Davenport Iowa Real Estate

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Ethical Dilema #4321

I got a call from an appraiser yesterday to set up an appointment to do an appraisal one of my listings that just pended!

He said, "What would you do if you were called to appraise a property that had been on the market for over 6 months for $100,000, with no offers, and the purchase price of the offer is $110,000 with $10,000 going back to the buyer at closing?"

                                                             The Thinker by Lucky Lang qcfsbr.com

Before I tell you how I responded, think about the ramifications of this situation:

1) As an appraiser that relies on income from referrals from lenders, real estate agents, etc., do you try to make the person happy that sent you the referral (and he/she made it clear that they needed this value in order to do this loan) and knowing that if you don't........you may never make a dime off their business again?  You stand to lose over $10,000 of business from this lender if you don't comply.

2) The buyer is your client and is the person that paid for the appraisal.  The buyer knows what he/she paid for the property, thinks that he/she got a good deal, and wants the property to appraise so that he/she can close!  After all, who are you to interfere with what a willing buyer and a willing seller agreed to in an open market?  You will kill the deal for sure and have an upset buyer and a very upset seller as well if you don't comply.

3) You have been getting pressure from people who say that the foreclosure rates are going up and you need to be sure of your value and to look for situations that look "fishy".

                                                          Justice by Lucky Lang qcfsbr.com

Who is your allegiance to?  What would YOU do?

I will update this later to tell you my response.  I want to know YOUR thoughts first!

Lucky Lang :)

 

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Comment balloon 22 commentsLucky Lang • April 17 2007 06:40PM

Comments

I would do the job the way it's always supposed to be done - which is hopefully what this appraiser has always done.

That said - I would have told him that I'm not an appraiser, not in a position to offer advice, and suggest he look to those in his "community" for advice.

Posted by Tony and Suzanne Marriott, Associate Brokers, Serving Scottsdale, Phoenix and Maricopa County AZ (BVO Luxury Group @ Keller Williams Arizona Realty) about 12 years ago

Tony,

Additional info: I was an appraiser for over 3 years.

Thanks for commenting.

Posted by Lucky Lang, Marco Island & Naples Florida Real Estate (Keller Williams Realty Marco Island) about 12 years ago

I was an Appraiser also. I would say that it will appraise at the value it does with all the factors in place,, no more,, no less,, I NEVER did or would I compromise my ethics for a few dollars.

 

Posted by Rick McCullough (Alert Home Services) about 12 years ago

Rick,

So who were you working for?  The buyer that paid for the appraisal?  The lender who called you to do the appraisal?  What say ye?

Lucky :)

Posted by Lucky Lang, Marco Island & Naples Florida Real Estate (Keller Williams Realty Marco Island) about 12 years ago
Is this a trick question, Lucky?  I thought the appraiser worked for the bank?  As such, I believe that the appraiser owes his duty to report the fair market value of the property to the bank, rather than to the buyer, or anyone else.
Posted by Stefan Scholl, Northern Michigan Real Estate (Buyer's Broker of Northern Michigan, LLC) about 12 years ago

I would most definitely tell him he needs to do his job according to the criteria that appraisers appraise property by....  and then I would ask him why....isn't he honest with every appraisal he does...and why is he asking me? So he can feel less guilty if I gave him a dishonest answer.....okay....I think I made my point.

So....how did you respond????

Posted by Celeste "SALLY" Cheeseman, (RA) AHWD CRS ePRO OAHU HAWAII REAL ESTATE (Liberty Homes) about 12 years ago

Stefan,

Not really a trick question.  Just one of ethics once you know the rules.  The buyer paid for the appraisal, right?  Shouldn't the appraiser be "working" for the buyer?  Shouldn't you follow the money trail? 

The answer to these questions is: NO!  The appraiser is not working for the buyer, even though the buyer pays for the appraisal.  For us Realtors(R), we need look no further than our own agency with our own clients for the analogy that will give us this answer.  Agency, or representation, has nothing to do with money.  In our agency with a buyer for instance, we have representation and duties to our buyer even though the seller paid our commission. 

