Some lenders seem to have a mindset that the appraiser's objective is to kill their deal. Others see appraisers as another hurdle in the process of bringing a loan to the closing table. Some have referred to appraisers as too conservative or very picky.
Appraisers used to show up at lender functions, but nowadays, it would be a waste of time for the appraiser, since most work comes down through appraisal management companies (AMCs) and the appraiser has little reason to pump the flesh. Not too long ago, appraisers were part of a larger local company in an office in town, but now, most work from home as sole practitioners. Perhaps, this has made the appraiser less accessible. Back when property values were rising, the appraiser was the darling of the transaction. Today he or she, after working hard to find positive sales data, seems almost afraid to face the parties involved with the transaction for fear of being tarred and feathered. That said, few see the appraiser for whom he or she really is, the All-American guy or gal, just like us, whom we see at church on Sunday or at a kid’s baseball game on Saturday.
After reading the above, one might wonder if the appraiser or the appraisal process is one in which the average person is meant to identify with. I prefer to think that, at times, when we differ in opinion from appraisers, we simply misunderstand each other. Is the appraiser a phantom? Could he and/or the process be better understood? Given the above, let's consider a few misconceptions about appraisers and the work they do.
Myth I
Appraisers feel that it is their duty to focus on the negative, rendering conservative opinions of value where there is room for any doubt, in order to help prevent a foreclosure loss. Preventing foreclosure losses is the job of the appraiser.
Truth: Appraisers are taught and trained to render the most likely value conclusions, as opposed to the highest or lowest possible outcomes. The best appraisers resist rendering opinions that are unfounded or that are biased in any direction, higher or lower. Committed professionals seek a supportable market value and avoid opinions that may be developed to facilitate a transaction. Appraisers have no role or responsibility in foreclosures. Rather, it is their job to offer value conclusions that assist investors in best managing risk.
Myth II
Appraisals are required to complete appraisal forms in accordance with Fannie Mae instructions, which, if followed properly, produce a value conclusion with little regard to reasoning by the appraiser.
Truth: Appraisal forms are merely organizational tools for exhibiting data, adjusting prices and stating opinions. The entire appraisal process, including the selection of appropriate market data, and the reasoning in developing a creditable value conclusion, is the responsibility of the appraiser. In fact, in cases where the uses of forms contribute to misunderstandings or misleading conclusions, it is the responsibility of the appraiser to take the necessary action to clear up any questions or misconceptions. The appraiser is required to follow Uniform Standards of Professional Appraisal Practice (USPAP) and not rules of any other organizations.
Myth III
Appraisers are ethically obligated to perform appraisals only in geographic areas near where they live.
Truth: Appraisers are ethically able to perform appraisals in any geographic area where they are certified, able to exercise competence and deliver creditable value conclusions. The rash of flawed appraisals recently experienced by the mortgage industry on foreclosures, many of which were prepared by appraisers local to the property, are a good example of where competency reins superior over improperly employed local knowledge. USPAP requires that the appraiser be competent to perform a specific appraisal and makes no mention of where he or she lives in relation to a property.
Myth IV
The appraiser is not allowed to use information obtained from a purchase contract in making a decision concerning the value of property being considered for a purchase mortgage.
Truth: The appraiser is required to consider any and all information pertinent to the property, including not only purchase contracts, but also for sale listings of the property, as well as data from previous closed sales of the subject.
Myth V
Knowing the physical age of property improvements is critical to the decision-making process of rendering a creditable opinion of value.
Truth: Knowing the physical age of property improvements is not nearly as important as knowing the effective age of the improvements. The effective age will not only reflect how well the property is maintained, but also the remodeling history of the property. Determining the effective age of an improvement is a subjective decision made by the appraiser based upon his or her years of experience. It is not uncommon for a well-maintained and recently-remodeled home having a physical age of 100-plus years, to have an effective age of 10-20 years.
The above myths and truths are presented in an effort to help non-appraisal financial-industry professionals better understand and appreciate the role and the product of the appraiser. In cases, where there are questions about a specific appraisal, my advice is to ask the appraiser about his or her reasoning.
Charlie W. Elliott Jr., MAI, SRA, is president of Elliott & Company Appraisers, a national real estate appraisal company. He can be reached at (800) 854-5889, e-mail
[email protected] or visit his company’s Web site, www.appraisalsanywhere.com.
