Look at the link below. It goes over this general questions.
(I know the question was posted a few months ago, the concept deserves renewed viewing)
"I have had transactions with realtors who meet the appraiser over at the property with their own comps prior to the appraisal taking place. As the buyer's agent, I am curious to know what other realtors think of this practice. I am wary of this as it compromises the unbiased opinion that the appraiser is supposed to provide."

http://www.trulia.com/voices/Agent2Agent/Any_thoughts_about_…

Appraisal is not rocket science. With rocket launches, it's life and death if you miss the target by a decimal or a digit. A lot of appraising is a combination of art and science. Give them the purchase contract and the appraiser will be biased toward it. Don't give anything to two appraisers and let them run around doing anything they like, they will come back with different figures- but they should be pretty close to each other- if not, how do you justify their profession/fees? On the other hand, if two appraisers are working with two different sets of data (your appraiser who only sees the outside and the bank's appraiser who sees both inside and outside and sees the purchase contract), their appraisers will vary more... I hope you are now moved in and enjoying your new home. In Cypress, CA real estate sometimes the homes don't come around often enough and you should be lucky to have found one you can afford and you won out in a competitive bidding situation...

Deep River - EXCELLENT Summary !

Some clarifications from a lending perspective:

"It's not unusual for the mortgage broker to provide the appraiser with a copy of the purchase contract. (I don't think they should, but my opinion doesn't count!) "

Appraisers are required by USPAP (the nat'l appraiser code) to review purchase contracts. Banks and direct lenders must supply it as well.

"Remember, the mortgage broker has an interest in getting this appraised for the amount that you offered."

So does a bank and direct lender.

"Not all appraisers will use the same comps and sometimes you will see a slight variation in valuation as you discovered in your experience, but this is not altogether uncommon."

Perfectly correct.

"99% of the time the appraisal will come in at exactly the price of the offer as Vicki pointed out. "

Also perfectly correct. In fact, although I am not an appraiser, I am usually within a couple of grand in guesstimates just from reviewing the same sales comps as an appraiser. Additionally, if a home is listed by a Realtor, the realtor has likely done the same market estimate that an appraiser would perform.

"The appraiser you hired just did a "drive-by" appraisal. I'm not convinced that this is a valid price, since the appraiser didn't measure the property or view the amenities inside. These are important. ..."

Also important. Drive-by appraisals and AVMs, in my experience, have been a highly unreliable means of determining fair market value. I've seen many AVMs that are absolutely ridiculous. Most lenders won't accept either as a basis of value.

"The scale of the current FBI investigations in the news tells you that it's not unheard of for appraisers to fluff up a sale to make sure they get called back. "

An important point. Earlier this year Washington Mutual Bank cut a deal with the State of New York to avoid prosecution on nearly 250,000 (allegedly) fraudulent appraisals over the past seven years in New York state. The State AG released e-mails subpoenaed from WAMU and the appraisal management company that had them cold on influencing value.

Some conclusions:
1.) The short sale value of $370K didn't come out of thin air... but had to be proven to the seller's mortgagee(s) by an appraisal.

2.) Although you ordered your own appraisal, the lender can only accept an appraisal ordered by it or its representative (in this case the broker). All appraisals are subject to lender review for accuracy.

3.) There is no way to determine which appraisal of the three (agent's BPO, broker 1004, buyer's 1004) is best without comparing the comps side by side (as pointed out below). Factors to consider are sales dates, distance from subject, and how close the adjustments for value are to maximums recommended in one of the appraisal guides.

4.) If the appraisal ordered by the broker is accepted by the lender's compliance review, other opinions of value have no bearing on the underwriting decision... unless you want to wreck the approval by supplying information that would call in to question the broker's appraisal.

I would not purchase a property above asking price in this market unless you know for a fact that it is worth more than the asking price AND you are absolutely in love with it. Chances are, there are a bunch of properties that meet your needs and wants available.

