Davenport Iowa Real Estate

head_left_image

Why Do Bad Appraisals Hurt Buyers/Sellers???

How many times have you had to try to fix someone's situation when they were behind the eight ball because of a BAD APPRAISAL!!!  This week we hope to close on a deed in lieu of foreclosure.  These people bought this house just 4 years ago for $97,000.  Because of a BAD APPRAISAL, they paid too much.  If the appraiser was doing his job, or their Realtor did a proper CMA, and the seller was willing they probably would've only paid $92,000 for that house in that market.  Fast forward two years of temptations of advertising to "Refinance Your Home" and we get a refi of 100% with another BAD APPRAISAL of $110,000.  This may not seem bad to those of you in Florida, California, Arizona, Hawaii, etc. where you were experiencing double digit appreciation, but here in Davenport, Iowa, it was about 3-4% (see the eight ball coming yet?). Eight Ball Rack

Fast forward one more year to a final, and horribly BAD APPRAISAL when these kids were able to get a home equity line of credit for over $30,000!  What was that appraiser smoking?  With the downturn in the market this past year (about 2%) we managed to get an offer on this property for $100,100 in a very much short sale situation.

My inspiration for writing about this was, Why do Real Estate Agents think they are Appraisers as well???  by Ray Saenz.  There are bad apples in the real estate business (just like any field), but what about the bad appraisers?  It seems more prevalent in the area of re-financing.  Dozens of times I've had to try to bail-out people because of BAD APPRAISALS! 

Is anybody out there? Does anybody care?

Surely there are worst scenarios than this out there.  When have you tried to help someone out from behind the eight ball?  What can we do, as Realtors, to bring about positive change in our industry by promoting fairness and protecting people from BAD APPRAISALS???

Buffalo Bill Cody

Lucky

For info about Real Estate Anywhere in the World, please call:

LUCKY LANG, VOTED FAVORITE REALTOR®

Lucky Lang Davenport Iowa Real Estate for Sale

Lucky Lang, SRES®, RFC, M.I.S.

Licensed in Florida & Iowa

Premiere Plus Realty, 886 Park Ave. #103, Marco Island, FL 34145

Cell: (563) 676-9031

Home Search

Don't let this great Real Estate buying opportunity pass you by!!!

Comment balloon 24 commentsLucky Lang • November 26 2006 06:32AM

Comments

Three bad appraisals, three different companies, the same Home?

There has got to be something else going on here!

Posted by Marc Blasi over 13 years ago

Marc,

Unfortunately the same lender all three times.  Don't know about who they sent out for the numbers.  General practice on refis seems to be, tell them what you want and they will give it to you!  There in lies the problem.  Who is to protect us from ourselves (in this case, my sellers).

Lucky

Posted by Lucky Lang, Marco Island & Naples Florida Real Estate (Premiere Plus Realty Marco Island) over 13 years ago
Hi Lucky, very unfortunate situation for these folks. I have had many of these situations where the sellers were upside down on their house. Too many refinances. Banks are way to aggressive in writing loans. They want the appraisal to work. Remember they are selling the loan on so as long as payments are made for 6 months or so they have made their money. Realtors can help by doing accurate CMAs for sellers and buyers. Protect our customers and clients instead of chasing our pay checks. Sounds like Utopia doesn't it?
Posted by Bryant Tutas, Selling Florida one home at a time (Tutas Towne Realty, Inc and Garden Views Realty, LLC) over 13 years ago

Right On, Bryant,

Utopia, no, ...our jobs, our requirements as Realtors, and hopefully our missions as professionals in our industry.

Thanks for caring and sharing!

Lucky

Posted by Lucky Lang, Marco Island & Naples Florida Real Estate (Premiere Plus Realty Marco Island) over 13 years ago
I think bad appraisals hurt everyone in the long run.  It is our job on the forefront of Real Estate to do something about it.  Thanks for bringing this up.
Posted by Home Design, Home Design and Real Estate over 13 years ago

A home equity loan justified by an appraisal $30,000 over market value is criminal.  HUD sends folks to jail for that kind of stuff.  That's what caused the market crash in the late 1980s.  Hardly a week goes by that we don't read of a HUD prosecution of some lender/realty group that gets prosecuted for this. 

