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Appraisers - Good? Bad? Do we need them?


hausdok
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How about those appraisers? The clients have their heart set on a home, the inspection shows that the home is in pretty good shape. Everyone - including the buyers feel that it's a fair price and then the appraiser comes in and figuratively pulls the rug out from under the buyers, because the home isn't, in the appraiser's opinion, worth the price.

Then there's the realtors who I've heard say, when the client nervously asks what's going to happen if the house doesn't appraise high enough, "Don't worry about it. This mortgage broker will make sure that it does." What's up with that?

OT - OF!!!

Ed.

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Originally posted by Paul Burrell 12/10/2005 and moved here.

Excuse me if I sound a little hostile towards mortgage brokers but it is only because I am. As a past certified real estate appraiser (inactive) I know how they are. Not all of them but far to many. I have money owed to me by brokers that I will never get from the scum excuse me I meant broker.

OK I feel better now,

Paul Burrell

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One of my firefighters is an appraiser and we have had this discussion. When I start up about people (selling realtor and seller) complaining about me writing things up, that is viewed as "picky". I feel they don't understand what I do and that my interest is only in making sure my client knows all there is to know about the house. My Firefighter will always start telling me about the pressure he is under from all sides of the deal, when all he is doing is reporting what the data tells him.

I think that you could plug the word inspector in place of appraiser and that is probably how other people talk about our profession.

I'm not defending the appraisers, but, I definately see how we are misunderstood so I'm sure there is some misunderstanding about what an appraiser does.

I do realize that if our client wants he can still buy a house that we find all kinds of problems with and the appraisel can actually prevent a sell.

Buster

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Originally posted on another thread by Brian G. 12/10/2005 and moved here.

Originally posted by paul burrell

Excuse me if I sound a little hostile towards mortgage brokers but it is only because I am. As a past certified real estate appraiser (inactive) I know how they are. Not all of them but far to many.

Yep, been there and done that too Paul. The subject of preventing bankers and mortgage brokers from making their clients accept package deals (the appraiser, home inspector, etc. they want you to use) has come up a time or two, and many HI's don't understand what a God-awful choke hold those people have on most of the appraisal community. They make realtors look like pikers when it comes to sticking together to lock out "uncooperative" outsiders.

Brian G.

Also "Inactive" in That Field

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Originally posted on another thread by Kurt on 12/09/2005 and moved here.

I guess I'm a little curious why appraisers think they're above the transaction(?). I mean, it is a free market economy, & if a buyer is willing to pay a certain fee, why isn't the property worth what the buyer's are willing to pay? I get the idea that there are "limits", but they're pretty subjective. When I was building homes, I can recall more than a couple times when we built a good house, the buyer was fine w/the price, the bank was ready to go, and then we'd get some dimbulb appraiser who would tell us "no, the house isn't worth that".

IOW, appraisals are a pile of subjectivity. Inspections, OTOH, are not; they are (or should be) based on science, fact, safety, or other similarly measurable condition. If appraisers are in a stranglehold by mortgage brokers, so what?

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Originally posted on another thread by Brian G. on 12/10/2005 and moved here.

Originally posted by kurt

I guess I'm a little curious why appraisers think they're above the transaction(?).

They're not above it, but like HI's they're supposed to be outside of it (i.e., not facilitating for referrals).

I mean, it is a free market economy, & if a buyer is willing to pay a certain fee, why isn't the property worth what the buyer's are willing to pay?

Because only an unsophistocated buyer would be willing to give much more than anyone else is paying for similar properties in the area. Many buyers are unsophistocated. Just because some eager beaver is willing to pay $15,000 too much on a starter house doesn't make it real.

I get the idea that there are "limits", but they're pretty subjective. When I was building homes, I can recall more than a couple times when we built a good house, the buyer was fine w/the price, the bank was ready to go, and then we'd get some dimbulb appraiser who would tell us "no, the house isn't worth that".

When appraisal is done with no regard for the deal it isn't all that subjective. One finds the most similar properties available from recent sales history and runs the numbers (hard data). Some of it is subjective, mostly in the "adjustments" for basic differences in the subject property and the comparable properties (subject has a nice deck, Comp 1 doesn't, you add "X" amount to the value of the subject, etc.). If you went into a crummy neighborhood and built a house that would be worth $150,000 in one of the local suburbs it isn't going to be worth the same in the crummy neighborhood. It doesn't matter how well built it is if it's out of line with the larger economics (sad to say). The builder and the banker have a profit motive, of course they're fine with it.

