Blame appraisers when it’s due, but don’t forget about the housing market

If the appraised value comes in lower than the contract price, did the appraiser do something wrong? It’s easy to think the appraiser has been negligent somehow if the contract price is not met, but that’s not necessarily true. Appraisers have been getting slammed lately by the National Association of Realtors among other sources for “low appraisals”. There are certainly horror stories and situations where botched appraisals have killed a deal. Believe me, I know this from many relationships I have with investors and real estate agents in the Sacramento area. That’s exactly why I’ve given tips for challenging a low appraisal. But let’s remember that negotiations are normative in real estate and a list price and contract price are not necessarily a reflection of value.

Case-in-point: I appraised a flipped property in Elk Grove recently and my appraisal came back close to $10,000 below the contract price (but still above list price). While this is frustrating for the seller or listing agent, there was no ill-intent or agenda on my part. I could be blamed for bringing down the housing market and stalling a recovery, but I simply interpreted the market in this case. The lender’s appraisal department actually agreed with my appraisal too as we talked in-depth about why the appraised value was reasonable. Recent sales in the neighborhood did not support the contract price, current listings did not support the contract price, I did not use distressed sales for comparables (those were far lower than equity sales) and even offers on the subject property supported a lower value. The seller ended up accepting the highest offer – an FHA offer asking for closing costs back. All other offers were conventional or asked for no closing costs, and they all came in near or lower than the appraised value. The type of financing is not a definitive point for establishing value, but buyers not using their own money tend to make higher offers, don’t they?

Don’t forget to point the finger at the market: It’s interesting to me that appraisers are often blamed for a lack of recovery in the housing market. I wrote two days ago about the increase in the percentage of short sales in the 95757 zip code of Elk Grove. While this is encouraging news on some levels (less foreclosures), short sales also tend to sell lower than traditional sales, which means the housing market is ultimately weighed down if short sales represent 39% of all sales in a given zip code. Short sales usually have to be priced more aggressively to generate interest and/or close quickly before foreclosure. Some banks are not easy to work with either, which can also impact pricing too. I’m not saying at all that appraisers are not to face blame for shoddy work, but when the market has a total of 66% of all sales being foreclosures or short sales (as in the case above), it’s important to keep in perspective just how much the market is driving property values.

My points: 1) Give blame when it is due; 2) Market > Appraisers.

What do you think? Does this seem reasonable or am I off my rocker? What are the factors helping and hurting our housing market right now? What role do you see flipped properties playing in the housing market?

If you have any questions or Sacramento area real estate appraisal or property tax appeal needs, contact me by phone 916-595-3735, email, Facebook, Twitter or subscribe to posts by email.


  1. says

    Hope you don’t mind that I share this on Facebook and on the REAA forum with credit given of course. You’re blog posts are always thoughtful and reasoned and, particularly about this touchy subject, never defensive.

    • says

      Thanks Tiffany. I appreciate that. While the market has shown signs of improvement from several years ago, we know it’s still beastly out there. I constantly hear from real estate agents and appraisers that they’ve never seen a market like this one. It’s not easy to interpret the market then of course, but on top of that, the distressed nature of sales really does weigh down the market – not to mention unemployment and the economy in general. It’s not easy out there (but there is still hope – always hope). 🙂

  2. says

    As an investor and Realtor my frustration is not with individual appraisers, it’s with the appraisal process. Here in Phoenix when an appraisal comes back low the lender refuses to adjust the price upwards, regardless of supporting documentation. The low price is carved in stone. I had a house appraise at 93K, 118K and 125K within a 60 day time period. Guess which one the lender went with? The 93K appraisal, which wasn’t done by a licensed Arizona appraiser – it was a desk review completed by someone in California.

    • says

      I’m so glad you chimed in, Marty. It’s absurd for the lender to stick with a desktop appraisal from an out-of-state appraiser when two were done that were reasonably close together in value by AZ appraisers. I assume the two appraisals were full inspections too. That is a legitimate frustration and something needs to change for situations like that. I know it’s not easy having two appraisals too for FHA loans. That’s frustrating for some of my investor contacts here. Thanks Marty.

    • says

      By the way, great blog. I don’t see many investors in Sacramento blogging like you do. Good info, Marty. I actually use that wordpress theme too for some non-profit volunteer work I do.

      • says

        Thanks Ryan, it’s a work in progress. I have a lot of information to add about buying at trustee’s sales, REO, short sales, etc. I just started it the end of December after blogging for two years on

  3. says

    I just closed a flip to an FHA buyer last month. The lender required two appraisals. We were under contract for 257K – first appraisal came back at 248K so we dropped the contract price by 9K. Two weeks later the 2nd appraisal came back at 253K. Did they use the higher appraisal? Of course not.

  4. Jeff Grenz says

    Long before zero and low down financing became the norm, new homes often didn’t fully appraise, especially those with extras and amenities not reflected in the rest of the market; yet, buyers would dig in their pockets for the additional down payment required to make up the difference. Flips that have been rehabbed, often reflect costs that won’t completely appraise, as the market is mostly aged product. The seller has the option of asking the buyer to make up the difference, reduce the price, or find another buyer. OR the flipper can look more carefully at the final projected FHA appraisal, and reduce their rehab or purchase budget accordingly.

