Fortunately, the lender smelled a rat.

This week a lender sent an appraisal order to me.  The lender that contacted me received a loan request accompanied by an appraisal done for another lender.  The other lender had rejected the loan application.

The first appraiser had produced an appraisal that was about 15% higher than what current market value is for the subject property.  The second lender, who asked me to do an appraisal, wanted a second opinion of value.  That is where I came in.

The lender received my appraisal and called me.  They thought that the other appraiser had a high value conclusion.  But, were surprised at the large difference between the first appraisal and my appraisal.

When I was called by the lender to discuss my appraisal, it was discovered that the first appraiser made no adjustments for market concessions.  And, in each case, there were concessions in the $6,000 to $10,000 range.  (Those would be downward adjustments to the sales price.)

Also, there was one sale that occurred in the subject plat during the last six months.  It was a house very similar in age, style, location, condition, everything, as compared to the subject.  The first appraiser left that sale out of their report.  Apparently that sale did not support the value conclusion they were looking for.

This kind of appraisal work is common.  If you want fraudulent appraisal work done, you only need to keep calling different appraiser’s phone numbers.  You will find the appraiser who will do what we call “custom work.”  That is, work done with a preconceived conclusion.  Then the appraiser delivers a fraudulent report to support the preconceived value.

Has this appraiser not read the morning papers?????  This is not the environment to be proffering fraudulent appraisals.

I do work for “Great Big National Mortgage.”  You know their name.  They told me they have a national V.P. that is in charge of watching over the loan officers.  If the loan officers even call the appraiser during the appraisal process “Great Big” National will fire the L.O.   Yikes!!!!!!

I also do work for “Great Big National Bank.”  You know their name.  They will only accept one appraisal on any loan application, and that’s it.   They have a strict follow up procedure to review appraisals.  But, no one tosses out an appraisal and says, “Let’s get a better one.”  “Great Big” also reviews us appraisers regularly.  They know who we appraisers are and if they can trust us.

As the new regulations that affect the appraisal industry are put on the books, we appraisers will not be able to stay licensed if we do such “custom” work.

And that is a good thing.

Ralph K. Olsen, IFA

Pacific West Appraisal Services, Inc.

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It is the real estate appraiser’s job to report what is there.  There often is a great deal of chatter from Realtor’s, lenders and borrowers to tempt the appraiser to report something other than what is there.

I looked at a house recently that was 50 years old and in quite good condition.  It measured 1,320 square feet of living area with a one car garage.  However, when the county records were checked, the house showed only 884 square feet of living area.

For the legitimate players, this is a red flag.  It looks like someone increased the size of the house without permits.

If the lender makes the loan without concern for this disparity, they could be at risk of future expense to repair the house if the local building authority comes along and wants to inspect the old work (plumbing, electrical, framing, etc.).  That could require the tearing out of finished walls.  Messy and expensive with no net gain in the value of the property for all the work that would have to be done.

In the case of this property the Realtor sent an e-mail to me suggesting that Linda Franklin (the assessor) had agreed to go into the data files and change the square footage to 1,320 square feet.  And, that I should continue and complete the appraisal.

I have known Linda since the 1960’s.  She is a good person and a good assessor.  She would never do that.

The point is that the appraiser must be objective and report what’s there.  We are the eyes of the lender.  The building department reported that there had not been a building permit taken out on that house since it was completed in 1958.

The Realtor is probably unhappy with me.  But, the lender is happy.  The borrower is happy.  And, no one is left at risk for a bad surprise in the future.

Ralph K. Olsen, IFA

Pacific West Appraisal Services, Inc.

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In the east Hazel Dell area there is a condominium named Hidden Abodes.  A look at its performance since coming on line in 2005 depicts the current state of the market.

Hidden Abodes was completed in 2005 and began selling.  There are a total of 18 units in the development.  All sold in 2005 except for one unit, which has never sold.

In 2005 the seventeen units that did sell were on the market for an average of 68 days and sold for an average of $135 per square foot.  That equates to an average sales price of $164,606.  The average size of these two story units is 1,221 square feet.

After having mostly sold out, there was one sale in 2006 for $192,500.  That is a rate per square foot of $143.  The market was still rising.

In 2007 there were three sales that averaged $162,933, or $137 per square foot.  The market had gone past it’s peak.

In 2008 there has been one sale for $142,000.  The rate per square foot was $120.

From 2005 to 2006 the market for these properties appeared to have jumped almost 17%.  From 2006 to 2007 it appears to have declined about 15.3%.  Then, from 2007 to 2008 it declined another 13%.

There is not enough data from the sales in this project to be statistically definitive, but they do track with the rest of the market pretty well.

Currently there are two listings in the development.  They average $122,100.  That is $103 per square foot.

Ralph K. Olsen, IFA

Pacific West Appraisal Services, Inc.

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