What Constitutes a “Good” Appraisal?

We live in a world where finding out about a product or service before we buy is quick and simple.  When we are looking at a potential purchase on Amazon.com or other Internet sites, there are star ratings and reviews to read.  Want to try out a new restaurant?  Try using Yelp or Google Reviews.  Hiring a plumber or house keeper?  Angieslist is the place to go.  Even fairly obscure companies usually have some sort of grade on the Better Business Bureau’s website to peruse before deciding whether or not to buy.  So what about appraisers and appraisal services?  Though most appraisal companies have a rating with the BBB, there is no centralized review website for appraisers.  There may be good reasons for that.

The complications with rating appraisers for their abilities and quality of work would be the individuals doing the judging and the criteria used.  The most probable individual to rate an appraiser on a website (either as a praise or a complaint) would be a borrower/homeowner.  Unfortunately, this is probably the last person who should be rating an appraiser (unless they were reviewing him or her strictly on professionalism, punctuality, customer service, etc.)  I mean no disrespect to the borrower with this comment.  Borrowers, are great people (with very few exceptions), but most of them are not trained in appraisal reading and they have a built-in bias.  Appraisals are not written to be easily deciphered by the average homeowner.  They are not a defined user in the report.  Despite the fact that they may have paid for the appraisal, they are not even the client (the lender usually is).  An appraisal report can be complicated and is often misinterpreted.  I cannot tell you how many calls my office has received over the years from upset borrowers who claimed we missed bedrooms and bathrooms in the basement (we did not miss anything, they just did not know where to look on the report).

The issue of knowing how to read the report is minor, however, compared to that of bias.  Frankly, most homeowners do not care one iota what the appraisal report looks like as long as it ‘hit the value’ they were looking for (or needed for their desired loan).  In many homeowners’ minds, a ‘good appraisal’ is one that comes in as high or higher than what they believe their castle is worth.  If they think their house is worth $320,000 and the appraiser comes in at $315,000, the appraiser is often branded a ‘bad appraiser’ and this is a ‘bad appraisal report.’  Conversely, an appraiser who hits a value of $350,000 must have done a stellar job and deserves the highest of commendations.

What most homeowners do not appreciate is that the quality of an appraisal report actually has very little to do with the final value.  I perform a fair number of peer reviews each year.  The most important criteria I am evaluating is the detail of the subject’s description,  choice of comparable sales/listings, supportability of the adjustments, reasoning of the final reconciliation, and how well this was all explained.  Final value is backseat to all of these (and stems from them all).

I am not suggesting that it would be wrong for a homeowner/borrower to rate an appraiser’s performance, but I am advocating that—depending upon the education of the individual—we take those reviews with a grain of salt.  A ‘good appraiser’ is not one who consistently comes in higher than the borrower’s estimate of value and an appraisal is not ‘bad’ because it fails to ‘hit the number.’

Now, go create some value!

 

Dustin Harris is a multi-business owner, but he has found most of his success as a self-employed, residential real estate appraiser. He has been appraising for nearly two decades. He is the owner and President of Appraisal Precision and Consulting Group, Inc., and is a popular author, speaker and consultant. He owns and operates The Appraiser Coach where he personally advises and mentors other appraisers helping them to also run successful appraisal companies and increase their net worth.   He and his wife reside in Idaho with their four children.

6 thoughts on “What Constitutes a “Good” Appraisal?”

  1. I started appraising in ’89, SRA in ’91, built and ran large residential firms in NY and GA; over the years I’ve completed and reviewed thousands of reports. There is no way to make any client “happy” unless the “magic number” is hit. This industry has changed for the worst and I left the residential side in the early ’00’s. Since then I’ve been an agent and see what appraisers deal with from mosty ignorant (to the appraisal business) agent community. This is a thankless business because no one cares – just hit the number. 90% of agents are worthless in their field and have zero idea of what underwriters require from appraisers. Owners are the same, they just want the number.

    The industry was brutalized by Cuomo and is badly broken, folks are leaving and it’s hard to make a living doing this – hence my move to the sales side. It’s not a good day when you come into the office and have 20 emails/calls asking if there’s work today…..

