The decline and decimation of the local appraiser

I hate the new appraisal system and non-local appraisers.

Let me explain. The government came up with a brilliant idea to curb another housing meltdown!

Assuming most lenders and appraisers were fraudulent, they decided to put a great wall of china in between the lender and appraiser. So instead of having a "reliable" and experienced local appraiser, they instead farmed out the process (and sometimes to a company they own) to a company that would then find an "independent" appraiser. 1 problem is, the appraiser has no accountability.

Also problem #2 is now another middle man has to make a cut, but the cost to consumer is the same. The result? The cost to the appraiser goes down. The result? NON-LOCAL APPRAISERS.

So if you (Mr. Appraiser) don't know the area, what are you going to do? Pick the wrong houses and appraiser more conservatively (they can only get in trouble if they appraise a place too high, so why not just make it come in lower. It also takes more work to come in higher). An appraiser's job is not to be conservative or aggressive, but to be as correct as possible.

Even before the appraisal system was mixed up, I would always warn my buyers "hey if it comes in higher than what you paid, don't really celebrate. Sometimes appraisers like to come in higher, just to make you feel good, and oftentimes they aren't really "real" in my book." Why would I burst their happy dance? Because I warn them that the flip side (a low appraisal) is also possible. Just because an "appraiser" says something has a value of X, that doesn't mean it is the "true" value. An appraisal in an opinion. While some might argue there is no "true value" or "it is worth what somebody is willing to pay for it", I'm referring to the other problems with appraisals.

APPRAISAL PROBLEMS:

1) BANK SALES IN COMPS Appraisers usually include bank sales on the MLS. These are homes that are oftentimes under priced, they get 7-20 offers and the all cash offer wins. NOT THE HIGHEST OFFER. So a $400,000 bank listing might get bid up to $415,000 with an "all cash" buyer, and 3 other buyers had offers in for $435,000. What is it "worth?" Well the appraiser says $415,000, but the market says $435,000. And this isn't even going into whether a regular, properly marketed identical listing would sell for $450,000. So what is the "value?" of this $415,000 closed home? For some people this means NEVER being able to buy a home. They live in areas that are full of investors buying with all cash. Those sales then drive down the price of a regular listing but not enough. The appraisal will still be low, and the 3.5% down FHA buyer doesn't have the money to make up the difference.
SHORT SALES Similar to the above, but the seller has NO interest in trying to get full market price. Actually the banks expects to sell them for 5-15% off market price. The seller just wants a patient buyer, oftentimes an investor. These deals will go 3-6-12 months and oftentimes never pan out. So yes they have to sell for less, to compensate the buyer for the hassle and high chance of never closing. Many buyers will not even look at short sales. So are these good comparable for an appraisal? I think not.

3) MARKET UPSWING? Oh my! Could it be? Could it be possible that homes and condos are actually selling for more than the low in June 2009? Yes. In reality they are in some areas,according to the Realtors that I speak to daily. Perfect example; I just closed a mortgage for a home that sold for 395,000 and had been in contract for 365,000 4 months ago. When the deal didn't close there were multiple offers for 370,000+, yet the appraiser is more likely to call the market "steady." All you need is a small 1-3% increase for a $500,000 place to now be selling for $515,000, yet the appraiser won't adjust for that.

4) LOW INVENTORY Rarely will an appraiser adjust for low inventory. IE, Ain't nothing else out there to buy in this price bracket. Good appraisers will see this and understand supply and demand.

SOLUTIONS TO LOW APPRAISALS?

So this is what I see happening. When a low appraisal comes in, the buyer oftentimes freaks out. It is the buyer agent's job to warn them about this and then discuss what they want to do. About 1/3rd of the time the buyer will walk (until it happens to the next property!), 1/3rd of the time the seller will just drop their price and the last 1/3rd arrange a different mortgage and get a new appraisal.

