Posted by Matt(Ut) on April 18, 2006 at 15:53:46:
I would have to agree-I am an Appraiser in Utah and do not remember anything like that in USPAP. Feel free to let me know if we’ve overlooked something. Matt
Appraisal question - Posted by Ron
Posted by Ron on April 12, 2006 at 15:04:50:
Here is an appraisal question
Let’s say you have a property
regular property good shape
worth around $200k or so.
Townhouse property A and B
are the same property, same bedrooms
bathroom, sq ft, same development.
Purchase agreements are written on both properties
$200,000 for property A and $200,000 for property B
now let’s say Property B the buyer decides that they
need to add $6000 onto the $200,000 purchase for
the seller to pay 3% seller paid closings costs.
How would the appraiser justify the $206,000 purchase
price to get it to appraise?
Property A the seller is not wiling to pay the closing costs.
There is clearly a difference between the two properties now, as Seller B is willing to pay $6000 in closings costs and seller A is not.
Re: Appraisal question - Posted by Chris in FL
Posted by Chris in FL on April 14, 2006 at 14:30:53:
Since everyone has an opinion on this, I will chime in too. First, I have found, almost without fail, appraisers tend to try to justify the buy/sell price, within reason. On every bargain I bought, the appraisal came in above my purchase price, but below (and often significantly below) the true market value.
Second, this is the real world. A $6k variation on a $200k house is almost a non-factor (appraisers in general aren’t so accurate that 3% will matter). I sold a house recently for $52k, and the appraiser said he was finding comps around $40K, so I gave him addresses of my comps and reasons for the price. He said he would look into it, and, what do you know, it appraised for $52k (appraiser I had never dealt with before). Further, he told me to call him when I needed an appraisal and he would “help in any way he could”. The house was really worth $52k; the guy just wasn’t very bright (or at least not very diligent). Also, I know lots of investors that have their “own” appraisers, that get every appraisal significantly above market value (when selling). That happens in the real world.
Lastly, some mention was made of appraising between the highest and lowest comps every time. Well, in the hot real estate market FL had the past few years, houses appraised every day for higher than the highest comps. It was expected, because values were going up so fast an identical house sold just 3-6 months prior was already below the market; appraisers had to account for this, and they did.
Just had to put my $.02 worth in…
Re: Appraisal question - Posted by Hugh
Posted by Hugh on April 13, 2006 at 22:32:33:
Ron,
I think I might be able to answer this one for you since I’ve been an appraiser for over 12 years. What an appraiser will do is usually call the listing or selling agent of the house that sold for $206,000 and verify in fact that closing cost or other concessions were rolled into that sale. Part of the job of an appraiser is to verify that sale because what happen lots of cases is that $8.00 hr clerk is putting that info into the mls and sometime it just wrong. To get back to your example what we would do next is to find out what is typical for the market. If its not typical for closing cost and concessions not rolled into the sale the appraiser would then adjust that difference out in the sales comparison grid. Since I don’t know your market so I don’t know what is typical but in my market anything over 6% is adjusted from the sales comparison approach.
Hope this helps.
Hugh
Re: Appraisal question - Posted by Natalie-VA
Posted by Natalie-VA on April 13, 2006 at 21:28:43:
Ron,
You would need to show the appraiser the additional value. Maybe it’s in better condition. Maybe it’s an end unit. Maybe it had a deck or patio or larger lot. Most appraisers can be very reasonable if you give them something to work with.
–Natalie
Re: Appraisal question - Posted by Fil
Posted by Fil on April 12, 2006 at 19:36:43:
Hi Ron,
I am a real estate appraiser. The rule of thumb is:
You cannot bring the appraisal value in higher than your highest comp or lower than the lowest comp. If you have 3 (current - preferably less than 6 months old, but no older than 12 months) comps in the same development, you must use those comps and not go outside the development/sub-division. Your financing is not considered in the appraisal process. If fact, the appraiser must be independant of the loan process, by law. I hope this helps.
Re: Appraisal question-Why not? - Posted by Jack
Posted by Jack on April 12, 2006 at 18:52:42:
The way you have described it there is not a difference between the two properties, but there is a difference in how each is to be financed. Now the appraisal price of the two properties should not be on the asking price, but on the comparables of similar properties sold in the same area in the last six months. if that comes out to over $200K you have no problem. If it does not you do. There are appraisals and then there are appraisals. If you know what you are doing and which appraiser to contact you can get just about get any appraisal you want within reason. It is not an exact science although many relators and appraisers would like to make you think it is. Investors should be very careful when looking at appraisals. I just got one in an area that I know like the back of my hand. The comparables were all in an area of very close proximaty. The appraiser appraised a property at $1.2M that was actually worth about $500k to $600k. Neither the seller flipper or appraiser knew what they were doing and therefore over priced the property by a considerable amount, If you provide the appraiser the sales amounts and comparable sales that support your contention as to what the appraisal should be you can probably get what you want. I know there may be those who say that is not right and every thing should be exactly what it is. But that is the reality of life and it is up to you how you use it.