IOW, appraisals are a pile of subjectivity.

Not so much as you think, but it's certainly true that anyone who understands the process can manipulate the numbers significantly. Not honestly you understand, but in much the same vien as any smart HI can soft-soap the hell out of a property if he wants to.

Inspections, OTOH, are not; they are (or should be) based on science, fact, safety, or other similarly measurable condition.

Should be, yes, and are if done honestly and professionally. Appraisal isn't much different.

If appraisers are in a stranglehold by mortgage brokers, so what?

The long-term result is that most appraisals aren't worth the paper they're written on, IMHO. The bank / mortgage people have largely succeeded in subverting that part of the process into a rubber stamp party, by closing ranks to starve-out anyone who doesn't play ball. Now they want to package the appraisal, the home inspection, the termite inspection, etc., for the "convienience" of the buyer. What kind of HI do you think they'll want? One who digs for the facts and tells it like it is, or one who keeps it light and doesn't rock the boat? If anyone thinks it's the former, they need a reality check. They'll be just as effective at shutting out honest HI's. People will get screwed over and we'll be among them.

Brian G.

I Call Appraisal My "Lost Year"

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Originally posted on another thread by Kurt on 12/10/2005 and moved here.[/b][/size=1]

Originally posted by Brian G.

If you went into a crummy neighborhood and built a house that would be worth $150,000 in one of the local suburbs it isn't going to be worth the same in the crummy neighborhood. It doesn't matter how well built it is if it's out of line with the larger economics (sad to say).

I'm glad I can fast forward to where I really wanted to go w/this......

Pardon my calling things as I see them, but that approach is part of the root of racist attitudes in this country. Much of Chicago is being rebuilt because builders are going into hard core gangland & building nice homes & sticking their necks out; how wonderful of appraisers to come in and tell all these fine folks that their house isn't worth much because, ahem, the neighbors are black.

If that's where appraisals take us, screw appraisals & appraisers. They're more than worthless; they're evil.

Kurt

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Originally posted by rlskfoster on another thread 12/10/2005 and moved here. Ed.

I just want to point out that most builders that go into "disadvantaged" nieghborhoods are'nt doing it out of the goodness of their hearts. There is significant incentives to try to reclaim blighted neighborhoods. Most are city, state and federal programs to help those that can't(or in more cases than we like to admit-won't) help themsevlves to a better life. In other words your tax dollars at work.

I may sound like I'm complaining,but, I'm really glad to see it. I've spent the last 17 years working in a "disadvantaged" area of Fort Worth, Texas called "Stop Six" and "Poly". About ten years ago the city started partnering with businesses to relocate to this area. It has been a great success and in the last five years the new houses started to follow filling vacant lots and actually starting whole new developments.

Our run totals (I'm a fireman) are trending down as quality of life improves in this area.

BUT, the houses still are'nt worth as much as in my own personal neighborhood.

And yes the Stop Six neighborhood is predominately black and hispanic. I'm white.

Buster

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I'm glad I can fast forward to where I really wanted to go w/this......

Pardon my calling things as I see them, but that approach is part of the root of racist attitudes in this country. Much of Chicago is being rebuilt because builders are going into hard core gangland & building nice homes & sticking their necks out; how wonderful of appraisers to come in and tell all these fine folks that their house isn't worth much because, ahem, the neighbors are black.

They aren't worth less because the neighbors are black. It wouldn't matter what race the neighbors were, the house would be worth less because all of the properties around it would be worth less. If the neighbors are poor white people, is it still racist?

Tying to rehabilitate run-down sections of town is admirable, but it's also driven by economics. When property values get low enough that a builder can afford to buy AND either remodel or scrape off and start over, they can make it work. If those values were held artificially high nothing would happen.

If that's where appraisals take us, screw appraisals & appraisers. They're more than worthless; they're evil.

