Appraised for $258k Less than Contract Price, Posted by Steve

The title of this blog pretty much sums up my feelings on the Home Valuation Code of Conduct.

I have been hearing about appraisal problems from my agents and in every state I have visited this past year. Now, I can relate to the appraisal debacle first hand.

I recently sold a builder’s spec home in a beautiful subdivision comprised of two distinct areas: One area of “production” type homes on small lots and the other area comprised of custom homes on “estate-sized” lots.

After two weeks, my clients and I found just the right home for them. In the right setting. At the right price. The buyers were thrilled when we negotiated a final price of $678,000.

The buyers processed a loan through an out-of-state bank, even though the offer to purchase was written not subject to mortgage financing. The bank ordered an appraisal through an appraisal management company in yet another state. The appraiser selected was from another city, not the city in which the house was located.

The appraiser then appraised the home for $420,000.

Let me repeat that: The house appraised for $420,000. That is $258,000 less than the contract price.

In all fairness, comparable sales were relatively few. But the disparity was not because of the lack of comps but because the wrong comps were cited in the appraisal report. There were comps that justified the price paid, not to mention that the buyers themselves felt the price they paid was in line with what they had seen after two weeks in the market.

But after 34 years in the business, for the first time ever, an appraiser was suggesting that I had just oversold a property to two “suckers” by $258,000.

The appraiser was out of his area. He never should have agreed to take on the appraisal of a property not in his area of geographic expertise. He was unable to properly discern the information he pulled from the MLS.

Of course, we immediately submitted other, more relevant comps. We were promptly told they would not be considered. But we were sent the Certificate of Compliance with HVCC and Non-Influence that said these ” ….written policies and procedures comply with the requirements related to Appraisal Management Companies as set out in the Home Valuation Code of Conduct.”

The appraisal system created to help the consumer is clearly broken. We need a moratorium on the implementation of the HVCC. NAR is working on this right now as well as other means of resolving the issue. You can write to your state leaders in Congress and ask them to support a moratorium.

My story, fortunately, had a happy ending. My buyers were able to make up the cash differential as a result of this shoddy appraisal and were able to close. But most buyers can’t come up with this kind of money all the time.

Let’s hope good sense kicks in before this flawed code further harms the market it was meant to protect. – Steve Brown, 2009 NAR Vice President and Liaison to Committees

  1. I would have filed a formal complaint against that appraiser with his/her board against their license. That’s unconsionable.

  2. Donna Rowley

    I just had the exact same thing happen. Mine was $252,000 under contract price. The comps were not even close. The appraiser had never been in the properties he used for comps. How can you compare properties to the subject property when you have never been in them? When I do a market evaluation for a seller, it is exhaustive and I have been inside every comp I use to reach a value. An appraiser familiar with the area most likely would have done other appraisals and been inside the comps used.
    This HVCC is the worst thing that has happened to this industry in a very long time. Appraisers that are not familiar with the area are setting our value. I thought a willing buyer and a willing seller set the value. Our office has had several escrows fall apart due to bad appraisals. This is another nail in the coffin of the real estate market.

  3. Jon Gardikis

    I am in a similar situation for a much smaller amount with a buyer that can not make up the difference. The HVCC does not protect consumers, it protects appraisers. With no consequence for sloppy or inaccurate information there is little chance that appraisers will be working in any parties interest other than their own. There needs to be a formal system for disputes in place otherwise we are encouraging fast and lazy appraisals. It is similar to the workmanship we saw in the boom where trades were paid by the job. They did the job as fast as they could so they could make more money.
    It is another example of government protection for a no risk job that punishes “pay for performance” Realtors and loan officers. The people that are out driving the housing recovery and the appraisers future job security. Imagine if we were guaranteed a commission just because we wrote a contract and found a house with certain features?
    We would almost be better off with government controlled home pricing that determined value by property age, size and median household income. Of course, no person or company would have motivation to build or renovate homes… at least we could avoid being told that our professional opinion was not relevant, our buyers were not able to determine fair market value, and our income less important.

  4. james

    Wake up people. appraisers across the nation are intentionally killing deals because the AMC they’re working for only pays them 1/2 of the appraisal fee. To retaliate, they kill the deal. I know because I’m a broker and certified appraiser. Make sure you take your loan to a lender that uses an AMC that pays a fair wage. Otherwise, get ready to suffer the consequences.

  5. gary c

    maybe it wasn’t a “shoddy” appraisal. appraisers use the same data you do.

  6. I agree the HVCC system is broken. My client had to pay for two appraisals just because the lender wanted another appraisal. The first came in $15,000 over our offer of $605,000 and the second one came in at offer price. Which by the way was absurd, because the homes right across the street without a view and the models homes without views were sold over the $800,000 price range. Ours was a short sale, but both appraisals were far below the sales comps in the area. Something is wrong.

