Updates

Yesterday I was listening to my favorite morning radio talk show "Ronn Owens" on KGO 810am in the Bay area.  Ronn's guest was Patrick Lashinsky owner of Zip Realty.  Patrick made a negative comment that appraisers are "killing deals" by coming in below the contract price on homes for sale.  He gave an example of a house with "20 offers" and the appraisal came in below the contract price.  His point was, if there are 20 offers on a house then the contract price should be the market price.  Well, my blood began to boil.  I had to drive home quickly in order to get on the phone and call in to Ronn.

I got on the air and set Patrick straight.  Appraisers don't set the market!  We measure it.  Contract prices don't set the market!  Closed/Sold prices set the market.  I remained calm and made several points to Patrick:

1) Appraisers work in the past, not the future.  (OK, sometimes we work in the future, but those are special circumstances and special appraisals).

Every lender I work with now has requirements that two sale comps must be within the past 90 days and the third must be within the past 6 months.  Due to the market conditions there are very few exceptions to this requirement nowdays.  In addition, every lender requires two listings or pendings that support the final value opinion.

2) The price a home sells for becomes the market price of that home after it closes.  It's not the contract price while it's pending close of escrow.  If the contract price of a home is $500,000, but the highest sale in the neighborhood is $490,000, guess what?  The appraiser is going to come in at $490,000.  If the appraiser cannot support a value of $500,000 with closed sales, the appraisal will be rejected by the underwriter.  There are very few exceptions to this and I rarely have seen it work.  It certainly won't work in this kind of market.

A borrower is always welcome to offer more money than what a house appraises for, this is America afterall!  But, it doesn't mean a lender has to lend on that higher price.

Recap:  Appraisers don't set the market, we measure it.  If the contract price cannot be supported by two recent sales in the neighborhood, and at least one listing or pending, don't be disappointed when the appraisal comes in lower than the contract price.

This is a very interesting and trying time for all of us and most appraisers work very hard at their jobs (for less and less pay by the way).

Peace.

(Next Appraisal is a residential appraisal service company covering the Alameda county cities of San Leandro, San Lorenzo, Hayward, Union City, Livermore and many others.)

I'm meeting with a HUD approved 203(k) consultant tomorrow and get the ball rolling on some FHA 203(k) projects. His name is Mike Young and he just moved back to the Bay Area from North Carolina. Mike has years of experience in the 203(k) loan process and I'm confident will be an incredible mentor to me. You can read more about Mike at his website: http://www.203konline.com/ By the way, the 203(k) loan is making a huge comeback in places such as Richmond, San Pablo, Antioch and other cities that have experienced an incredible decline in home values over the past three years. To read more about the 203(k) loan and processes, click on this link: http://www.hud.gov/offices/hsg/sfh/203k/203kabou.cfm

Next Appraisal provides residential valuations in the San Francisco Bay Area, including the Alameda county cities of San Leandro, Castro Valley, San Lorenzo, Dublin, Pleasanton and many others.

I took my mandatory 7-hour USPAP 2010-2011 Update class from the Appraisal Institute two weeks ago, and frankly it was one of the best classes I've ever had. The topic, naturally, was the new 2010-2011 version of USPAP (Uniform Standards of Professional Appraisal Practice). It's the appraiser's "bible" that we breathe and live by. The Appraisal Institute instructor was amazing and the group of students included many appraisers who've been in the business 20+ years and contributed immensely to the discussions. I wish all my continuing education classes were as great! I had to invoke one of the new 2010 certification requirements in an appraisal I did today. I appraised the same property in Hercules about a year ago and one of the new requirements is that I must disclose any prior appraisal of a property performed within the past three years. A summary of the new USPAP can be found here: http://www.uspap.org/2010USPAP/USPAP/frwrd/revisions.htm

Next Appraisal provides residential appraisals in the northern California counties of Contra Costa and Alameda.