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Chris Eisenh…, Real Estate Pro in Denver, CO

Low appraisal issues in Denver

Asked by Chris Eisenhard, Denver, CO Thu Jul 5, 2012

Appraisals seem to be a joke now more than ever. My frustrations have come to a boil today watching my listing under contract at $173,000 come in at $163,000 while the same home down the street just appraised on a short sale at $180,000 and they are under contract at $175,000. I was able to get a hold of the appraisal on that deal and the difference is 100% the appraiser. Appraiser on my listing went back over 6 months and thinks late 2011 is the same market as today. This appraiser won't go over 1 mile to find comps. Their appraiser had 4 comps and the closest was 2.1 miles from subject!!

Tough to tell a seller we won't have a problem finding a buyer at this price, the issue will be who we will get for an appraiser. Appraisers aren't taking into consideration level of demand and could care less if the home had multiple offers above list price.

Has anyone been able to get an appraiser to come up on a low appraisal value? Seems like they dig their heels in and won't budge..

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Answers

16
We were recently surprised in Scottsdale by a few high appraisals. Seems the appraisers are finally recognizing the market is rising.
1 vote Thank Flag Link Thu Jul 12, 2012
Hello Chris,
Yes, there is a problem with appraisals these days.

With inventories running low, the first problem that will crop up is the absence of comps.

Before the changes were made - the most important one being that agents cannot choose their appraisers - the appraisals varied by thousands of dollars, and usually to the upside. Now, we seem to have the opposite problem. The appraisals seem to invariably come in low.

There should be some greater flexibility for the lender. Markets seem to be more uneven than they used to be. Someone might stage a home and attract multiple offers that bid the price up much higher than a comparable home down the street that wasn't staged. Of course, a finished basement in a home will appraise better. I sold a home in a neighborhood where all the comps had basements. The home I sold didn't have a basement.

In a rising market like the one we're experiencing, it seems particularly annoying to have to attend to the chore of making sure the appraisal comes in high enough. With so much activity, one wants to make hay while the sun shines and the appraisal can seem a petty annoyance.

Before getting your Irish up, though, check the facts. All measurements, numbers of rooms etc. should be recorded accurately. Lenders have been known to challenge the appraisal if there are problems, Amy Hoak of MarketWatch says.

Appraisers can overlook important additions like a granite kitchen counter or new cabinets. Amy also says it pays to be proactive. Make the appraiser aware of some facts like a sale made under duress (including divorces). You might have a good case for an adjusted appraisal if, say the appraiser came down from Longmont to Denver.

Good luck with that.

Best,
Suz
1 vote Thank Flag Link Thu Jul 5, 2012
Good answer my friend. I had an appraiser that came down from Longmont and appraised my South Park Hill listing $20K under value. We did a long and excruciating review process and somehow we got the value up and my clients were able to move to Milwaukee as planned. 'Thumbs up' to you...
Flag Thu Jul 5, 2012
I have had 2 recent appraisal issues as well. Its so frusterating. One home uc for $950 came in at $850 - the appraiser was so far off - the home was located in Hilltop and he only used one other comp from this neighborhood and it backed to Colorado Blvd. The others were in mayfair and montclair which are not comparable neighborhoods! I was so frusterated - he obviously doesnt know the area well enough to be doing appraisals. There was absolutely nothing we could do - I think egos get in the way and even if you send comps that are obviously better and correct, once the damage is done its irreversable. I think the only thing you can do is get a new lender and new appraisal and provide comps before they go out.
1 vote Thank Flag Link Thu Jul 5, 2012
0 votes Thank Flag Link Mon Oct 15, 2012
Cloud CMA and RPR are great resources in combatting the appraisal issue. I have experienced first hand this issue is here to stay.
0 votes Thank Flag Link Wed Sep 12, 2012
I share your frustration, Cory, and that is a great article from NAR. Lenders should view these appraisals with skepticism. It might be easier for their perspective if they had someone on board who could work with IRES when a question arises. The IRES system is only as good as the information it receives and it seems to do an excellent job of tracking what is going on in neighborhoods. Those who subscribe know that IRES provides the MLS and other services that track prices.

Cory, it's good to know that the NAR is there advocating for better appraisals and speaking up for us. Our opinions should carry some weight. We're in the best position to know what is happening at the street level. Thanks for your contribution.