  7. Free enterprise American

    Another example of unqualified folks making laws and unqualified folks carrying out the laws. Americans are not stupid folks. They don’t need all of this proposed protection.

  8. Paul Tellef

    I entered real estate in 1977 and am a certified appraiser,licensed broker and auctioneer and have specialized in appraising over 20 years.Not bragging, just want to give the reader some idea of where I’m coming from. HVCC NEEDS TO BE SCRAPPED.

  9. Candace Moulton

    I can certainly relate as I recently was in escrow on my own personal home. I priced it moderately knowong that comps were probably going to be a problem. I got a full priced offer in 3 days, agreed even to pay some of the buyer’s closing costs on an FHA loan. The appraisal came in at value (it was a brand new house, less than 7 mos. old!) BUT, the bank’s desk reviewer decided it was a bad appraisal and knocked the price down, not once, but twice! I ended up with $20,000 less than we were originally contracted for. I had perfectly good comps that were recent, but they would not budge. This was a horrible experince for me, especially as a 12 years experienced agent, I just could’nt believe what had happened to me. The closing went into overtime by 6 weeks!

  10. james

    It’s a shame you can’t post a blog that tells the other side of your story Mr. Brown. It’s people like you that are destroying the fabric of the real estate industry by bashing the people that take care of the lenders that put up their money to fund your ridiculous loan. Take an appraisal course before you bash the appraisal side of our business!

  11. Dan Forrester

    I am an appraiser not doing much lending work because I can’t get my self around the HVCC and the constraints presented. Fortunately, I am centered in the litigation side of appraisal. Geographio expertise is part of compentency necessary to appraise and compentency is required by USPAP. USPAP compliance is required by all certified appraisers which most lenders are required to hire. So, if HVCC is not serving the public well, it should GO!

  12. Obvioulsy James, Mr. Brown can post both sides of the story. Why is it that you can’t post your last name?

  13. Tim

    THe HVCC doesn’t “protect” appraisers. In fact the HVCC guidelines put appraisers at increased risk. When the AMC hires the appraiser, expects a 48 hr turn for $175 and the appraiser has no other way of making a living, a $175 report is generated. You get what you pay for. Do you think the AMC will “protect or defend” the appraiser should the report have inaccurate data ? NOPE. They will find another appraiser to fill that slot while the original appraiser is busy getting the license revoked. If the report “hits the number” and later when a mortgage is foreclosed and they review that report will the AMC step up and say “well we only game them 2 days and less than 50% fee split to do it so maybe give the appraiser a break” …Oh HELL NO.
    The AMC sets the guidelines for the appraisal assignment that they recieved directly from the lender (also co-owner). If they say 2 sales within 90 days, 1 pending and 2 active within 1 mile, thats what they will accept. Period. To think the appraiser can defy the work assignment conditions to make a contract work is foolish. We had that for years. There are only two facts that every sales person needs to know;
    The HVCC does NOT mandate the use of AMC’s. Not required, not law, not even reccomended. Its the banks who own AMC’s that require their use and profit from the arrangment.
    The appraiser is not the determiner of market value or property acceptability.
    It is the UNDERWRITER. Always has been, always will. Thats why the appraisal is an value opinion.
    The shelf life of a residential appraiser is about 5 years. The tools available to banking right now include; a virtual drive by with streaming video, statistical regression that is + or – 5% correct, AVM, and of course the BPO.
    Appraisers have no lobby and are loosley affiliated. Right now they are caught in the middle of some very big lobby’s pulling equally hard in opposite directions. The banks want the extra profit from the valuation business they generate (several billion each year, yes I said BILLION)and the real estate sales lobby want “no hassle appraisals” like they used to get and boost up the sales as they have also made a meager living the last few years.
    Appraisers get it. But we are caught right in the middle of this fight. We also know that even if they recinded the HVCC tomorrow, big banking would still require the use of their affiliated AMC. Banking still controls what they want to see in support of the value opinion. If its not there they reject the report and demand it to be revised or blackball the appraiser from future work. So from broke to unemployed.
    I can only suggest that the NAR reccomend that no member should use any lender that requires the use of an AMC. Not only for your deals, but escrow accounts, personal business, checking and saving and even credit cards. Use smaller banks, credit unions, S & L’s. Boycott big banking !
    Soon enough the real estate sales industry will find themselves in a position of arguing with the lenders proprietary valuation tools that produced what the lenders will see as a “collateral value”. Try arguing with a computer on why landscaping wasn’t given a $10,000 adjustment. That is the future. When that happens do you think there will be much need for marketing, open houses or advertising ? It won’t lead to any higher sales price unless the buyer wants to pay over the approved value amount. Will there be a need then for realtors ?
    The appraisers are not your enemies here it is the big banks please don’t lose sight of that. If this business model is not stopped (by whatever means) appraisers and real estate sales people will both become extinct.