In these situations, the buyer is simply reimbursing the lender for expenses to the lender for the processing of the buyer's loan (same as with the credit report, attorney fee, flood certification, etc.).

If, as you put it, the appraiser works for the bank, shouldn't the appraiser due as the lender told him to and establish the value that the lender told the appraiser that he/she needed?

Sally,

Patience dear!  My answer is coming!

All Active Rainers:

Okay, no one "bit" on the line about the buyer.....GOOD!   What about the lender who gives the appraiser the business?  Doesn't the appraiser owe the lender loyalty and a duty to perform as the lender requested?

Come on you appraisers and lenders out there!  What say ye?

Lucky :)

Posted by Lucky Lang, Marco Island & Naples Florida Real Estate (Keller Williams Realty Marco Island) about 12 years ago
Very thought provoking.  These inflated prices and credit backs are becoming a real problem.
Posted by Randy Prothero, Hawaii REALTOR, (808) 384-5645 (eXp Realty) about 12 years ago

Lucky: You are deliciously evil in the framing of this situation! I love it. There is this voice in my head (some say Iactive rain|active codgers, your active fans image have waaay too many voices in my head) that says in such situations: “If it don’t seem right—then don’t do it.” That’s all the answer I will give—then again I’m neither lender nor appraiser.

Jay
Posted by Boomer Jack Boardman & Carl McIntyre, the Codgers (Noted Curmudgeons) about 12 years ago

Randy,

I really don't care what someone does with credits and the sort if they pay their bills.  It's when they don't that you and I have to pay for it through higher interest rates and fees from lenders to cover the foreclosures.  If someone wants to pay $200,000 for a $100,000 property, hey....it's America!  I've paid too much for something I've wanted before and I'll probably do it again.  That's my choice.  I've paid a higher interest rate that I could've gotten because I wanted to do business with a certain lender who I had a long standing relationship with.  I've paid too much for insurance for the same reason.  The difference is.....I had the knowledge, I made the choice, AND I PAY MY BILLS! 

As always, Randy, thanks for your comment.  It IS very thought provoking.  I know what you would do in the above situation, I would too!

Lucky :)

Posted by Lucky Lang, Marco Island & Naples Florida Real Estate (Keller Williams Realty Marco Island) about 12 years ago

Jay,

Good Morning!  I knew I could count on wisdom from you!

Lucky :)

Posted by Lucky Lang, Marco Island & Naples Florida Real Estate (Keller Williams Realty Marco Island) about 12 years ago

Lucky, my apologies, here I am...And...I have not read any other comments above, here is my own opinion on your great question.  I feel we as the lender, representing the buyer should work for the buyer.  The seller and buyer have a signed purchase agreement, agreeing on the price of the home, therefore the value is now "there" and the home should sell for that price.  It is up to the appraiser to show comps supporting this value if at all possible.  If not then the appraiser should go back to the cost analysis of the home, price per square feet etc, along with the comps, and all improvements done on the home since ownership that are of importance.

Bottom line, we all need to  bring our market back into the value that is acceptable to both seller and buyer.  Your appraiser would not be asking these questions if this was a cash offer, would he?  Lets just say you ordered the appraisal for your buyer, to support the purchase, lets leave it at that and call this a cash purchase to make this even more interesting.  Any one else wish to play?

Thanks Lucky, great post my friend, now I have to go read the other comments on your post.

Posted by Bob Sloop, Consultant, Indianapolis, IN (RS Mortgage Consulting) about 12 years ago

See

http://www.appraisers.org/join/code_ethics.htm#1.3

Things are very easy when we have guidelines.  Love guidelines. 

 

Posted by Lenn Harley, Real Estate Broker - Virginia & Maryland (Lenn Harley, Homefinders.com, MD & VA Homes and Real Estate) about 12 years ago

Bob,

I knew you would offer a new perspective!

