Appraisals: Getting it Right

By NAR 2012 Vice President Gary Thomas

While the real estate market is certainly started on the road to recovery, there are still a few hurdles that are preventing it from gathering steam.  These include tight credit and uncertainty about the rules and regulations governing the mortgage market.

A recently released NAR survey found that issues with appraisals are also holding back home sales.  We’ve certainly had this problem in Orange County, California, where I live.  I’ve also heard about it from my agents, who have had deals delayed or blown due to problems with appraisals.

Appraisals are a vital part of the real estate transaction.  Most appraisers work hard to provide accurate valuations that comply with the Uniform Standards of Professional Appraisal Practice.

However, appraisals generally lag market conditions and some changes to the appraisal process have caused difficulty.  These include use of out-of-area valuators, inappropriate comparisons and excessive lender demands.  Also, before the beginning of last year, some lenders’ loan processors edited valuations across-the-board, cutting them by a certain percentage.

Although most REALTORS® surveyed in September reported no contract problems, about 35 percent reported some kind of problem that negatively impacted completion of the sales contract.

The following problems were reported:

  • Some appraisers are using foreclosures, short sales and run-down properties as comparables, without making adjustments for market or property conditions.
  • Appraised values don’t always reflect market conditions such as rising prices, multi-bidding and/or low inventory.
  • Appraised values fluctuate widely.
  • Out-of-town appraisers are unfamiliar with area or local market conditions and may lack full access to data.
  • Slow turn-around time by appraisers and banks delay closings.

There are signs of improvement.  The appraisal industry has made progress in adapting to market conditions, expanding education and making adjustments for distressed homes used as comparables.  We know that there have been cases where appraisers have faced pressure to complete appraisals using distressed sales as comparables, often in too short of a time frame, and with a scope of work not justified by the fee.  NAR continues to advocate for an independent appraisal process and enhanced education requirements that allow appraisers to produce the most accurate reports possible.

Fortunately, the number of distressed sales is decreasing.  They were one-third of all sales in 2011, but have averaged about one-quarter of sales in recent months.  We expect it to continue to decline, reaching about 10 to 15 percent by 2013.

Meanwhile, we should all be aware of the issues surrounding some real estate appraisals.  All home valuations should be made without pressure from outside sources.  That said, know that REALTORS®, along with buyers and sellers, have the right to communicate with appraisers and lenders about errors or concerns with individual valuations.

  1. Raaj Shankla

    HVCC which was part of the Dodd-Frank nightmare is to blame for all this. Before we used to have great professional relationships with appraisers. Now lenders go through a 3rd Party company which often send out of area appraisers.

  2. May I ask how appraisals will catch up to competitive market sales price increase if the appraisers must always use historical value? If historical (closed) values are always lower, how will the market be able to go up unless the buyers are willing to pay the difference?

  3. Good article and very tactful. I will be slightly less tactful. The current system using third-party appraisal management companies is producing some unfortunate side-effects, among them the use of out-of-area (aka Geographically Incompetent) appraisers. Please understand that I feel for the predicament of the appraisers. They tell me that they are now required to do additional paperwork for the AMC’s and they are making less money for their work, due to the hefty fees to the middleman. This has caused some of our local appraisers to seek other employment or retire or to refuse to work through the AMC’s. The end result is that the AMC’s bring in more out of area appraisers, many if not most of whom DO NOT KNOW OUR MARKET, and whom, I suspect, have been inside few if any of the comparable properties, causing them to draw incorrect conclusions. In my opinion, by putting themselves forward as ‘experts’ outside their area of competency these particular appraisers are not only doing us all a disservice. They are committing fraud, and contributing to instability in the housing market.

    I understand the temptation to take whatever work comes your way, but please-stay within your area of expertise. Don’t give your industry a black eye.

    This does not apply to those appraisers who are truly competent in more than one locale, and probably does not apply to commercial appraisers.