1) DEMAND A LOCAL APPRAISER Put it in the contract (as the lister) that you will only entertain a local appraiser. Maybe give it a 20 mile range. (at my bank we only work with appraisal companies who have local regional appraisers, if not we get a different company). If the lender can't do this, make the buyer get a new lender and new appraisal if somebody non-local does the appraisal.

2) GET A NEW APPRAISAL. CHALLENGE IT. Either the buyer or seller can get a new appraisal. Yes, my buyers have hired new reliable and local appraisals. Why? Because the buyers have been to each home in the area for the last 3 months and they know the value. While a bank won't flat out accept the new appraiser, it can be used to challenge the first appraisal.(I have challenged many appraisal. It sometimes works).

3) PAY THE DIFFERENCE While it might be painful, it might be the only way. Especially if you have gone through it a few times, if you start all over, it will likely happen again (unless you are willing to wait 3 months for a short sale to MAYBE close).

At my company, we are sensitive to all these issues and we have to constantly juggle this. 80% of what I close I use a very small closed approved appraisal list so I have better control. It is the the 20% that I have to deal with that is a true challenge!!

The saddest thing of all, is the destruction of the appraisal industry. Appraisers that built solid businesses for the past 5-10-15-20+ years have no business. Their previous clients have no control on which appraiser will get the order, so the local appraiser for the most part is left out in the cold. the appraisal management companies pay so little to the appraiser that he has to do 4 appraisals to make what he used to make on one. Therefore volume and speed is key. If you just need to finish as fast as possible, you can't possibly do the job right. i had a conversation with a local appraiser who said that he calls these third party management companies to ask for work and they say, lower your price. we have appraisers who are working for $35 less per report. how degrading, and you, the client pays the same price as before. Another appraiser told me that he works primarily in the Brooklyn market. In order to make a living he needs to bang out 4 appraisals in the time he used to do one. Since there is no good central MLS system, he no longer has the time to do research as he had in the past. what that means is that he knows the report that he is providing is not perfect, usually undervalued, but what can he do? it is just too bad. Another appraiser that I spoke to refuses to do any management work. he said he will not lower his fees or standard. While I laud his principals, I am helping him with a loan modification since he cannot afford to pay his bills and his mortgage. SAD Sad Sad.

Happy Anniversary! One year and counting on this Short Sale transaction.Reality Mortgage Story

Short Sales. You love the price of the home that you will buy, you hate the uncertainty and the time they take to close. The question of the day is: Is a great price on a home worth a years wait and a minimum of $2400 out of pocket expenses? I am working the mortgage on one right now. The Real estate agents involved have told us that we are almost ready to close on 3 occasions so we have already done 3 appraisals. At this point, our clients are living month to month in their rental home and they are afraid that their home will get rented out to someone else and they will be homeless. The stress and the pressure is all encompassing!! Well, anyway...Happy Anniversary!!

2 Days Before Closing and My Client ELOPED!!

Imagine that! here I was 2 days from the closing table. The seller had moved out and the attorneys were working with the closing department on the documents and figures. the title company had already scheduled the time and place and the realtors had already spent their money. It wasn't meant to be..or was it? our occupying borrower (her ex was the non occupying borrower) met her match in a pre-valentine type tale and eloped to another state!! As this was an owner occupied 3.5% down FHA loan, we could not close the mortgage, so we called the closing. Thanks to wonderful realtors and attorneys for both the buyer and seller the tale has a happy ending for all parties!!
Our newly wed couple is buying a home in another state and I am doing that loan!!
Our ex husband will be getting back his down payment because the realtors sold the home to a wonderful young couple expecting their first child. And I am doing their loan!!
Our seller was able to post-phone her move out date, so although her nerves are shot, she is happily ensconced in her home for a few more weeks
The title company is doing the new title..
Alls well that ends well...and I feel like I just ran the marathon with disclosures, appraisals, HVCC, the new GFE, and the constant race against time so that all will close on time..in the right time.