Are Appraisers Part Of The Problem With Slow Housing Price Recovery?

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Are Appraisers Holding Up The Housing Recovery?

This is a question that is being asked more and more in communities around the county and real estate professionals seem to be consistently stymied by appraisers that have been labeled as over-zealous or overly-cautious.  But, do appraisers really deserve part of the blame in such an unfamiliar real estate environment?

I was talking to a good friend of mine who at one point appraised every home I purchased before we bought it so we would have a third-party opinion on its’ after-repair-value.  It seemed like a small price for us to pay to have added security and should have been a huge benefit for any future investor that purchased the property.  Today, we are simply friends and he has not done any professional work for us in years.  Why?  Because the rules changed for everyone in the real estate investment business and too many people were playing fast and loose with the rules.  You cannot blame the government for making adjustments and for creating a system to remove perceived improprieties, but in the rush to fix a small problem, they may have created bigger ones.

According to a June story in the Star Tribune in Minneapolis, the National Association of Realtors reported in an April survey of agents that fully one-third of those surveyed had lost a deal, had a closing delayed or had to renegotiate a contract during the first quarter of 2012. One out of every three deals face HUGE headaches if not outright cancellation because of one person in the equation.  The problems seem to be exacerbated when the deal involves a real estate investor looking to purchase, renovate and sell a property quickly.  Many news headlines and web articles from around the country seem to point to a common complaint and headache when it comes to the current real estate market…appraisers are not keeping pace with improving markets!

In a down market, appraisers can find disbelief, feel the pressure – San Diego

Low home appraisals hold down area values – Minneapolis/St. Paul

Rates Hold; Appraisal Comes in Low

Low appraisals holding median price down in Phoenix

5 nasty surprises that can stop your home purchase cold – #1 Low Appraisal

Orlando Realty Sales being affected by Bad Appraisals

Low-Ball Appraisal:  Mortgage Denied – CNN Money

The list could go on and on and you could insert any city into a Google search for appraisal problems, and there is a high likelihood that you will find an article written identifying appraisers as the problem. 

So why are appraisers receiving such a large portion of the blame right now?

The most common noted problems with appraisers are that the HVCC regulation created an opportunity for many new home appraisers to enter the market.  After receiving certification and licensing, they were off and running and immediately signed up for the program.  Often these appraisers are willing to work at a fraction of the costs of larger, more established appraisal groups and can “win’ business by under-cutting costs.  The effect is that experienced appraisers are left sitting on the sidelines and passed over by lesser experienced appraisers with lower overhead.  That creates an huge experience gap and can lead to slower delivery times of a completed appraisal as well as errors such as using sales that are not truly comparable and failing to account for home improvements.  As with any craft, it is difficult to be great right out of the gate!

Another common complaint has been appraisers traveling great distances to find work.  The HVCC legislation created a set of standards that appraisers must follow and they banned the use of appraisers who did not have market knowledge.  That doesn’t say they have to live in the area – in fact – where they live does not factor into the equation.  Their market experience and time spent appraising in the area absolutely does come into effect and a large majority of the complaints collected over the HVCC implementation were over out-of-area appraisers returning low values.

What is and what is not a good comparable?

I am not sure if there is any real clear solution on this and I would love to hear feedback from actual appraisers on how they are taught on this subject.  The question that is brought up, and is extremely relevant in today’s housing economy, is should foreclosure sales be considered when determining the value of an arms length retail transaction?  It seems elementary that they should not when you consider the sentiment of the banks of the investors purchasing a cast majority of the foreclosed homes.  These sales clearly do not reflect a true market value of those properties.  But, what if there are no other sales.  What if 9 out of 10 transactions in a neighborhood over a short period of time (3-6 months) were all foreclosures?  How do determine a value for the 10th property?  What if the only comparable sales were for two story homes and you are wanting a single story home to be valued?  I know there are rules in place and procedures to be used, but isn’t this a subjective figure.  Is it not the job of the appraiser to determine value based on their trained opinion?  These questions don’t seem to have clear cut answers and as appraisers are shielded more and more from the reality on the ground (speaking with lenders and sellers) the opportunity for legitimate sales to be lost will continue to exist.

