Posted on 08/08/2009 9:01:36 AM PDT by LouAvul
I'm helping the friend of a friend sell a farm/ranch. It's a unique property for the area and when I tried to find "comps," ("comparable properties") I was unable to do so. There just weren't any comparable properties in our area.
They had it appraised in 2000 and again in 2009. It appraised at $315,000 and $376,000, respectfully. We listed the property at $376,000 and accepted an offer of $372,000.
We were set to close but the day of the closing we learned that Chase Bank's (the buyer's lending institution) appraiser only appraised the property at $315,000, and Chase wouldn't make the loan for $372,000.
The property passed all inspections with flying colors. The local real estate market is strong (we never had the "bubble" or the "crash" of some other markets).
I've left several calls to the appraiser but he won't call me back.
My question is, have appraisers been instructed to tighten up their appraisals in the last six months, so much so that a property loses $61,000 in value? Because, like I said, the property hasn't changed one iota in that time.
thanx.
In what way did they change?
When a sale goes through, the property—now the most recent sale—becomes the the “comp” for appraising other properties in the area.
If the bank has many mortgages in the area, wouldn’t the sale affect the valuation of these other mortgages on the bank’s balance sheet? (The valuation of the mortgages is impacted by the market value of the underlying real estate.)
It seems to me that there is an incentive to keep areas that have experienced rapid depreciation “illiquid”.
based on what I read in the trade pubs, New Home Builders feel they are getting screwed by appraisers.
Two are mine and two I inherited.
Appraisals are off the chart in conservative.
Appraisers don't want egg on their faces and banks have let the fox (government) in the henhouse and are scared too.
I have heard that one third of appraisals are coming in light on what folks are willing to pay....at least in the nicer areas of Nashville which has mostly escaped the downturn except in starter homes....this trend will eventually get back to normal...i think appraisers are just scared...a lot of psychology goes into appraiser minds...some good/some petty. I have commissioned over 70 commercial appraisals in the past 12 years
I opine here frequently on borrowing commercially. I can tell you that banks that used to call me begging me to move my loans to them are now tight as tick.
They took those tarp loans and paid off their bad debt....none of that except indirectly is being used to fund new lending.
Your radar that something is up with appraisers is dead on. I got into it with appraisers for a refinance deal and learned the following:
1) The mortgage lender picks their appraiser and disregards any other appraisals, even if it was done in the last six months. The mortgage lender will most likely bring in a national appraisal company so local appraisers cannot skew the appraisal in the property owners favor.
2) The appraisers are to be left alone, no arm twisting or complaining by your brokers to get the deal done (very common in the past according to my broker).
3) The appraisers will only do comps that are less than six months old and within a few miles of your property.
4) The appraisers have been given marching orders to drive the market prices down. I discovered this by calling them out on my appraisal for picking comps that were not physically close to my property and for adjusting the square footage spread very unfavorably for my property (their excuse, we can do whatever we want so take a hike).
The nature of unintended consequences is that the “new” appraisal approach will protect banks from bad future loans but is going to kill the existing market for refinances and selling of old property (like yours) and will eventually impact the tax revenues of local communities when every one uses their “new” appraisals to reduce their taxes.
Lou says this is a farm-ranch.
If this was treated commercially I can see why it might come in late since things often are last minute flurries on closing commercial deals quick and they take much longer.
Residential is fast and easy and cheap...200-450.
It is a pisser when i have had appraisals take until closing to come in and if they are tight it sucks....you will have to do another one if you need to expand in less than a year or two whereas if it’s fat you can use it again if not too far out to increase property.
It looks to me like residential appraisals are right now not going to exceed contract price by much....I think at best appraisers in these times will use that as a benchmark.
Something called the Home Valuation Code of Conduct went into effect on May Day.
It is specifically prohibited by USPAP and new HVCC rules for the appraiser to talk with even the homeowner about the reuslts of the appraisal. The only person the appraiser can communicate with is the client (that person/entity who ordered the appraisal). Yes, ultimately, the borrower pays for the appraisal in closing costs. However, the client is defined as whomever orders the appraisal.