Re: Appraisal question - Posted by David Krulac
Posted by David Krulac on April 12, 2006 at 17:14:44:
apparaisers don’t look at pending deals only actual sold, conveyed, deed recorded at courthouse deals.
so neither deal would be considered for an apprasial. Now after they bothe settle, the cappraiser could look in the MLS which shows sellers help or call the agent, buyer, or seller to find out the particulars and verify the sale. I’m often called on deals that I did in the past, by apprasiers looking for comps verification.
Re: Appraisal question - Posted by dutch
Posted by dutch on April 12, 2006 at 15:43:11:
Why are you jacking with a non-motivated seller and paying full retail?
Dutch
Re: Appraisal question - Posted by appraisals
Posted by appraisals on April 14, 2006 at 16:03:11:
“Lastly, some mention was made of appraising between the highest and lowest comps every time. Well, in the hot real estate market FL had the past few years, houses appraised every day for higher than the highest comps. It was expected, because values were going up so fast an identical house sold just 3-6 months prior was already below the market; appraisers had to account for this, and they did.”
Thanks for the example. Obviously in real life appraisers can appraise a house higher than the existing “sold comps”. I wonder how they “substantiate” their new and higher-than-existing-comps appraisals? Probably on the sale price, economic indicators, and acceptable “margins” — not to mention the banks’ willingness to finance.
Your post is spot-on and reflects real-life. Frankly, imo, appraisals are just not necessarily true indicators of market value. They can be very skewed, depending on who is ordering them and why.
Even cma’s can be skewed. Have you ever gotten different market values from different agents? Happens all the time, sometimes with wild variations. I once was informed by an agent he could give me two different cma’s on the same property. One for a typical sale to the public and another (higher price) for a dispute settlement.
Bottom line: a property is worth what a buyer is willing to pay…and know your market well.
Re: Appraisal question - Posted by ron
Posted by ron on April 14, 2006 at 14:45:31:
This is one post here I agree with
real world situation
Re: Appraisal question - Posted by ron
Posted by ron on April 14, 2006 at 09:34:52:
The extra value is
that the seller is paying $6000 in seller concessions
and the other seller isn’t
Re: Appraisal question - Posted by appraisals
Posted by appraisals on April 13, 2006 at 13:58:21:
“You cannot bring the appraisal value in higher than your highest comp or lower than the lowest comp.”
If this is true, then how on earth can houses go up in market value?
Is it only the non-appraised, non-mortgage-funded homes that lead the way in market value? And what about appreciation? Appreciation happens due to other reasons than just sales. For instance, if there is an influx of jobs/families and a low inventory of homes, prices go up. Are you saying appraisers do not take economic forces into consideration?
Also, in the example given, $6,000 is only 3% of value of a $200k house. I truly don’t believe appraisers can fine-tune their appraisals to a measly 3% plus or minus. Typically if an appraiser “works for” a bank, he will tend to be more conservative than an appraiser who “works for” a mortgage broker. Appraisals are always subjective to a point.
Re: Appraisal question-Why not? - Posted by ron
Posted by ron on April 13, 2006 at 10:24:32:
Ok I guess what I meant is that comps are showing strong $200k
two properties
both are $200k to the seller
but one the seller is paying $6000 in seller closing costs so, that price is upped $6000 to $206,000
could the $206,000 be appraised knowing that this $6000 concession is the difference, can’t that be justified by an appraiser on paper.
Re: Appraisal question - Posted by ron
Posted by ron on April 12, 2006 at 17:25:28:
Ok I asked the question wrong, I guess I meant
the houses have a purchase agreement for both
have comps for $200k
1 of them has $6000 to be paid in seller paid closing costs needing $206,000 purchase and appraisal
Re: Appraisal question - Posted by ron
Posted by ron on April 12, 2006 at 15:45:16:
nevermind
you don’t know the whole situation
Re: Appraisal question - Posted by Chris in FL
Posted by Chris in FL on April 17, 2006 at 08:07:21:
You said it pretty accurately in your “bottom line”. If you want to win in this game, you do everything you can to make sure you are the most informed person when it comes to value. I touched on this in my earlier post, but I have found quite regularly in the past that I knew values better than the appraisers, banks and realtors. I owned houses, looked at houses, bought
houses, and eventually sold houses day in and day out in my target neighborhoods. Nobody knew my area(s) better than me, and I really believe that was true. I have since branched out, and I now do less intensive
research over a larger area, but I still make sure I have a pretty good idea of value (and I learned long ago not to take just anyone’s word for it). Anyhow, thanks for the positive feedback. Best Wishes!
