APPRAISAL COMES IN LOW
We had an appraisal come in slightly under contract price this week.
What made it a surprise was the fact that there seemed to be ample comparable sales to support the value (unusual in this market, to say the least).
So, when the appraisal came in low, both agents, the seller and the buyer all expressed extreme frustration with the appraiser.
As a result, I got involved and noticed the appraiser was somebody I have known for 25 years.
He is a super smart UC Berkeley grad with well over 30 years of experience – so I knew immediately that it was unlikely that he made an error.
SIDE OF PROPERTY ADJACENT TO BUSY STREET = ADVERSE EXTERNAL INFLUENCE
Our property fronted to a court or cul de sac, but its side was adjacent to a very busy thoroughfare.
Hence there was substantial traffic noise which is a perfect example of an “adverse external influence” that must be taken into account by the appraiser.
The agents, buyers and MLS made no mention of this, but our appraiser of course had to b/c our underwriter and/or review appraisers would have picked up on that factor for sure when reviewing the appraisal b/c they are all trained to look for such things.
Hence, the appraiser had to use a comp with a similar external (busy street) influence.
And that comp brought the appraised value down significantly – even though he made significant upward adjustments.
If the appraiser had ignored the comp, he would have risked his license and reputation.
RISK OF UNDERWRITER CALLING FOR A REVIEW
But, he also would have risked having the underwriter call for some sort of appraisal review.
This is another huge reason why appraisers don’t “push values.”
They know that underwriters review appraisals and run automated valuation checks.
And – if the underwriter thinks for any reason that the appraised value is too high or that there is anything suspicious taking place (like an ignored comp), she will call for a formal appraisal review.
And, 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.
I encourage readers to read these two below blogs too, as there is much confusion over these issues whenever appraisals do come in low.
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