What do you get when you have three appraisers appraise one house? It sounds like the start to a cheesy real estate joke, but unfortunately there’s nothing funny about this scenario.
A home owner hired me recently for some value perspective after there were three separate appraisals done on his house for sale. Since there was a huge discrepancy between the values and contract price also, the seller wanted to find out what his house was really worth. So he hired me to review the appraisals and talk with him about the market. And yes, I have permission to share this story.
Background: His house in the Sacramento area listed at $210,000 and had 7 offers right around $210,000 (conventional, FHA & VA), and a cash offer at $198,000. Some offers asked for 1-3% concessions back to the buyer, but others did not. The first accepted offer was $210,000 and the second was $213,000.
Appraisal #1: This appraisal came in at $192,000. The appraiser made an adjustment for a declining market and a hefty adjustment downward for being located on a feeder street too. These adjustments essentially knocked off about $10,000 in value (and they weren’t supported in my opinion). All things considered, this appraisal looked low, especially in light of a pending sale the appraiser used in the report that subsequently closed at $195,000 (and was 200 square feet smaller with less upgrades – located on the same street).
Appraisal #2: After the first buyer moved on, a second buyer came along. The contract price was $213,000 and the appraisal came in right at contract. All things considered, it just seemed the appraiser was maybe reaching for the contract price on this one. Still, it’s amazing to see a $21,000 difference between the first two appraisals.
Appraisal #3: This was a review appraisal from the second buyer’s lender, and the value came in at $185,000. The reviewer did an exterior inspection of the property and the “comps” were simply not comparable. There is nothing similar about dirty distressed sales and the subject as a clean and upgraded home. Just because something has sold nearby does not mean it is a “comp”. This appraisal was good for nothing not the highest quality I’ve seen. The buyer was actually willing to pay the difference in cash between the contract price and a potentially lower appraised value, but the review coming back at $185,000 was a huge amount for the buyer to consider paying. This reviewer was probably paid very little for the job he did, yet his appraisal ended up playing a huge role in the transaction.
Any lessons we can learn? Situations like this aren’t pretty, but there are still some important take-aways to remember in this market:
- Appraisers, do a better job.
- Agents, be ready to answer questions and provide market insight to appraisers when they ask you questions about one of your sales or listings. In light of low inventory, it’s critical to obtain insight from real estate agents – especially on listings. Also, here are some tips for talking with appraisers in an HVCC world.
- Borrowers and owners, if you’ve at the receiving end of a bad appraisal, ask the lender what their process is for doing an appraisal rebuttal or challenge, and then follow their guidelines. You may need to offer new comparable sales, market data or possibly obtain a new appraisal. If the lender is not willing to work with the new data, and you feel strongly the original appraisal is not accurate, you may need to switch lenders. Keep in mind the appraisal sticks with the property for 120 days if it is an FHA loan, but that’s not the case with a conventional loan. It may be worthwhile to consult with an appraiser who is a market specialist in your area also. The appraiser cannot advocate for your cause, but can provide unbiased market research for you. Here are some tips for how to challenge a low appraisal.
- Let’s remember that market value and price are not always the same thing – even when inventory is low. Despite multiple offers, we won’t always see properties appraise at or above contract price.
- This market is not easy for anyone to interpret, yet it’s easy to blame various parties for a deal not working out – particularly appraisers. In the case above, the shoddy appraisal work was clearly to blame, yet that’s not always the case when a transaction goes south. All I’m saying is let’s give blame where it is due and when it is due, but be objective in our critique.
Any questions, stories or insight? Why do you think there is such a difference in appraised value in situations like this? I’d love to hear your comments below.
If you have any questions or Sacramento area real estate appraisal or property tax appeal needs, contact me by phone 916-595-3735, email, Twitter, subscribe to posts by email or “like” my page on Facebook