  14. We have had two deals this year in great jeopardy due to faulty appraisals. It appears any appraisal or homes in our area of over $400,000 are wrong and in our area a $400,000 price is in the higher 5% of prices. Right now we have a deal (we have both sides) written for $530,000. The appraisal hass come in at $493,900 so the deal is in great jeopardy. We just managed to close one that was written for $495,000 and the appraisal was for $460,000 using very faulty comps, one a sale over five miles away from 2008 and there were plenty of good comps he could have used. This keeps repeating itself. Barb & John Wyatt, RE/MAX Gold, St Charles, MO 63304.

  15. We have had two deals this year in great jeopardy due to faulty appraisals. It appears any appraisal or homes in our area of over $400,000 are wrong and in our area a $400,000 price is in the higher 5% of prices. Right now we have a deal (we have both sides) written for $530,000. The appraisal hass come in at $493,900 so the deal is in great jeopardy. We just managed to close one that was written for $495,000 and the appraisal was for $460,000 using very faulty comps, one a sale over five miles away from 2008 and there were plenty of good comps he could have used. This keeps repeating itself. Barb & John Wyatt, RE/MAX Gold, St Charles, MO 63304.

  16. And what experienced listing agent would allow a buyer to use an out of state lender?

  17. I am on the North Shore of Long Island in New York. We have been experiencing very few appraisals coming in at the contract price. When talking to the lending institutions, many of them are saying that the appraisals are just one aspect of the problem the other being that Fannie Mae has changed its guidelines. You can no longer use comps older than 30 days, whereas in the past you could use them for the prior 6 months. Banks had underwriters where now Fannie Mae is underwriting for most lending institutions. Their position was since real estate values were dropping 12% a year, which translates as a 1% reduction per month. Meaning if last month you sold for 500k and a like home sold this month the new value would be 495k.

  18. Lauren

    The same thing happened to us – buying a home. We were so happy when the home sellers agreed to a price $50K less than asking price. Esp since their agent’s appraisal was $50K more than asking price. It took about 17 days to get the 1st appraisal done – the bank used an AMC. The bank didn’t like the appraisal and the appraiser would not justify his gross adjustments on the appraisal to the bank’s liking – said he did not follow HVCC rules. A review appraisal was ordered and received back 1 day before closing (after all our belongings were packed onto moving truck). It appraised $140K less than contract price. The mortgage company told us all along that they could not directly contact the appraisers and the real estate agents could not contact them either. I don’t think either realtor gave comps to the appraisers. Our contract had a clause that it was contingent on appraisal and bank financing. Because we move frequently, we could not afford to lose that much $$ on a house in a few years. We offered to meet the seller in the middle of the contract price and what the review appraisal came in at – $75K less than contract price. The seller then stated they had a valid contract for the original price and threatened to sue us. We cancelled the contract according to the contingency clauses and we are still being threatened by the sellers because their lawyer feels they still have a legitimate contract with us and we have “failed to close”. We have been to small claims court to try to get our $2K earnest money back (the seller’s agent actually accompanied them to court!). We also received an offer to appear on Judge Judy – no thank you! . The judge wouldn’t hear the case and now we are headed to Mediation and then Arbitration and have spent over $10K in legal fees already. The sellers purchased this house in 2005 – for $75,000 less than our contract price. They made many renovations but according to the appraisals – it is not worth that much anymore. This process has made me so sick and has caused so much stress for my family (4 kids) for the last 4 months now- my husband and I are considering renting. We have owned 8+ homes and would have paid this one off in 5 yrs or so. This doesn’t seem right – does anyone agree with me????!!!! Any suggestions????

  19. Steve, Your postion with NAR and your comments are really out of line. Your postion with your company and your olifness is out of line with the Code of ethics. I am an appraiser and a REAL ESTATE BROKER SINCE 1978 and you can drop me in Austrialia and I will do you an appraisal but you sound like the kind of sudo professioanl that would not pay the price for that factual informational report. By the way you never said what this appriaser from out of the area was paid. If you where anything but a winey unprofessional wanting your commission, you would have paid for three more appraisals out of pocket on the sly to see how they stacked up against you wine and maybe you would have some chesse to go along with your wine. You are pathaic. I would bet that you do not have a 2001 Code of Ehtics on your desk and have not consumed it for one hell of a long time HA HA Godspell a 2011 copy. Now big BOY if theses folks need to sell this Home in the next SIX months and the appriaser was close — I hope they remeber you and frankly if the appriaser was close to right because you where sucked in by HVCC !!!! They sue the hell out of you for the loss…