Appraising the Appraisers

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Appraisals, for all their importance in getting a mortgage and buying a home, seem to be rather nebulous. This past weekend, The New York Times ran an article pointing out several gray areas in the art of appraising. First of all, a change in the Home Valuation Code of Conduct that took effect back in May gave banks exclusive power over the appraisal process. The plus side, and intent of the change, is that brokers, builders, and buyers cannot influence the appraisal as much; the down side, according to some appraisers in New York, is that banks are using national appraisal firms that assign appraisers who charge lower fees—i.e., less experienced appraisers who are likely unfamiliar with the local market, something which is essential in New York City’s market of microscopic subclimates. It is common, of course, in a down market for appraisals to come in low, but the combination of inexperienced appraisers and fewer data points due to lower volume might result in inaccurately low valuations. Buffalo News made a similar report about the appraisal industry upstate, and CNN Money reported that the housing industry met with New York Attorney General Andrew Cuomo last week to protest the current Code of Conduct, and the attorney general’s office agreed to consider the matter further. The primary sources for these articles are brokers and local appraisers. We’d like to hear from other players in the game, as well. Any bankers, buyers, or national appraisers out there who want to throw their hat into the ring?
New York Appraisals Get Shortchanged [NY Times]
Tougher Appraisals Make Home Sales Harder [Buffalo News]
Housing Industry to Cuomo: Let’s Work Together [CNN Money]
Photo by Richard Wanderman

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  • dittoburg

    I love that pic, the shadow picking out all the north south streets reall ads to the depth. Its got a 60′s/70′s color tint to it too.

  • just saw our appraisal for re-finance. wildly inaccurate on the facts, but closed on re-fi anyway.

    this is going to be a huge problem for NYC sellers.

  • This happened to us just a month ago. The appraiser was from out of town, and used only Property Shark to source his comps.

    One was wildly off, bringing down the appraisal by more than $100k. Some research showed this property was a short sale, which shouldn’t have been used. The appraiser also got the layout wrong, missing a room on each floor, and while he agreed to update the layout, he refused to adjust the rental comps (3 bedrooms versus 1/2 bedrooms he used on comps).

    As a result, we had to adjust our loan from a 30-year to an ARM to reduce the payments in order to qualify. When the loan was finally submitted, the underwriter ordered a second appraisal anyway; this one was done more professionally and came in $100k higher, but too late for us to adjust the loan parameters.

    It could have been worse, but it was an unpleasant experience that considerably delayed our closing.

    BTW, the company that ‘performed’ our first ‘appraisal’ was RELS.

  • My wife and I were unfortunately a victim of this problem that is getting wildly out of hand. Our appraiser, JL Appraisal Service, was located in Floral Park Long Island. While not that far away, real estate valuation in Long Island is very different than Manhattan or Brooklyn.

    Our appraiser clearly did not understand the local market which we moved into and made many fundamental mistakes. The comps that were used were not similar in nature to our apartment and the biggest blunder made related to the value given to our outdoor space.

    As many people here know, outdoor space is highly coveted. Those people living in houses outside of the city do not see how special outdoor space is to those of us in the city. I did lots of research as to how outdoor space was being value in NYC and it seemed the industry practice was between 30%-%50 of the $/sq ft of the interior space. We didn’t just have a balcony, but a very large terrace and our appraiser, who I will label “special” valued the outdoor space at the generous discounted price of 10% of the interior $/sq ft.

    For weeks I tried to contact the appraisal company. I tried email, but never got a response and then started calling them. I would speak to the receptionist each day and she would take my name and number and say that the owner of the company would call me back but I never once got a call back (he always seemed out of the office when I called). I think she actually started to feel sorry for me at one point. One day when I actually got the guy on the phone, which I believe was by accident, he let me speak and provide him the facts that I had. After a few minutes, he said he needed to pull my file and that he would call me back in 20 minutes. 20 minutes turned into a few hours and when I called back, he had magically disappeared for the day. I never did get a call back from him, despite making a few more calls to the company myself.

