Let me explain the scenario. I listed a short sale, single family home in north St. Petersburg for $80,000, fair market value from what I could see from the comps for a 3/2 1500sft block home. I was wrong. The International Valuation Standards defines market value as "the estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arm’s-length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently, and without compulsion."
So this would mean that the fair market value would be whatever a willing buyer was prepared to pay for the house.
Within the 1st week of the house being on the MLS, we had 3 offers submitted, and all were owner occupants with FHA financing. Two of the offers were in excess of the asking price, and one offer was the clear successful offer at $88,000 plus seller paid closing costs at 3%, so an actual dollar amount offer of $85,360. As the sale was a short sale, we sent the offer over to the bank for their review and approval. The lender ordered their BPO (Broker Price Opinion), collated all of the sellers hardship package, and reviewed the file. On August 2nd 2011, we received the bank approval that they would accept the offer and collect $75k to satisfy the loan, rather than the approximately $190k that was owed on the house. At this stage, everyone is happy and we move forward to a successful closing. Or so you'd think.
The buyers lender ordered the appraisal for their underwriting and as the listing agent, I was to meet her at the property to grant her access. I was about 1 minute late as I pulled into the street and received a phone call from the appraiser asking where I was, at this point I realized that she is swamped with appraisal appointments and time was of the essence. I opened up the house and stepped aside so that she could do her job. As she was leaving she remembered that she needed to review the attic. I showed her the attic hatch, and as she didn't have a ladder, she stated that she'd just take a picture of the access hatch. 'No big deal' I thought.
About a week later, I received a phone call from the buyers Realtor with the news that the appraisal came in below value. In fact it came in $12,000 below contract value at $76,000.
We were both confused as to how it came in so low. Both of us agreed that it seemed to be a very low value, but we both knew that we must play the hand we're dealt and relay the full information to our clients for their decisions. I asked the buyers agent to send me a copy of the appraisal so that I could take a look at it - wondering how I was so far off with my valuation of the property.
Upon review of the appraisal I began to notice many inconsistencies and began to dig a little deeper.
Let me prequel this next part by saying that having been in the business for nearly 10 years, I understand that challenging an appraiser is pretty much impossible. You must provide 3 comps that they missed to justify your argument, and most appraisers don't miss substantial comparable properties. Most appraisals are accurate whether you like the result or not and are based upon facts; so you certainly can't challenge them based on your opinions.
Upon reviewing the appraisal on the subject property, I discovered a multitude of errors in the report. Not differences in opinion, actual errors based on facts. Facts that appraiser hang their reputations on.
- Two of the comps used were valued based on having equal bathrooms to the subject property, so no adjustments were made. In actual fact, they only had one bathroom and should have been adjusted accordingly.
- One of the comp properties was in disrepair, and had no heating or A/C. The home was to the point of disrepair that no financing options were available to a buyer. The sale was a cash sale. No adjustments were made by the appraiser.
- One comp listed that the seller had contributed $10,000 towards the buyers closing costs. Upon investigation, I discovered that the actual seller contribution was about half of that amount at $5100.
- Two of the comps had pools, the subject does not. One of these comps was adjusted by -$2,000, and the other by -$10,000. This is a large difference in the opinion of value of a pool.
Aside from these errors, and the failure to include a substantial comparable property that would easily have justified the contract price, there was one other major issue with the appraisal report. The appraiser included a photo of the inside of the attic of the subject property. Remember earlier I mentioned how the appraiser did not access the attic, and just took a picture of the access hatch? Well now we have fraudulent documentation in a formal appraisal for a Government backed loan. The photo of the attic interior was not of the subject property, and the appraiser clearly states in the report that it is.
I took extreme exception to this appraisal. The value is what the value is; I have no problem with that, but at least do the seller, the buyer, the bank losing money on the short sale, and the neighbors of the subject property the courtesy of basing the value on FACT.
I tried to contact the appraiser by phone - no response. I emailed her with my concerns - no response (I did get a read receipt though). I emailed her again as I had not received a response - no response. The appraiser works for herself, so no way to speak to her boss. I contacted the loan officer for the buyers new loan - nothing he could do. So what do I do? I did the only thing that I should do as a Realtor; I presented all of the facts and information I had to my clients for them to make the decision to either fight the appraisal issues, or to reduce the contract price and resubmit the file to the sellers lender for a new short sale approval. As this was a distressed sale, and my clients wanted to move on with their lives, they opted to reduce the contract price and resubmit for a new approval.
The sellers lender requested a copy of the appraisal and issued a new approval on the short sale. Escrow closed on Friday 14th October 2011, for $74,000.
The appraiser is yet to acknowledge my calls and emails.
So, now we have a neighborhood in north St. Petersburg FL, where most keep their yards nice and take pride in their homes; where one 'For Sale' sign generated about 30 calls in 2 weeks; where a home in move in condition procured multiple offers above listing price within a week of being on the market; that will show a large depreciation of value across the board. This sale of my listing sickens me. This sale will now be a comparable property for the next appraiser hired to value a home in the neighborhood, and will subsequently reduce its value.
Who actually determines the value of a home, and subsequently depreciates entire neighborhoods? You decide.
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