Today I had three phone calls dealing with appraisal problems.
The first was from a broker who called me for help. His client was in contract to buy a home and the appraisal came in $150,000 under the contract price. Because I specialize in this area, he wanted to know if I could give him some comparables to justify the purchase price to the appraiser.
This same broker contacted me a few weeks earlier when his client first wanted to write an offer. Knowing I was familiar with the area, he asked if I thought the list price was appropriate. At that time I told him the property was overpriced. I pointed out that the listing agent did not price the property in line with other, similar, homes which had sold. I provided him with these addresses and sales prices. In essence, I "appraised" the property for him.
But his client wanted the home anyway and put in a high bid. When it came time for the bank appraisal, the appraiser used the same comparables I gave to the sales agent. Not surprisingly, the appraisal came in at a lower value, the one justified by the comparable sales.
The second call came from one of my clients. His lender had just informed him that the appraisal on the home he wants to buy came in $130,000 below the contract price. The third call was from another appraiser who had also been hired to appraise this same home. That appraisal came in $200,000 under the contract price!
When I looked at the comparables used in these last two appraisals, it became clear that these appraisers, neither of whom are local, were not familiar with the home they appraised. They used comparables that were located in different neighborhoods and did not have the same amenities as my client's property. And because they used inappropriate comparables, they wrote incorrect appraisals.
The saying "all real estate is local" is true, not just for Realtors, but for appraisers. The need for area specialists, people who are intimate with the details of a specific market segment, is more important now than ever. Unfortunately, the trend in the appraisal field has been to move away from local appraisers and towards large companies that cover big geographic areas. It's easier for the lender to schedule a series of appraisals- one phone call can cover a number of appraisal appointments. But it is worse for the client who sometimes gets an incorrect appraisal that can turn out to be a "deal killer".