patrick.net

OK, I am not defending this appraisal as I have not seen it but a few clarifications might assist.

1. The median price you see is for the entire neighborhood as defined on the front of the report. It is not the median of the sales used in the report. There may also be a form 1004MC attached which has some statistical information on it that is in relation to the subject property (properties very similar to your house). This should not be confused with the parameters for the entire neighborhood which includes the universe of properties that are nothing like your house.

The comparable sales used in the report may be the "best available". The best comparables are not always the most similar. They must meet lender requirements for time, size, age and location. Not enough information is provided to determine this.

2. The declining market rate is on an annualized basis and is typically computed on the last three months or to the oldest comparable sale used in the appraisal. So, in your instance the appraiser is saying that the market has been dropping at a 15% annualized rate for the last three months or so. Keep in mind that Case-Shiller is a three months moving average and is two to three months behind today. Also, in computing the declining market the appraiser is using the contract date, and not the closing date of the comparable sales.

3. See #1 above. These may be the best sales available to meet the lender requirements. There is a difference between what appraisal theory says are the best comparable sales and what the banks and GSEs (Fannie Mae, Freddie Mac, FHA) say are the best. Guess who wins that battle.

If you used one of the big banks to finance your house or most any bank for that matter then the appraiser never saw that $450. He/she got maybe $250 to $275 of that. Google Appraisal Management Companies for a primer on this debacle.

starbreaker says

When we refinanced last year I wrote up a 3 page memo describing why our house should be favorably appraised and also listed about 10 comps based on Zillow, thusly explaining why our house should be worth less/more, and breaking out these properties into $/sqft and applying that rate to our house. I gave this memo to the appraiser when they arrived and walked them through all our upgrades and remodel work. It took the appraiser a full week to get back to us and we came in well higher than I realistically expected (but was still fair). The report ended up with some really odd comps as well, and some lingo that I didn’t get…but I was happy. I think the thing to take away is, if you are banking on a high appraisal you need to go all out to show the appraiser that you will be a total pain in the ass OCD nightmare to deal with by doing your homework and being super dilligent. I happen to be a CPA, so it comes easy to me, haha.

I guarantee you that folder of information you handed him went into the trash the minute he returned to his office, as it should have. It would be like getting ready for a doctor visit by going online and printing out a bunch of crap, handing your physician a folder full of printouts from WebMD when you go in for a physical, and honestly believing he'd take your "help" seriously.

Not that appraisers are doctors or anything, but they are professionals. I can tell you from personal experience that there is nothing that they hate more than some upstart trying to tell them how to do their job and throwing a folder full of zillow clippings and active listings at them as proof that the value should be "x", not to mention the fact that almost all upgrades that don't expand the liveable square footage of a house are irrelevant to the value. (ie, they don't give a shit about your new granite countertops, they aren't going to bump you up for that, so don't waste your time regailing them with the details)

And this advice, "If you want a high appraisal you need to go all out to show the appraiser that you will be a total pain in the ass OCD nightmare to deal with.." is just awful. In addition to advocating that one pester and harrass a professional who's just trying to do his/her job, you are explicitly endorsing fraud. There is a reason mortgage companies refuse to give out underwriter's phone numbers. It's the same reason people like you are prohibited by the lender from directly contacting the appraiser. They don't want pushy, overbearing idiots harrassing and/or threatening the appraiser into modifying the report in their favor.

wcarstonb says

1.) Not anywhere in the URAR form does the form ask for the “median” price of the comparable sales utilized. You are most likely reading 1004MC which is for neighborhood market analysis and could, but does not necessarily include the comparables sales utilized.

