Here’s the result of an email interview I conducted with Brick Underground expressing my dissatisfaction with Appraisal Management Company (AMC) appraisers these days and corresponding situation that a real estate agent was going through.

The real world appraisal situation – the name of the appraiser and related organization was omitted to protect the guilty. Here’s the sequence – READ THE DETAILS CLOSELY (sorry for the all caps but I really am yelling):

  • Appraiser who works for an Appraisal Management Company on behalf of a national lender performs an appraisal of a walk-up apartment.
  • Contract price in appraisal was $414k when the contract price was $460k
  • The appraised value was close to the incorrect contract price.
  • The wrong apartment was appraised. The correct apartment is larger than the one appraised.
  • The inspection/effective date was listed as January 27, 2010 when the property was actually inspected on February 3, 2010.
  • No comparables from the subject neighborhood were used.
  • The appraiser reversed the floor level adjustments suggesting that the lower floor of a walk-up is less valuable than a higher floor (A built-in health club!).
  • The appraiser gave no credit for a private roof deck.

And the key detail…

  • The AMC fought hard saying that the appraisal was correct. In fact, despite these amazingly negligent errors they “refused a new appraisal saying despite errors below, the value stands.”

In other words, the appraiser did not know the market or how to appraise a walk-up, was guided by the contract price which was actually wrong. When told the price was wrong and a smaller apartment was appraised, the AMC stood by the appraisal.

I didn’t appraise the property and have no idea whether the apartment was worth the sales price. I’m just using the information provided.

The only solution for the buyer is to roll the dice and go to another bank. The bank loses because a professional evaluation was not performed. The bank likely doesn’t even know that this happened. A buyer and seller lose because the appraiser was incompetent. The broker may lose a fairly earned commission because of a form filler who has no business being called an appraiser.

This is not appraising – it is idiotic form filling managed by people who should not be in the mortgage lending business.

So you can see how my interview on Brick Underground covering this topic was so terse – I was being told the above situation at the same time. Here is the link again:

How to not get scrwd by an appraiser [Brick Underground]

As I’ve said many times before, the current appraisal system with Appraisal Management Companies is an accident waiting to happen while we pretend that everything is OK.

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3 Responses to “[Idiotic Mortgage Lending System] How to not get scr*w*d by an (AMC) appraiser”

  1. For a moment I thought this was an early April Fool’s joke but then I got hold of my senses and realized that you do not kid about such a serious thing. From the Realtor side of the fence this is something we dread every day. In this case if it were possible and you can get your hands on the report I would file a complaint with the Dept of State or the Appraisal Licensing Board or whatever. I do not care how bad the system is, the appraiser is incompetent and should be out of the business. The AMC should be sanctioned by the State as well if that is possible.

    Proper preparation by the Realtor can help prevent these problems from occurring. It is no different than the surgeon marking the correct leg to amputate. I follow these steps:

    I educate the seller or buyer (or both) as appropriate to the current realities of the appraisal industry, the “limitations” of HVCC and AMC’s and the steps I take. At least the players are aware of the issues so if a disaster occurs they are not totally blindsided.

    When the appraiser calls for the appointment, my first question is: “where are you from?” If they are not local, they are probably not getting in. I guarantee 90% of them cannot locate or explain the difference between Yonkers, Bronxville PO and Bronxville, all of which are distinct submarkets with different comparables and values. Thus they violate the USPAP Geographic Competency Rule in my opinion and they can take a hike.

    They are never let into a property without me present. So I know they are appraising the correct property. I verify the sales price. I always bring closed sales and current inventory so they have current accurate market information. What they do with the information after they leave is their business; I have fulfilled my fiduciary responsibility to my client.

    The bottom line it is the Realtors’ responsibility to take the time to properly prepare for an appraisal to minimize the likelihood of any problems. They will still happen, but hopefully some of the incredible negligence exhibited above will never occur on any of my deals!

  2. Bill Gassett says:

    This is an unfortunate situation that is not all that uncommon. Frankly I think the appraisal system is very poor. I have been fortunate that I have not had any of my homes get rejected based on the appraisal however I know of other agents in my office where similar things have happened to them. It is crazy when a lender hires an appraiser that has no knowledge of any area in which they are appraising in!

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