Whether the problems are caused by inexperience, lack of due-diligence or sheer laziness, low appraisals and the appraisers themselves are receiving the brunt of the frustration within the real estate market right now.  There are few remedies available in the real estate industry outside of allowing your real estate agent to be armed to the teeth with data supporting your sales price.  The adage of a home being worth what a buyer is willing to pa may be true, but the lender is only going to be willing to lend on what the appraiser comes back with.  So unless you have a buyer willing to cover the difference, preparing to back up your numbers is top priority if you expect your value to hold.

In truth, appraisers are probably only a part of the problem and when researching for this article I came across several excellent blogs by appraisers themselves.  A favorite of mine was by Michael Bolton titled “The Tale Of A Low Appraisal” who has left the lending appraisal business and appears to be doing quite well serving other niches of the appraisal industry.  I especially liked his line at the end…

“Yes, I know there are some absolute idiots out there appraising houses, but when you find the perfect business where there are no idiots, please let me know, I want in.”

For now, there is no perfect solution outside of doing your absolute best work possible when selling an investment property and being spot on with your pricing.  Forget realistic, because being realistic is the easiest path to mediocrity.  But don’t ask for and expect a price that you clearly know cannot be supported by comparable sales in your area.  Beyond that, realize the nature of the beast that we call real estate investing is in full flux right now and you may have to ride out bumps along the way as it gets worked out.  I would also add to pray that the government does not offer any more “fixes”.  We all know where that leads…

Photo: chrstphre ? campbell

About Author

Chris Clothier

In 2005, Chris Clothier (G+) began working with passive real estate investors and has since helped more than 1,100 investors purchase over 3,400 investment properties in Memphis, Dallas and Houston through the Memphis Invest family of companies.


  1. I think you hit points on both sides of the conversation. Appraisers are definitely a part of the problem, but unrealistic prices are also an issue. I appraised a property a couple weeks ago where the seller countered the buyer up by 5% of their offer. The distance from $350,000 to $370,000 just wasn’t able to be supported in the market for this property. It was in “no man’s land” and I would guess the agent knew it too, though who knows.

    Regarding REOs, distressed sales should be avoided as comparables where possible. However, they must be used at times, especially when short sales and foreclosure make up 60-70% of the market. If these sales sold at a discount, that should be noted in the final value. If an appraiser uses only discounted sales, that’s a big problem because the apprasied value will then be discounted.

    Regarding two-story sales, the appraiser can use older single-story sales if there are no current single-story ones to use (and maybe some newer two-story sales if needed). It’s important to compare apples to apples where possible. Using older single-story sales would help substantiate how the market sees single-story units comapred to two-story units.

    What is a comp? It’s a competitive property. In short, it’s a property that a potential buyer would also consider as a replacement for the subject property. Is it simimilar enough in size, location, bed/bath count and utility to be considered as a replacement by buyers? That’s the key. Would a buyer consider purchasing the “comp” if the subject was not available?

    By the way, you mentioned Michael. He’s a good guy. We’ve met each other through our blogs.

  2. Chris Clothier

    Ryan –

    Thanks for taking time to read the article and leave a comment.

    I struggled a little with the article because I thought I was writing something about how the appraisers are holding down prices. The more I dug into it and looked around, it was clear that in some cases they were – but in many other cases – they had very limited options. It was good to dig into it and really research both sides and ultimately I ended up writing more about the big picture instead of being lazy and simply saying the appraisers were at fault.

    One thing is for sure, the problem is not going to get easier in many areas of the country for a long while.


