Being a Realtor and appraiser for some time I suppose in most cases an appraisal is rated poor by a Realtor because the appraiser’s market value opinion is less than the transaction price. Just because an appraiser’s value opinion is less than a sale price does not mean it is a poor appraisal.

In my limited experience, this is not accurate. The two that I have had come in wrong this year were just that – wrong. The appraisers did not know the market and used comps from wrong – not comparable – neighborhoods. One was fixed in the challenge process and the other fell apart (and was bought for the same price by the backup offer that was in place).

The HVCC is flawed, is an overreaction and needs to be fixed.

First, I would like to know how an appraisal is categorized as a poor appraisal. Being a Realtor and appraiser for some time I suppose in most cases an appraisal is rated poor by a Realtor because the appraiser’s market value opinion is less than the transaction price. Just because an appraiser’s value opinion is less than a sale price does not mean it is a poor appraisal. I have reviewed many residential appraisals. As a reviewer the least important consideration is the appraised value. What is important is the credibility of the report and the appraiser’s analysis of the market data and correct application of the various methods of valuation. If flaws are found in these areas, then the value estimate may be suspect.

I have observed over the years that more offers fail because of broker’s commissions than appraisal issues. Often times a seller and buyer are only a commission away from having an accepted sales contract. Take the commission out of the equation and a seller and buyer in many cases will modify the sale price to the appraised value. After all, the seller is concerned with net sale proceeds and not gross sale price and the buyer would be happy to pay 6% less.

As for appraisers performing appraisals in unfamiliar markets the Uniform Standards of Professional Appraisal Practice (USPAP) specifically address geographical competency. If an appraiser lacks competency in a specific market or property type he is required to decline the assignment or take the necessary steps to become competent.

When appraising for lenders the value the appraiser is instructed to develop is
market value which is defined in the FNMA appraisal report as:

Market value is the most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller, each acting prudently, knowledgeably and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: (1) buyer and seller are typically motivated; (2) both parties are well informed or well advised, and each acting in what he considers his own best interest; (3) a reasonable time is allowed for exposure in the open market; (4) payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto; and (5) the price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale.

Market value is linked to exposure time prior to the appraisal date. In other words, what is a reasonable closing price expectation assuming the appraised property was adequately exposed to the market for a normal marketing period prior to the appraisal date? If all the sales are REOs during the exposure period market value will follow these sales because the subject’s marketing period approximates the same time frame. Will buyers prefer REOs priced to sell quickly or will they ignore the REOs and pursue the purchase of non-REOs that are priced substantially higher?? Common sense dictates buyers will purchase the the lower priced REOs. Although REOs may be priced at “liquidation prices” if they comprise a sizeable percentage of the market liquidation prices re-set market norms and can become market value.

But … NAR are reaping the consequences of their tireless shilling during the boom. Maybe they should take a break and refocus on whom they are supposed to be serving.

I’m trying to devise a post that asks that question – should a trade association be advocating for consumers who aren’t their members?