An Appraiser Responds To My Post On Bad Real Estate Appraisals

My post last week on Bad Real Estate Appraisals And The Appraisers Who Create Them got a lot of interest among appraisers and generated a ton of comments from them (go figure!). However, I received one particularly long and well articulated comment from one appraiser who ran into technical difficulties trying to post his comment. Therefore, he emailed it to me and I decided to post it with his permission. I’ll post my response in the comment section below this post.

This was written by Woody R. Fincham, SRA who is a Certified Residential Appraiser with  F&M Associates Appraisal Services in Charlottesville, VA.
It is easy to get defensive over your post because the way that you word it is from a position of offense and comes off as someone wronged by one of my peers.  Instead of jumping in at the wrong end of the pool, let us look at a few things:
1. You really cannot offer an objective opinion because you are tied to the deal through a commission.  You even cited your own house below as an example, which is a folly to use because there is no objectivity when looking at your own home, even more so when you are gaining something from the transaction (refinance, sell, etc).
2. I have no perspective on your market, so I must take what you post about it on faith.  Many of your contentions that you cite in your examples leave more questions than insight:

Appraisal In Pilsen

Location is key, if your buyers are trying to buy in an area that is full of properties in poor condition, then it will drag down the value

  1. Appraisers opine market value.  We are supposed to use the scientific method to analyze and come up with a concept of value, so it becomes an art form based in fact.  Meaning that we are trying to deliver a defensible value based on what a group of consumers might pay for it.  The fact that one or two people may want to pay high prices does not indicate anything. They could be from another area and do not fully realize the location drawbacks, they could be so financially well off that they are not bothered by that price overlap; it is impossible for the appraiser to have a single buyer’s perspective.   You have to remember the appraiser is performing this work for a lender that is going to scrutinize the report, and lenders are seriously risk adverse.  In the example that you gave the buyer paying $5,000 over the appraised value is a fraction of concern.
  2. If it were a serious enough matter to look into, and it seems so due to this post, perhaps you should have hired an independent appraiser (look for AI-RRS designated appraisers or SRA designated appraisers that do complex work and litigation work) to come in and do a review and offer an objective view of the quality of the work in question.  That is worth doing because if you are dealing with an appraiser that is doing bad work you can prove it without coming off as a sales person upset that a commission was lowered.  Not a slight to you by the way, but following this line of reasoning really would be looking out for a client’s best interest.

Appraisal Downtown

  1. There is nothing in this example to offer the appraiser was wrong.  Sounds more like frustration than an empirical example.  Again, that a buyer had to come up with a slightly larger down payment is part of buying a home.  It seems like if the appraiser was off, one could easily offer data to prove or disprove as it were.
  2. If you are correct in that the appraiser used bad comparable sales then you have a point.  More often than not, this exact argument is made when a contract price is not supported by the appraisal report and the agent normalized data points together to come up with a loose CMA.  Not saying that is what you did, but agents are notorious for using price/SqFt as the main consideration and forget that there are other items of contributory value that must be accounted for that will render such normalization suspect at best.
  3. “Although we took the position that the appraisal was valid (remember we were representing the buyer in this case) the listing agent insisted on a rebuttal.”  Right is right and wrong is wrong, if you agree the appraisal was wrong then why accept it and pretend it is all part of the plan?

The Appraisal From Hell

A 40,000-dollar error?  Sales price/SqFt is a slippery slope, as I stated above.  Unless the contributory value of the SqFt is the only consideration, it rarely is, then the appraiser would rarely use it at 100%.  Generally, it is some fraction thereof; as condition and other amenities come into play that would reduce the amount used in this application.

  1. Another aspect of contention with your example here is that you leave out the size of the unit.  That is a key detail because if the unit is 3,000 SqFt, then adjusting for less than 100SqFt of difference is difficult to explain.  Now if the unit is 1,000 SqFt that would be something to be concerned about most of the time.  In short, the appraiser should be able to identify what tiers and sizes should be adjusted for based on market observation and extraction.
  2. If the appraiser did not consider the parking then why that was not offered as a major point of contention and the lender chose to overlook that would have me concerned about doing business with that lender.  Again, an objective review from a third party may have been in the seller’s best interest.
  3. Sounds like you may have an issue here so long as the improvements you are speaking of are not super –adequate; and of course rarely do the actual cost of improvements equate to a dollar-for-dollar return.
  4. Again, I am foreign to your market, but rarely do I see evidence in sales data to support adjusting for a corner unit in a mid-rise or high-rise. I am from Virginia, so we do not have much to contrast this point with, but you offer no support in your blog that one should do this.  That should be a relatively easy item to extract out of paired sales.
  5. Seems like you have a point of contention if factual, see next point
  6. If you can prove that the report contains incorrect, readily verifiable data, you should require the lender to have that fixed.  I am human and have mistyped things in the past and when I am made aware of it I will fix it and will apologize; it happens.  Then again, did the appraiser have access to data that you do not:  did he/she measure some of the units in question, have a database of data you are unaware of, etc  This is another spot where a third party review could help.
  7. See number 4.  If it is readily observable from paired sales, then you have a point.

In short, my reply is not meant to be an attack on you at any level.  Your post does come off as less than professional in that it does paint with a broad brush  towards my profession as a whole. Like any field, there are great professionals and then there are the not so great. I see from your bio that you are one who likes discourse and probably like creating a stir, but hyperbole is just that.  There are options for you to deal with bad appraisers; most obvious is referring a bad report to the state licensing board.  I know a couple on your state’s board and they are good professional folks.
My suggestion to have a review done by a third party appraiser, again AI-RRS and SRA with such professional experience, is but a small drop in the bucket in cost.  Especially if you are talking tens of thousands of dollars in difference between the report and the price, if you do file a rebuttal with the lender, you will at least be “loaded for bear” as we say in the south.  That also keeps it professional and prevents you from appearing as a sales person upset over a reduced commission.  Appraisers analyze data differently than how most agents and brokers do.  We spend hours doing so on most reports, and sometimes it is easy to assume that something seemingly simple or obvious really is not.
I have had similar situations in my career where an agent has disagreed with my report.  Occasionally, I am wrong, and if I am, I try to remedy it.  But when I am not and I have shown how and why I came up with my value, the agent walks away with an understanding that lets him or her have a better understanding of what a good appraiser does.  There are cases where no matter how reasonable I can be, and based in fact, the agent refuses to see market metrics and still blames me ad refers to me in unprofessional ways. I cannot control that.
I do wish you the best in your dealings with appraisers in the future.
#realestate #chicagorealestate #foreclosures
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