    • Very well said, Chris. I appreciate your take. I think you’re right on your perspective that it’s a multi-faceted issue. It is indeed the “lazy” or easy way to simply blame appraisers. Let’s give blame where it’s due, and that’s not always the appraiser. Kudos to you for researching the issue. I appreciate your perspective.

      Food for thought. Sometimes buyers are offering higher than they think the property is worth too. That’s another piece of the puzzle. So the buyer’s/agent’s hope is for a lower appraisal in that instance.

      These are interesting days for sure.

      • Chris Clothier

        I’ve never heard of a buyer offering over list in hopes of getting a low ball appraisal. That being said, there are probably some agents out there who would suggest such a tactic. I guess there are nimrods in every industry.

        Really good insight. We’ll keep an eye on the topic and see if there are any other comments from investors or agents or even appraisers on the topic.

        • Right now we have crazy low inventory in Sacramento, so properties are getting many offers. I’ve seen this strategy play out a number of times for sure. Sellers are in the driver’s seat, so buyers are offering more and more to get an offer accepted. Some of that is in response to a shifting market showing signs of improvement, but some of it is really a strategy to get into contract. Moreover, we have to consder how financing impacts offers too. FHA buyers tend to offer more than conventional or cash because when you’re spending someone else’s money, you’re bound to offer more. Does that represent market value? Interesting question. That’s yet another facet to filter through for appraisers.

          Anyway, I’ll not dominate conversation here. It’s great to chat though. By the way, I clicked on your profile to see if you were on Twitter, but it just looked like a general profile for your company. Let’s connect there too if you’re on (I’m @SacAppraiser).

  3. Hi Chris. Thanks for taking the time to write this article. Some of the problems investors may be dealing with when it comes to appraisals may in fact be due to lack of appraisal experience. I work as a real estate appraiser and I definitely review a lot of other appraisers as well as conduct my own appraisals. I was interviewed by Ken Corsini a few months back on this blog and it can be found here.

    One of the main problems that HVCC created was making the AMC (Appraisal Management Company) so powerful of a player. I agree that there needed to be some middle man who removed the chance of undue pressure on the appraiser by a broker/client to hit a number. But most AMC’s are concerned with profit. The way the AMC system works is not geared towards rewarding the most competant and experienced appraiser. But instead the bulk of the appraisal work is given to appraisers who are willing to accept lower fees and who can submit the reports back to the client the quickest. So you can see where problems can occur. Under this system you will get appraisers who are cutting corners trying to speed up the process so that they can make ends meet with the lower cost appraisal fees. There are many big name AMC’s that broadcast potential orders to every appraiser in their network and a bidding war occurs. The lowest bidding appraiser is typically given the appraisal order to complete. On the flip side, the experienced appraiser who puts together a competant appraisal report knows how much his time is worth and will most likely not compete in a bidding process to receive work at such a low fee. In some cases, the AMC’s will take up to half or more of the appraisal fee! I have received calls and emails from AMC’s trying to get me to do a multi-million dollar waterfront property for $150! Then they turn around and charge the borrower an appraisal fee in excess of $600. While the appraiser has all the liability.

    But not all AMC’s are created equal. Some are much better to work for and their fees are much higher than the average. Some of the better AMC’s have a great support staff that communicates with the client and appraiser at all times. Some of the better AMC’s will have a review team that scours the reports before they are sent out instead of just using automated programs to check appraisals. Some will also rank the appraiser based on their location and the amount of errors they commit. This promotes utilizing the best local appraisers in the market area who specialize in that area. It is important that appraisers work with these types of AMC’s who respect their time and expertise. The best way for appraisers to take control of the situation is to not accept these orders from the low paying/fast turnaround AMC’s who make you bid against one another.

    If I wasn’t so busy tonight I would add more comments. But I just wanted to give my two cents and defend the appraisers who do their homework and put together solid appraisal reports. Hopefully in the end the bad will be weeded out and the good will remain. But if you take a look at the numbers state by state you will see that a lot of experienced appraisers are not renewing their licenses because they are either retiring or moving to completely different line of work, while their is very little new blood coming in as the trainee appraiser licensing has dropped dramatically as well. The common complaint is that it is not worth it to go to school and get licensed to work as an appraiser when you could be respected more and paid more elsewhere. Hopefully things change in the future.