Best,
Suz
0 votes Thank Flag Link Thu Jul 12, 2012
Interesting article from NAR about this issue: http://rismedia.com/2012-07-05/strong-independent-appraisal-…
0 votes Thank Flag Link Mon Jul 9, 2012
I feel your pain! One deal blew up last month because the appraiser would not go into Denver county (which is across the street). Instead he went west 5+ miles to get comps... unreal. It is Russian roulette with appraisals and we are in a changing market. Low inventory, raising prices (10% from last year), distressed vs normal are all issues much less the experience of the appraiser and knowledge of the local area. Frustrating.
0 votes Thank Flag Link Mon Jul 9, 2012
Hello Chris,
That is disappointing what you describe. Hang in there. I don't think you will make a lot of progress convincing the appraiser or lender that a ranch is comparable to a bi-level. However, you may have more luck with an argument that demographic trends favor ranches. The retiring Baby Boomers I encounter ask for ranches. Some don't even want basements.

Downsizing will be a word we use more in the years ahead because this huge demographic is headed into retirement. They're coming west. And, they want everything on one floor. No stairs, thank you, they say.

The basement square footage may not get as high a price as it would if it were at ground level. But the market may price it higher as ranches become more difficult to find.

Good luck.
0 votes Thank Flag Link Fri Jul 6, 2012
Your last paragraph is the closest indication of recognizing what is actually going on. Folks there's a 'fix' in and we're expected to remain silent and take a beating with a smile.

Quote:
"... they can select the pool of appraisers that are randomly selected ......incentive to bring homes in at value in order to continue to be included in the "selected pool".

You really need to see the appraisal order form from a variety of lenders. When you analyze the requirements imposed by the lender you can understand the 'fix.'

You are right, when a completed appraisal is challenged by the desk jockey or underwriter the appraiser gets, in their vernacular, a ding. A few dings and you find yourself in a much larger pool which means less work for that appraiser.

Do you have to courage to dictate to the buyer who is an acceptable lender? Do you have the courage to protect your seller and deny access to the home of a rogue inspector and appraiser? Do you REALLY think you have no options other than allow your seller, buyer and yourself to take a beating? Until we exhibit the courage required to collectively identify the LENDERS, we are relegated to a collective sharing of hapless attempts to recover from a train wreck.

Who are these lenders? Who are the appraisers?
0 votes Thank Flag Link Fri Jul 6, 2012
Thank you for the responses.

A few more thoughts -

**Subject property is ranch with full basement, completely finished on both levels. Appraiser used an ATTACHED single family ranch with no basement that took $22,900 in adjustments to get to the subject property comparison. He would not use bi-level homes that would have required $2,500 in adjustments to get to the subject property as he claims the market is drastically different for these two types of homes and you can never use a bi-level as a comp for a ranch. While I would agree with this statement if the ranch didn't have a basement, but it does, so what is the difference between this ranch and a bi-level : maybe 3 extra steps and 5 feet of elevation off ground level?????? I've seen appraisers use ranches with bi-level comps numerous times so why does his subjective opinion outweigh the hundreds of other appraisers out there willing to use bi-levels?

**Ultimately what this boils down to is the seller loses out b/c we got the appraiser we did. If we get the appraiser that appraised the property down the street for $180,000 I'm not writing any of this!! It's really sad when you take into account the financial loss the sellers takes on when an appraiser gives their subjective opinion on value and it comes in $10,000 low. Look at the chain of events that follows:

Seller goes from making $5,000 to having to bring $5,000 to the closing out of retirement funds. Probably can't sell the home now because of this...

Buyer is out the $450 they spent on the appraisal, plus the $400 they spent on inspection.

Seller is also out the $450 and $400 they spent on the home that they are under contract to purchase so they can do a same day close so they save the costs of moving twice.

AND both parties have to turn around and spend that much money again on different homes because this deal fell through!!!!

**One last thought: their seems to be a correlation between appraisals coming in at contracted value from appraisers who work for lenders on an "invite only" basis. I've been told by certain lenders that they select the pool of appraisers that get chosen to conduct their appraisals. Obviously they can't request the appraiser to do a certain appraisal, however, they can select the pool of appraisers that are randomly selected to do each of their appraisals. These appraisers it would seem would have the incentive to bring homes in at value in order to continue to be included in the "selected pool". Has anyone else heard of this or seen the correlation? It will be sad if this needs to become part of my questioning to lenders when a new offer comes in the door...
0 votes Thank Flag Link Thu Jul 5, 2012
Tons of good advice. I am going to chime in from a lender's perspective. I blogged about this a few months back.

The advice I would put out there is get the appraiser when they come to the house. Present them with the data you used to price your listing. Make sure you focus on homes as close in square footage, and within a mile of your listing (unless the neighborhood is unique like Central Denver). Make note of distressed sales around your listing (if yours is a private party sale).