What were these owners thinking when they kept going around in circles with refinancing?

What were the lenders thinking when they continually justified the owners' bad financial decisions. 

What did the owners do with the $30,000???? 

Remind them that they are going to get a tax bill for the short sale. 

Posted by Lenn Harley, Real Estate Broker - Virginia & Maryland (Lenn Harley, Homefinders.com, MD & VA Homes and Real Estate) over 13 years ago

Owners who want to believe the appreciation will overshadow the cash out often push lenders to find the appraiser that will give the highest number.  Of course - there is underwriting to consider - wonder why no red flags there on the final 30K?

Posted by Suzanne Marriott, Associate Broker, CLHMS, e-PRO (Keller Williams Arizona Realty) over 13 years ago

Lenn: Criminal is right.  It just makes me sick when this happens!  What were the owners thinking?  They had lost employment, and they were thinking they could refi, use the money to make payments (and waste money on other stuff I'm sure) and when employment returned (which it hasn't) they would get back on their feet.  After all, this paid appraiser is a professional and he wouldn't have said the house was worth that much if is wasn't, would he?  Unfortunately, a lot of stinkin thinkin!

Suzanne: You're exactly right.  Why weren't there nuclear bombs going off in someone's head?  Again, a lot of stinkin thinkin!

Posted by Lucky Lang, Marco Island & Naples Florida Real Estate (Premiere Plus Realty Marco Island) over 13 years ago
Lucky, it doesn't just have to go too high on an appraisal to be bad.  I have had too low on appraisals come in that were bad for buyers in this buyer's market.  The buyers ended up paying PMI because the LTV ratio was not 80%.  However, county appraisal and previous recent sales prices both justified the higher appraisal yet no upward appraisal was received and higher monthly payments are being paid by the buyers.  The only possible good outcome is for a refi within a few months for a lower interest rate with no closing costs.
Posted by Rob Lang, Local Expert in Lawrence Kansas Real Estate Homes (At Home Kansas) over 13 years ago

Rob,

Are you still up or just getting up like me at 1:30am?

Did you consider a new appraisal or challenging the current one with your comps.  In the past, I have found this to work often.  A second appraisal is much cheaper than PMI.

Thanks for your comment!

Lucky

Posted by Lucky Lang, Marco Island & Naples Florida Real Estate (Premiere Plus Realty Marco Island) over 13 years ago

Still up.  Why are you getting up at 1:30am?  So addicted to AR that you couldn't sleep?

Yes, new appraisals were considered but buyers were cash poor and after mechanical inspection, moving costs, etc.  $50 per month PMI was cheaper than $300+ all at one time.  Again, the hope is to get a refi with no closing costs at a lower rate and no PMI within the first 6 months.

Challenging appraisers with my comps, at least down here, is not good business practice.  I won't go into that on here.

Posted by Rob Lang, Local Expert in Lawrence Kansas Real Estate Homes (At Home Kansas) over 13 years ago

Rob,

Couldn't sleep.  Too much food the last 4 days!  Unfortunately, I am also addicted to AR.  Trying to quit.  Starting rehab first thing next week...hmmm....maybe next year.

$300 all at one time?  That's sad that someone couldn't have floated them $300 that they could pay back at $50 per month.  Now in 6 months on the refi, they'll have to come up with over a grand in new closing costs, or have it reflected in the interest rate, as money is not "free".  If they could get a lower interest rate in 6 months, why not now? 

For 3 years I did appraising and if someone could show me better comps than mine, I'd adjust.  Nobody is perfect.  Fortunately, it only happened once.

Thanks,

Lucky

Posted by Lucky Lang, Marco Island & Naples Florida Real Estate (Premiere Plus Realty Marco Island) over 13 years ago

Lucky, what was the appraiser smoking? - my kind of comment. 