    • Chris Clothier

      Mike –

      Thanks for adding your input. That was some excellent insight into what you guys are dealing with as appraisers. I think the development of AMC’s was a major step (not sure it was in the right direction) toward the development of this problem. Many in the real estate industry blame the AMC’s for creating an atmosphere where top appraisers were by-passed for cost reasons and that is how less-experienced appraisers began to get more loan work.
      It is frightening to hear that more and more appraisers are choosing to work in another area of the appraisal field. That does not bode well for the loan industry or the buyers needing loans.

      Thanks again for reading and commenting.


  4. Another top notch article!

    Some great comments as well. We’re seeing a bunch of over priced offers in hopes of lower appraisals as well. I do believe its easiest to blame appraisers right now because it is so crazy here locally and no one is willing to accept fault ya know.

    Didn’t get as much as your Realtor said you’d get selling your house? Realtor said it was because the buyers appraiser came in to low? Well, its the appraisers fault

    Didn’t get the appraisal high enough for the bank to loan on it? You either gotta cover the difference or back out but your Realtor assured you it would all work out if you offered more than you should have? Well, its the appraisers fault

    • Chris Clothier

      Nick –

      i guess since I am not in the retail side of the business or since my sales are not conducted where multiple offers may come in so I never realized this type of thing was going on. I do know that buyers and sellers are being strapped with extra costs, added activities like getting second appraisals and in general dealing with a few more hoops on transactions because of the appraisal difficulties.

      I will also add that you can never discount the role that lenders play in this. They absolutely want to lend the least amount possible. At the same time, they want to complete the transaction to generate their income. It really adds an interesting dynamic.

  5. I agree that appraisal values continue to be an issue. As a seller the best thing you can do is control the access & info to the property by doing the following:
    1) Meet him/her there in person – DO NOT ALLOW THEM TO ENTER WITHOUT YOU
    2) Provide the scope of work & what the RETAIL COST of the work would be
    3) Provide your own comps & discuss them with the appraiser (don’t force this if your not feeling the love)
    4) Tell them about how many calls & offers your Realtor got. Make sure & leave all of those Realtor business cards out too
    5) If the value does not come in do an appraisal rebuttal- I like to fight fire with fire by hiring another appraiser to do this for me, its money well spent because 7 out 10 rebuttals will increase the value. Actually Ryan, who replied on this post does them for me 🙂
    small world I guess.
    good luck everyone

    • Chris Clothier

      Hey Dennis –

      Thank you for taking time to read and comment.

      I am not sure on the legalities of the seller meeting the appraiser at the property? (I simply don’t know the EXACT rules as to whether or not that is allowed). That is why I noted in the article to arm your agent or realtor to the teeth with information on WHY your property is worth the contract price. A complete scope of work is great and interior pics of comparable sales (when available and showing your property nicer always helps) can go a long way in showing why your property is better.

      I tell people to always assume an appraiser is using Zillow as a research tool and as we all know, Zillow cannot tell you the difference between two identical houses side by side. Differences such as updated cabinets, enhanced landscaping, appliances, fixtures, or any other updated features that make one home worth more than another. You have to help your agent educate an appraiser on how you came to your price and why comparable sales (and adjustments) support your price. I’m just not sure you can do that as the seller of the property. I think the only people that can talk to the appraiser are the selling agent and the company that hired the appraiser.

      Anyone can fell free to correct me if that is not the case.