In my market, homes are coming in under the sales prices....mostly due to “incentives” offered by builders...or concessions offered by the seller to the buyer. Our realtors add those incentives and commissions on top of the sales price and expect them to appraise at the inflated values....which they will not. For anyone to think the appraiser has done a bad job in these cases (builders and buyers)...it is simply not a case of a bad job by an appraiser....the values are inflated by these concessions.
As for me, I have never been given marching orders to drive prices down. If this is happening in your area, contact the state board for appraisers and ask them how to file a complaint.
Central heat and air ... a fine 4-wheel vehicle thrown in ... it’s a deal!
Two errors in the article.
1. Appraisers are still encouraged to talk with realtors - HVCC has not changed that.
2. Appraisers who are not familiar with the market are subject to USPAP Standards Competency Rule which states that an appraiser must be competent in the market they are appraising in...which also means familar with the market. Violation of this rule is a good reason to turn any appraiser who violates the rule into their respective state board.
We are having a somewhat different problem in East Tennessee. The country property assessors have raised everyone’s property assessment by 25 to 30 percent. Mine went up 28% on two properties. The actual appraisals on one of the properties—which I have from 2006 and 2008—went down by 20%! The tax assessors are raising appraisals in order to increase tax revenues while the real market values are going down. I have made my appeal at the committee appointed time, but haven’t heard back from the assessor’s board. Incidentally, the name they go by on the tax cards is of the man who retired years ago as the then current tax assessor!
I'm sure what you say is true about what you are talking about specifically but you will have a hard time convincing me that RE appraisers are not spooked in this economy and are under appraising more than in the past to be on the safe side.
I have done for residential, estate and simple commercial around 7-8 appraisals of property the past year and it's all on the low side. ...not even covering land and materials in some cases.
Cap rates through the roof which is loony given T-bill and CD rates at historical lows...
it goes on and on
granted neighborhood developers have in the past along with some banks had deals with appraisers that folks now eschew but that is a fraction of the real estate world and the sectors I'm in have never ever had any of that
I sell or buy a family home and I'm not in that sort of market
I build a warehouse, office building or other retail site and there is no funny business. Appraisals are three phase, cost, income and sale of like business...all weighed and then averaged
and they are ll very light these days.
I have seen three times this year where the appraisal matched or was below the County tax appraisers numbers....that tells you something.
Anyone in business knows those are usually the lowest appraisal numbers out there after one whittles them down as much as possible
I'm not saying appraiser are doing a bad job, they are just covering their asses. Now I can give plenty of examples I have experienced with dishonest appraisers but it wasn't about overappraising. It was about extortion basically.
In our area, the tax assessment is much higher than the true value of the home/land. The Assessor has not adjusted their values downward to reflect the current market. As an example, many residential ltos in new neighborhoods are assessed to 60 -90,000. Vacant lots in these subdivisions are selling for 45,000 and that is all the appraiser can use for land values.
Underwriters (who are often out of state and not familiar with the markets in which they are underwriting are not subject to the same laws as appraisers) will not let us inflate land values when lots are selling under the assessed prices.
An appraiser has to find comparables which have sold in six months or less ( the norm is getting closer to 3 months) and that is all that can be used in an appraisal report.
“...impact the tax revenues of local communities when every one uses their “new” appraisals to reduce their taxes.”
Not in Pima County, Arizona. They just raised taxes to compensate for the fall in house values...
Under Bredesen and Purcell they raised appraisals and the rate at same time...something that used to be unheard of.
I have one property...self storage...I built in 1998 and it had tax of 11K
I doubled it essentially and now my total tax after 3 hikes is 52K and we are once again appealing which is a joke.
The local review board will decline the appeal and we go tom state where my appealer who has connections will get the increase halved basically even though it should actually go down below last hike based on revenue.
So I will end up around 45K or so....
there has been little inflation, no rate hikes in 10 years, property has not appreciated and so forth but yet my taxes have doubled....with my expansion they should be around 24K
notice they ignore depreciation for county tax appraisals...there is none to them..lol
If you can find similar properties which have sold in your area (contact your realtor), these sales make the best case for appealing your assessment. If none are available, it is difficult to get them to lower your assessment. The burden of proof is always on the property owner. The assessor does not have to divulge how they assigned value - even though it may be wrong.
If we would have had appraisers from central Illinois appraising property in Florida and the Southwest, we might not be in the jam we are in today..
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.