I asked the VA if their appraiser was using drugs last year when he was off by about 20% on an appraisal.  They agreed with me and changed the appraisal in less than 3 hours.

I hope I was helpful earlier on the phone.  I will be off AR for a few days.  Take care, Aloha.

Posted by Randy Prothero, Hawaii REALTOR, (808) 384-5645 (eXp Realty) over 13 years ago

Randy,

I agree!

Here's praying that the doctors do their job well.  Take care and see you on AR soon!

Lucky

Posted by Lucky Lang, Marco Island & Naples Florida Real Estate (Premiere Plus Realty Marco Island) over 13 years ago

 

Lucky, this seems to be more than just a bad appraisal, there is something going on with the Lender as well.  I can only speak of r the Mortgage Company I work for, the appraisers that we use are to base their appraisals off of the three most recent comps for one, and they have to justify the comps.  We don't want them taking it upon themselves to adjust it up or down, just a true appraisal based on comps of sold properties.  We also will not go over 95% LTV on a Refi.  So it looks like to me that there is a problem all the way down the line here.  As lenders we all try to make a loan work if possible, appraisers have a little leeway if the house has some contributing factors, but not a lot.  If what you are describing is the whole story, this goes way beyond a little leeway, and questionable practices.

Posted by George Souto, Your Connecticut Mortgage Expert (George Souto NMLS #65149 FHA, CHFA, VA Mortgages) over 13 years ago

George,

I agree!  "Questionable Practices", as you put it, is what I was implying when I wrote this post.  The problem with the appraisal process is the appraisal process.  If you have a lender who is trying to get a number to work for their clients, any appraiser can make it happen. 

Ex: 1) This subject property is surrounded by duplexes (rentals) which are not being maintained as well as the single family properties within a reasonable distance that comparables could be drawn from.  The market value of the subject property is being impacted directly by this condition.  2) This subject property has deteriorated by cat urine throughout. The market value of the subject property is being impacted directly by this condition as well.  If the appraiser (remember, this is just hypothetical and couldn't possibly represent the property above) ignored these facts and presented comparables without these conditions being considered because a lender was trying to get a number to work for their clients, then you end with a BAD APPRAISAL! 

Thanks for adding your comments!

Lucky

Posted by Lucky Lang, Marco Island & Naples Florida Real Estate (Premiere Plus Realty Marco Island) over 13 years ago

Lucky, you bring up a good point in example #1, I have never asked my Appraiser how much of an effect a surrounding property has on the appraised value of the subject property.

I do know that the Appraisers I use will always take into consideration the conditions in your second example. We don't want them to lie in order to make an appraisal work, we want them to be truthful about the conditions, in other words a true comparison. But on the other hand we don't want them to play psychic either, by low balling an appraisal because of what they think the market prices are going to be in the future. We expect them to list the market conditions, but let us as the Lender assess the risk in underwriting the loan.

I would agree with you that it appears that the appraisals that were done on the house in your Post went way over the flexibility that an Appraiser has in taking compensating factors into account. These Appraisers didn't just make it work, they out right lied.

Posted by George Souto, Your Connecticut Mortgage Expert (George Souto NMLS #65149 FHA, CHFA, VA Mortgages) over 13 years ago

George,

You got it!  I'm glad to hear that you have a system set up to safeguard your clients (both the buyers and the investors).  Too bad all lenders aren't that way.

Thanks again for your comments.

Lucky

Posted by Lucky Lang, Marco Island & Naples Florida Real Estate (Premiere Plus Realty Marco Island) over 13 years ago

I am a St. Cert. REA and have been an appraiser going on 25 years.  I started out in the Wash. D.C. area as a staff appraiser with a large mortgage company.  As a salaried employee, being pressured for value was rarely an issue.  If the loan officer questioned my appraisal we would calmly sit down and discuss it.  There was never any fear of where your next meal will come from. 

