Using A “Comparable” With A Hole In It – Literally
Posted by Jonathan J. Miller -Tuesday, January 17, 2012, 3:08 PM
6 Comments
My senior staff appraiser shared the following nightmare story – about a friend of his who is going through a mortgage refinance with one of the big US national banks regarding a house in Long Island, NY. Rather not say the bank name but a stagecoach comes to mind.
An appraisal was ordered through a big appraisal management company – Rels. Their appraiser used a condemned house with a big hole in the side of it – visible from the street – as a comparable sale presented in the report
Attached are the photos of the condemned house used by the appraiser in my friends appraisal…They are still fighting to have a new appraisal done. I will be honest the house was not this bad (when it was sold) as most of the siding has been removed. However, it was bought by a developer/LLC (not a person) and the condemned sign was on the door had the appraiser gotten out of the car. The hole in the side I believe was there as you can see that is the side with some siding still remaining.
The condemned house appears to have sold well under market value because a developer bought it to renovate and flip at market levels. No commentary or awareness of this was evident in the report. This condemned house is in the same neighborhood but the borrowers property happened to be updated and in good condition. Interestingly, I’m told the condemned sale was the outlier of the other sales presented in report that pulled the value well below the other “non-condemned” sales.
The slogan on the Rels web site is: Quality appraisals — and rapid turn times.
However I see the terms “quality” and “rapid” as mutually exclusive. “Quality” is more aligned with “timely” and “rapid” is more aligned with “fast and furious without review”.
The borrowers are peeved because although they can get a mortgage, the suspect report is in their file and they are worried it will haunt them later with a home equity application or something they haven’t thought of – after all – they paid for it. In fairness to Rels, it doesn’t sound like they are in the loop and the bank just wants to close the loan. The bank is making comments along the lines of “the appraisal won’t stay with your file, so just close” which seems to stray from my understanding of file documentation for lending.
Lesson?
Housing doesn’t recover until appraiser amateurism is eliminated from the lending process. Amazingly, large institutions still seem more interested in efficiency and a built-in “low” bias than getting valuation services that provide reliable results in order to make informed decisions to generate business with.
Jonathon you know better than this. You wrote an article, or let Toby write an article, that was extremely inaccurate and completely misleading. I understand that your friend is surprised by the adjustment that his market has undergone. But is that a surprise to any working appraiser? You should have focused on the fee split between an AMC and an appraiser and how that split is communicated to the borrower on a HUD1. In today’s market you have appraisers with 15-20 years experience working for AMC’s at 1985 fees. That does not mean that they cut corners it just means 2x the work at half the fee. Every report has 6, 7, and 8, even 9 comps to try and satisfy an underwriter. At least in 1985 it was 3 closed sales and a couple of rub on comp numbers on a map. And the business was respected. A quick search of ranch sales in Huntington Station and this “condemned” sale was easy to find. Unfortunately your article and the facts don’t match up. Clearly your pictures were taken after a renovation had begun. A quick check of the mls photos show a house with minor exterior repairs needed and not the doom and gloom you presented. The front door is easily visible from these photos and no condemnation notice is posted, there is no dumpster in the driveway, and the back corner (where you state “the hole in the side I believe was there”) clearly had no hole. I believe your intensions were genuine when you submitted this article but you did a poor job and you owe this appraiser an apology. Foreclosures are part of today’s market and to ignore them would be misleading. To overstate the condition of a poor house, which was sold by a home owner and not a bank, is equally misleading. Toby has made an assumption that Ken does not know who Jonathon Miller is. I think that’s unfair. Ken just expected better from someone with Jonathans public persona. If you are going to present yourself as the expert of experts please do your homework. For everyone else check MLS #2381617 and draw your own conclusion.
While I appreciate the amount of time you must have spent writing your comments, I have to ask…Who’s Toby? Who’s Ken? Please fill me in!
And did you actually read and process the details of the post? The condition was talked about at length. Righteous indignation has apparently clouded your commentary. How about consideration of the INSIDE of a comparable? Do you think that should be considered in estimating the value of a property? This property was reportedly bought to gut by an investor and flip at market value. A word comes to mind…outlier. The word “comparable” is constantly misused – in fact it has become just a data point to throw on the form. Does this sale represent a reasonable alternative choice for the buyer of the subject property?
Are there good appraisers out there? Of course there are. I have long maintained that 1 in 5 appraisers are good at what they do and are not appreciated by the banking industry. In other words, are there more appraisers out there that don’t have 15-20 years experience that work for AMC’s and provide unreliable appraisals? You bet there is. In this specific reality, the objective was to estimate market value. i.e. the value between a fully informed buyer and seller.
It is all about risk
Under fire, plenty of appraisers and appraisal associations have been defending themselves with blog posts, press releases, letters to the editor and editorials.
The reality illustrated by your post is indefensible. I plan to use your concise statement, “Housing doesn’t recover until appraiser amateurism is eliminated from the lending process.” in my weekly meeting with agents today. Most likely, it will be repeated often to other audiences.
Thanks Jonathan.
I am going through some difficult appraisal issues with a property of mine right now. Have also experienced much of the same while representing clients in deals. It is painful when mistakes are so blatant and obvious.
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