Thanks,

Lucky :)

Posted by Lucky Lang, Marco Island & Naples Florida Real Estate (Keller Williams Realty Marco Island) about 12 years ago

Lenn,

Come on!  That's not fair.  You broke out the "Rules"! 

You've just made it easier for everyone!

Thanks,

Lucky :)

Posted by Lucky Lang, Marco Island & Naples Florida Real Estate (Keller Williams Realty Marco Island) about 12 years ago
Okay Lucky...your turn!  Impatient aren't I????
Posted by Celeste "SALLY" Cheeseman, (RA) AHWD CRS ePRO OAHU HAWAII REAL ESTATE (Liberty Homes) about 12 years ago
I agree with Sally, well, what ye say LOL
Posted by Bob Sloop, Consultant, Indianapolis, IN (RS Mortgage Consulting) about 12 years ago

Okay, if you insist!  But first, some more background:

1)  As I stated in one of my comments, in case someone missed it, I did appraising for over 3 years.

2)  I am not currently an appraiser and was not talking to someone from the general public.  This was a conversation among friends who are both professionals in the real estate industry and he knew that I used to appraise.

3)  My friend was very saddened that he lost good business from a good customer because he made the right decision.  I staged the setting as if he was asking so you would have an opportunity to consider what you would do. 

Here's what I told my friendly appraiser:

1)  You made the right choice of not just establishing value based upon what the buyer, seller, and lender NEEDED in order to get the deal done.

2)  I really don't care how much money is going back to the buyer from the seller as long as everyone knows and it is stated on the HUD.

3)  An appraiser's job, in my opinion, is to support the value (if he/she reasonably can) that a willing buyer and a willing seller agreed to in an open market. 

4)  If that's not possible, establish the value that the comparable properties indicate and finish the report.

5)  If the property has been on the market for 6 months and hasn't sold, it could be for a number of reasons and isn't always relevant.  The fact that the seller is giving back $10k at closing goes to the motivation of the seller (if the value is established) and again isn't necessarily relevant.

6)  Go with the comps, go with your gut, and if it doesn't feel right.....walk away (which is what he did). 

7)  Work hard, continue to do the right thing, and you will win in the long run.

He IS an ethical professional appraiser.  He will win the marathon in life!

What would you have done?  What would you have said?

And that's the rest of the story!

Thanks,

Lucky :)

Posted by Lucky Lang, Marco Island & Naples Florida Real Estate (Keller Williams Realty Marco Island) about 12 years ago
Lucky, if this were a situation where the seller was giving back 10k to the buyer, I would have walked away.  This is an inducement to purchase no two ways around it.  Your friend did the right thing in my book, which has many pages.  LOL, great post at any rate.  I liked it, do it again as it was fun.  Next time keep us in suspense a little less longer though...the wait is torture.
Posted by Bob Sloop, Consultant, Indianapolis, IN (RS Mortgage Consulting) about 12 years ago

Sorry, it wasn't intended to go throughout the day today.  My business got in the way of my fun here!

I'll try to remember to do this again when the situation arises.

Thanks for playing along!

Lucky :)

Posted by Lucky Lang, Marco Island & Naples Florida Real Estate (Keller Williams Realty Marco Island) about 12 years ago

In our neck of the woods in Kansas we can't give cash back to the buyers at closing unless it is up to the amount of their earnest money.

Also, most appraisers down here, up here for you southerners, will not or can not do cost basis, only comps due to various restrictions placed on them by lenders.

Therefore, ethics wouldn't have even come in to play on this one due to it being against the local rules regarding cash back at closing.

Great blog!!

Older brother Rob

Posted by Rob Lang, Local Expert in Lawrence Kansas Real Estate Homes (At Home Kansas Team Powered by Keller Williams Partners Inc / www.AskRobLang.com) about 12 years ago

Rob,

Interesting.

Lucky :)

Posted by Lucky Lang, Marco Island & Naples Florida Real Estate (Keller Williams Realty Marco Island) about 12 years ago

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