  4. Appraisers appreciate NAR’s efforts describing their needs in the market. Being more specific though, we must identify some solutions. For example, one might consider moving the appraisal order to the front of the loan process instead of the last item on the list. What’s more splendid is it costs nothing to make an adjustment to this protocol. It’s a good idea to eliminate problems from the mortgage process and that’s a simple place to start. Of course, there is no efficiency when a middle-man is involved. We understand that Realtors do not see the chaos set forth by AMCs. On a positive note, there does appear to be a modest improvement taking place. Likely due to the mandated AMC Legislation passed or in process within 33 states across the nation.

  5. Dave the Appraiser

    May I ask a question of you NAR members:
    If your organization took your money in dues, then turned around and criticized your work at any opportunity, how would you feel?

    That’s what NAR does with its appraiser members. There are appraisers who voluntarily belong to NAR for various reasons. But when the negative press happens so often, why should they belong?

    To voluntarily pay money and be villified is rediculous.

  6. I am a NC State-Certified Appraiser. I work for all types of residential lenders and I can tell you exactly what the problem is and its not using historical values, dated valuation techniques, lack of continuing education courses, or geographical competency. The AMC’s delay the process with burdensome client and lender specific requirements that are time consuming, have no impact on the final estimate of market value, and ate much more restrictive than requirements set forth by USPAP. They make them up as they go. Anytime anyone in the process has a question, silly or not, they want a revision of the report. Then they refuse to compensate the appraiser for additional work performed and basically harass the appraiser into making a revision. Appraisers who have refused have had complaints filed against them and recently the NC Appraisal Board enacted rule changes effective in 2013 which actually makes it a requirement to reply. What’s worse is most of the revisions they request are already addressed in the report. AMC’s are staffed by individuals who lack the knowledge needed to be underwriting a licensed individuals work. Blame appraisers? Blame your legislators for enacting a bill whose language gave the impression that financial institutions had to use AMC’s to start with, when it was not and still is not the intent Dodd Frank. I have read the same boiler plate language this writer used in this article and to tell you straight out you need to do your homework and point your all knowing finger elsewhere. If you want answers to what the problem is……I suggest you go straight to those that actually have to deal with these flipping idiots. Appraisers like myself will no longer stand idly by while you badmouth my peers. We are tired of being lazy lenders scapegoats for slow processing. If you want to avoid issues caused by AMCs don’t refer clients to lenders who use them. By the way Appraisers do not use foreclosure sales for market value appraisals, and we have geographical competency rules on NC. If you know for a fact an appraiser is not from the area report them to your licensing agency. Be a part of the solution, not the problem…….

  7. @ Chris Collins. You may be biased in what you consider a “competitive sale”, which Appraisers are not. If historical value was not used there would be wild swings in values, much like what sometimes happens in our stock markets. I encourage you to seek out an appraiser you feel comfortable talking to and ask whatever questions you have. If you are a broker I guarantee it will help better we’ve your clients as you will be more prepared to list a property at a truly competitive list price. Employing appraiser mentality such as list to sales price ratios, adjustments for amenities, knowing what an appraiser considers truly comparable, and final reconciliation of value using a weighted average over 3 to 5 adjusted sales will help you avoid some of the issues you may be having now. Knowledge is power.

  8. I have been an appraiser for 40 years. I considered myself a professional and take pride in my work product. The use of the AMC’s by the lenders IS THE PROBLEM. Most of the AMC’s are owned by the lenders and I can’t see how this is legal. The borrower pays more for the appraisal and the appraiser is paid less. The time demands and silly requests by pencil form filling clerks is horrible.

    In most cases if you are going with a lender who uses an AMC, your appraiser must have two and only two qualifications to get the assignment. 1. He must be the cgheapest and 2 he must be the quickest. That is the only thing the AMC cares about as that is how they make their money. What this equals in this current enviornment is the least qualified, least experienced appraiser who will work for burger flipping wages.

    If I sound bitter I am. My profession has been destroyed by the unintended consequences of government regulations. HVCC and now Dodd/Frank. Just as bad government policy was what created the housing mess. Bad government policy is what is killing our industry.