I am looking right at the report, as an addendum, entitled "Market Conditions Addendum to the Appraisal Report." Under "Inventory Analysis", Total number of Comparable Sales (settled) Current - 3 months is 5. Median Price under the same column, less than 250K. The three comparable sales used for comparative market analysis, all have sales prices above 250K. If one or all of the comparable sales were excluded from this number then the 15% annualized decline is wrong, because including a higher price in a group of 6 would significantly alter the calculated median. That is, one of the comparables is excluded, then the true number of sales is six, and the median would be the average of the listed median ($238650) and the lowest compable, $265k. This would give a ACCURATE median of ~252K. If I calculate the % decline using the given current median and the given median from 7-12 months ago, surprise, surprise, 15%. Assuming one of the comparables was excluded but using it to get the real median, then the yearly decline is down to 10%. Can't have both ways. Either one or more was excluded and the median is incorrect, or they were not excluded and it is impossible to get a median of 238K from a group of 5 when three members are 265K and above.

wcarstonb says

2.) Since you’re an “expert” you would know that Case-Shiller is a 3 month rolling average and does not account for specific neighborhood markets. I’m sure your six months of market studies are more reliable then the MLS statistics, interviews with agents, and other database materials.
In addition you point out a 2 week old sale with a time adjustment. The Market Conditions Adjustment is based on the contract date, not the closing date. It is not your fault, had you taken the “under 90 IQ”, “night class” you would have known this. Of course common sense should play a small part since being an expert you know sales could take longer than 6 months to close.

Sure. Maybe they all did take more than six months to close. Maybe they took a year to close. Or two years. Maybe. Now that I think about it, notwithstanding the little Median math error from above, I can't believe I ever questioned these numbers were massaged to fit a certain price. I'm sure these comps went under contract on the exact date that would correspond to the applied deductions for market conditions. I'm sure that if they did take six months or more to close then they wouldn't really be comps anymore, now would they? I mean, it says all over this report how she used comps from within 3 months due to changing market conditions....

Did I touch a little too close to home with the night school and 90 IQ? Come on, be honest, when you took your 5 or 6 classes at the local Kaplan U it seemed lke you were the brightest in the class, didn't it?

I don't care how much money she makes in a year. I am still convinced that I paid $450 to her for no value add whatsoever. She looked at the contract and added 7K...then massaged numbers to back it up. I would place a bet that if an analysis of her appraisals were done, well over 90% are put in within 10K under the contract price. If I had a policy of giving hundreds of dollars for a relatively worthless service often, I won't have much for too long. If that's your policy then best of luck to you.

Actually that sounds kind of, well..nevermind. Socialist. j/k.

Actually I am very proud that this little rant made the front page of Patrick.net. I'm ready for the big time. Look out New York Times!

I've owned 4 homes in the Bay Area. I've dealt with many dozens of RE agents, lenders, inspectors, and appraisers. Make take on the entire industry is that 90% are scum. There are a few genuinely honest and hard working people in the industry but you have to look for them.

I thought there are supposed to be two versions of "appraisal". A quick mechanical one should be at a nominal fee, say, $50. A real one (as david paid $450) is supposed to be a thorough one, The appraiser is supposed to be visit the property and all comps in person and examine property. Because you have to visit properties and physically examine and research them, guidence for appraiser is 16 hours work per appraisal. $450 is for that 16 hours required.

If the appraisal is carelessly prepared, we should be able ask for $400 discount, IMHO.

eoulim says

I thought there are supposed to be two versions of “appraisal”. A quick mechanical one should be at a nominal fee, say, $50. A real one (as david paid $450) is supposed to be a thorough one, The appraiser is supposed to be visit the property and all comps in person and examine property. Because you have to visit properties and physically examine and research them, guidence for appraiser is 16 hours work per appraisal. $450 is for that 16 hours required.

Where did you get your information? Is there some kind of industry standard that an appraisal is a 16 hour job?
If an independent contractor has to put 16 hours of work into a single job, he can't afford to do it for $450. This would effectively limit him to accepting 2.5 jobs per week. If he worked a 40 hour week, he makes $1125 income or $58500/yr working every weekday of the year without a day off. That is, of course impossible.
No independent contractor is able to schedule himself for every working day of the year. And most people like to take off holidays and some vacation time. He needs to cover his business overhead, SS, income taxes, health insurance, retirement account, and support his life. Seems more realistic to me to put in fewer hours per job, work many more jobs per week in the busy months, so that he can save some income to live off in the slow months, and presumably take a vacation.