I can't go that far, but considering that so many have bowed to the pressure rather than fought or walked away with thier pride, my overall opinion of appraisers is not good right now. In their way I'm sure some are evil, much like shoddy, crooked builders or parasitic lenders. The evil is in the person, not the occupation. C'mon Kurt, you know that.

You'll be happy to know a number of big secondary market lenders (including Fannie Mae & Freddie Mac) are working towards eliminating appraisals as we know them. They're angling towards "mass appraisal", where they simply use existing market data to come up with a range of value without ever leaving the office. There'll still be limits, but no formal appraisal. The other factor they want to lean on a lot more is the credit history of the buyer.

Brian G.

Former Evil Appraiser From Hell!!! [:-dev3]

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Originally posted by rlskfoster

My Firefighter will always start telling me about the pressure he is under from all sides of the deal, when all he is doing is reporting what the data tells him.

I think that you could plug the word inspector in place of appraiser and that is probably how other people talk about our profession.

You've pretty much got it Buster.

Brian G.

Next I'm Gonna Be a Realtor [:-dopey]

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How can a roof leak/rotten beam/non-fuctional heating system reportage be compared to a subjective appraisal on a commodity w/a value that fluctuates w/market forces?

IOW, there ain't no similarity. None. If a roof leaks, it's leaking & will continue to leak until someone fixes it. If a property is given a value when interest rates are 6%, and then rates go to 10%, the property is not worth what the appraisal said when rates were 6%.

Realtorzoids attempt to make the inspection report a subjective bit of analysis, but for the last several years, my customer base isn't going for it. They understand that stuff that's broken stays broken; it doesn't fluctuate.

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Originally posted by hausdok

How about those appraisers? The clients have their heart set on a home, the inspection shows that the home is in pretty good shape. Everyone - including the buyers feel that it's a fair price and then the appraiser comes in and figuratively pulls the rug out from under the buyers, because the home isn't, in the appraiser's opinion, worth the price.

Then there's the realtors who I've heard say, when the client nervously asks what's going to happen if the house doesn't appraise high enough, "Don't worry about it. This mortgage broker will make sure that it does." What's up with that?

OT - OF!!!

Ed.

Appraisers are either State licensed or State Certified and are obligated to appraise the home for what it is worth not what someone says it is worth. This being fair market value which is determined by what "like" homes in the area are selling for usually within a mile of subject home. The appraiser does not snatch a number out of the air and come up with an opinion and price.

After driving around and photographing "like" sales in the area that have sold in past six months, usually three and up to six if needed and then searching public records online or at the local board of realtors, or courthouse or any where else they can get the information needed to derive a fair market value for the subject home. Then the information is put on what is called a grid and analyzed and the appraiser comes up with a fair market value for the home after analysis of the comparable sales. I won't explain now how the comparative analysis works it will take another hour of typing.

By the way like homes are worth what they (the public) are paying for them not what they are listed for or what a seller wants for it. This and this alone is what drives real estate sale prices. The market has a mind of it's own the appraiser has nothing to do with it except to determine current "fair market value"

Now let's get to the mortgage broker/appraiser relationship and this includes why I quit the appraisal business over 15 years past never to return. Appraisers do not get jobs from the home buyers. They get their job orders from the mortgage brokers. This one statement should turn on the lights.

An appraiser must be on the brokers "approved list" to get any jobs. It does not take an Einstein to see the conflict of interest in this setup. If the appraiser does not play ball he does not get jobs and his family gets hungry. I have had brokers tell me that they play by the golden rule. We have the gold so we make the rules. Mortgage brokers having this control over appraisers is like putting the fox in charge of the hen house literally. I wasted 3 years of my life in denial before I realized that my self respect was suffering and on that day I quit the business.

Why do we need appraisers. Because there is no lender in the USA that will lend money for a mortgage on a home without an appraisal report on the home by a licensed or certified appraiser.

OK I feel better now.

Regards,

Paul Burrell

State Certified Real Eastate Appraiser (inactive and gonna stay that way).

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Originally posted by kurt

How can a roof leak/rotten beam/non-fuctional heating system reportage be compared to a subjective appraisal on a commodity w/a value that fluctuates w/market forces?

You don't have any subjective report items? Ever? "I think what's going on is *this*, but I can't be sure without someone doing an invasive inspection" type of thing? If you don't, you must be the only HI alive that can say that.

