Have real estate appraisal standards changed that much in six months?

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).

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.

Ah....found it....

Appraisal standards are established by USPAP (Uniform Standards for Professional Appraisal Practice) and have not changed appreciably. What has changed is the way the appraisal is ordered. The HVCC no longer allows lenders to have direct contact with an appraiser IF their employee recieves and sort of compensation from the loan closing. Many lenders are now using AMC’s (Appraisal Management Companies) to order their appraisals. Some companies use internal employees not directly connected to the income from the loan.

Underwriters have had the most influence on the loan process in that they can requires comps that have sold from 3 - 6 months prior to the appraisal (3 months is becoming the norm). Thye can also “adjust” the appraiser’s assigned estimate of value.

By laws in my state, any time someone sets a value on a home, they have made an appraisal. Thus, an underwriters who “adjusts” value has set a value on a home. This IS an appraisal.

Underwriters usually adjust values downward.

Underwriters are not required to have competency (market knowledge) in the area in which they are underwriting. Appraisers must , by federal law, have competency in the areas in which they are appraising.

Thus, many underwriters, who are not familiar with the market in which they are underwriting, make uninformed decisions.

The way to solve this is for the states to start to require the same expectations from underwriters as they do appraisers.

He doesn't post often. He is my husband, and is an appraiser. Has been for 20 years. He is one of the few ethical ones in existence.

I thought he could probably explain better than I about value, but after reading some of the other posts I see that our opinion is not needed. Others have already answered thoroughly.

My original thought was regarding this statement;

"They had it appraised in 2000 and again in 2009. It appraised at $315,000 and $376,000, respectfully."

An appraisal many times does not give an accurate value because so many appraisers will tweak the numbers to reach the target value, whether contract price or re-fi needs. We see it all the time. An owner says, "Well, you must be wrong because another appraiser did it last year and came in much higher."

Unfortunately, inflated values are all too common.

We’ve been in the appraisal business for 35 years - family run business which has supported 3 generations, now going on to a fourth.

I do 10 -30 reviews a month and find that about 20% of them are very questionable. If there are huge, glaring errors, I file a complaint with our state board.

I am finding out that those appraisers starting out have accepted the 30 - 40% cut in fees by AMC’s and that the most glaring errors are by the newest appraisers (don’t get me wrong, there are some who have been in the business for a long time, as well).

It is up to our profession to help make it better - and better understood (as I am sure your husband feels the same).

Yes, we completely agree. However, it must be different in your state, because our state board does pretty much nothing when it comes to disciplinary action. As a result, the crooked/incompetent appraisers just keep on plugging, while people like my husband try to clean up the mess, taking all the heat from angry home owners.

We've seen appraisers who are on the take with crooked realtors to the point that they put people into houses upside down because the appraiser will value the home high enough to wrap credit debt as well as car loans into the mortgage. It's crazy.

Much of the problem with inflated values lies with realtors. They push listing prices to unrealistic figures because they either want bigger commissions or because they simply do not understand the use of comparables. We have seen over and over realtors who disagree with the appraised value who send their own "comparables" to validate their contract prices, and the only thing that is truly comparable is the fact that all structures are indeed houses. Realtors really should be forced to take basic value classes as part of their licensing and continuing education requirements.

Most home owners have no idea how the process works. It is up to the realtor and the appraiser to protect the client's interests, and often that doesn't happen. It is shocking to me that some of these folks care so little about other human beings and so easily disregard their responsibility to protect all parties involved.

Regarding this particular thread, my guess is the second appraisal was inflated to achieve refinance goals. As a result, you have a seller who thinks his property is worth more than it is, a buyer who has a realtor who either didn't do his homework or did not care what kind of equity position his buyers would be in after the sale, the whole deal goes south and everyone involved is pissed and throwing around blame.

And yes, making the process easier to understand is a constant issue around here. We've even talked about opening a school so that my husband can teach realtors how the process works so that they can better fulfill their responsibilities to their clients, and to re-educate other appraisers who simply do not understand how to do a solid appraisal.

With all of Cuomo's new brilliant laws, the crash of many markets, underwriters having no good understanding of the process as well as being ignorant of how each market functions, we have been seriously considering getting out altogether. It is just really stressful for my husband. Because he is ethical, he is just slammed with work as well as reviews, to the point that he has too much work. Yes, that is good, but the constant pressure, as well as the anger he faces from every angle including crooked appraisers who are gunning for him, just isn't worth it to our family.

The lack of ethics in this line of work is really just indicative of the lack of ethics across the board this day and age.

As far as using their “new appraisals” to reduce tax burden.....if a property owner obtains a copy of an appraisal done on their home, it is illegal for them to share the results of the appraisal with any other person than the client (the entity ordering the appraisal).

I feel sorry for the appraisers, they are caught between a rock and a hard place. When people find out their property is being “conservatively” valued on refinancing and selling their older homes, I assure you they will be marching toward the tax assessors with appraisal in hand. Regardless of the current legal constraints, this is going to lead to massive litigation as local counties try to squeeze revenue with high valuations out of properties that owners are being told are no longer worth as much by the appraisers. I also think homeowners may start sueing appraisers if they insist on playing hardball out of frustration. It is going to get ugly in difficult economic times.

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