Have your owner list out with receipts recent capital improvements. And explain to them what impacts and what doesn't impact value (I.e paint.... v. Granite over Formica). This is uber important if your seller is flipping a home (FHA, VA or FNMA).

Now when \ if you get a call saying the value came in low, and you did all of this upfront, work with the buyers agent and lender to talk through the lender to the appraiser if you want to dispute the value be very specific and prepared. As example saying values are higher because there were multiple offers doesn't warrant a change in value.

In my opinion it is our duties as lenders, and agents, to be prepared to do all of this. I recently have not had problems like I did this earlier this Spring. Why? Read on

I work with mainly buyers, and also do refinances by referral or web calls. My refinances come with thorough analysis upfront for my client on potential value with an appraisal. Three clients in the last week have received appraised values higher than anticipated, not once lower. On recent purchases we have gotten appraisers to analyze additional data, and yes, revisit value. Earlier this week, I was able to work with my underwriter by getting a seller to provide actual receipts on his flip. The underwriter took the data, and waived a review of the appraisal, even though it was selling for 35% more in 45 days.

All I can say is it starts with us, and being prepared. Maybe i work harder, but hey, it keeps deals together.

Be prepared, be thorough, and God speed

To your success-

Ray Williams
Branch Manager
Summit Mortgage Denver
303-779-0591
Web Reference: http://www.fhacolorado.org
0 votes Thank Flag Link Thu Jul 5, 2012
Chris Eisenhard,

This has become an issue in Denver in particular. The market has changed so rapidly the appraisers have not caught up yet. They are also under the gun by the commission with heavy scrutiny. The other problems is sometimes the bank underwriters appraisal review. There are some established appraisal review procedures that the lender can help with. It requires having the Listing Agent bring in comps to justify the price. I have had success with this before even with FHA loans. Even the Buyer's Agent helped with comps and support since the appraised value was so far off.

A good thing these days as a Listing Broker is to meet the appraiser at the house at the time of the appraisl and try to develop a repoire and bring coms (and doughnuts). I wrote this recent report about the state of the appraisal industry in Colorado - http://j.mp/Jm10WF . You must act quickly and efficiently especially if it is an FHA appraisal. Once the appraisal is completed and assigined a number at that address, it can't be reappraised for 6 months.


Robert McGuire ASR
Broker/Consultant
Your Castle Real Estate
1776 S. Jackson St. #412
Denver CO 80210
Direct – 303-669-1246
http://theRobertMcGuire.com
0 votes Thank Flag Link Thu Jul 5, 2012
A few things: 1) agreed, the listing agent absolutely must meet them there and answer questions and hand them comps, they should know their territory and what the low comps are and have good and valud data and WHY those homes aren't good comps; 2) if a buyer's agent, ask the LA to do this (I cannot believe on my 2nd problem, I just assumed this was happening, my bad); 3) you CAN request from the bank that "Appraiser must have recent experience in XXX neighborhood" - I've had luck with this.
0 votes Thank Flag Link Thu Jul 5, 2012
Chris - SO feeling your pain about lazy appraising! In 11 years, I never had an appraisal issue (even in hotter markets than this). Now this month, I've had 2! The first was actually not the appraisal itself but a "Desk Review" sent out to some dude in a completely different market who went back more than 6 months, as well, plus had no concept that where he was appraising was an appreciating market (as opposed to where his desk is, which is a crummy one). JUST yesterday had an appraiser who used November 2011 and January 2012 comps b/c I have to assume they were "easier" with less adjustments needed, rather than take homes that needed adjusting but were MUCH higher b/c they sold within the past 6 months. "Not that I am an appraiser," but my CMA comes in at a 15%+ difference from his (and I even used his adjustment #s, so I know if he had done a little more work, he would have been in my realm). We got the first one to go through, and am in the middle of a bank review of impropriety on the 2nd.
Those who can't, Appraise...
0 votes Thank Flag Link Thu Jul 5, 2012
Hi Chris, I'm currently having the same problem. So far I have not been able to get an appraiser to come up in value after the fact, even with multiple offers? I always try to meet them with real time information or send them my CMA before they even visit the property.........along with any emails or offers that were submitted. I'd like to think that this has saved me from a few low appraisals anyway. All of this may be a knee jerk reaction and fear on the part of the appraiser. I'm starting to think as if they are being instructed to appraise low???

I feel your frustration, the only thing I can say is that your seller(s) should be prepared for it and have plan B in your back pocket.
0 votes Thank Flag Link Thu Jul 5, 2012
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