There was an interesting article in the Sacramento Bee a couple days ago entitled “Home appraisers work under tougher rules“. There were some good points made overall, and I think the author was fairly well balanced, but I wanted to respond to a few things.
Finger Pointing: There are many recent articles lately about how appraisers are to blame for the housing crisis. There is certainly some blame to accept if an appraiser misstated the market, and I am not minimizing that at all, but it’s important to keep in mind that the appraiser is absolutely not always to blame. During the housing boom there was certainly mortgage fraud, but let’s remember that prices really did rise to ridiculous levels, buyers were willing to pay those prices, and lenders had extremely loose standards where almost anyone could purchase a home – whether they could afford it or not. For instance, I had a friend who bought in the Natomas area of Sacramento and didn’t have to show any verification of income to borrow more than $400,000. Maybe the appraisal on his loan in 2004 was bad for some reason, but one thing for sure is that there need not be an automatic finger pointed at the appraiser in an instance like this.
Appraisal Reviews: The article quotes a loan officer saying he used to have so few appraisals reviewed, but nowadays the bulk of his appraisals have to be formally reviewed by the lender at a cost of $125 a pop to the Borrower. I’m not saying there aren’t really bad appraisals out there, but had lending guidelines in 2005 been what they are today, this loan officer may have experienced just as many appraisal reviews then as he does now. Lenders are requiring more of Borrowers these days, and even more work from appraisers too. If you are in the lending industry or in the process of obtaining a loan, I’d be curious to hear your perspective.
Low Fees: The article discusses the “middleman” and how appraisers are hired by neutral third-parties nowadays called Appraisal Management Companies aka “AMCs” (for loan appraisals only – not other types of appraisals). I think the article did a good job describing this process. There are some solid AMCs out there who treat their appraisers well and pay them decently too, but there are also some really bad ones. Here is an email I received a couple weeks ago verbatim from one of the “bad guys”. This was a blast email that went out to numerous appraisers for a property in a semi-rural area with VERY limited market data. I have never worked for this company because of their low fees. Based on their email, do you sense they are interested in obtaining a quality appraisal report?
We are searching for an appraiser to do a Drive by appraisal. The standard fee is $175.00 . Please let me know if you are currently employed through an AMC. We must get special approval to have you complete if that is the case.
Please let us know if you would consider this appraisal request for our standard fee. If you require a different fee, please specify by responding to this email with your fee and turn time. If the fee requested is higher than the standard fee, we will note it in our system and continue our search.
DO NOT PROCEED WITH THIS ORDER, THIS IS AN INQUIRY. You will not be paid if we do not send the formal order and obtain your acceptance.
If you have any questions or a need for an appraisal or consulting in the Sacramento area, give me a call at 916.595.3735, send me an email, catch me on Facebook, or see my company website at www.LundquistCompany.com.
1) Price is too high: Sometimes the agreed-upon price on a home is too high. If one buyer and seller agree to accept a certain amount for a property, the agreed upon price is not always consistent with market value. There is a real difference between price and market value because market value would gauge what a typical buyer would pay for a property, not just what one specific buyer is willing to pay. As appraiser Patrick Egger says, if you lined up 100 buyers to purchase a particular home, what would the majority of these buyers pay for the specific property? The answer to this question would probably produce a pretty good number for what the home is worth. But you might have a small pool of buyers who would be willing to pay far above asking price, right? Maybe it’s a “honey, buy this house at any cost” situation, friends or family live next door, or simply a high offer is presented to beat out all other offers. 
2) Really bad appraisal: Let’s face it, there has been some very warranted scrutiny of the appraisal industry over the years, and especially since May 2009 when 
3) Strict Lending Guidelines: 
4) Counter-offer to “No Man’s Land”: Sellers sometimes counter the buyer with a higher price despite the buyer offering at asking price. At times this counter offer works out very well, but other times it might push the property into “no man’s land” (above market value). Many experienced local real estate agents are careful about this scenario as they work with their clients. In these instances, if the appraisal “comes in low” (below the higher accepted contract price), the value might not really be low, but rather indicative of where the sales price should have been. Of course sometimes properties are marketed at lower prices in order to get multiple offers quickly, and it’s not too surprising to see that market value ends up being above the original list price in many of these cases. Ultimately, it’s nice to be able to boost up the sales price and try to fit concessions or credits in a higher sales prices, but sometimes there might not always be room to do that.