RE: Low Appraisals Suck!

[appone]

Since you brought this up let’s point out some things to keep in mind when looking at appraisals:

The owners and agents expect to get the “highest possible price” for the property. Bank appraisal require a “market value” evaluation which implies the “most probable” price not the highest probable or possible price

Appraisals are regulated and scrutinized by humans (underwriters) and machines (Collateral Underwriting, AVM programs, etc.). The appraisals have to be compliant (huge topic) or they don’t pass.

Getting an appraisal that hits your price may still not get your deal done. The appraisal is only the first link in the chain, if the scrutiny mechanisms do not agree with the appraisal, it won’t go anywhere.

There are requirements for bracketing all adjustable criteria and final value, before and after adjustments. These limit the options in the selection of comparables and also the adjustment range.

There are many other items but I don’t want to go on for too long.
(
(Just in case you think I’m talking out of my ass, I’ll just say that most of what I do involves reviewing appraisals. I have a company with nine appraisers, I have been in this business for over 30 years, I have a Master’s degree in real estate and I testify in various courts as an expert on valuation related subjects)

Comments

[investfourmore]

Thank you for the comment. I think that most apprasiers and appraisals are done well. However, this one was done without much thought.

1. The subject has an oversized 2 car garage with workshop that is 720 square feet. The appraiser notes this in the appraisal, but does not make any adjustments when comparing it to regular sized 2 car garages with no shop and 400 to 500 square feet.
2. There are no adjustments made for age even though one house is 20 years newer and another 18 years older than subject.
3. A new construction home is used as one of the comps when the subject is 20 years old.
4. The square footage adjustments are not what I typically see. They range from 22.7 to 35 dollars a square foot adjustments on above grade square footage. That is a really wide adjustment range on something that I think should be exactly the same on each house. One house with only a 14 square foot difference was still adjusted for, which is unusual.
5. There are very large adjustments made for lot size. A $2 a square foot adjustment was made for lot size difference, which is extremely high in my opinion. I would think a $.50 adjustment would be in line with our market.
6. The adjusted values range from $248,500 to $286,000 with the value coming in at $250,000. The purchase price is $275,000 and there are comps that support that price. I believe that if some of the adjustments were made differently, the garage was accounted for, and better comps were used it would have no problem coming in at value.

[appone]

I am following you now and I appreciate a good discussion. So I will like to simply offer some thoughts on what might have happened in your case.
1 – He did adjust $5000 for 1gd (I assume that is the extras garage)
2 –This one does look like adjustments may have been appropriate
3 – Either he was desperate for a comp or he was just lazy
4 – I agree with your point 100%
5 – Since I don’t know your market I can’t comment on this one
6 – The value is reconciled in some fashion in order to arrive at a final number. I don’t know how it was reconciled here but maybe it was a crap shoot. I can’t really see the logic.
Practically every appraisal is vulnerable to criticism, some more than others.
Without knowing your market, I don’t particularly care for comp 2 as it is a manufactured home. Comp 3 seems to be in the same condition (C4) but it is adjusted so I hope there is a good explanation somewhere.
I also am baffled by the use of comps that are half the living area. You have a good case here for a reconsideration request.

[investfourmore]

I should clarify something! The appraisal that came in low for this post is different than the one I talk about in the video. So the points I made in my response to you are regarding a different house. Sorry for the confusion!

[appone]

OK, I did not realize that.

[investfourmore]

FYI, regarding the appraisal in the video. We challenged it and the appraiser changed his value to contract price!

[appone]

Then you did well. We actually do rebuttal writeups for clients that want to challenge appraisals they had, and charge a decent fee. Is seems to be a growing niche in the business.