Based on the quality of this report, including write up and site visits, this is a 3-5 hour job max. My guess is they do one per day and take home $300 for each job. They essentially work an area for the lender so I bet those still in the business stay pretty busy.
Its about $72K minus overhead for a half days work if they take four weeks vacation. If they really bust it, they could do 7 per week for 50 weeks, making it $105k. Not bad for a low barrier of entry akin to 20 hours of freshman level courses, plus a year in the "biz" training.

Fast Food Restaurant Managers have a similar barrier of entry and don't touch that income. And they work WAY over 40 hours per week on the average. Sad to say in this day and age but I bet you would find well over 50% of McDs managers have some college. That was money well spent - off topic but true.

Which brings to another post above; I know it was expressly said "not to compare an appraiser to a Doctor." Well by even mentioning the word "Doctor" you are in effect doing just that. I am sorry...really..but one year of training on top of 20 hours of coursework does not, by any stretch of the imagination, come even remotely close to four years of college, four years of Medical School, five years (usually) of residency followed by another year or two of training for certain specialties. A doctor is a professional. An appraiser is a real estate agent with a better license who couldn't sell. An agent is no more a professional than any other salesperson, no matter what type of trademark they put after their title. Just to be clear, other types of salespeople are telemarketers, brokers, car salesman, etc. What do you think of those types of professions?

And I'm not a doctor and really don't care much for them. But our doctor actually asked my wife what the internet said she had the last time she went into his office. Why? Humor, because he knew she looked it up, and also because he probably was open to another opinion just to be sure of his diagnosis. She self diagnosed with WebMD the exact same condition that he did. A professional that is worth anything is willing to do his job in the way that is most effective and doesn't let his ego get in the way very often.

It's interesting the rules and pressures an appraiser has to deal with. See. I have a personal friend that is one. For over 13 years we have been friends. I can tell you they are a lot more like a regular working guy like an electrician or a plumber than anything else. Its very time consuming and difficult to drive out and back from jobs. Many times in traffic. Then doing a lot of reasearch to make the rules. It can be very technical. I've had some nice fights with my buddy. Deal is he's got his own interests to like staying in business. Believe me when it comes to dealing with an appraiser. No ones really holier than thou. I've seen my friend really get put through it for being an appraiser. Look get a good deal stop trying to make one.

ArtimusMaxtor says

I’ve seen my friend really get put through it for being an appraiser. Look get a good deal stop trying to make one.

I did. I don't care what that appraisal says...its not the point of all of this. I was just complaining about the whole system really...I determined the value of the house and resent having to pay $450 for a fallacy to validate it.

If you really want to know:
Interest, Opportunity Cost of Down Payment(@5%), Taxes, Maintenance(.75% of house value annually), & Insurance is $1226. There is no benefit for state taxes in NC (they have a standard deduction you must use) Fed. Income tax benefit (over and above st. deduction) is $170 per month. Total total carrying cost after taxes is $1056. Rent on homes in the same town is $1400 minimum. Zillow puts the rent estimate on this house at $1750, and I would say that is pretty accurate based upon the $1400 rentals that I did check out. It is actually a 40% discount to renting, but I said 20% because I didn't include the tax benefits earlier and included amortization.

In situations like these, I believe buying is superior. Even if the house has little to no surrender value, it is likely that rents will have climbed 25-50% in the next 30 years. Its really all buying a house is...not a way of building wealth but a way of hedging against escalating shelter costs. I only need to look at California, Europe, and New England to see where costs of shelter are going...people will pay 40% of their incomes or more in rent (or shelter costs) if they need to. Shelter has very inelastic demand from my experience.

20 years ago no one on California would have dreamed of spending 500K on a 50 year old two bedroom, or $2800 in rent, especially since it represented 50% of their income. It's as common as blond hair and plastic surgery out there now. Where do you think the rest of the counntry is going to head? More conservative? I have a hard time thinking of one instance, either socially or economically, where any large section of Americans have become more conservative over the past 30 years.

Appraisers are hit or miss. Good ones and bad ones in the industry. Most are producing a report that will be 'accepted' by the bank. They are also only concerned about covering their own ass*s. We recently refinanced our house. We had one heck of a surly appraiser show up who pretty much told me, stay out of my way, I want to get in and out as fast as possible, and if you follow me, it will take too long. He was in the house for 6 minutes tops! That appraisal came is so low we couldn't qualify for the refinance. Our mortgage broker actually paid out of his pocket for another appraisal with another appraiser (after he did some research he realized something was wrong). The 2nd appraiser came in 25k HIGHER. The 2nd appraisal was ordered through the same company (state street), and they actually wouldn't release the 2nd appraisal until they had it checked out by several other groups in their company to ensure it was actually correct. Needless to say, we were able to re-fi with that 2nd appraisal.