    Thankfully, I am at a point where when an AMC for a big bank calls me up and ask me what my fee and turn time is and the response is “if I can’t get anybody to do it cheaper and quicker I will assign it to you.” I can tell them what they can do with that assignment.

  9. chris

    The appraisal profession has been hard hit with the middleman trying to maximise their proffits. Why send an order to the better $350 apprasier when you can make $150 for “faxing” a piece of paper to an apprasier who is willing to take $200 just to eat. What do they care. The “smarter” apprasiers, and trust me, thier is a difference is IQ’s of every apprasier, wont work for such a low fee. So you get what you pay for. As for “area of expertise” an apprasier can appraise in Chine if given the coinversion of the YEn and the time it takes to do a competent job. Lets us not forget the “middle man”, they brag to thier bank clients about how “fast” they can turn around an order.

    Its Laughable. They put a fox in charge of the hen house. And the hen house hates the fox. More now then every before.

    Support customery and reasonable fee’s, charge the borrower accordingly…or the client…which was the intent of HVCC.

    And let the appraiser have the time she/he needs to complete the assignment. Loan officer ordering was the big problem…..thats been fixed with HVCC. The next biggest problem with appraisals is Demand for turn time.

    We are professionals. you don’t rush your account or lawyer….do you?

    Fee’s have come up, but nopt for all.

    And there are still appraisers out there who should hand back thier license.

  10. Nothing will change until NAR takes a MUCH more aggresive stance in helping appraisers fight the lenders in Congress.
    Quote “However, appraisals generally lag market conditions”
    Quote “Appraised values don’t always reflect market conditions such as rising prices”.
    Response – The adjusted prices of comps MUST ‘bracket’, the final Estimate of Value.
    Problem – In any rising market a few homes have to be ‘first’. Therefore there will not be ‘bracketing’ comps yet will there? And the lenders will not accept an ‘opinion based on knowledge & experience’.
    Quote “Some appraisers are using foreclosures, short sales and run-down properties as comparables, without making adjustments for market or property conditions.”
    Response – USPAP does not allow adjustments to be made without exact and specific market data based on comparable sales. (I.E. Appraisers cannot make adjustments based on their ‘knowledge & experience in the area)
    Quote “Out-of-town appraisers are unfamiliar with area or local market conditions”
    Response – Increasingly AMC’s are basing assignments on an appraisers HOME ADDRESS (as shown on their State Certification) So, if you’ve worked an ‘in-town’ or ‘suburban’ market area for the past 10-20 years, that experience is disregarded.
    Problem – If I move to your area, I’m immediately qualified to appraise even though I know nothing about your market.
    Quote “Slow turn-around time by appraisers and banks delay closings.”
    Response – What you see as ‘slow turn-around time’ BY APPRAISERS shows a total lack of knowledge as to how AMC’s work.
    – A fully competant and correct report can be sent back to the appraiser 2,3,4 times for ‘corrections’ which are dictated by an unqualified, non-appraiser, reviewer.
    – Our AMC addendum is 5+ pages long, in an effort to anticipate some of their (stupid) questions. (Like they don’t know the difference between ‘Exposure Time’ and ‘Marketing Time) It’s a VERY long list.
    – Years ago, I’d discuss every facet of my appraisals with the Home-owner, the Borrower, the (local) lender, the Realtors, to ensure that every condition and influence on value was considered.
    Now I’d lose my ‘license’ for talking to you.
    Conclusion – The fact that only three Realtors have taken the time to respond to this article shows their lack of interest in resolving the problem.
    – Appraisers have no ‘voice’ in government – The NAR does.
    – If you really need for things to improve, it’s on you, because the NAR is the only voice we (Appraisers & Realtors) have.

  11. BY-THE-WAY – The so-called ‘Opinion-of Value’ in an Appraisal Report, is not the appraisers opinion at all!
    It’s a mathmatically deduced estimate of value which is based on the limited amount of verified data which is available from an Inspection, the Property Card & MLS.
    So, we all know that, in the Real World, a house is worth $300,000 but the data says $250,000, so, that’s what you get . . . .