    As a result of this gaffe, I had to either pony up an additional 20 some thousand to the bank or pay PMI. My broker, my lawyer, and even the buildings broker were all surprised that it didn’t appraise based on the great deal we were able to negotiate.

    And if you think contacting the bank will do anything, as the appraisal company is really there vendor, forget about it. They are so scared to even get involved based on all the events that have happened in the past year and the potential for litigation, you are really on your own. Being that its usually so late in the game when you do see these appraisals, there isn’t time to go to another bank because you have to close, so the only alternative is to bend over.

    I am glad that the spot light is finally on this very large problem. And by the way, if you are going to purchase, try to find out from your bank ahead of time the name of the appraisal company and where they are located and what areas they usually comver, before its too late. If you find out your appraiser is JL Appraisal Services, request a new one, or be prepared for them to give you a low ball appraisal to look good in the eyes of the bank which will hopefully get them more of the banks business.

  • It was similar for us. RELS was only the agent providing the ‘Chinese wall’ between Wells Fargo and the appraiser. The appraiser they selected was Clark Katz out of Nanuet, and they were evidently clueless with regard to the Brooklyn real estate market.

    In their opinion, use of a 1600′ outdoor space and a 1000′ unfinished basement did not warrant any additional rent over the other units in the building!

    I have a suspicion that RELS charges a standard fee for the appraisal and pockets the difference from what it actually costs. This creates incentive for fast, sloppy work in order to be able to undercut bids from more respectable appraisers.

  • Yes yes yes. My appraisal was ridiculous, you can’t buy a one bedroom for the price in my neighborhood for the price he gave. Acknowledged that he had no comps so guesstimated based on, what?, sales in east NY? As a result refi turned down (also a mystery, as still would have had almost 40% equity). Calls to bank and appraiser got me nothing, not even a callback. Not a big deal as was primarily seeking lower rate and rolling heloc into mortgage, but cannot imagine what people seeking to buy are going through.

  • Here is my post from May. We got stiffed by 24-hour Appraisers working for Citibank:

    Refi is great in theory but difficult in practice. We just tried to refi out 2BR with Citibank and got an appraisal 100K less than we paid for the place in 2003 and less than 60% of the appraisal from a 6-month old refi!

    When our mortgage broker asked the bank what was going on it turned out the appraiser was based on Long Island and was utterly unfamiliar with Brooklyn real estate and the concept of 4-unit co-ops. They based our appraisal on a fire sale of an apartment less than half our size.

    So now we’re out over a $1000 and over two months time and still paying a mortgage over a point above market

  • I find it hilarious that when deals don’t work in the customer’s favor, they point the finger at the appraiser, without providing solid proof of better comps. I’m not sure who is more qualified to select comps in Brooklyn: a certified NYS appraiser, or a homeowner who plugs in address to zillow.com? Being out of town is not really that big a deal for a good appraiser. One or two quick calls to realtors in the subject market area will help the appraiser define boundaries, help select comps that compete with the subject ( in the minds of potential buyers ) and other related specific data.

    The bottom line is, it is pure media hype about out of town appraisers. If they are certified, they’ve been around the block. I am sure their are crap certified appraisers out there, but generally speaking their experience helps guide them.

    While it is true that there are potentially many subsets or market areas, within a larger market area, the bottom line is close, current, clone. What are the closest available competitive listings and pending sales? Do short sales dominate the local market, or is it relatively stable and have the majority of sales as arms-length normal transactions? What are the supply/demand conditions? Unemployment rates, availability of credit, competitive developments or subdivisions if a condo, co-op , or PUD/HOA, etc etc

    “Our appraiser clearly did not understand the local market which we moved into and made many fundamental mistakes. The comps that were used were not similar in nature to our apartment and the biggest blunder made related to the value given to our outdoor space.

    As many people here know, outdoor space is highly coveted. Those people living in houses outside of the city do not see how special outdoor space is to those of us in the city. I did lots of research as to how outdoor space was being value in NYC and it seemed the industry practice was between 30%-%50 of the $/sq ft of the interior space. We didn’t just have a balcony, but a very large terrace and our appraiser, who I will label “special” valued the outdoor space at the generous discounted price of 10% of the interior $/sq ft.”

