Tuesday, July 24, 2007

Influencing Apraisals or appraising is a joke

I wrote earlier about how it might work to my advantage that I accompany appraisers when they do a BPO on a foreclosure. I thought I might be able to point out the flaws of a house and help keep the appraised price down. Well, I did it last week. Some commenter's warned that I might get in the appraisers face and it might work against me.

When the appraiser came last week I met him at the property and casually asked about how he was going to do comps and politely pointed out some flaws. As he left I told him I was not looking to re-finance and would like to see a lower price. He said simple that it was much easier to get a lower price and left it at that. I don't think I offended him at all or "got in his face".

I talked to the investor today and found out that the appraisal came in with a value of $104,000! I have estimated that this property was worth $250k after repair and offered $202k "as is". The appraisal cited replacing new cabinets for $30k(they were just installed 4 years ago) and $15k in electrical work (the basement lights don't work) as flaws. I don't know how he came up with but it didn't work to my favor (or his). The investor ordered another appraisal and they did a "drive-by" and came up with a value of $268k.

So the investor threw out the initial appraisal and will not pay them (can't say I blame them). Neither appraisal is correct in my estimate of what the house is really worth. The investor is going to put together a counter offer (I only offered him $2k for his $20k loan), but at least it may have put some doubt into his mind.

As for now the legal action has stopped on this house again (for the second time). The homeowner is determined to live there as long as possible without paying anything and is quite clever in delaying the auction.

Whether the commenter's were correct in telling me not to interfere is not really important here. The lesson is that appraising property is heavily influenced and so far from reality that it defies logic in many situations. Many blame the banks for the sub-prime mess, some blame the borrowers, but few have blamed the appraisers. Maybe it is time to focus on them.

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