Home Valuation – An Expert Appraiser’s View

Valuing real estate has never been an easy task for an appraiser. In the past it was difficult keeping up with steadily increasing values. Today, we must stay on top of every sale, dissecting it to determine if it is arms length, weeding through REO, Short Sales and other various distressed properties. Sales are not easy to come by these days and so many are tainted it is often impossible to arrive at a truly meaningful and supportable value. If that is not enough, federal appraisal guidelines have changed so much, I often feel I have both hands tied behind my back.

The good news is that we are seeing some stabilization in the Metro Atlanta real estate market. The inventory of homes for sale has dropped and the number of foreclosed properties has leveled off a bit. New home construction is happening again. This is due to the huge drop in existing inventory of new homes and the unprecedented decline in the value of vacant land and developed lots.  This drop is just enough to allow a builder to be profitable when building a new home.

The new homes we are seeing going up are somewhat more modest than those of recent past. Builders are reluctant to build enormous houses on speculation and buyers have had a dose of reality and are looking for smaller, less flashy homes. I feel this sector of the market, new home construction, will grow the most over the next 12 months. This should increase jobs which will bolster the economy as well as the real estate market.

Appraisal regulations are easing a bit as we transition from HVCC rules to the Dodd Frank Act. Appraisers will be more fairly treated and receive “reasonable compensation”. One of the problems for the appraisal business was the rise of the Appraisal Management Companies (AMC’s) which sought the appraiser who would do the job the fastest and the cheapest. This was most often not in the best interest of the real estate market. Appraisers were rushing through assignments and justifying it based on the extremely low fees they were paid. This lead to sloppy work and inaccurate appraisals. With the help of this recent legislation, appraisers are now given the time to accurately analyze the market and complete a competent appraisal. The problem still remains however, that too many appraisal management companies do not have sophisticated assigning software to get the job to the appraiser with the most “geographical competence”.

The best way to protect yourself when listing your home is to consult with a real estate professional and hire the most competent appraiser in the area to perform a pre-listing or what we call a consultation appraisal. Our firm offers a product where we will come to the house and perform a thorough appraisal inspection. We will complete our appraisal report and review it with you and your agent. This will allow you and your agent to choose the most appropriate list price for your home. Our service does not end there. We are your consultant all the way through closing. Most importantly, we will be there to defend our appraisal and help you in the event that the bank appraisal comes in low. We will write the letter of rebuttal to the lender – doing it in such as way as to outline all the deficiencies in the bank appraisal and offering concrete evidence and additional sales to support our value.

We have seen the number of low appraisals on good arm’s length purchases skyrocket over the past 12-18 months. This is due to multiple issues. First is the new regulations which sever contact between loan officer and appraiser – many appraisers now use this as a shield to allow themselves to be conservative. But why would they want to be conservative? The number of lawsuits by lenders of appraisers has risen at a staggering rate. Furthermore, underwriters are feeling the pressure of the mortgage meltdown and are scrutinizing every appraisal. It is much easier for me to come in low – less work and less grief from the underwriter. This infuriates me – appraisers should never have an effect on the market. Our job is not to DETERMINE market value but to INTERPRET market value. If there is a true arm’s length purchase agreement between a willing and knowledgeable buyer and a willing and knowledgeable seller – that is market value! That does not mean that we can always produce an appraisal which will justify it to the lender but the appraiser should make every attempt to let the market move on its own accord.  I spend the majority of my time working with agents who have not hired us to do the consultation on the front end and end up with a low appraisal on the back end. Over nine times out of ten the appraiser is wrong and the sales price is justified. The problem is that the “cat is out of the bag”. The underwriter has the appraisal and usually the appraiser is too stubborn or incompetent to reason with to correct the appraisal. We have a 99% success rate with our consultation appraisal service and less than a 50% success rate when I come in after the bank appraisal has been completed. Appraisers are not allowed to revise their appraisal reports – even if I get them to agree that they were wrong – unless the underwriter gives them permission. On top of all this, a low appraisal is going to create significant problems with the buyer. They either want to get out of the deal or demand a reduction.

The ultimate goal here is to help the market recover on its own. If a low appraisal is not resolved everyone loses – the buyer, the seller, the agents and most importantly the market – because either the deal dies or the seller reluctantly reduces the sales price and that neighborhood just took two steps backwards!

In summary, hire a real estate professional that knows the market, and consider a “pre-listing” appraisal to protect your investment.

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