When I moved to Fl. 20 years ago I became an independent contractor.  I really don't recall experiencing significant pressure to attain certain values in those earlier years in Florida, however, things have drastically changed.  Most notably in the past 6 years as our housing market boomed and is now experiencing a harsh correction.

In just the past 3 months or so I have had an LO refuse to pay for an appraisal done for his client for the proposed construction of an SFD.  The contract price we'll say was $240,000, the appraisal came in at $242,000.  The LO, with no explanation, demanded a value of $280,000!  The builder was contacted and he had no idea as to why.  Do you think that fraud may be involved?

Another case was for refinancing.  The owner's estimate of value was $340,000.  When I called to make the appointment she proceeded to give me what she thought were the best comparables.  The appraisal came in at $260,000 using 4 comps. Three sales were within the subdivision and one from a competitive subdivision within .72 miles.  The lender immediately forwarded a copy of the report to the homeowner who immediately called me.   She wanted to now why I did not use one specific comparable she had told me about.  I explained to her that I was quite familiar with the recent buyer of that house.  He is an investor with a well known history of finagling financing to walk away from closing with a substantial check.  There were 3 sales of similar pool homes, such as the subject, in the subject's subdivision in the past 6 months.  One sold for $260K, another for $265K and the one the homeowner liked, "The Investor", sold for $290K.  That particular home was originally listed for $270K in 8/05, reduced to $260K and finally expired in 2/06.  Then along came the investor who paid $290K in 1/07.  All this in a declining market.  With further investigation, the "investor" sale was not considered to be an Arms-Length transaction. There are currently 4 similar homes listed in the same subdivision which range from $259K to $265K and one expired listing at $258,900.  When I explained this to the homeowner she really lost it!  She told me that I am not allowed to considered what anything is listed for in her neighborhood and that I have to use the "Investor" sale, and that I could not legally use this known information about the "investor" sale and decide not to include it in the appraisal.  After she explained this to me she said she would give me the opportunity to reconsider my position and if I chose to not change my appraisal, she was going to "TURN ME IN"!  It took me about 3 nano-seconds to respond with "You must do whatever you think is best because I am not changing it!"....."Have a nice day!"

And..............I did an appraisal on a 3500+ sq. ft. home in a popular area developed with many individual PUD's.  A refinance again.  The owners estimate of value was $603K.  The appraisal came in at $670K using 4 comparable sales.  Two active listings, although not weighted, were also included.  The underwriter demanded that I lower the value to $600K by giving consideration to only one comp which was located in the subject's subdivision.  This comp sold for $599K and had 2400 sq. ft. of living area!

What's a poor appraiser to do?

I am seriously considering changing professions.  I believe that I am as cooperative with my clients as possible.  I do not get offended when a Realtor, and or, homeowner presents me with comparables to consider and am appreciative for any added information they may expound, however, I do not respond well to those who apply pressure to meet values.  It is illegal and I have signed petitions with those who are pushing for strong disciplinary action against those LO's and alike who attempt to press appraiser's for fraudulent values.  Those appraiser's who succumb to such pressure, and you know who you are, should also be disciplined as well.

 THE END!  Thank's for the opportunity to gripe!

Posted by Janet over 13 years ago

Janet,

Thank you for telling your side of the story.  I used to appraise for 3 years and I've been there. 

I applaud you for doing the right thing!  Hang in there, your profession needs people like you!

For that matter, all professions could do with more professionals and fewer morally-challenged opportunists!

Thanks again,

Lucky :)

Posted by Lucky Lang, Marco Island & Naples Florida Real Estate (Premiere Plus Realty Marco Island) over 13 years ago

Tis funny, every one loves to blame someone other than themselves for the foolish things they do!