Here is a non-partisan take on this based on all the sources I have read. This is not my opinion but a collection of ideas that I have read from various news sources. Basically, it was a perfect storm of globalization/free trade, war on terror spending, and federal reserve policies.

1. Unqualified people being given mortgages, and Alan Greenspan's monetary policies.
2. Free trade and imbalance (i.e., shipment of jobs to India, China, Mexico, etc. ).
3. Oil price spike in early 2008 led to further weaken economy.
4. Unsustainable tax rate structure for top 10%
5. Excessive government spending for illegal immigrant children and adults (i.e., Medicaid, and other social safety net expenses)
6. Depression of wages due to illegal immigration
7. Wars in Iraq and Afghanistan; billions given to foreigners to rebuild their countries
8. Dependency on financial schemes and emphasis on banking and healthcare sectors instead of on manufacturing and technology sectors

1. The appraiser works with what is available. I'm not sure where you got the median value, but if the comps used are the most similar the median doesn't matter.

2. Use of national data for market adjustments is misleading. Prices may be increasing in one neighborhood while declining at the city or state level. Or vice versa. These adjustments are calculated on the contract date, not close date.

3. Are better comps available in your neighborhood? Were location adjustments applied and described for the out of neighborhood comps?

The report may be accurate, or not. Too many questions unanswered.

David: In Point 2. can you explain your math in this paragraph as to the time adjustment?

"For example, she reduced in price a comp that sold two weeks ago 2.5%, and another than sold 6 weeks ago 4%. Those are 90% and 40% annualized declines by my math."

90% and 40%? You sure?

1.025 ^ (52/2) = 1.90

1.04 ^ (52/6) = 1.40

@leoj707

"The house down the street sold a month later for 5K over what my friends purchased for."

If you know... How long was that house on the markey for in total (with the angry agent)? Anyway he got his fat commission soon after (although just a little lower).

Well David if you understood how the billing works. Which you probably do. Appaisers would love more automony and fair distribution. So the way things are dosen't sit as well with them as you might think.

Don't you all get it? The real estate industry, all the agents, the brokers, the laws, the people who run the state level departments of real estate, the associations, the MLS's, the appraisers...everyone in the industry exist to pay NAR a small fee so that NAR makes billions!!!! Here is a question that no one can answer: Where is all the billions going per year? Ever see a breakdown of the salaries pays to the shadow owners of NAR? What some more? One of the main reasons we had the financial meltdown was because of appraisals! Why base a one house's value on the sale price of a comparable home? This caused prices to go up....and up...and up....until POP! A house is worth what someone is willing to pay for it!!!! That's it. No more. Appraisals are a creation by Wall Street so they can sell off the loans with some claimed value. There is no such thing as an appraisal of value for a home. It's a figment of someone's imagination. The formula for valuing a home? A X B X C. A=The amount of time someone is willing to wait around for a buyer. B=The amount of money someone wants for their home. C=What someone is willing to pay for the home with the amount of time in "A". That's it. Add this formula to an open marketplace free of all those real estate professionals who are really asleep in a coma in their pods (damn our machine masters on capitol hill) and you would always...100%....find out the value of your home. God! I have to lay off the coffee Patrick :)

Artimus Maxtor...The Matrix Has you.....

ohhh pooh I knew it.

It's kind of single. I cut appraisers out of the heard. Because it's an interesting person that is an appraiser. There are bad ones true. But when I see a really good one I make note. Get the best deals you will never regret it. People that try to make bad deals good ones alway live to regret it.

See this isn't fast food. What it really is. Is taking your time and not jumping at just anything. You get that one thing you THINK is a great buy. See. Buyers first mistake. You just can't let it go. If its that good you really want it more than your GF. Think twice. An appraiser. A company man well thats a little different. You should really be learning this yourself. Thats a big ticket buy. See. It not what you think is going to sell. A really hot location is a no brainer. However there are cold spots. Lots to learn.

