Adverse External Influences
“Adverse external influences” are structures or entities near a property that negatively affect its value. Appraisers often use the phrase “External Obsolescence” when describing these influences.
Adverse influences include freeways, busy arterial through-streets, railroads, BART or mass transit trains, cemeteries, schools, and commercial buildings or establishments.
Real estate agents involved in transactions with external influences sometimes under-estimate their effect and get frustrated when appraisers have difficulty supporting value. The most common problem involves properties on busy through-streets. A loud or busy street near a property can shave as much as $50,000 to $100,000 off the appraised value, depending on the price range.
Appraisals With Adverse External Influences
Appraisers, of course, have to disclose all external influences because underwriters readily spot them with their reviews (using plat maps, photos, MLS, and other sources). Appraisers are required to find a comparable sale with a similar adverse influence that supports value, and this is often difficult to do.
Appraisers cannot simply correlate entirely to nearby comps that do not have adverse influences and make downward adjustments. This is what Realtors often want appraisers to do, but it is deemed too subjective by underwriters and appraisal guidelines preclude it.
Appraisers must include at least one similar comp with similar adverse influences that supports value.
Why Appraisers Cannot Push Values
If appraisal reviewers think there is anything suspicious about an appraisal, they will often go out of their way to eviscerate the appraisal and then cut the value significantly.
So, by coming in slightly low (like our appraiser above did), appraisers are often preventing much more significant value cuts that might come as a result of an appraisal review.
I can’t emphasize this enough, as many seasoned appraisers well-understand this risk.
Questions? Keep In Touch With JVM Lending
If you have questions about the homebuying process or appraisals, contact JVM Lending. Our expert Mortgage Analysts and Client Advisors are available 7 days a week to answer questions and guide you through the mortgage and appraisal process.
Jay Voorhees
Founder/Broker | JVM Lending
(855) 855-4491 | DRE# 01524255, NMLS# 310167