  2. I would say there is a high probability that an appraiser is a good appraiser if he has been in the appraisal business for a long time; the more appraisals performed usually equates to the most experience and the most experience usually equates to the best appraiser if he or she is honest and ethical. And, the more varied the service are also increases the level of experience. Like many major metropolitan areas, we here in the Washington, DC metro area have very low-end and very high-end market areas that offer a plethora of challenges that elevates an appraiser’s level of experience. Would you pay more for a doctor’s services who has 20 or 30 years of medical practice over one recently out of residency? I’d think so; maybe appraisers should be treated the same. And they probably are in a non-intended way. It is probably the less experience appraisers who are willing to take on the low bid AMC blast appraisal orders and the experienced appraiser who chooses his clients wisely because they appreciate quality appraisal work and are willing to pay for it.

  3. I have found that when going to court, you will, in most cases find who is the good appraiser. I have been appraising for 30 years and go to court on a regular basis so I have seen many appraisers that have no idea how they arrived at a number make fools of themselves trying to explain to a judge why they did what they did. Judges are not fools and can see through the BS quickly.

  4. Its my experience, as Dustin stated, that the general public and the majority of the RE Agent population, only judge the final product on how the number worked for their best interest. This is only natural. Ignorance of what, why, how and when an appraisal is done is typical of the general public. Somewhat frustrating this is, considering the role of the appraiser is to “ensure public trust”. We have all seen deals happen where a number has been obtained by the”good” appraiser, that makes us scratch our heads wondering how in the heck that was possible. Personally, I try not to concern myself with this perception. As an appraiser and business owner, I understand that consistency, honesty, and sound practices are the key to longevity and none can be compromised. That being said, I often take the time (whenever the opportunity presents itself) to educate people. In as few words as possible I try to explain to people that the appraisal is developed in a manner as to accommodate the interests of many parties. In no order of importance (because I dont believe it matters), we have our client, homeowner, borrower, agents (on both sides), state boards, underwriters, piers (reviewer appraisers), and others that will be reading our reports and scrutinizing them. I often jokingly explain that if all of those parties can read my report, understand my analysis and reasoning, shrug their shoulders and say “ahhhh….ok”, then THAT is a good appraisal. It is, for the most part a thankless job, no news is good news, and more work is the only thanks I expect. Consistency is rule #1.

  5. Appraisers–We have a problem–and it’s of our own making. I say this with over 50 years experience in the profession and historical observation to situations on which I offer the following comments.

    How may of have known unethical and/or incompetent appraisers but did not file complaints against them and/or their work product? A small percentage of these appraisers have brought the wrath of our government and grandstanding politicians down on the majority of appraisers who perform professionally and honestly. The result is that we now have regulations on top of regulations and the time and cost of performing competent and ethical appraisals has accelerated. AMC’s are largely the result of these inaction’s on our part and we now have to deal with low fees, short turn around times, and irritating and sometimes asinine reviews of our work product.

    Then there are the appraisers who are habitual complaint filers against their competitors for the most frivolous reasons imaginable. And they know they can get away with it because their names are kept confidential by state appraisal boards. Similarly, the Appraisal Institute will accept complaints and demand the accused appraiser’s file for peer review–all while denying the accused any information regarding the complainant OR the nature of the complaint. There’s a basic tenet in law that an accused has the right to confront their accuser–but the AI does not believe it’s valid. They thereby afford the complainant complete anonymity and freedom to disrupt and adversely impact competing appraiser’s practices, reputation, and liability insurance coverage. And don’t be so naive as to think that word doesn’t leak out that an appraiser has a pending complaint and must sometimes respond to questions about such complaint in depositions, trials, and on applications for work from various potential clients.

    On occasions where a legitimate complaint has made it to an AI grievance or ethics committee level, an accused only has to “hint” at a possible lawsuit against the AI for damage to their business and reputation, in the event of a published disciplinary action, for the complaint to be effectively dismissed. The AI simply does not have the funds for a protracted lititagation defense in the event such lawsuit is filed by a disciplined member.

    This is all a pretty sorry state of affairs and as indicated, I can recite specific situations in which these observations are founded.

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