Jeremy Lehman
Century 21 Beachside Realtors
Jeremy@LehmanHomes.net http://www.LehmanHomes.net (Start your home search here)

I think that even a small possibility that you are getting taken for nearly $50k justifies an independent appraisal. The scale of the current FBI investigations in the news tells you that it's not unheard of for appraisers to fluff up a sale to make sure they get called back. I'm not saying it's a case of fraud (before people jump down my throat acting like all agents are innocent) but for $47,000 I'd sure be looking into it.
It's not the fact that the appraisal came back exact that worries me, it the fact that its off by over 10%. That's gotta be a nice countertop for $47,000.

I agree with Vicki and the others who have answered this question. There are a couple of other aspects that need to be considered, however. If the appraisal from your mortgage broker had come in lower, then the lender would not have lent you the money to purchase the property at the agreed-upon price. Then it would have been subject to renegotiation of the price. The seller could have gotten his own appraisal which might have come in at a different amount. The comparables used are important, and can influence a different price from different appraisers.

The appraiser you hired just did a "drive-by" appraisal. I'm not convinced that this is a valid price, since the appraiser didn't measure the property or view the amenities inside. These are important. An accurate measurement can have an effect of the price (if the property is larger or smaller than the comparables used, an adjustment needs to be made by the appraiser). Similarly, if the home has significant upgrades. such as granite counters, wood and/or marble floors rather than carpet and just tile, crown moldings, upgraded plumbing fixtures, etc., these will also influence the value of the property.

As others have stated, if you plan to be in the property for a number of years (5-7 at least) you don't need to worry too much. The real estate market is cyclical. It's down now, but it will go up again. And if you like the home, go for it.

Anthony, You are paying for both appraisals so you should ask to see them. Look at which comps each appraiser used. Without a doubt the properties will be different. You, along with your agent and mortgage broker should review them (for your own peace of mind) to determine if they were "ok" or not. Ask your appraiser why he/she used the comps they did and ask the mortgage broker to do the same. Are you really looking for a reduction in the price from what you offered? Or are you looking to walk-away from the purchase? 99% of the time the appraisal will come in at exactly the price of the offer as Vicki pointed out. Sometimes an appraiser from out of the area won't know exactly where to look for comps if teher are not any in the immediate vicinity or within the last 5-6 months. Local appraisers will know exactly which direction to look when they have to expand the area for comps. You could have 10 appraisers look at the property on the same day and you will get 10 different opinions of value. At the end of the day, if there were multiple offers, you won with the bid you offered, and love the property it's your deceision to move forward or not. Talk to your Realtor, she/he is a great resource and wants to do what's right for you and you alone. Best of luck in your new home.

David,
Thank you for your input. The difference between $407K (appraiser from my mortgage broker) and $360K (the appraiser that I hired) is substantial $47K. How can they be far apart ?


Vicki,
Thank you for your input. I looked at past sales, pending and active listing and most of them are below the 400's I really think that it's worth somewhere in the 380,000ish. But we really love the property. My agent is actually out of the cypress area she is from the san fernando valley (about 50miles away) at first she said it was in the 350K-370K then she said she thinks it's in the 390K.

You shouldn't worry too much about it. This happens on many purchase transactions. Although I am not a professional appraiser, my experience as a Mortgage Consultant working with many appraisers has taught me that they work very hard to make a professional opinion regarding the market value of a property and they take into account the condition of the property and comparable properties nearby. Your offer on the property is part of what is considered "the market" if it is within the nearby comps and many times the value will end up at what you are offering unless the comps will indicate a higher amount.

Not all appraisers will use the same comps and sometimes you will see a slight variation in valuation as you discovered in your experience, but this is not altogether uncommon.

It's not unusual for the mortgage broker to provide the appraiser with a copy of the purchase contract. (I don't think they should, but my opinion doesn't count!) Remember, the mortgage broker has an interest in getting this appraised for the amount that you offered. That appraisal is for the protection of the lender's interest in making the loan, and is not for your protection.

How do you feel about the value? Is it worth (to you) the $407K that you offered? Did your agent run comps and justify that value to you?

If you love the home, and can afford the payments, don't worry about the appraisal. If you are planning to stay in the property for 5 - 7 years, you will be ok. The important thing is to buy the house that fits your needs, wants and budget. An appraisal is really an opinion of value, and it would be very rare for two appraisers to find the exact same value without knowing the target that they are aiming for.