  12. I agree with other comments as well. 3rd party companies aren’t helping at all. It’s always the “unintended consequences” of regulations that ultimately hurt the consumer.

  13. Excellent insight into the appraisal conundrum affecting the R.E. industry. I agree that out-of-area appraisers have a tougher job than those in the immediate area and would like to encourage Realtors and Sellers to communicate, communicate. I am NOT in favor of blocking out-of-area appraisers, as they are sometimes the only appraisal people available within the the next month or so….. I am alarmed that some loan processors are editing (down) valuation and that appraisers cannot make a living in this market. So, I am glad that people are sharing their concerns and hopefully addressing these problems “early” in the closing process and/or allowing enough time to close a transaction. In my case, this has been taking at least 45 days when a lender is involved (LOVE those CASH Buyers).

  14. John Potter

    Local brokers and assessors are out of touch with their own local markets more so than an out of town appraiser that may not be that far or if the appraiser is usually has enough skill to value the property just fine better than the local assessor or local homeowner.

    That is what the straight story is to that over generalized worn out statement when owners or brokers do not like the appraised value.

  15. John Potter

    You would not believe the comments I have received from way far out of town underwriters about appraisals I wrote in my own town. That worn out statement needs to be put to rest.

  16. Steve Rhodes

    As an appraiser you need a thick skin, or find another line of work. After 25 years the only thing R E Agents, banks and the others on the sale side or refinancing of the transaction is looking for an appraisal that makes what ever they want accomplished, accomplished. Having been an appraiser with a real opinion, I have seen many periods of having less work because I am not real good at being the can do appraiser. Now your stuck with many of the same can do appraiser’s who have spent many years without a real opinion and you now expect them to produce strong opinions and resist the AMC’s. Checking history will tell you this is nothing more than a repeat of the past.

  17. not only do appraisers have to use foreclosed and short sale properties as comparables, we also have to use homes in the subject subdivision, when ones can be found more similar to the subject outside the subdivision, no matter how they sold. our appraisals are reviewed if not once, but sometimes twice when we turn them in to the amc’s. they are returned for “corrections” that have no bearing on the appraisal. Additional comparables, changed sales contracts after the appraisal is turned in, additional names on the appraisal, full names, when we have been using only the last name, as previously required. continuous changes in the requirements, and the delays from the amc’s, cause the lateness of the appraisal return. i have had changes in a pa coming for a three week period on the same appraisal. you cannot say with all honesty the appraiser is causing the problems, without looking at all we have to do in addition to the actual appraisal, which cause the delays in the amc’s turning the report in to the lending institution. as for geographical areas, when one begins in the appraisal business, one is given the appraisal at the greatest distance as you are the “new guy”. thus you become the expert in that geographic area. when i began appraising i covered the far distant 5 counties. i became an expert in these counties, not the one i live in. i am still an expert in these 5 counties, as well as my own and those close to me. with many loans now not requiring appraisals, and our fees cut in half, we appraisers still have to feed ourselves and pay bills, so we take the assignments where we can get them. realtors do not refuse a listing because it is not in their area, loan officers do not refuse an applicant because the home in not in their home area. a good example -vacation homes. you have got to spread the blame around, there are bad elements in every area of real estate, not just among the appraisers. if you recall in the 80’s the s&l’s blamed the appraisers for the fiasco. are you trying to do it again? as for more education-what? the states require con-ed. now michigan will require a 2 year business degree by jan 2014. how will that help an appraiser conduct an appraisal? think about this. those of us who have been in the business for years know what we are doing, we know how to conduct the necessary research, we know our markets. we know what we are doing. do realtors or loan officers need a two year degree to do their job? why do you even suggest appraisers need more education, when among the three position, appraisers are required to have more hours of con-ed than the other two? does that make me a better appraiser, does the lack of additional con-ed for loan officers and realtors make them worse at their job? put the blame on all of us together. if we work together, not divided, maybe things will go well. how many realtors not associated with the sale being appraised return phone call from appraisers when the new forms require the square foot of the basement, and the square foot finished in the basement, actual measurements of the comparables we use, not guesses of “finished” when there is only one room finished? the assessors don’t always have square foot finish. the assessors often don’t have a sketch of any properties utilized in the appraisals. we have to use what the realtor has on the listing ticket. more often than not it is not complete. as to not having viewed the comparables utilized for the appraisal report, how many homes do the realtors actually view on the inside to value their new listing comparably? again, appraisers have to rely on what the realtors put on their listing tickets, and wonder of wonders, possibly a return phone call concerning this listing if we use it as a comparable. don’t lay the blame on us-we’re all in this together. too bad for you guys, huh? soon the government will take our appraisal jobs from us, and do it themselves from the data base they are building from our reports. how does that sound to you? i guess you probably think things will be better then. you can’t argue with the government-you never will win. not when they will have all their facts from the reports we turn in now. they come right out of our reports. so…what do you say to that? sl schulz