    Marty’s situation in Phoenix sucks. A 35% range?

    One thing its hard for a flipper to do is recover the high cost of rehab in a declining market or market with high unemployment that won’t support those costs. Its hard to say no, but sometimes projects just don’t pencil.

    • says

      Great insight, Jeff. Thank you so much for your thoughtful comment. I think you’re right about the options available for rehab. It seems many flips are geared toward FHA buyers who in many cases do not have extra money in their pockets (which makes it an issue to pay out-of-pocket probably). Yet I know you represent some of your flippers in some of the more established areas of Sacramento where the loans are not going to be FHA too.

      Very well said, Jeff: “One thing its hard for a flipper to do is recover the high cost of rehab in a declining market or market with high unemployment that won’t support those costs. Its hard to say no, but sometimes projects just don’t pencil.”

  5. Lori Najera says

    You wrote: “buyers not using their own money tend to make higher offers, don’t they?” How very true! And people are getting beat out all the time lately, with many cash offers on homes, so they tend to boost up the offered price, hoping the seller will be enticed by the higher sales price and be willing to wait for the deal to close. My other observation with a recent appraisal more than the lower than contract price, was how overly picky the appraiser was with the property (or at least he seemed to be in my opinion) Then when the list of repairs required by the UW were completed and he came back out to sign off on them, he didn’t know what the UW had called for. I showed him the list and he confirmed that yes indeed we were good to go and he’d sign off. Then 2 days later the lender told me he still called for one more repair! It was the crystal cover for a recessed kitchen ceiling light – it was missing and he wanted it replaced. The UW hadn’t called for that to be done. Ultimately we closed without the appraiser coming back out to check it (I had my husband replace if for me) so my sense of deduction tells me that the UW can override the items called by the appraiser. However here is my question – when the appraiser has to go back to a home to confirm repairs, would you normally have a list of what the UW was requiring to be done, or do you just go back over every item you called/mentioned on original appraisal? And this deal was a BofA short sale. We had a contract price of 80,000 and appraisal came in at 70,000. They did reduce, but it took ONE MONTH of waiting to get that decision. Sigh.

    • says

      Lori, you’re right about the market being so competitive right now and some of the reasoning behind why buyers would offer higher too. Good insight. I’m sorry to hear about your frustrating situation with an appraiser. When there are required repairs, the appraiser should be coming with a list from the underwriter already. A list like this would consist of any repairs called out by the appraiser, but also repairs the underwriter requires (maybe repairs discovered during a home inspection that the appraiser would not know about). Ultimately though, the underwriter may not require all repairs that the appraiser calls out. Usually the UW does, but if the appraiser did require a trivial repair that is really not required under Fannie Mae or FHA guidelines, the UW could skip it. The appraiser then goes back out to check that all repairs required by teh UW have been met (I did this two times this week alone). If the appraiser missed something, then the appraiser needs to call that out too if it’s an item that really needs correction. A missing crystal cover sounds pretty minimal though to me and I’m not sure that is really something that should be called out by the appraiser. I wouldn’t think of that as a health or safety issue personally, especially since those types of lights are typically in a ceiling cutout or box already. Did the appraiser give a reason why such a repair would be needed? Let me know if that answers your question.

  6. says

    Ryan~This is an excellent post, and a lot of thoughtful comments. As an appraiser what really gets under my skin is the rhetoric from the NAR (and others), Mr. Yun to be specific. Doing a survey and trying to keep track of how many transactions don’t close because of “low appraisals” is just nuts. Let’s just find more ways of throwing appraisers under the bus, without any regards to actually “why” they were low appraisals in the first place.

    Yes, there are some knucklehead appraisers out there, give one business that doesn’t have their fair share. Appraisers were blamed because we didn’t protect the industry during the boom years, and now we’re blamed because we’re holding it back-make up your mind. It’s only when values “Hit” the number is everyone happy. I totally agree that the system has to be tweaked, but that’s going to be years down the road. If I keep going on I’ll have to write my own post, so thanks for letting me vent. You’re the best Ryan!!!

    Have an awesome weekend!

    • says

      Thanks, Michael. I’m glad you got that off your chest. 🙂 The industry is really facing scrutiny – some truly deserved of course. It’s not an easy industry to break into nowadays too and it’s frankly an aging industry. It’ll be interesting to see how everything pans out in coming years ahead with legislation, the aftermath of the mortgage crisis (that we’re still in of course), the perception of the appraisal industry in the marketplace and of course the ability for new appraisers to come into the field. Requiring an AA degree now for appraisers is a tall order for some (not required for trainees BUT required for the certified license level – this level is really a must for appraisers). Have a good one, Michael.

  7. says

    People tend to lose the ability to give the benefit of doubt and scrutinize when times are hard. If one appraiser did you wrong, then all appraisers must be bad. It’s sad people think this way because they are probably missing out on great opportunities.

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