    Here is my response:

    Not similar in nature to our apartment:

    how were the comps’- Location, Sqft, bedroom and bath count, age, quality of construction, condition—

    As far as outdoor space, what proof do you have? Can you show the math, name the data sources, verify it with secondary sources and back it up in the court of law if need be? I am sure that if the appraiser had the proof that you claim as truth, he/she would have no problem putting that into the report. An appraiser by definition is a ” disinterested 3rd party “.

    As far as outdoor space in NYC, yes it is a highly coveted AMENITY, but not necessary to support habitable living arrangements , nor does it provide necessary shelter. Therefore, the only comps to use are ones with similar outdoor spaces vs. ones without. It is very difficult to verify info in Brooklyn due to lack of a reliable MLS system.

    In terms of contacting an appraiser, while you are the “customer” of the ” client”, the appraiser is only obligated to provide his/her finding to the client only.

    The industry people who bitch and moan about the HVCC simply have a few bricks walls to go through before they can smack around the appraiser to hit values. That is the main reason for the complaints about the system, thought up by the same people who pumped up all these values over the past few years to get there deals through the system so they can get a fat commission check. The old way of ordering appraisals was a fax to multiple appraisal companies, asking if they can ” hit a value of a certain address “. The appraisers who indicated yes got the job, regardless if that was indeed the market value. After all, it was a gravy train for a while.

    In terms of buying a property, I would be psyched if the bank appraiser came in under the contract price. Who wouldn’t want to pay less for the same thing?

  • Why don’t we go back to the good old days when we could say our homes were worth whatever the idiot that bought the house next door was worth?How quick we look to refinance now. Sort of makes you feel stupid doesn’t it? Remember what your speculating has done to families of renters.

  • What if you already know you’re getting a pretty good deal, and so does the seller, but the appraiser used some clearly inappropriate comps?

  • Our appraisal was spot-on. Our area (Bed Stuy) is wildly divergent with comps all over the place because of foreclosures, renovated properties, unrenovated ones. They picked three very similar properties that all recently sold for $100,000 more than our price.

    Oh wait — they did choose bricks and ours is a wood frame.

  • @ springs who wrote:
    how were the comps’- Location, Sqft, bedroom and bath count, age, quality of construction, condition—

    As far as outdoor space, what proof do you have? Can you show the math, name the data sources, verify it with secondary sources and back it up in the court of law if need be? I am sure that if the appraiser had the proof that you claim as truth, he/she would have no problem putting that into the report. An appraiser by definition is a ” disinterested 3rd party “.

    As far as outdoor space in NYC, yes it is a highly coveted AMENITY, but not necessary to support habitable living arrangements , nor does it provide necessary shelter. Therefore, the only comps to use are ones with similar outdoor spaces vs. ones without. It is very difficult to verify info in Brooklyn due to lack of a reliable MLS system.

    My response—-
    The comps used were 2 apartments with no outdoor space at all and one with a very small balcony (50 sq ft) and the one with a balcony was only a one bed while ours was a 2 bedroom. Our terrace is over 250 sq ft. so I don’t think these 3 comps were very useful and something an experience appraiser would use.

    As for as proof and math, I actually sent all of my research data to the appraiser with all the calculations I performed, so yes, I had done the leg work to back up my argument. I didn’t grab these stats from the air. You seem to think the appraiser would have no problem putting this information in their report, but people don’t like it when you point out they have made a mistake. As I said, I never had my emails returned with all of this information and when I did speak to someone live on the phone and layed out my case, they gave the the run around and said they needed to reveiw my file and never got back to me.

  • Mopar- Your appraisal was spot on because it was FHA and I ordered it through an appraiser that I know and that works in the area HMS associates. FHA loans don’t require HVCC appraisals.

    I posted about HVCC months agao when it came out. I’m glad that everyone is starting to get around to seeing what problems it’s causing people. Wow it only took the NY times 6 months to write an article about something I commented on back in April. Where is my interview?????