And again, appraisals are based mostly on actual recent sales of actual similar properties. Hard numbers from real life.

IOW, there ain't no similarity. None. If a roof leaks, it's leaking & will continue to leak until someone fixes it. If a property is given a value when interest rates are 6%, and then rates go to 10%, the property is not worth what the appraisal said when rates were 6%.

Er...no. The interest rates affect how much the financing will cost, not the sales price or property value. One similarity is that both will likely ruffle some feathers if they're done honestly and competently.

Realtorzoids attempt to make the inspection report a subjective bit of analysis, but for the last several years, my customer base isn't going for it. They understand that stuff that's broken stays broken; it doesn't fluctuate.

They try for that here too. When it's a fuzzy area they really howl, but I don't soften my position. If the client goes ahead I want the hammer to be hanging over their head, not mine. [:-wiltel]

Brian G.

Mr. Picky, The Deal Killer, That #@&%$* Home Inspector, Etc. [:-dog]

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Originally posted by Brian G.

Originally posted by kurt

[navy]Er...no. The interest rates affect how much the financing will cost, not the sales price or property value.

Er,.....yes. Folks in real estate development figured out some long time ago that median income levels tend to dictate sales prices; when a particular mass of population can afford a $249,000 home, the mass of new homes in that area is $249,000. The same thing goes for any particular market. The majority of houses in any particular neighborhood all reflect a consistent price structure based on median income levels for these neighborhoods.

Thinking that interest rates only effect the cost of financing is a novel idea, but naive. You honestly think that interest rate fluctuations will not effect median sales price?

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Originally posted by kurt

You honestly think that interest rate fluctuations will not effect median sales price?

Median sales price? Since I've never been in RE sales I think I'll stick to what I know about. Let's revisit your original statement.

If a property is given a value when interest rates are 6%, and then rates go to 10%, the property is not worth what the appraisal said when rates were 6%.

That just isn't the case. The prevailing interest rate is not a factor in determining property value. Ask any appraiser.

Say a given house is appraised at $200,000 which means a monthly payment of $1000 based on the interest rates at the time. A month later the same house is still on the market but rates have moved up, so now the payment would be $1200. Less people can now afford the house, but the value doesn't change. Even if the seller lowers the price so more buyers can reach it, the appraised value is still the same.

Brian G.

Mortgage Rich, Cash Poor [:-weepn]

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Originally posted by paul burrell

Why do we need appraisers. Because there is no lender in the USA that will lend money for a mortgage on a home without an appraisal report on the home by a licensed or certified appraiser.

To me, that would seem to be the main reason, and quite understandable. The lender needs to know that they will be able to recoup their money should the buyer default. You can’t blame them for that, and it’s probably one mechanism to keep mortgage rates reasonably near the prime rate. In the case of a mortgage the appraisal is mostly to protect the lender. It “feelsâ€

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Originally posted by Brian G.

Originally posted by kurt

The prevailing interest rate is not a factor in determining property value. Ask any appraiser.

Say a given house is appraised at $200,000 which means a monthly payment of $1000 based on the interest rates at the time. A month later the same house is still on the market but rates have moved up, so now the payment would be $1200. Less people can now afford the house, but the value doesn't change. Even if the seller lowers the price so more buyers can reach it, the appraised value is still the same.

Brian G.

Mortgage Rich, Cash Poor [:-weepn]

So, you actually believe that appraisers are the folks establishing value? And, that values exist completely independent of interest rates?

Ummmmm, OK, I'm through.....

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Originally posted by Richard Moore

Appraisers - Good? Bad? I'm sure there are both. Do we need them? Yeah, I'd say they are necessary.[/i

Basically, yes to what you said. I have no opinion on good or bad, but they are marginally necessary if only to have someone go on record that a property is there and that it is a certain condition. The idea that they establish value or price has almost no basis in reality; I mean, this whole thread started w/ the idea that appraisers are owned by the mtg. brokers & realtors who dictate price. Right?

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Originally posted by Richard Moore

Originally posted by paul burrell

Why do we need appraisers. Because there is no lender in the USA that will lend money for a mortgage on a home without an appraisal report on the home by a licensed or certified appraiser.