      Thanks for leaving the comments. – Chris

      • The appraiser is not bound to only speak with agents. Sometimes the owner is the agent anyway. There is of course a difference between talking to an appraiser and trying to coerce, steer or influence a certain value. No matter who is engaging the appraiser with a chat, it’s important to check motives and choose words carefully. It’s always nice to hear facts, an analysis of trends in the neighborhood, why a property was priced at a certain level, number of offers, knowledge of other recent sales, price level of offers, etc… as opposed to statements like, “I really hope this one “meets value” or “Is it going to “appraise”?

    • This is in reply to Dennis. I know this is well over a year old but I simply had to respond. Dennis, many of the things that you have suggested could be interpreted as pressure. The appraisers are not permitted – by appraisal regulations – to discuss the comparables with you as the seller. They also cannot be pre-disposed to the value that you need to make your loan. Many appraisers will not even accept comps from you . Furthermore, how much the items in your home COST has no bearing on what the market will bear. An appraiser must demonstrate by means of analysis what a buyer is willing to pay for a particular upgrade or amenity. Moreover how many offers you received etc, also do not matter. An appraiser is only permitted to consider Closed/Recorded, recent and relevant sales. Lastly, rebuttals can only be done with the original appraiser and can only be approached once. Again, going back at the appraiser 2-3 times can easily be construed as pressure. Additionally, the current regulations do not permit a second appraisal unless the lender has completed their due diligence by way of field and or desk reviews and determines the original report not to be credible. This is rare.

      While it may make people feel better to blame the appraisers, when it comes to purchases, it is really up to the listing agent to correctly price the property in the initial stages. Pricing the home above and beyond the highest sale of a similar property and I mean by 20-30% higher, is a guarantee of a “low appraisal” as the appraisal will most likely not exceed the highest sale in the area.

  6. Jason Grote

    What a timely subject! I recently sold a home in a higher end neighborhood where the appraisal came back $25k under contract price. We chose to lower the price and let it go, but the buyer was WILLING TO PAY THE PRICE. Well, the appraiser had chosen comparables that were within the same neighborhood, but a different and less desirable builder. Also, this was not a house that was “sitting on the market”. We had many showings and the contract was executed on day 20 of the listing.

    During the same time, an investor friend listed a house for $129k and recieved 6 offers within 48 hours. He picked one at $134k and the appraisal came in at $118k. They are currently contesting the appraisal with the bank. The buyer is willing to pay and the market is bearing that price.

    My question is this:

    How does appreciation occur if you can only appraise off of comparables and not take market temperature into consideration? You would have to have some cash deals where an appraisal was not done perhaps?

    Any thoughts?

    • Chris Clothier

      Jason –

      Unfortunately, cash deals without appraisals are not necessarily going to raise the market or influence the appraisal process. In many of those scenarios, an appraiser will choose not to use that comp because of a lack of control on the final sale price. They have no way of documenting if there were discounts, or points and fees paid by the seller, etc… Many appraisers are only using MLS listed comps and then choosing to view cash sales as different from bank sales.

      So, you are left with a great question. How do you raise prices if all of the comps are consistent…but lower.

      • Appraisers can make “Date of Sale” adjustments, which means they can adjust for appreciation or depreciation in the market over time. While sales in the immediate neighborhod might be dated, for example, the market could have gone up in the mean time. For instance, if all sales 3-4 months ago were selling at $150,000, but all listings are now in contract at $160,000-$165,000, the appraiser might be making an adjustment upward to the sales even though the “comps” are at $150,000. In this case the listings would show the direction of the market very well, so it may be appropriate to adjust the closed sales up due to being older in age. This assumes there are no other factors to consider of course (there always are many things to account for). Of course it’s always nice when there are neatly packaged sales at $160,000 in the neighborhood, but that won’t always happen.

  7. Guys,

    I am both an appraiser and a single family trader(hate the word flip).

    If you are going to play the role of an entrepreneur, you got to both be aware of the risks, and take appropriate action to protect yourself, early!!! Seek out the pitfalls in exiting your deal, and cover them. Everything else is blind speculation. And yes, a lot of appraisers don’t get out much. Prepare!!