-Chris in FL
P.S. - Brad, good post about values and bank involvement as well. Goes without saying that, if you know the value correctly, in the end the banks should be able to justify it (even though it may occassionally take a little prodding).
FYI: Official Appraisal Definition of Market Value - Posted by Brad (CA)
Posted by Brad (CA) on April 16, 2006 at 02:11:29:
FYI,
Appraisers form a value opinion based on facts. A couple of ways a diligent Appraiser can help support higher values in a fast appreciating market is through pending sales. Calling the agents to get an idea of actual contract price. Pending sales are a good indicator of what the market is currently willing to pay. Another way, is to include proof or testimonials of multiple offers from agents involved in the transaction. This helps shows what “the market” is willing to pay for that property.
Here is the official definition of Market Value in the Appraisal industry. It is not always as simple as “a property is worth what a buyer is willing to pay”.
"The most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby:
-
buyer and seller are typically motivated; -
both parties are well informed or well advised, and acting in what they consider their best interests; -
a reasonable time is allowed for exposure in the open market; -
payment is made in terms of cash in United States dollars* or in terms of financial arrangements comparable thereto; and -
the price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale.?
As an appraiser myself, in my opinion, if you are personally taking the risk of investing in real estate, you should have a very good idea of what your property would sell for and what the bank would lend on it (if you plan on selling it to a Buyer who will get a loan) as well as, or better than any appraiser.
Remember, that in most markets a Buyer is agreeing to buy a house with a little of their money and mostly the BANK/LENDER’s money. In other words, typically, most people do not pay all cash for houses, therefore, it is the Bank/Lender’s who have alot of control over the market. They can ultimately be responsible whether a Buyer buys a property or not.
Example: when lending practices change, that has a ripple affect in the market, altering the availability of financing to buy properties. So, “a property is [not always] worth what a buyer is willing to pay”, since most buyers are only willing/able to pay 0-20% (downpayment) of their own money. Therefore, a property is typically worth what a bank is willing to lend, along with the smaller portion a buyer is willing to contribute. Afterall, if the Lender doesn’t agree with the appraised value, it doesn’t matter what the appraised value is, they won’t lend on that value.
Ok, it is late, and I feel i am rambling, but maybe this provides a little more insight
Re: Appraisal question - Posted by Natalie-VA
Posted by Natalie-VA on April 14, 2006 at 09:47:54:
I was referring to extra value in the collateral. Closing costs don’t count.
I’ve never seen an appraiser make an adjustment based on closing cost assistance.
–Natalie
Re: Appraisal question - Posted by Fil
Posted by Fil on April 14, 2006 at 01:39:58:
Desirable houses sell for more than the asking/list price all the time. If someone really wants a house and someone else wants the same, the highest offer is usually accepted by the seller. Now you have a higher value comp to work with… Builders set value for new construction homes, and although this is not really true value (the true value is established once these properties have been re-sold by the original purchaser; thus establishing what the general market is willing to pay vs. “builders price”.)… Old comps expire and then you must look elsewhere in the subject’s immediate market area for comparables that may well be higher priced than what has up to that time sold in the subject development… But the bottom line is when an appraiser comes up with an “OPINION OF VALUE” s/he had better have valid comps that reflect that price.
USPAP defines an appraisal as an “opinion of value”, and also states that 5% one way or the other (up or down) is normal/acceptable. ie. A lender calls and asks “is it possible to get a few thousand dollars more to make the deal work?..” If the adjustments made in the sales comparasion approach can justify it, and the new value does not exceed the selling price of the highest comp, and stays within 5% of the stated opinion of value then it is possible to do it. Appraisals ARE subjective, they are an educated opinion; and USPAP acknowledges this educated opinion may be off by 5% one way or the other. But bottom line is if you have a stated value you better be able to back it up with good comps that have a selling price at least as high as that stated opinion of value.
I’m trying not to ramble… it’s 2:30 AM and I’m beat.
But these are the guidelines for a good appraisal, and an explaination of some of the ways houses go up in market value. I hope this answers your question.
Good night.