Tuesday, May 21, 2013

Of all the real estate complaints, Appraisals seem to be the primary issue right now

What's the difference?  An appraisal is an appraisal, isn't it???

I began appraising in the last big housing crash of the mid 1980's, when the (then) Veterans Administration (now The Department of Veterans Affairs, a cabinet position) started accumulating great numbers of repossessed condos in Houston.  This was a new phenomenon, because condos really didn't exist much in Houston prior to the late 1970's.  But US Home - the then #1 marketer of the $1 move-in for veterans - began to build $75,000 condos all over Houston.  By the time they foreclosed, they were worth pennies on the dollar.  And the VA needed help.  So, they called me to take on this project.

It was amazing how fast these values plummeted from nearly $100,000 to next-to-nothing.  In fact, the joke in the Houston market was (at the time), what do condos and herpes have in common?  That's right, you can't get rid of either one!  Ugh.....what an analogy.....and I took it on (the condos, that is)!

After a while, it wasn't just condos, everything started going bad and homes repossessed quickly and the government's inventory began to swell.  And I took on more projects.  Part of the assignment was to reappraise each and every one of the inventory that we accumulated.

Appraisals at that time only required a real estate license, and I'd had my broker's license since age 18 (having obtained my Salesman's license at 17).  As the Savings and Loan industry failed, the federal government looked for ways to stabilize the real estate industry and found a fatal flaw in appraisers.  So, they created the Appraisal Foundation, a national organization charged with writing Uniform Standards of Professional Appraisal Practice and implementing federal requirements for appraisals, which meant licensing and certifying appraisers through a separate state agency through the state real estate commissions.  Texas created the Texas Appraiser Licensing and Certification Board (TALCB) which offered license, residential certifications, general certifications, and apprenticeships.  Because I'd taught every appraisal course offered and had been appraising VA's for years, I met the qualifications to become a State Certified Residential Appraiser . . . took a state-issued test, and was then a state certified appraiser -- one of the first.

I later took on small commercial appraisal assignments for my banker buddies, Bill Sellers and Don Harding, and Merchants Park Bank.  As long as the loan amount was under $250,000, I could (under my certification) perform these commercial appraisals.  I soon accumulated enough experience hours to apply for my General Certification . . . took another test, and I hold this highest appraisal certification available today.  (Bill and Don left Merchants Park Bank and opened their own bank, 1st Choice Bank. They had to repossess my Suburban when I moved to Pearland, but also made me a $2,000 loan to buy an old Oldsmobile that I called "old father."  They later financed the construction of my own office building where RE/MAX Top Realty is located today, Beltway & 288, on the edge of Houston and Pearland.  They've since both retired, and I miss them greatly.  They were/are good friends of mine.)

One thing I know about appraisals, however, is that they are simply "opinions" with value estimates derived from complicated procedures that must be adhered to.  There is a large margin of error, based on the appraiser's competency, experience, and overall mindset.  With this much lee-way, there is room for error.  And when we're in a volatile market of sharply increasing or decreasing values, appraisers are challenged to a new level.

I am amused by how many people believe that little letter they receive each year from the county appraisal district as "the gospel" of their home's value.  It's not . . . that is an assessed value for tax purpose only.  Each appraisal is designed for a specific use, user, purpose, and scope of work.  They are NOT just a valuation.  Thus, depending on the intended use, the value can fluctuate greatly.

In home sales, an appraiser typically seeks some definition of "market value."  However, every lender or secondary market defines "market value" the way THEY want it defined!  Thus, it's very easy to get two appraisals of the same property with great variance in the final reported opinion of value.  Crazy, right?

From a Realtor's perspective, it's even crazier.  We get some listings that get 5 offers in the first 3 days, with the highest being above the list price!  Shouldn't real estate be a "supply and demand" driven commodity?  Shouldn't the value be "the highest price a buyer will pay and the lowest price a seller will take?"  Or should it be "the most probable price a buyer will pay and the lowest price a seller will take?"  That depends on the stated scope of work in the appraisal order . . . something we're not privy to as agents.

Confused?  You should be.  Everyone is, including the lenders and the appraisers and your Realtor.
 Best advice is to listen to your Realtor.  Sometimes appraisers help a real estate transaction, and sometimes they hurt it.  If you get a bad appraisal, it's probably best to move on to another appraisal (except in the cases of VA and FHA loans).  So, the loans that saved our industry over the last 4 years, are becoming less prevalent in today's home sale business, as conventional (ie, non-FHA and non-VA) lending become more prevalent due to easier appraisal guidelines.

When in doubt, hire a Realtor with extra knowledge in the field of appraisals or lending to help get your sale to the closing table.  And, of course, I'd like that to be The Sam Team at RE/MAX Top Realty!

Appraisal questions?  Fire away!