Simple big, big ticket buy. Treat it as such. Do your own work. Don't get lazy and let someone else do it for you. You may lose a lot of cash.

David: Your math in #2 is wrong. Look at it carefully. (2.5%/2 weeks = 1.25 x 52 weeks = 65%) & (4%/6 weeks = .67 x 52 weeks = 34.67%). Had the appraiser made your math mistake (90% and 40%) that appraisal could have been $7K under and then you may have actually made a point, or at least had a basis to rant.

Why is this important? Because it’s about credibility (that’s all an appraiser has). Your inability to do simple calculations means you don’t have a clue as to any further in depth analysis, but claim to be an “expert”. As it is, you’ve lost credibility because 1. You cannot do elementary math 2. You speak to educational requirements for the appraiser, but have no idea what these are. So your both incompetent and a liar. (Ever thought about getting your appraisal license? ) ; ^ )

You’re a nobody so your credibility doesn’t matter, but to do this to Patrick is a disservice to us all, he does a good job (with the exception of printing your nonsense).

Before you try and head to the New York Times, have your wife check your math next time. Or head down to your local elementary school math lab. If you humble yourself and change your arrogant attitude, they’d likely be happy to give you a hand.

David: Your math in #2 is wrong. Look at it carefully. (2.5%/2 weeks = 1.25 x 52 weeks = 65%) & (4%/6 weeks = .67 x 52 weeks = 34.67%). Had the appraiser made your math mistake (90% and 40%) that appraisal could have been $7K under and then you may have actually made a point, or at least had a basis to rant.

Why is this important? Because it’s about credibility (that’s all an appraiser has). Your inability to do simple calculations means you don’t have a clue as to any further in depth analysis, but claim to be an “expert”. As it is, you’ve lost credibility because 1. You cannot do elementary math 2. You speak to educational requirements for the appraiser, but have no idea what these are. So your both incompetent and a liar. (Ever thought about getting your appraisal license? ) ; ^ )

You’re a nobody so your credibility doesn’t matter, but to do this to Patrick is a disservice to us all, he does a good job (with the exception of printing your nonsense).

Before you try and head to the New York Times, have your wife check your math next time. Or head down to your local elementary school math lab. If you humble yourself and change your arrogant attitude, they’d likely be happy to give you a hand.

Cali:

lol.

This is called "being an a-hole above your pay-grade."

I'll save you a seat down at the math lab.

By the way, from the NC General Statutes, but of course, these requirements may vary from state to state:

Each applicant for certification as a certified residential real estate appraiser shall:
a. Hold an associate's degree or higher from an accredited college, junior college, community college, or university; or have a high school diploma or its equivalent and have successfully completed at least 21 semester credit hours of college courses from an accredited college, junior college, community college, or university in English composition, principles of economics, finance, higher mathematics, such as geometry or algebra, statistics, introduction to computers, and business or real estate law;
b. Demonstrate that the applicant possesses the knowledge and competence necessary to perform appraisals of real property as the Board may prescribe by having satisfactorily completed, within the five-year period immediately preceding the date the application is made, a course of instruction, approved by the Board, in real estate appraisal principles and practices consisting of at least 200 hours;
c. Present evidence satisfactory to the Board of at least 2,500 hours or the minimum requirement as imposed by the Appraisal Foundation,
NC General Statutes - Chapter 93E 6
whichever is greater, of experience in real estate appraising within the five-year period immediately preceding the date application is made, and over a period of at least two calendar years; and
d. Satisfy the additional qualifications criteria as may be imposed by the Board by rule, not inconsistent with any requirements imposed by the Appraisal Foundation; or
e. Possess education and experience which is found by the Board in its discretion to be equivalent to the above requirements.

So 21 hours of college is required, with 200 hours of a "course of instruction" (which can be done online) - And by the way, the 200 hours they are talking about is equivalent to13.33 semester hours of college...and here is my math.. a 13.33 semester hour course meets for 13.33 hours per week for 15 weeks...so 13.33 * 15 = 200.

