HVCC & Me & Me

I recently have been talking to a lot of REALTORS® about appraisals; their personal experiences with HVCC and its guidelines (take NAR’s quiz about HVCC). Not too many good stories out there, and a lot of challenges. Margie Smigel of Metro-Pro recounted the following appraisal experiences from the traditional sales side. I have one from the REO side regarding a BPO (Broker Price Opinion).

Margie Smigel’s Appraisal Stories

I was visiting a friend this past weekend, and I sat next to her on her couch while she watched “House-Hunters”, one of her favorite shows.  I don’t know about the rest of the real estate professionals out there, but I personallycannot stand to watch those home shows.  I get enough of looking at houses in my real life.  I’d rather watch “The Daily Show” in my free time.

This particular night the program featured a young couple moving back to Milwaukee from their Wrigleyville rental in Chicago. One of the houses they toured was a pretty standard suburban house.  The basement was a disaster and needed full renovation.  Above the bathroom sink was a large hole. The kitchen was old and dated. It needed work. At the end of the tour, the price flashed on the screen with the price per square foot: $165.  That’s when I sat up and took notice.  $165 per square foot for a house that was really nothing special… in Milwaukee. (I LOVE Milwaukee…especially their beer or cheese).

Another event that unfolded this past weekend was the tragic end of a deal I had brokered on a lovely house in Beverly.  My buyer loved the house.  Built in 1960, it was a four level split ranch that sat on a lot with 4 pin numbers and was highly upgraded, with floor to ceiling thermopane windows, a carefully landscaped yard, several paved patios, dual zoned heating/air conditioning systems etc… you know, the works. We executed contract for full price of $665,000.  She believed that it was worth what the sellers were asking. BTW, I had been working with this client for almost a year. 

The deal died because the appraiser brought in an appraisal of $420,000.  My jaw dropped when the buyer called me to tell me that the appraisal had come in at this price.  This is not a property in distress. The neighborhood is stable, and a home around the corner just closed for over $1,000,000.  When I finally got a hold of the appraisal, I was astounded. The appraiser valued the upstairs square footage at $110 per square foot.  If the house were to have been valued at the $165 per square foot that had been assigned to the little neglected house in Milwaukee, using only the upstairs square footage, the house would have appraised at $541,530.  If the attached garage and basement were included in that square footage, the appraised value would have been $718,410.

The September appraisal stated that there were currently six comparable houses on the market between $450,000 and $550,000, completely neglecting the 12 houses priced above $550,000 and up to $1,250,000.  It said that there were five comparable sales in the neighborhood within the past 12 months that were between $375,000 and $475,000, but did not mention the four houses that closed between $545,000 and $772,750 (or the house that sold for $1,075,000).

I have studied this appraisal over and over, and I am left to wonder what is going on here!? 

This appraisal is not a reflection of a declining market.  I believe that this is a part of a free fall being perpetrated by members of the mortgage industry. There appears to be a concerted effort to make this house appear to have less value than its market value (the price at which a buyer is willing to buy and a seller is willing to sell). 

The question is “why?”  I cannot understand why the banking industry, flush with stimulus funds, is not lending mortgage money.  This is not the first time I have encountered appraisal/underwriting issues this season. 

Example: I sold a fully renovated 2BR/2BA condo in Bronzeville that was the last unit to sell in a six flat condo conversion. The contract price was $105,000, but the bank’s underwriter balked at the price (although the appraisal was at full value) because there had been foreclosures on the block. 

NO ONE will make money in this new market if there are no closings. Again, what is the motivation of the banks in this strategy?

Mabel Guzman's story

My account is different only because the appraisal has a bearing on the initial list price of a distressed property (become an ADPR). The property was an above grade 3 flat in Woodlawn with no kitchens or vanities in baths. It wasn't in terrible shape so my BPO was for $119,000, end of that. Next day, get a call from a pissed off asset manager asking "why did I price it this way?" I held my ground and told her about other properties in the area I have personally seen, and stood by my BPO. She said the appraiser reports this is a tear down... I said "no way!" She said, "way!" In the end she said "OK, you stand behind this, we'll get a listing agreement pulled together a.s.a.p." I asked her "What price did the appraisal come in at," she said... "$30,000,"- I believe at this point I pulled over my car and did a great Dustin Hoffman in Rainman imitation...said,  "That's just crazy, definitely definitely, crazy, crazy... definitely crazy."

Anyway, I listed this property for $115,000- received four offers the next day. BTW, the following week I received another offer for the magic price of $35,000. I am not a conspiracy therorist, and yet I felt like someone conspired.

My question is, when did we lose being an expert on listing and pricing properties? I understand in the past two years we lost value, and yes we priced these properties; We priced them at what the market would bear. Currently we are doing the same. And, our bailout money is covering the losses of these properties!

I agree with Margie that appraisal/mortgage issues will be the defining issues of the residential real estate business in the next few years.  We, as real estate professionals, must figure out a way to end what is happening here. The current stasus in the marketplace is no longer a result of buyers’ reluctance to purchase, but it is rather, the result of the lenders’ refusal to lend their money.  Yes, there has been an understandable tightening of lending practices, but when the banks use appraisals as the reasons for not financing able buyers, then we encounter a completely different issue.

NAR has a webpage about HVCC. It is purely academic in my opinion.

However, our responsibility to the industry as REALTORS is to not let this downward spiral continue.  We must make our voices heard. We must make this situation stop in its tracks.  We can no longer be silent.

That's Right!

Tell us your appraisal stories. We can catalog and send to NAR and say... Hey NAR! Fire back on this one. Except, they can only fire when we give them the ammo. Time to show and tell!

BLOG ON!