  18. Tori Kelly

    We no longer deal with AMCs. We were asked to change the name on the report, b/c we accurately reflected, for example, Mr. Smith, but the AMC clerk said the contract was for Mr. Oor. I explained that the “OOR” meant “owner of record”, and they asked me to go back to the realtor and change it to Mr. Smith. Appraisers report what is in the contract. We don’t ask for revisions. And all real estate professionals understand what OOR means. Some of you may wonder why appraisers would want to be a member of NAR. We are forced to be members in Northern Illinois. Right now, we are being forced to take the Realtor 2.5-hour Code of Ethics course. We are not realtors. The verbiage implies we are realtors. We take expensive 7 hour Ethics classes every 2 years as part of our required USPAP classes. I was told that we needed to “understand what the realtor is up against, in case of arbitration”. Realtors aren’t asked to take our 7 hour class. Since I read all of the above comments, the one thing I’ll add is about Short Sales. There are many Short Sales that sell at market value. They’re only short because the owner/borrower was “over their skis”. It doesn’t always mean it sold for less…sometimes it’s right on the market. Sometimes, it’s the only way to dump a property. A good, professional appraiser can see the difference based on other sales.

  19. Retired Appraiser

    The reverse auction business model that is currently in place for distributing appraisal orders is consequently the same business model used by the Mob. For decades the Mob’s business model was also referred to as extortion since they demand payment from business orders who wish to stay in business.

    The sooner the government abolishes the Mob preferred business model (and AMCs), the sooner we can restore order & accurate valuation in national markets.

  20. Sal Per

    How about BPO’s, has anyone notice how Realtors were providing their opinions of value on foreclosure properties?. Asset managers were taking this low ball valuations to dump houses depressing the markets even further and no Realtors ever complained, except when one of this properties is used by an appraiser in a market where 60% of sales are distressed. Stop blaming the appraisers, they are victims of the system. Now the way things are going, when the market starts heating up there won’t be enough appraisers. BPO’s and AVM’s will be used and lenders will lend to whoever they want. Then will have a bubble and a bust and a crisis every 3 years.

  21. Lisa S

    I am an agent, but my husband is both agent and an appraiser. We are increasingly frustrated with the lack of understanding real estate agents have for the appraiser’s role. NAR is the biggest lobbying group, yet we feel little attention is paid at the state level to address appraiser issues. Agents frequently challenge appraisers without going through the proper chanels, mortgage people don’t explain the appraisers role to the borrowers, resulting in increasing frivolous lawsuits and inquiries by the state. These issues lead to substantial increases in insurance premiums. With the legal liability, I wonder how/why any appraiser would consider mentoring a trainee? NAR should be VERY concerned about the future of the appraisal industry.

