, meaning if you wanted a loan in this country, many of which are invested in by FNMA, you had to follow this new method of obtaining an appraisal. This was in 2007.
Today, despite some positive changes in the Code since 2007, the complaints about appraisers sent out through AMCs are still rampant. A 6-person panel which I attended at last weekend's National Association of Realtors convention in Anaheim expressed various points of view, including:
- AMCs hire the cheapest and lowest quality appraisers (ouch!);
- This lower paid AMC appraiser may be given a "number" to hit through the Automated Valuation Model (AVM) method performed by AMC staff (not qualified appraisers) before he/she ever goes to the property.
- Many of the AMC appraisers are much more recently trained and hired--their license number is an indication of how long they've been in the business.
- They may have little or no experience with the immediate area of the subject property. (My comment: I have not personally met someone who has flown down from San Francisco, but I did have experience the other day with an appraiser who met me in Old Lakewood City neighborhood and said that all neighborhoods in Lakewood were the same--he obviously hadn't been to Lakewood Country Club area, for example.)
- They may be pressured to "hit a number" that their AMC has already arrived at. (Comment: Yep, I've had experience with this too--last year an AMC rep told me over the phone before the appraiser ever went to the property what the property value was of Long Beach condo. I had to put up a fight to get an actual appraiser to come to the property, and guess what? The valuation came in at the "Number" I was given over the phone.)
- Because they make less money than a traditional appraiser, they take on more assignments in a given period of time; they have less time to complete the report, and therefore less time to research the property and comparables, evaluate it, and prepare the report.
- Market value, if the property is an equity sale, may or may not include area distressed property comparables, depending on the nature of that market.
- Short sale market value may be affected by comparables sales where the bank has given $3,000 or $25,000 to the seller vs. a short sale where there is no seller incentive. (Comment: HAFA short sales and Chase Bank are good examples.) Sometimes that information can only be found out by calling the listing or selling agent, as the MLS may not include that information. The AMC appraiser may not take the time for that kind of research.
- The listing agent and selling agent may directly speak with the appraiser.
- What is the appraiser's license level? Trainee vs. Licensed vs. Certified?
- A good listing agent will qualify that appraiser on the phone before he/she is admitted to the property, and in fact, it is the listing agent's duty to the seller to find out about that geographic competence (they always tell you they know the area, so you have to ask more questions), the appraiser's skill/knowledge level, and to make sure that appraiser is given critical information about the property's features, discrepancies with tax record, conditions--things that can affect value--along with area comparables. (Comment: My Lakewood appraiser recently told me the number of bedrooms didn't make a difference on value after I pointed out to him a discrepancy with the tax records--but oh yes it does! If it didn't, people wouldn't be paying thousands of dollars more for a 3rd bedroom.) If the listing agent believes the appraiser does not have geographic competency, the listing agent may deny access to that appraiser, i.e., last time in area?, how many subject properties visited in area? "Local market knowledge is the primary qualification to hire a specific appraiser for an assignment."
- The buyer/borrower is entitled to copies of ALL valuations of the property including Broker Price Opinions, Comparable Market Analysis, and AVMs, and 3 days prior to close of escrow, the borrower can request a copy of the appraisal, and all fees are required to be disclosed prior to close of escrow.
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