The Appraisal Complaint Process

Wednesday, June 16, 2010

Appraisals have become the biggest problem affecting an otherwise recovering real estate market. I’m not talking about a well documented appraisal that uses good, recent comparable sales data, even when the value is lower than I’d like. No. If the sales price of a home simply can’t be supported by actual relevant sales data, then so be it. What I’m referring to is the appraisal that was thrown together and has inaccurate data, uses comparable sales that are not comparable or refuses to use good comps and uses only poor ones. You know, compares a tri-level to a colonial or maybe a 1,500 sq ft home to a 1,900 sq ft home and so on. When there are more relevant sales to use they should be on the report. This is a follow up to last weeks post How Appraisers and Management Companies are Stifling the Real Estate Rebound.

Just in the past 7 days I have been fighting with an appraiser (actually fighting with the management company because we dangerous loan officers are not allowed to actually communicate with an appraiser) on a home purchase deal I am working on. I’m not even disputing the value which was actually higher than the purchase price. The problem is that the comparables used are all 3 to 4 miles away and two of them are 6 to 9 month old sales. Considering this house is in Rochester Hills, MI, a suburban community, guidelines call for comps to be within 2 miles and to have sold in the past 6 months. So, what happened when the loan was submitted for approval? Denied! Why? Due to poor collateral. I ask the appraiser to provide 2 comps that are within guidelines. The response – nothing available. Naturally I get with the Listing and Selling Agents and we come up with 2 sales and a pending which meet guidelines and I send them in to the AMC (appraisal management company) to forward to the appraiser. The appraiser sends back comments on why none of these can be used. One was “significantly larger” – the subject is 2,800 sq ft and the comp was 3,150. The second was too new – the subject is an all brick home built in 1994 with updated kitchen and baths and the comp was a couple of years old, otherwise they are the same size, style and have similar appeal. What are more relevant, similar homes that are within 1 mile and sold in the past 90 days or sales that are 9 months old and 4 miles away? Arghhhhh.

There is literally nothing I can do at this point because the management company says they cannot tell the appraiser what to use in the report. My only action is to shake up this appraiser by making a complaint with the State in the hopes that she, and other appraisers, will realize that they still have to do quality work or there will be consequences. The State will investigate every complaint and notify the appraiser of the investigation. That should do the job.
Appraisers are licensed and regulated in the State of Michigan by the Department of Energy, Labor and Economic Growth (DELG) and the web address is,1607,7-154-35299_35395_35396---,00.html. You can look up appraiser’s to see if disciplinary action has been taken in the past, print up a complaint form and get procedures for filing a complaint. When making a complaint be as specific as possible as to exactly what the faults are and offer better data.

It is really up to us, as real estate professionals, and as homeowners, to stand up and fight because nothing is hurting our business, or our property values, more than poorly done appraisals. Every time an appraisal derails the sale of a home or reduces the sales price, that damages a real estate market that is on the mend and an improved real estate market is the best thing for our economy right now. Standup, be counted. The next time a bad appraisal affects you make a complaint!


How Appraisers and Management Companies are Stifling a Real Estate Rebound

Thursday, June 10, 2010

Southeastern Michigan real estate sales have been brisk over the past 6 months with sales up and inventories down. The law of supply and demand dictates that when supply is down and demand is up then prices can rise. We’ve all been hoping for a rebound in real estate values to help put the economy back on a sure footing but appraisers and management companies are thwarting the natural order of things by capping, and even lowering values.

Market Value is defined as the price a buyer is willing to pay for an item and the price a seller is willing to sell the item for. Both parties agree to the price and that is the market value. As a mortgage lender in Bloomfield Hills, Michigan, the most frustrating thing I’ve been experiencing this year is low appraised values and simply poor appraisal work.

If a homebuyer has looked at dozens of homes in the marketplace he has a very sound idea of what the correct value of a home is at the present time and crafts an offer that fits into the current market. If the seller accepts the offer then that is the market value of the home. However, along comes the appraiser and he values the house at less than the sales price. What happens now? Of course the buyer wants the price reduced but the seller is angry because he got a price he could live with and agreed to it and now an outside factor is having a negative impact on that agreed price.

Effectively, the appraiser has capped the value of the house and hurt future sales of homes around the subject property. So, appraisers are currently one of the biggest factors keeping real estate values from improving and are even pushing values down! I don’t take issue with an appraisal that accurately portrays the current value of a home when it is less than the sales price. The problem is when the appraiser uses bad data to come up with a wrong value, or chooses poor comps that are either too far away, too old or are simply not comparable. Last month I had an appraiser use a ranch and tri-level as comps for a colonial! The appraised value was equal to the sales price but the loan was denied due to the poor value support in the appraisal analysis. When we asked for additional comps the appraiser said there weren’t any. Then we provided sales data to the appraiser and they said it couldn’t be used. They said one of the comps we sent could not be used because it was substantially larger than the subject property. Well, the subject property was 1,900 square feet and the comp was 2,060. That’s less than a 10% difference in size. Are you telling me that a buyer looking at a 1,900 sq ft home is not going to look at a 2,060 sq ft house with the same number of bedrooms and baths??

In the last 90 days I have seen numerous cases where appraised value is less than purchase price. Recently, I had a sale where the purchase price of the home was $265,000 and the appraisal came in at 260,000. The comparable sales used could have easily supported a value of the $265,000 but the appraiser’s opinion of value was $260,000. This individual obviously thinks very highly of themselves as they are able to pinpoint the value of a house! So, the sales price went down and we all suffer. Why?

Appraisal Management Companies (AMC) contribute to and exacerbate the problem because they remove the appraiser’s responsibility to the lender and neither the AMC nor the appraiser cares if the lender is happy with the appraisers work. As the lender I cannot even talk to the appraiser about issues I have with the report. When I call the management company they say they can’t tell the appraiser how to do the job. Nobody does anything to correct the appraisal and loans are denied and real estate that could have sold goes back on the market. Everyone walks away mad except the AMC and the appraiser who get paid regardless. That’s another problem – the AMC is taking a chunk of the appraiser’s fee and that must make the appraiser angry which leads to lousy work. What value is added by the management company anyway? The whole idea of an Appraisal Management Company is a farce and has lead to nothing positive for home buyers, sellers or lenders. Eliminating AMC’s would be a very positive step for a troubled real estate market that could be healing right now.

As a homeowner, I am asking myself how can real estate values ever increase under these conditions? Even when buyers are willing to pay more for a property, appraisers will not allow the sale to be consummated because they are either being so conservative in their valuations, they are ignorant of specific local market characteristics, or they are simply doing poor quality work and coming in with low values. This puts a cap on real estate values and stifles any possible rebound in home prices! The Home Valuation Code of Conduct (HVCC), which created AMC’s is basically derailing current market strength that could restore confidence and stabilize values in real estate across the nation.

We homeowners, sellers, buyers, lenders, real estate agents, and yes, even appraisers need to stand up and tell congress that the HVCC does not work and to eliminate it!


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