Language is important. We often get so caught up in the moment, so laser-focused on how we feel about something, that we become casual in the verbiage that we use. Often, we say one thing without realizing or considering that it could mean something else. This is why it is so important to be exact and precise in the words we use.
I recently saw a post in a Facebook group that I’m a part of that illustrates this principle. This person was frustrated. They were excited initially when they arranged for this “fix and flip” property. They were upset, however, when after all their hard work, blood, sweat, and tears, the time came to sell the property and the appraisal came back “low.”
Because language and verbiage are important, let’s look at that word: “low.” What exactly do we mean when we say “the appraisal came in low?” Is it that the appraisal was actually lower than the market price, or was it that it came in lower than the purchase price? Let’s think for a moment: what possible motivation would an appraiser have to give a “low” price?
The truth of the matter is, no matter how you feel in the moment, there is little to no incentive for appraisers to appraise a property at a price lower than its market value. We’re actually more likely to be given serious scrutiny and ”get in trouble” over a low appraisal than a high one. If anything, the pressure is to go high, rather than to go low (though neither is acceptable). When it comes right down to it, appraisers are professionals; as such, they should be giving you the true value of the property, regardless of its purchase price.
So, next time you hear someone say that an appraiser “came in low,” consider what exactly they mean by that. In what way did they give an appraisal that was lower than expected? Taking the time to think about (and maybe educate others on) this one phrase will help to prevent unnecessary misunderstanding and tension for all involved.
For more information on this subject, please download and listen to The Appraiser Coach Podcast Episode:
The Appraiser Coach Blog: The Ghost Town Where Lights Are Still On But No One’s Home.
His blogs are like SEMA on day one (busy), compared to his podcasts where hardly anyone cares to comment. Do people understand that Dustin hasn’t been a fulltime appraiser since 2010, and is now a W2 employ for True Footage. Considering there is a Nicolette Harris from Boise working for True Footage, perhaps no one wants to work for them and there down to hiring family.
Seek the truth.
There is really a good article on this in the most recent NAR Realtor Magazine. “The Appraiser’s Role Isn’t to Kill Your Deal”. I forwarded it to over 300 Realtors(Many do not read the REALTOR Magazine) and Mortgage Bankers in my area with mostly positive response. Here is the link.
It comes down to pure imcompentence. I have not only been an appraiser for the last 25 years I have been an real estate investor for the last 20 years. I did 10 fix and filps this year. The most common mistake I see in fix and flip appraisals or BRRR’s (Buy, Remodel, Refinance, Rent) appraisals is that the overwhelming majority of appraisers under value improvements. I had a property a couple years ago I purchased for $265,000 and it was built in the 1920’s and when I meet the appraiser at the property for a construction appraisal the first thing he looked at me and said was depreciation era house and I knew I was in trouble. At the time of the inspection the house had been demo to the studs and was appraiser subject to a complete remodel (Interior, exterior, plumbing (typical houses had cast iron), electric (typical houses in the nieghborhood had know and tube), driveway). It was about $175,000 in improvments total. The appraisal came back at $425,000 and I was not thrilled. I looked at it and immediately saw the problem. The appraiser made across the board adjustments for condition for $20,000 for properties that were in the neighborhood and 100 years old and had not been remodeled which was not believable. Long story short the house was completed 6 months later and I sold it for $550,000 with 1 day on market. I see this time and again in these types of appraisals and the typical appraiser is clueless when it comes to renovation costs and thier affect on value.
Being in San Diego (fix and flip capital of the world?), the incompetence I see (200+ fix and flips assignments last year alone) most often lies in the investor, and not the appraiser. Buying things in cash site and unseen, not pulling permits, and lying about GLA, bed counts, etc. when listing again, is like putting lipstick on a pig. Secondly, most investors think value equals cost, and don’t understand that potential value (increase, decrease, stable) is the difference between the existing improvement (dated but functional, kitchen, bathrooms, etc.), and the final improvement, “the spread”. Depending on the price point, cost can often exceed “the spread”.
Seek the truth.
As a single number, the appraised value is never high or low, but rather only gets interpreted as such when other parties add their interests. Seeking and finding the lies (GLA, view, bed + count, above / below grade, non permitted areas, bad public records/MLS data, etc.), and exposing the truth by way of independently providing a factual report, is second on my list of appraising enjoyments, while first is telling the agents, brokers, sellers, buyers, etc., that their purchase price is to HIGH. Third on the enjoyments list is the laughs I get when I get to review “the comps”, provided in support of the purchase price. Forth on the list is being included in a group email while the above noted participants scramble to make lemonade from the oranges their selling.
Seek the truth, report the truth, expose the lies, and stop trying to be every agents / brokers friend in the hope of getting future business. Stop listening to those who teach profits before principles.
Seek the truth.
I really hate to say this, and I never thought it could happen! But I agree with Bill. (Hurts me to write that).
If none of your appraisals have ever been perceived as being “Low” or “High” then you are not doing your job as an appraiser. I know appraisers that have never appraised a property under the sales price. If that is the case, why are appraisals even needed?
Although on this site no one would believe me Jeff, but truth be told, many clients seek my services because on my unapologetic approach to offend many.
In case you were wondering how expensive my services are, on average and combined per year, its significantly less than 0$. Meaning, every year I appraise, on average by way of cut values and reworking of purchase contracts, I save borrowers millions every year. Again, not that anyone would believe or care on this site, but the joy of a phone call from a borrower, and or a letter thanking me for having a spine to tell them what they most often don’t hear from their hired professionals, is a good feeling. If your not getting such praise as an appraiser, then your most likely rubberstamping the churn and burn of 4 to 9 appraisals a day.
Seek the truth, and welcome to the anonymous fan club of Bill Johnson.
Dustin – true point, brokers and investors often get it wrong calling an appraisal “low” just because it is below the contract price. If I’m in a setting that will not turn ugly or violent, I will usually try to discuss exactly your points about “market value” and that appraisals rely on such data. I will confirm to them that appraisers have zero incentive to come in low or high (and actually professional punishment if we do), but to only go with what the actual sales support. James does make a good point, a $20k adjustment could very well be low – but the point I believe Bill is making is that cost does not equal market value. So perhaps a $175k cost may end up only making a $20k market adjustment, but that would unusual. Thus the adjustment should probably have been somewhere in between. I have joined the local realtor’s association to work with their Education Committee and help spread the truth. Communicating with others in real estate is a good thing.
Oh B.J. You always think you know it all. Nicollette Harris is no relation to me. She joined TF on her own accord due to the great company it is.
I never claimed to know it all Dustin, but considering you have your blog, podcast, all star fan club, baking club, etc. it would seem your the one who thinks you know it all and just can’t tell enough people.
Wow True Footage, your appraiser owned and appraiser run. Appraisers have never heard that before. Don’t fall for it people.
Seek the truth.