 Remember the days when all purchasers had 20% down?  The market is now responding to recent rise in 1st time buyers who have NO MONEY DOWN, they have refi-ed their home several times over the past few years, oh, then they amortized the Mercedes in the garage over 30 years too (you know the one they will only have for 5 years because they can't afford the insurance and upkeep).  These borrowers have low FICO scores, no savings and more consumer debt than the last re-fi.  Now that their teaser rate is gone (the rate in which a lender qualified them for this loan), their house is now worth less than last year.  Gee, surprise, they can't afford the new payments.  But it doesn't matter, they would have rented anyway.  At least they wrote off their interest.  They have no money in the property, real easy to walk!  No equity!!!

 Looks to me that they were severely under-qualified for the loan in the first place.  Blame the bank, greedy for the interest payments (remember, these are all interest only loans), stop blaming the appraisers, do you really think that we are willing to loose our state licenses for a $375 job?  It is the LOAN JOCKEYS (non-licenced loan officers that are un-knowledgeable of appraisal and lending laws) who are PUSHING VALUE.  Oh, you know that they make about 5K per loan and have no state license to risk?

 Appraisers are hired as dis-interested third parties to value property.  Sure, go ahead and point your finger at me!  But I have a work file filled with statistics and facts to back up each and every report that my signature goes on.  I vote that all involved in any federally insured transaction to be licensed by the state.

Posted by Robyn about 13 years ago

Robyn,

There is plenty of blame to go around for sure.  You say, "It is the LOAN JOCKEYS (non-licenced loan officers that are un-knowledgeable of appraisal and lending laws) who are PUSHING VALUE" and I agree.  But if the appraiser/appraisers in this case would have done their job as opposed to letting the lender "push value" as you put it, these people would've never gotten buried as they did.  They are adults and they signed the docs and they spent the money and are responsible for their choices.  My point is that when a "greedy bank" (as you put it...and I agree) dangled that "refinance your home and get money to spend on Christmas" carrot in front of them and they jumped for it, the appraiser was the "checks and balance" part of the equation.  Unfortunately for these people, the appraiser/appraisers failed them by bending to the pressure from the loan officer. 

Licensing all loan officers would be a great start to solving this problem.  However, ALL parties in this situation must share the blame.........including the ones that performed the BAD APPRAISALS!

Thanks for your input,

Lucky :) 

Posted by Lucky Lang, Marco Island & Naples Florida Real Estate (Premiere Plus Realty Marco Island) about 13 years ago

Lucky,

 As I mentioned previously, never would I allow anyone to push my values, I do not alter nor will I change my opinion for no one.  Value is what it is.  My constituents and I sleep well at night, with no fears of retribution as never have we provided bad appraisals.  The Nation just finished one of the longest running increasing markets in history.  Real estate has always been circuitous; anyone old enough to sign a note has seen the highs and lows of the past 20 years.

 Remember, it is the Donkey who pulls the cart behind the carrot that he can never have!  Every one loves to blame someone other than themselves for the foolish things they do!

Robyn

Posted by Robyn about 13 years ago

Robyn,

I'm sorry that you keep trying to make this about you........it is not.  My seller/clients and I don't even know who you are.  Based upon what you have written, you seem genuinely concerned about making sure that the value you establish is accurate and that you wouldn't be influenced by pressure from a loan officer.  Great!  Continue to do your business this way and you should have a great career.

However, you cannot ignore the temptations that are constantly being blasted at people and as humans we all have weaknesses.  The carrots are real and consumers are snatching them up by the handfuls!  The analogy of the donkey doesn't hold water. 

Back to the point.  These sellers (and thousands like them every year) are misled by BAD APPRAISALS into thinking that the property that they're living in is really worth what the re-financing appraisal came in at and if they got in a jam (like a job layoff) and they couldn't make the payments they could just sell the property for what the appraiser said it is worth.  WRONG!

I don't know of one Realtor that hasn't come across a seller that has recently re-financed their home and have a ridiculously high appraisal to show for it.  Just because you don't do this doesn't make it so for everybody else.  I wish it were that simple. 

Lucky :)

Posted by Lucky Lang, Marco Island & Naples Florida Real Estate (Premiere Plus Realty Marco Island) about 13 years ago

Participate