Live/Work

In previous posts I’ve hinted at my dismay with the appraisal process. Well, I thought I’d take a moment and spell out a few details, hopefully so others will go into the process with their eyes wide open.

First, I’ll preface this post with my belief that there are plenty of ethical, professionals in the field of appraising. Nevertheless, I’ve come to the conclusion that there are some serious flaws with the process, many of which are being highlighted by the mortgage meltdown.

Here’s the problem: appraisers are in the business of making an appraisal “work” for the bank or mortgage office who has hired them. While one would hope they’d maintain a degree of objectivity, let’s be clear: appraisers make their living, in large part, from the business that banks/brokers deliver to them. If deals fall through due to an appraisal, it’s highly likely the bank/broker will look for another appraiser. So, in a nutshell, the incentive is for the appraiser to value the property at the amount specified by the lender or broker.

Let’s get specific as to how I managed to lose $600.

Several month back, I was working with a broker to obtain financing. He pushed hard for us to get an appraisal and recommended a business that supposedly had new construction appraisal experience. The appraisal was more expensive than most, since we were paying for their “expertise” and ability to value a project based on plans.

Fast forward a month or so. We received the appraisal an lo-and-behold! It came in at nearly exactly the amount we were hoping for! Miracle of miracles!

So what’s the problem? Well, the problem goes back to an earlier contractor. One who low-balled the initial estimate He estimated the project at $120. I told the loan office we’d need $150k. Sadly, when the rubber hit the road, the contractor’s final estimate came in at nearly $200k, making the appraisal meaningless.

So, two lessons were learned from this experience: 1) Don’t trust a “ballpark” figure and 2) Know for SURE what your costs will be before you approach an appraiser or loan officer.

Back to the story….

Once we realized that the appraisal was far below the cost to build, I began to take a second look at the actual appraisal document. As it turned out, the comps used to value the property were so far off the mark that the appraisal was way too low. Normally, this wouldn’t be an issue – if we needed $150k, we would have been fine. However, now that we need MORE money, our appraisal is nearly worthless.

Sadly, when I confronted the loan officer and appraiser about the problems with the appraisal they both said “well, it is what it is.” They are loathe to change anything – even if it’s to correct factual errors – because of the fear that it will be perceived as unethical. Sadly, it’s the lack of ethics (and effort) that brought us to this situation. A useless, inaccurate appraisal and $600 flushed down the drain.

This entry was posted Friday, February 22nd, 2008 at 7:50 pm and is filed under Financial, Meetings with Mortgage Brokers. You can leave a response, or trackback from your own site.