To me, that would seem to be the main reason, and quite understandable. The lender needs to know that they will be able to recoup their money should the buyer default. You can’t blame them for that, and it’s probably one mechanism to keep mortgage rates reasonably near the prime rate. In the case of a mortgage the appraisal is mostly to protect the lender. It “feelsâ€

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Originally posted by kurt

So, you actually believe that appraisers are the folks establishing value?

No, the market determines value. Appraisers are supposed to be accurately interpreting the market data as it relates to any given property.

And, that values exist completely independent of interest rates?

That's not what you said. You said the appraised value of a house would change if the interest rate went up (or down). Not true.

I have no opinion on good or bad....

Coulda fooled me. [:-dev3]

Brian G.

Just a Fool For You Kurty-Baby [:-jester][:D]

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Originally posted by paul burrell

Also Brian stated that interest rates do not alter the sale price it only elimates or adds prospective buyers in specific income levels. Lenders use what is called an income to mortgage cost ratio. This ratio determines if the buyer can afford a home in a specific price range not the interest rate.

Paul, doesn't the interest rate directly affect the mortgage cost in a big way? Wouldn't fluctuations up and down have the effect of eliminating or adding prospective buyers for a specific property?

And congradulations on getting out rather than living as a toadie. [:-party]

Brian G.

May Be Starting a New "AA" (Appraisers Anonymous) [:-paperba

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Originally posted by Brian G.

Originally posted by paul burrell

Also Brian stated that interest rates do not alter the sale price it only elimates or adds prospective buyers in specific income levels. Lenders use what is called an income to mortgage cost ratio. This ratio determines if the buyer can afford a home in a specific price range not the interest rate.

Paul, doesn't the interest rate directly affect the mortgage cost in a big way? Wouldn't fluctuations up and down have the effect of eliminating or adding prospective buyers for a specific property?

And congradulations on getting out rather than living as a toadie. [:-party]

Brian G.

May Be Starting a New "AA" (Appraisers Anonymous) [:-paperba

Brian you are absolutely correct I thought that is what I tried to convey in my statement. If rates go up it elimates some buyers in a specific price range if the rates go down it allows buyers with lower income to buy a more expensive home. The interest rates have nothing to do with the price of the home. The income, debt ratio to mortgage cost is what qualifies a buyer to buy a home in their pre qualified price range.

Paul Burrell

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Originally posted by Brian G.

Originally posted by kurt

You said the appraised value of a house would change if the interest rate went up (or down). Not true.[/navy]

Uh, where did I say that again?

And, you deserve a Nobel Prize; economists have been trying to figure out the inter-relationships of value/market/interest rates for a century, and have yet to come up w/a unified field theory. "Brian's Law" now establishes a hard market value for a commodity that exists independent of interest rate fluctuations.

You clearly don't remember the real estate market in 1978-79.

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Originally posted by kurt

Uh, where did I say that again?

Right here.

"If a property is given a value when interest rates are 6%, and then rates go to 10%, the property is not worth what the appraisal said when rates were 6%."id="maroon">

"Brian's Law" now establishes a hard market value for a commodity that exists independent of interest rate fluctuations.

I'll try again. Interest rates are one of the many factors that can influence the real estate market over the long haul (supply & demand, location, school districts, jobs, the economy as a whole, etc.). In that sense they are part of the overall valuation process, but they are not considered by an appraiser when doing an appraisal. Once an appraisal has been done a shift in the interest rates will not affect the appraised value. I take it you still haven't asked an appraiser.

And it isn't my law, it's federal law. Unlike home inspection, there are federal guidelines and procedures for appraisal. They don't include the interest rate. I gave a year of my life to this, I'm not making stuff up.

You clearly don't remember the real estate market in 1978-79.

In Chicago? I'm sure I don't. Come to think of it I was a junior in high school at that time. But before we spin off down another branch, how about addressing that original statement?

Brian G.

Ahhh, 78 - 79...A Very Good Year [:-party]

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I have so little hair so the pain is bearable. Brian, up here in the Water Wonderland, the appraiser can't possibly do an appraisal unless an offer to purchase is presented to him/her along with credit score. Now, I am not an appraiser - never been one and never played one on TV, but other than sitting on the office chair and pulling up cma's and solds then hitting the mark for price, what else happens??

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