The market is changing and the saying rising waters float all boats simply doesn’t apply anymore. Good appraisers are in a challenging period of time to ply their craft. The market is not easy to follow nor is it easy to measure these days. The hearts of property owners are being broken [SLT].
Appraisers with experience understand that everyone involved in a sale are usually better informed than they are. Everyone knows the number (value) already by the time the appraiser gets the assignment. Lets recap.
- The seller already knows the number.
- The buyer already knows the number.
- The seller’s attorney already knows the number.
- The buyer’s attorney already knows the number.
- The lender already knows the number.
- The mortgage broker already knows the number.
So the appraiser needs to show up to the property and let everyone simply tell them the number, right?
In the majority of situations, the sales price does reflect market value because it has been exposed to the market [HT] in a reasonable manner, but there are certainly times when it does not. And what about refi’s?
During the recent housing boom, both buyers and sellers, well actually, all interested parties, including many appraisers, usually figured that someone who overpaid for a property would be made whole in a few months anyway. Just fill out the form.
The need for speed.
Appraisers who ran counter to the “form-filler” mentality were passed over. The large factory appraisal shops multiplied over the past five years because they could crank out reports in a few days and everyone was happy. It was all about service to the person ordering the report – free dinners, rounds of golf and free shows. The concept of service to the institution relying on the property as collateral was usually a footnote.
Don’t ask, don’t tell.
Times are changing and lenders are starting to realize that its not just about service, its about quality. I mean real quality. Quality means integrity of information, not just service with a smile and a wink [THB]. Sales data should be used that actually exists, adjustments should be made that are supportable and based on real physical characteristics, relevant data is not conveniently overlooked, photos are not taken just to flatter, etc.
In other words, reality is starting to take hold and thats an encouraging sign.
I had a discussion with successful mortgage broker last week who indicated that, although there were significant issues with ethics and quality of one of my competitors, they continued to use them because they could turn around assignments in 3-4 days and if asked, they could get it done in a half an hour (it was an exageration to make the point – I hope). After vocalizing this point, the mortgage broker stumbled, hopefully to absorb the hypocrisy of what was said and how it was in contrast to their self-image. Shortly after, this conversation, I began to receive work.
Actually reading the report…
We are already seeing a lot more lender scrutiny on appraisal assignments provided through wholesale channels (ie mortgage brokers). I know because we are being asked with increasing frequency to review the reports submitted for the lenders they are submitted to. There are a few lenders in our market that require one of the appraisals to be completed by our firm.
Do it right the first time.
I got call from a leading mortgage broker yesterday who lamented that lenders are starting to reject appraisal reports that were once rubber-stamped. They wanted to start a relationship with our firm because there is no sense ordering an appraisal to make the deal when the lender won’t accept it. I winced when I heard this. We are seeing this pattern gaining traction on higher end deals.
Get ready everyone. Do you still know the number?
(During the recent housing boom, both buyers and sellers, well actually, all interested parties, including many appraisers, usually figured that someone who overpaid for a property would be made whole in a few months anyway. Just fill out the form.)
Does that work in reverse? Do appraisers take 10% off recent sales prices as a forecast of prices a few months hence on the way down? Or more?
Let’s say one family home prices in the region are going to fall by about one-third adjusted for inflation, as they did after the 1980s run up. Apartments got whack to a greater extent then, but perhaps not this time. Isn’t the bond buyer more concerned about the value of the collateral 2-3 years later, when the likelihood of default reaches it’s peak?
Interesting Larry. Its not supposed to play out that way. In a mortgage appraisal, the valuation date is nearly always the inspection date. Theoretically, the value today incorporates the perceptions of tomorrow. I think this was purely done out of sloppiness for the sake of speed and not will any macro interpretation. Appraisers should not be adjusting 10% in order to forecast. Its an underwriting call by the lender. For example, during the 1990-1991 recession, bankes would lend at lower LTV’s when the market was declining to reduce their exposure. So an 80% mortgage becomes a 70% mortgage.