  22. Rip Booker

    The appraisers have become the whipping boy of the Real Estate profession which is really shameful. After 12 years in the business, I’m going to have to find another career. When we’re gone, the market will miss our contribution. When banks start to rely on Automated Value Models, a lot of folks are going to be very disappointed as the there will be few options on which to base an argument concerning a disagreement with value regarding the value opinion offered by a financial institution. I certainly respect realtors as I know several very good agents and brokers who really give their all to the profession, but agents and brokers are not in the business of providing impartial analysis of valuation for properties unless of course they are appraisers as well. The BPO law has impacted my business, as well as rising interest rates which were expected to occur as the market sought recovery. I’m saddened by the lack of support appraisers have received even from our own organizations such as the Appraisal Institute. We have become the point of blame for about every ill noted in the real estate market. The National Association of Home Builders released a document in February 2013 making suggestions on how to reform the appraisal industry (builders are paid to build homes and obviously want to sell homes in the highest possible value thresholds). Upon reading the aforementioned document, The solutions suggested in the document indicated the writers/contributors really don’t know too much about real world appraisal or any real understanding about the effects of market activity. When I take time to explain to folks how my business works, they are usually blown away by all of the standards, guidelines and protocol we have to follow to provide an appraisal. Anyway, I’m angry and fed up at this point. I started in the appraisal profession to the best and to provide the utmost in professional service. Now I rarely let anyone know what I do for a living as I hear complaints which have been exacerbated by the NAR and the media outlets pointing the fickle finger of blame at appraisers. I have very little faith left regarding the sanctity of real estate professions. Thank You. Good luck to all in the Real Estate profession. May the force be with you.

  23. Have you ever thought about adding a little bit
    more than just your articles? I mean, what you say is
    fundamental and everything. But imagine if you added some great photos or video clips to give your
    posts more, “pop”! Your content is excellent but with pics
    and video clips, this blog could undeniably be one of the most beneficial in its field.
    Wonderful blog!

    Also visit my page – crossfit vanc

  24. Appraised values don’t always reflect market conditions such as rising prices, multi-bidding and/or low inventory.

  25. Real estate market is certainly started on the road to recovery..Good post about the appraisals.

  26. These include tight credit and uncertainty about the rules and regulations governing the mortgage market.thanks for share with us..

  27. Mark Zwayer

    I live in one of the hottest housing markets in Central Ohio. I listed my house for sale at $289,900, had multiple offers over $280,000 and finally went with an offer at $285,000. Two weeks later the appraisal came back at $280,000 blowing up the entire deal. I live in a neighborhood where houses go for $250,00 up to $360,00. My home is a four bedroom and the appraiser used all three bedroom homes for comps and didn’t even give me a positive adjustment. The comps he used $249,000, $293,000, and $285,000. The one that sold for $285,000 is the exact same model as my home except I have a finished basement and the comp didn’t. I tried to contact both the lender and the appraiser to discuss the report, but neither had the courtesy to contact me back.

  28. Appraised values don’t always reflect market conditions such as rising prices, multi-bidding and/or low inventory.

  29. Out-of-town appraisers are unfamiliar with area or local market conditions and may lack full access to data.

  30. It is all about appraisals which is good to increase your home and any property value. thanks to bringing up. please keep it up.

  31. That is all about of appraisal . which is very good and very useful. thanks to share it .

  32. It is all about appraisal . thanks to share it . which is good .

  33. That is all about appraisals. thanks to share it . which is really great . keep sharing .

  34. I really admire to read that blog summary about appraisals blog post..thanks to share it .which is really good .

  35. It is all about appraisals blog summary .which is really nice & very useful to all property holders..thanks to share it .please keep sharing.

  36. It is all about appraisals topic blog post summary….which is really nice & very needful..thanks to share it..

  37. John F

    The comments by realtors are amusing. I asked one the other day what can she show me to support her statement that the specific market that we were in was going up . I had in my hand reports that I ran showing the median value of sales in the area had gone down the past too years. I had a report showing that there were more current listings than sales the past year and yes the list prices were higher because the realtors are telling every one and each other that values are going up. But my report shows there is an over supply. Now understand that new lending guideline are in place as of January and understand you have less qualified buyers and an over supply of inventory .Please explain why values are going up.Appraisers deal in facts , current facts . Realtors are creating another bubble . You want an answer , have an appraisal done when the listing is taken. Appraisers stop people from paying to much for a house. If you leave it to realtors we will be back to 1200 sq. ft capes going for 500k.

  38. This info is invaluable. How can I find out more?