Useless Appraisal

Asked by K. Johnson, Almaden, San Jose, CA Thu Mar 13, 2008

I just bought a foreclosure (REO) in San Jose. I know that I paid below market value for the home. The home was beautifully remodeled by a contractor that was planning to flip the house, but ran into financial difficulty. My lender did an appraisal and it was comical how they appraised it for my exact purchase amount. The comps. were all much higher than the house, so the appraiser reduced the value of the comp homes so that they would exactly match my purchase price. To me, this is a useless document. Well, not completely in that my lender gets a document that shows that they can secure the loan and the seller (the bank) gets a document that shows that they didn't except a price below market value.
So, why bother with a useless, incorrect appraisal?

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14
;, , Riverhead, NY
Mon Mar 17, 2008
BEST ANSWER
We just posted links to an article re. changes in appraisal practices. While I don't expect things to change overnight, at least there is enough concern about the ethics of appraisers/banks to initiate some guidance. There are links in the article re. the changes being implemented. Site is below.
Web Reference:  http://optionsrealty.com
1 vote
Jason Willia…, , Anaheim, CA
Thu Mar 13, 2008
Their job is not to make sure that the loan is secured, their job is to come up with an independent opinion of value. The appraiser shouldn't even know the loan amount. Another thing is there is no "stopping" while doing an appraisal, the value of the property is not known and correctly documented until the appraisal is complete. Many appraisers that are in the business now are using their licenses to make sure loans go through instead of actually doing their job.
2 votes
Jason Willia…, , Anaheim, CA
Thu Mar 13, 2008
You should report the appraiser. I tried getting into appraisals a little over a year ago, but was tuned off at how unethical other people expect you to be.
2 votes
James Gordon…, Agent, Hamilton, OH
Thu Mar 13, 2008
You are right it is a completely useless document. They appraised the contract not the house! I just had one that came in 300.00 over purchase price for one of my clients. The only problem was that the appraiser missed the basement under the home and deducted 15,000.00 from the comps to make up the value.
I told my client that I had just made him another 15,000.00 because I found the error. By the way this home was sold new 2 years ago for 188,000 and my client purchased it for 136,000 in move in condition.
Web Reference:  http://www.Find1Home.com
2 votes
Jack, , Nesconset, NY
Tue Mar 18, 2008
I was an appraiser for 15+ years. Although there are some bad apples, the majority of appraiser's are ethical. It is extremely common for a homeowner or other user of an appraisal to complain about issues that they aren't knowledgeable of. Without seeing your appraisal it's impossible to tell but there are several issues which are considered when valuing a property such as market condition, listing history of the subject ie: days on market, list price, etc. In a case where the market is declining the value will come in lower than than comp sales available. In a case like this current available listings are considered as they are the best value indicators in a declining market. It is also common for an appraisal to come in at or near a sales price. If the property was properly marketed based on the typical marketing time for the area this should be the case as exposure to the market determines value. The only time an appraisal would likely come in significantly higher than the selling price is in a quick sale situation, is: the subject sold within 30 days on the market. This would likely represent a seller looking to sell quickly or incorrect pricing. We all know there are bad apples in every industry. It's funny how everyone likes to point a finger when the market turns. I wouldn't purchase a home in an area blindly based upon a lenders appraisal only. I think most people have an idea of the price of homes in the area they want to purchase. If something seems out of whack with your transaction then it may be. It's our job as responsible consumers to do enough dilligence to be comfortable with any purchase. Especially the biggest purchase of our lives.
1 vote
Realtor, ,
Thu Mar 13, 2008
K, an appraiser will never go more than $5k over the amount that you are purchasing the home for, especially since this is a purchase. You can get another appraisal now that you own the home and get an accurate evaluation. Good luck.
1 vote
Chris Warmuth, , Spokane, WA
Thu Mar 13, 2008
Mr. Johnson,
Why appraisers do this is very confusing to people, however, all they are doing is once they have met the value that the purchase amount is for they stop. They stop because their job is complete and they have "justified the amount of the loan to the lenders" so they know they have a secured debt should you default. If you were to get an appraisal not related to you purchasing the home or a home equity loan, you would then get a true and concise appraisal based on your homes actual and complete value. The bummer is you have to pay for another appraisal to do so, seems goofy I know, but I hope this helps to explain things for you. In this situation, the appraisers job is to simply justify the loan amount to the lenders. Best of wishes and thanks for the question! Most Sincerely, Chris Warmuth Windermere/North Spokane, WA.
1 vote
Roland Barcos, Agent, San Jose, CA
Thu Mar 27, 2008
Hi K,
I guess I don't see that problem here. The appraisal came in at the sales price, so the bank accepted the appraisal and granted the loan. That sounds very useful to me. I don't know of any advantages to having a higher appraisal, but I can think of a big disadvantage. The county tax assessor usually uses the actual sales price to set the assessed value, but this is not required. Santa Clara Co. has appraisers on staff, so I don't think it is in your best interest to encourage them to perform a "more accurate" appraisal.
Congratulations on your good investment.

Roland
0 votes
Katie, Home Buyer, San Jose, CA
Wed Mar 26, 2008
What if the appraisal comes below the price you are willing to pay for the house?Can an appraiser make a big mistake on the square footage of a house???
Thanks
0 votes
Andrea Wince…, Agent, Milpitas, CA
Tue Mar 18, 2008
Real property value is market value. The market value is basically the price that somebody is willing to pay for it. The appraisal came in at the price that you were willing to pay for it. Now if someone is overpaying compared to market value, their appraisal may come in low. But guess what? Now your purchase price becomes a new "comp". This new price is documented and will be used to valuate other properties in your neighborhood in the future. The fact that your home was purchased "unfinished" by the previous owner will be taken into consideration, thus considered "condition". So don't feel bad that your appraisal was useless because it wasn't. Appraisals are a necessary formality in the loan process. Enjoy your new home and feel good that you got a good deal. Kind regards.
0 votes
Hi, , Virginia
Mon Mar 17, 2008
hi K,
First, make sure your job is recession proof.

good luck
0 votes
Realtor, ,
Thu Mar 13, 2008
$745 !!!! Why so much????? An appraisal runs between $300-$450 at the most. K, you don't mention whether or not you used an agent to purchase this home.
0 votes
Andrea Wince…, Agent, Milpitas, CA
Thu Mar 13, 2008
In my experience, appraisals have usually come in at the purchase price. Only once, I had one come in $25k less than purchase price and that was a real bummer. And once, I had one come in $20k MORE than the purchase price so that was real good. Keep in mind, if you don't like how an appraisal turned out, you can always get another one but be prepared to pay for it.
0 votes
Dot Chance, Agent, Burbank, CA
Thu Mar 13, 2008
First of all, congratulations on your new home purchase! Without seeing the appraisal and without looking up the comps myself it is hard to comment. It is true that more times than not an appraisal comes in exactly at value (the price offered for the home.)

Possibly, (I'm not sure on this) the appraiser went ahead and took a certain percentage off the top if you are in a declining market.

Any appraisers out there that would like to comment?
Web Reference:  http://www.DotChance.com
0 votes
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