As an appraiser with over four decades of residential appraisal experience, I would like to offer clarification on some of the statements in the Jan. 15 Sunday Journal headlined “Appraisal Anxiety.”
First, an appraiser does not “set the market”; rather, it is his/her obligation to reflect the market. Sales of similar and competing properties are reviewed and considered in comparing the subject to what the market has already demonstrated a willingness to pay for similar properties.
Listings are included to ascertain what sellers are currently hoping to obtain and, based upon the principle of substitution, which states “that no sensible purchaser will pay more for a property than the cost of acquiring an equally desirable substitute property provided the substitute property can be obtained without undue delay,” to determine the price at which a comparable property can be purchased as an alternative to the subject.
Some real estate agents may be more familiar with a particular market area than an appraiser; however, I know of no rule prohibiting an agent from offering sales or listings he/she thinks should be considered. But, contrary to a popular misconception, a market is not created by one sale. On the contrary, an old axiom in the business states specifically that “one sale a market doth not make.” One sale can be a component of a market but is not a market itself, except in possible rare circumstances.
An important point, too, is that the appraiser is not required to simply provide a rubber-stamp approval of a sale. The current accepted definition of value is “the most probable selling price in the current market.”
An older FHA definition of value is “the price a well-informed buyer is warranted in paying for long term use and enjoyment.”
The appraiser is expected to report his/her opinion of the most probable price for the property. If a purchase price is reasonable, as determined by market data, an appraisal is most likely to be at or near that figure.
The HVCC does not prohibit an appraiser from gathering as much pertinent information about the property being appraised as possible, but it does prohibit parties involved in the transaction from pressuring the appraiser and I, for one, appreciate that because I’ve experienced the pressure that some participants to the transaction were capable of using in an attempt to “make a deal work.”
My advice to those involved in the appraisal process is to be certain of the data, and if you think the appraiser might miss an important point or two make sure it’s presented to him/her at the outset.
We all work from the same MLS data, so if the agent has properly reviewed and interpreted the available data the problems should be minimal.
Finally, a lender may ask for comps within the past three months; however, the rules are not cast in stone but deviations do require good justification. Simply “trying to reach a number” does not qualify.
