I saw this on RealtyTimes and spit my coffee all over my desk (ok, not really). But it did yank my crank. It’s a column stating that Realtors support regulation preventing mortgage brokers and lenders from subjecting appraisers to “intimidation and pressure” to “hit the numbers.” Huh? As a loan officer, my main concern was that the appraisal was done thoroughly so the review people didn’t eviscerate it and screw up my deal. But hit the numbers? Am I the only one who had to deal with agents (not my regulars) who insisted on using their pet appraisers? Or agents/owners who came unglued because the property didn’t appraise?
I’m a little closer to this than most, I’ll admit. I purchased a 4-plex that had been fully rented but was nearly empty and under renovation when I bought it. A local appraiser had been trying to get my business for a while; I figured if he was willing to go 30 miles out of town to do this I’d give him a shot. He obviously forgot who he worked for and made a rental schedule by calling the Realtor and asking if the rents as listed in the MLS were correct. She told him they were and he used those figures for the rental schedule, and extrapolated the property value from those numbers. Without once independently confirming them.
After trying unsuccessfully to rent the units I discovered that the actual rents had never come remotely near what had been listed in the MLS and enthusiastically confirmed by the appraiser (his exact language was that the units would “be easy to rent” for the amounts listed. If he thought he was doing me a favor by “hitting the numbers” he was wrong. I can only conclude that he wanted to get business from the agent or that she pressured him. I certainly didn’t. I successfully sued the owner, agent, and appraiser but could have done without the “hard knocks” lesson.
My bottom line is that the majority of lenders are not predatory, that doing the right thing for the right reason will get you more business in the long run, and that appraisers should find their backbones. When an appraiser I respect tells me the value isn’t there, I believe him (or her). Appraisers, Realtors, and lenders should all use our own trade groups and regulatory bodies to better police our industries. Keep the bullies and the spineless out and the good ones can flourish.
Gina, I’m glad it turned out okay for you. It very well might have gone the other way. The agent would have been paid, the appraiser too, and you could have gone over the edge. There’s a lot of emotion in politics right now. Level heads are in short supply as our “representatives” grandstand to get themselves re-elected.
There are several points to discuss here:
1. I don’t think appraisers should have copies of the contracts. Talk about cause to “hit a number.” Appraise the house and let the chips fall where they may.
2. Appraisers need to learn to be more in tune with rising markets and falling markets. They just don’t get it when it comes to their 6 mos to 1 year rule. Markets can change drastically within just a few months.
3. Most appraisers and nearly all REALTORs do not know how to evaluate income property. No one, especially an experience appraiser, should take the word of the seller or the seller’s agent on what the rents are/could be. Only a boots on the ground evaluation of the rental properties close by can tell you the truth.
Thanks for your comments, guys. For a refinance, I don’t think LOs should tell the appraisers a number and push them to hit it. If there is any doubt, though, and the appraisal is going to be expensive (think several thousand dollars) I do have them do a limited check first and I or my borrower would pay for their time / expertise.
However, I do think that the price in a contract should be considered; as Chris said markets change so quickly that the price a buyer is willing to pay NOW may be a better “comp” than what one was willing to pay a few months ago. It is relevent information, just not the only consideration. And I’ve had clients who paid over appraised value because they wanted the property that badly.
But if the appraiser has to look at a gated community 35 miles away to get a comp for a suburban farmhouse he / she’s probably pushing it.
great article gina, as a lender we want to do what’s best for the client. i rely in my past clients for referalls. if i was pushing my appraisers to get value when it was not there i would not have any
Realtors supporting regulation preventing mortgage brokers and lenders from subjecting appraisers to “intimidation and pressure” to “hit the numbers.” That reminds me of WAMU’s, “new,” disclosure policies as they relate to the mortgage broker community. I find the irony SO thick I’m not sure where to start. Can you say Long Beach? At one point I was employed as an in house loan officer for a large real estate organization. I can tell you that many of the agents I dealt with had a single line item agenda; close the deal I want my check period. Like everything I guess, we all have our good and bad!
“My bottom line is that the majority of lenders are not predatory, that doing the right thing for the right reason will get you more business in the long run, and that appraisers should find their backbones. When an appraiser I respect tells me the value isn’t there, I believe him (or her). Appraisers, Realtors, and lenders should all use our own trade groups and regulatory bodies to better police our industries. Keep the bullies and the spineless out and the good ones can flourish.
I couldn’t agree with you more. I have established relationships with the appraisers I work with and would never ask them to stretch a value.
Work with professionals and you get professional results. Let’s just all do our jobs the way we are supposed to and it will all work out.
a lot of lenders have a ‘estimated value’ part on their appraisal order form. a lot of states are saying that this is illegal to try to influence the appraiser of what the true value is.
I don’t think Realtors should have bullying rights. But I have challenged appraisers before. Not as pressure but more from knowledge. I agree with Chris Lengquist that most Realtors and appraisers lack the experience to appraise an income property.
Any appraiser that uses the income of based on what the seller says ought to get slapped. I wrote an article on how to evaluate an income property. http://www.3poundsofrealestate.com/2007/11/11/how-to-evaluate-an-income-property/
Gina did you have an agent representing you? When I work with investors that want to buy income property, I make them do homework to learn the rents of an area. I make them go and visit properties for rent and compare those prices. Another technique is run an ad on a unit and see how many calls you get. I know that is a little cheesy, but until there is a better way to compile rental data, there aren’t many other options.