Real Estate Investing

One would think that the blood, sweat and tears of today’s appraisals are by the buyers, sellers, and their agents, but the appraisers are also sweating it out and pouring their lifeblood into getting it right these days.  Danny Wiley, an appraiser from the Middle Tennessee area, spoke at our office earlier this week and assured us that appraisers want a home to appraise JUST AS MUCH as everyone else wants it to happen.

His credentials:  From 2001 through 2006 Mr. Wiley served on the Appraisal Standards Board, which produces and promulgates the Uniform Standards of Professional Appraisal Practice. Since 2003 he has served on the International Appraisal Standards Board.

Mr. Wiley said the problems we are experiencing today were caused primarily by “The Good Days” of 2004, 2005, and 2006 with out-of-control home values on the rise, and the business model appraisers have. As an example of what happened in those glory days of home sales, he cited on home that was listed at $825,000. The sales price landed at $1.8 million (or double the list price) and it then appraised at $1.8 million.  This type of rampant disregard for proper conduct in the world of appraisals triggered the new Home Valuation Code of Conduct (HVCC): you can’t show any preference in selecting an appraiser.

The business model could be the impetus that triggered the wild, wild west of appraisals.  Typically, there are 1.2 employees in an appraiser’s office - meaning the average appraiser works alone with just a handful of clients.  If an appraiser loses a client because they were not cooperative, they stand to lose 30 to 40 percent of their business - a blow that could literally put someone completely out of business.

As a result, the HVCC dictates that appraisers are randomly chosen - a requirement often managed through a “middle man” company.  While this seems like a good solution, problems arise when these middle management companies just go with the least expensive appraiser … often an appraiser who doesn’t know the area.  When they are from another area, they do not have access to the local MLS and have on idea what’s happening in a specific neighborhood and to specific homes in specific neighborhoods.

The good news is that REALTORS are still allowed to talk with appraisers and if they honestly think an appraisal is off, they can offer other comparables.  Appraisers will try to work with agents - within reason.

Part Two Coming Soon: What do appraisers look for?

Photo by Larry Page via Flickr Creative Commons.  Hard to get an appraisal in this town!