I just closed with some buyers after spending 75 days working on a small file that would normally take just 35 days. You can read details about the negotiation and price points in JUST SOLD! Bargain Cottage Starter Home.
Once we locked the home up at the $59,000 price point the first thing we did was order an inspection. We found some ticky tacky problems but nothing serious. We then ordered the appraisal. The appraiser came to the home and several days later we received her findings. To our surprise, the appraisal came in low with the appraiser indicating the home's worth at $57,000...the original list price. This was disconcerting because the home was in very good condition for its age and we estimated that the home was actually listed several thousand dollars below its comparable market value.
An examination of the appraisal was shocking (click to enlarge):
A couple things popped out at me on this page. First, the comparables the appraiser used were cash transactions rather than financed transactions as you would normally expect to see with retail owner-occupied homes (homes that are actually comparable to the home my buyers were trying to purchase). A review of the MLS confirmed my suspicions. These comparables are scratch-and-dent BANK OWNED homes! Our appraiser was comparing apples to oranges in her work. Tisk. Tisk.
Five minutes on the MLS revealed traditional non-distressed homes that sold just a block away. After I put our evidence together, my lender and I threw a Hail Mary pass and disputed the appraisal. We were pleasantly surprised when the appraisal management company called us a week later to say that our dispute was successful and the value was adjusted to $60,000. Whew!
Little did we know what kind of waves we had made by succeeding in our dispute. As you can see on the appraisal form, the home called for "Exterior cracked and peeling paint needs to be scraped and painted." When we notified the sellers they immediately scraped and painted the appropriate places. We ordered our Own In Ogden inspection and the inspector passed us off except for a couple interior repairs. Own In Ogden is picky about paint and they could find nothing wrong in their inspection.
Shortly after that, the original appraiser returned to review the paint work. She was unsatisfied and identified several places that were not noted in the original appraisal that needed to be "fixed" according to her. Flustered, the sellers scraped and painted those areas. We called the appraiser back to the property and she refused to sign off on the repairs yet again, this time indicating she could see transition lines where the old paint had been scraped off even though it was all covered in new paint. The appraiser said "I am the eyes and ears of FHA and this needs to be sanded, scrapped and painted to our satisfaction." Wonderful. It cost $150 each time the appraiser had to revisit the property. Someone's ego had been bruised so they were running up the meter.
Finally, the appraiser signed off on the repairs. When the Appraisal Management Companies are done away with and we go back to a free market again, this appraiser will be on my short list.
However, our problems did not stop there. Just a few days before closing, our loan officer received a full page of conditions he needed to fulfill from the underwriter, one of which was a 2nd appraisal! Our closing was delayed a month while we jumped though numerous other hoops. When the underwriter discovered that I was the landlord of the buyers, they tossed out my Verification of Rents as unreliable and instead demanded proof of deposits. It took my bank a full week to pull deposit images of my buyer's rent payments. Finally, the underwriter was satisfied, miraculously waived our 2nd appraisal, and we were able to wrap up our transaction.
In my opinion, the HVCC has been a disaster in the market and has created an appraisal industry rife with bureaucracy and paranoia. I know some very competent appraisers. Unfortunately, our freedom to employ them has been restricted and regulated by Federal law. The sooner this regulation is done away with, the healthier our market will be.
Jeremy, unfortunately your story is not unique. I currently serve on the Utah Association of Appraisers (UAA) Board of Trustees and hear these stories from an appraisal perspective as well. The UAA has worked with the legislature to at least force the AMCs to be registered with the Division of Real Estate to do business in Utah. The biggest problem lies with the low fees that the AMCs were/are willing to pay. The appraiser is making less money (sometimes less than half) than before for the same amount of work. On top of that the AMCs charge the client a fee in addition to the appraisal fee. Inevitably this results in a lower quality of product with a greater cost to the consumer. I'm sorry your experience with this appraiser was so poor. The unintended consequences of HVCC have been disastrous in some cases.
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