And 2500 hours of training...which is 2500/40 = 62.5 weeks.

So I was wrong...you have to take 21 hours of some college (I said 20), and some or all of those 21 may be appraisal courses. But a minimum of the equivalent of 13.33 semester hours must be in an approved appraisal "course of instruction." Which I have found can be taken online at an "Appraisal School." Doesn't even have to be Kaplan U.

And instead of taking one year of training (52 weeks), you have to take 10.5 weeks more of training.

Gosh I was way off. Now that I know it takes 21 semester hours of college work plus 62.5 weeks of "training," I humbly withdraw my previous comments. Clearly they ARE professionals worthy of our highest esteem and praise.

Question is who sets the standards and why? Well just like anything else the answer is obvious. The larger the loan the more the interest. May not be true in Delaware or some rural area. It works really well in some other area. I could talk banks vs lenders. I won't here however.

If I did talk lender vs bank there would probably be an insurrection.

How do you quantify changing market conditions? By Case or change in monthly median sales prices? Nope.

You quantify change by an initial sale and subsequent resale of the same, or an identical property with identical characteristics, at two points in time. Typically somewhere from 1-5 years. This gives you a FLAT rate of change, you won't know if it is 12% one year, 36% the next, and 24% the next. You only get the change at that particular point in time for that period of time.

For you guys/girls (or whatever) to take that historical FLAT rate of change and compound it results in an overstated level. I think that's pretty simple. How are you determining your market condition rate of change. This isn't the stock market that you can watch daily, weekly or even monthly.

Calif:

You have to compound it, and here is why:

Lets say a house is worth $100 today. Lets say prices double tommorrow, to $200. Then lets say the next day prices go down 50%, back to 100. Net 0% appreciation.

Using your arithmetic method, you would have an average appreciation of (100%-50%)/2 days = 25% per day.

Using the correct geometric method, you would have (1 + 100%) * (1-50%) = 100% -1 = 0%, the correct answer.

And by taking two sales prices of the same house over a certain period of time, you do not get a flat rate of change. You merely get the average of a continuously compounding rate. How is that average calculated? Not by simply adding the rates at any given number of periods and dividing by the periods. Using your example, the average rate of three years you stated (12%, 36%, 24%) would be 24% using your method. If you had a house worth $100 and experienced these increases, it would be $112 after year 1, $152.32 after year 2, and $188.88 after year 3. What if you just said 24% per year? Year 1 - $124, year 2 - $153.76 and year 3 - $190.66. Close but different. The more perios you have, the more the error.

I understand your methodology, and thank you for taking the time to spell it out.

What I'm saying, is if you take that methodology and discount those comps at present based on your future compounded rate, you are adjusting at a level over and above the present market rate of change based on your historical analusis and will overshoot your adjustment big time

David: You state in your rant, "but I just hate the fact that $450 of my hard earned money went into the pocket of this moron just because she took a night school class on real estate appraisal...."

And then you added your additional research in comments two days later, ie, you initially spoke out the left side of your neck, didn't you? I'm a big person though, so your apology, even if it is sarcastic, is accepted.

By the way, if you really think that the job done was poor, have your state board review it. Won't cost you a thing. I still don't think you have the basics down enough to comprehend what your talking about, disregarding and completely ignoring the compounding or flat rate % change argument. Aside from your "expert" research, have you ever had even one basic appraisal course?

Calif says

What I’m saying, is if you take that methodology and discount those comps at present based on your future compounded rate, you are adjusting at a level over and above the present market rate of change based on your historical analusis and will overshoot your adjustment big time

Let me spell it out for you again. I took the amount that a comparable sale was adjusted for "market conditions," which was 2.5% and 4% off the price, then looked at the time of the sale, and calculated a correct annualized rate of return based upon that adjustment. If she would have done the adjustment correctly, she would have taken the 1.15^(2/52) -1 to find the accurate amount to adjust down. (based upon her stated 15% annual rate of decline) She didn't and that is what I was pointing out.

Calif says

And then you added your additional research in comments two days later, ie, you initially spoke out the left side of your neck, didn’t you? I’m a big person though, so your apology, even if it is sarcastic, is accepted.

