Desktop Appraisals.
November 22nd, 2008 Categories: "Say What? Just Some Real Estate Talk
I knew desk top appraisals played a part in the funding process but I had never been involved in a situation in which a desktop appraisal killed a real estate deal……until this past Friday (everything bad in real estate happens on a Friday).
On this particular property there were two on-site appraisals of the property. The first was done by the sellers because they wanted to know what their home was worth and set a list price that would generate a quick sale.
The property was listed and within a few weeks an offer made, there were the negotiations and a buy price set and off we went into escrow.
Shortly the buyer’s/lender appraiser came to look at the property and appraised it at the negotiated price (which was lower than the sellers appraised value but that was OK. Yes, I was a little upset because both appraisals were accomplished within weeks of each other but I understand that these are opinions of value at the time of the appraisal and it is understandable they would not be the same).
All was well until Friday when someone sitting at a desk, miles away (they could have been sitting on the moon) decided that $ 35,000 cut was in order. I don’t know exactly why the decrease except it was indirectly stated that it kept the price in balance with the neighborhood (I have no idea what that means).
Which is fine except that none of the neighbors had a pool in the yard; none of the neighbors had the built in BBQ, water fountains, and turf in the back yard; none of the neighbors had a brand new air-conditioner/heater and I could go on. I doubt any of this was shown on the statistical pages being looked at.
The area where this property is located has been hit hard with foreclosures and prices have dropped significantly but it appears to me that lenders exacerbate the problem with their sense of value for a neighborhood.
Two appraisers showed the property’s worth at a far higher dollar figure but what rule this particular day was the statistical document that sat on some-body’s desk, many miles away making an assessment of this home’s value.
When the numbers (on-site versus desktop) are looked at there’s was a significant cut that if annualized on a percentage basis (I estimated higher than 65%) would exceed any responsible threshold.
That is tough to take and wholly unwarranted. I know of no place in California or elsewhere that has suffered that type of value decrease. It certainly soured the seller in this case and left me with a bad taste in my mouth.
Something is wrong with desk top appraisals (sour grapes…..you bet I lost a deal) and desk top appraisals is an area that really has to be looked at. There is vodoo statistical science at play. I suspect that the lender will echo some corn feed reflection of their responsibilities, the risk involved, and some other story to justify their appearance of righteousness in their assessment of value and it would be garbage.
While lamenting over my disaster other associates began telling me of their experiences with desk top appraisals. One had $ 90,000 taken off the on-site appraised value; another $ 65,000 and others in the neighborhood of $ 35,000 to $ 50,000. I was told I was lucky because more often than not they were told of their desk top cuts a day or two before escrow closing. I had a week.
From what I gathered from the talks, all of these potential sales fell out of escrow.
Maybe it is me that is living on another planet but (repeating myself) desktop appraisals must be examined because today it appears they are doing more harm than good.
Comments please.
