Comments on: Appraisal Question

By: Brian Davis

Brian Davis — Thu, 30 Mar 2006 22:49:20 +0000

Ardell, If a home is being appraised for “market value” it should not make any difference if the purpose of the appraisal is for a sale, refinance, or a pre-listing assignment.

Often what people forget is that there ARE different purposes for appraisals and they can dictate different values.

For example, a relocation appraisal will be for the “anticipated” sales price within a specified marketing time (120 days)

An estate appraisal may be a “retroactive” value as of the date of death. The same may be true with a divorce or any assignment where statutes dictate the effective date of the appraisa.

An appraisal assignment for a tax appeal my combine both a retroactive date (1/1/2005) and statue regulations (3 year average of prior sales).

We can certainly agree that appraised values will always result in a “range of value” and an acceptable variance in opinions can be +/-5%.

However, IMHO, it is an unacceptable appraisal practice for an appraiser to be coming up with different “market values” just because of the circumstances (refinance, sale, pre-listing, etc.)

By: ARDELL

ARDELL — Wed, 22 Mar 2006 16:48:14 +0000

Good question Eric. I said: “Appraising for different purposes, like to value for an estate or divorce, often will produce different results than when the appraisal is for a home purchase. ”

Appraising for an estate or divorce (or home equity loan or cash out refi), as noted by me in this instance, means the house is being appraised, but not SOLD. If the property is being sold as part of an estate or a divorce, then you are correct that there is no difference as to why the property is being sold. In a sale, the appraisal is being done for the buyer’s LENDER, who doesn’t care WHY the property is being sold.

In my statement regarding an appraisal being done solely for the purpose of a divorce proceeding, this means the property is not being sold. The appraisal is being done so that one party can buy out the other party, without the benefit of the open market assisting in the valuation process. Same for an appraisal being done by the estate when the surviving spouse or only child is going to stay in the house, and the property is being valued by the appraiser for tax and stepped up basis purposes. If there is a sale, the appraisal is done for the lender, not the owner. When the house is not being sold, the appraisal is done for the executor or the owner(s).

People often think that when a property is appraised at $400,000 it means the house is “obviously” worth that. There is always a “range of value”. A house is never worth a specific amount, with “to the dime” accuracy. I think the variance is always at least 5% either way, and can be much greater at times.

By: Eric D.

Eric D. — Wed, 22 Mar 2006 15:52:08 +0000

So your saying if the house is being sold for different reasons it can be appraised at different values? I guess this makes sense to an extent but this almost seems unfair. Shouldn’t a $400,000 house always be appraised at $400,000 no matter why it’s being sold?

By: Todd Carpenter

Todd Carpenter — Wed, 22 Mar 2006 08:58:02 +0000

Great post Ardell. Your point about how the appraisal is actually to valuate the collateral in case the load defaults is spot on. However, I disagree with your $200,000 down scenario. The lender’s underwriter assigns “layers of risk” for each individual deal. If a borrower has so-so credit, just enough income to cover the payment, and a spotty job history, then a large down payment can be vital in the lenders decision to approve a deal. In a case like this, the LTV is important enough that the appraiser’s valuation is every bit as important as a zero-down situation. Since the appraiser is never privy to these other risk layers, they must approach every deal with the same level of “agony”.