I don't think I was speaking out of the left side of my neck. The comment "took a night school class in real estate appraisal" was a simplification of the overall process for licensure. Of course, 62.5 weeks of training in the business and 21 hours of college credit, with at least 13.33 hours of the college(loosely) credits being in an approved course of study is more than "a night school class in appraisal." But not much more. That's how I feel. Did I know the exact requirement when I originally spoke? No. But I felt I was pretty close..and it turns out I was.

Calif says

By the way, if you really think that the job done was poor, have your state board review it. Won’t cost you a thing. I still don’t think you have the basics down enough to comprehend what your talking about, disregarding and completely ignoring the compounding or flat rate % change argument. Aside from your “expert” research, have you ever had even one basic appraisal course?

I won't contest it, because the house appraised for above my purchase price, so I have no real reason too. I feel I should be able to come on a real estate crash blog and point out inaccuracies in a report and question the current real estate hierarchy...perhaps vent and bitch a bit. Especially paying the $450. I have no problem defending my position to you.

I have never taken a basic real estate appraisal course. Honestly, I am more qualified to teach such a course. I am not going to disclose what I do because it is really not important, just as you haven't disclosed your profession.(though I can manage a guess or two) But I will say that I am highly practiced in various asset valuations on pretty much a daily basis.

I may have come off as an arrogant prick, but some of your comments were personal attacks towards me. Bottom line is I was right, you were wrong and no matter where you try to move the argument or hone in on semantics that does not change. Call me or think of me what you want but I never personally attacked you, and you cannot say the same.

david1 says

I don’t care what that appraisal says…its not the point of all of this. I was just complaining about the whole system really…I determined the value of the house and resent having to pay $450 for a fallacy to validate it.

Davey,

If you determined the value of the house then you should have paid cash for it. It was your lender who required the appraisal to verify if the property you are purchasing is a sufficient risk to lend you a couple hundred thousand dollars. Blame your lender not the appraiser. The lender most likely ordered the appraisal through a national appraisal management service who then selected a local licensed appraiser and then paid the appraiser 50-60% of the invoice.

You created your own fallacy in your argument. Fancy that.

My guess is this is your first rodeo.

Tex,

Touche, though I think your point it obvious.

Guess again cowboy.

David: Fair enough. But I did and do feel that you attacked not only the appraiser, but an entire "profession." Points we agree on: 1. "Profession" is used loosely, there has been and likely will continue to be crappy appraisals. Residential is where most start out 2. The system has problems with corruption (eg. Appraisers will constantly be led one way or the other dependent on wishes of those ordering/requiring appraisals). You may have PMI removal, tax consequences someday, mtg. refinance, want a review of an appraisal you feel is too high/low, and if you are desperate or feel strongly about it like the lady above, you may attempt to indicate a direction in value (lead) the appraiser also. Hell, I may too if I felt they may miss something I think is important. Have to be careful now though, its a Misdemeanor in my area under conditions.

What I think can be said about accountants, engineers, mathematicians, is that they all have exact answers (and USUALLY can prove them), but when it comes to reviewing appraisals, want to fit that square peg into a round hole. I can’t argue for her math, but the way you wrote the rant (or the way I took it, eg. there were holes with some of your examples that couldn’t be filled without more info) was that you annualized into the future at a compounded rate assuming it would continue on a straight line basis with no change, (like a return on a fixed asset investment) is wrong. Still do. At best you can look back and report what you find and adjust accordingly, but not compound that adjustment backward or forward, or you will be wrong. I think you and Persian Kitty are wrong in that respect, would love to see how your appraisal with those adjustments was received by those in the business. I’ve taken both Income Capitalization and Advance Income Capitalization thought the Institute, and honestly, those two courses are about the best I think it has to offer. Anyway, time for me to go fishing. I do appreciate you responding and will give you the last word if you want since you started the topic.

It's a loophole. One of many in real estate industry. If you think about it, there's not much you can do about it.

I think more trouble some is the conflict of interest in appraisal. That we can address just a little bit better.
There's supposed to be a guideline but it boils down to individual appraiser's moral, basically, IMHO.

Compared to realtor's 6% commission and other fees and charges, $450 flat charge is very small amount.

Technology is now mature enough to change all these non-senses. Social, legal and political change are the ones that are slow. In fact, there are now tools and companies to solve this nonsense. People are just not comfortable with new way and go with traditional human realtors and appraisers when it comes to buying/selling home. People (and legal system, of course, by lobby and so on) still prefer traditional human realtors (and their ever so prescious MLS listings) and human appraisers.

This parasite industry will be doomed by technology eventually. It's actually us, buyers/sellers, who resist to change, IMHO.

ps. You also claim to be right by compounding weekly, why not daily (wouldn't your argument play out better that way?), or monthly? Changing that variable would change your "correct" answers, no? PPs. I thought your "rate of return" was an interesting point. You treat it as a fixed rate asset rate of return? At least you compound it out that way.

I'm not compounding weekly, only compounding in the predetermined periods that the appraiser uses (that is 2 weeks and 6 weeks here) When you ANNUALIZE a rate of return, this is how you do it.

I don't disagree with your points that in the real world, assuming that an asset will continue to change at a certain rate over a year is most often going to be false. I was merely stating that the appraiser had discounted for market conditions 2.5% for 2 weeks, and 4% for 6 weeks. If you annualized those rates of change, they are 90% and 40% respectively. That these rates are not equal further illustrates that the rates are static. I am questioning how someone could state the annual decline in a certain area is 15%, and have data to support such, then pull seemingly arbitrary decline numbers that do not correlate to a 15% annual decline. It certainly is possible that if assets in an area have declined 15% of the past 52 weeks, they have declined 2.5% in the past two weeks and 4% in the past 6 weeks. Without having any data that supports this though, it is worth questioning in light of the fact that these rates vary greatly from the only support given.

And this is precisely my point. The appraiser, in my opinion, eyeballed the house, looked at the contract, thought the sales price was fair, and added a few thousand to it to get her value. Then she used arbitrary comps, with arbitrary adjustments to those comps based upon "market conditions" to support that price.

I have no problem with attempting to determine value using this method. What I do have a problem with is using this method to determine value, and then trying to fudge concrete calculations and elaborate analysis, (which was either done mathmatically incorrectly, or without the support documentation to validate the adjustments) and then charging $450 because it had the higher level "research."

In short, you are correct in stating that an asset is not likely going to continue to compound at a constant rate over 26 periods in a static environment such as house values. This is not what I was ever stating, however. I only pointed out that the report stated 15% decline over the past year, and I found it suspect that a 2.5% decline for a two week period did not seem to jive with that, because if you annualized that rate of decline it would be 90% in one year. Where is the support for the 2.5% decline in the past two weeks? There isn't any, the adjustment was arbitrary.

But you were 100% wrong in annualizing returns by using an arithmetic formula (your .025/2*52 formula). Be a man, admit it, and understand that you lecturing me on credibility and telling me to go down to the math lab at a local elementary in light of this error was one of the funniest things I have seen on patrick.net.

david1 says

I may have come off as an arrogant prick

"YES!! You are correct, sir!!"

david1 says

I only pointed out that the report stated 15% decline over the past year, and I found it suspect that a 2.5% decline for a two week period did not seem to jive with that, because if you annualized that rate of decline it would be 90% in one year. Where is the support for the 2.5% decline in the past two weeks? There isn’t any, the adjustment was arbitrary.

Where do you come up with the idea that 15% is completely inaccurate because the 2 week trend doesnt EXACTLY match the rate of depreciation stated annually? If that were a requirement, then me saying, "Home prices are up 40% in the last 10 years, but are down 20% in the last 2 years." Would be a completely fallacious and ridiculous statement. Surely a man of your intellectual stature can see the foolishness of that conclusion. Just because the "proof" was not provided directly in the report (it's not required to be furnished, yet she probably still has it) doesn't mean "there isn't any."

Look, three things are painfully obvious here:

1) Your opinion of yourself borders on megalomaniacal
2) You have absolutely no idea what methods are used to complete and appraisal, and just like the "idiot appraiser" you hate so much....are pulling numbers and calculations out of your ass just to make your case.
3) Your opinion on this matter will not change. You are pissed, you want everyone else to join the pity-party, and have no intention of actually educating youself on the matter.