  8. Interesting discussion. I’ve been an active Realtor for 34 yrs, & a certified residential appraiser for the past 12 tumultuous years. If a legit appraiser is allowed adequate time, say 4-5 days to complete the appraisal, and is being paid a retail fee of $350-$450, the appraiser can really dig in, check out ALL potentially similar comps, carefully read the MLS sheets on those potential comps, and can come to an accurate value conclusion. Unfortunately, if it is an appraisal for lending purposes, many AMCs require 48 hour turnaround times, and pay fees under $300. Those appraisals typically require 2 sales comps to be within the past 60 or 90 days, requires 4 sales comps plus 2 actives or pendings, all within close proximity to the subject, without crossing freeways, rivers, moderately busy through-streets etc. Comparable sales age should be within 10 yrs of subject, with modest sf adjustments, similar style, similar condition, total net adjustment <15%, gross adjustment <25%, similar UAD adjustments for quality & condition, similar lot size, blah, blah, blah. Sometimes these are lender-specific overlays, sometimes the parameters are due to over-controlling AMCs. We now have to use the MC (market condition report) which can be created using various parameters, which will result in varying results. Used to take me 5-8 hours to complete a SFR appraisal… now takes me 14-20 hours in order to comply with all the requirements & STILL be thorough enough to come to an accurate value conclusion.

    FYI, AMCs frequently pay S-L-O-W, and too often, they NEVER pay for the reports they order. Makes appraisers gun-shy & cynical. In most states, AMCs are required to be licensed to do business in that state; most AMCs do not follow those requirements. Many times they'll hook up with a lender, order appraisals, get paid by the consumer, deliver the appraisal, stiff the appraiser, and when their tail gets set on fire, they close shop and do the same thing all over again under a new name. I just went through that scenario with a PA AMC.

    So its taking at least 2X as long to do an accurate report, appraisers typically are offered 2/3 what they USED to get pre-HVCC, now must deliver the appraisal 2-6 months BEFORE getting paid….(Maybe getting paid), and have to deflect a lot of hostility if the value comes in under expectation. re: using REOs/flips/std sales, given time to thoroughly investigate the condition & terms of recent sales, appraisers can make appropriate adjustments which will lead to a correct value conclusion. Time. $. I do many review appraisals, and have one on my desk today where the appraiser clearly rushed the process, did not correctly identify prior sales, did not describe subject amenities & finishes, used comps that gave the 'right value', but ALL comps are across major thoroughfares & rivers, no recent comps were used within the actual neighborhood (maybe because all the closest properties had lower sales prices or had $7000 in sales concessions) didn't include a photo of the pool, but gave it huge value, and so on. Typically, AMCs will offer $225-$250 for a SFR appraisal. That works out to about $10/hr minus business & auto expenses, therefore resulting in about $6 or $7 per hour net if the appraiser takes their time to do a thorough job. OK, so if the appraiser can skate through and cut 2-4 hours off, that boosts the hourly rate. So appraisers will typically take short cuts to try to make a living wage, or will be thorough and make significantly less per hour, or gosh… get paid more per appraisal. (THAT is not happening for the most part.) Consumers are paying big bucks for these appraisals; AMCs are skimming off all the profit, leaving the appraisers to do the grunt work for grunt pay. Solution? Get rid of AMCs. Break down the fee on the closing stmt so consumers can see that for that $600 appraisal fee, they only got a $225 appraisal, and a $375 middle man charge. Perhaps then the uproar would result in real change.

    BTW, 3 times this year, I have had borrowers tell me that their agents told them they could use the appraisal to renegotiate the sales price downward! Bad idea all the way around. Has the appraiser been intimidated by the AMC to bring in values or be cut from the roster? Is the appraiser familiar enough with construction & repair issues to be able to spot something that SHOULD result in renegotiation of contract price? Is the appraiser reluctant to shoot down this first time homebuyer's deal when he's been told this is the 10th offer they put in and the first that has been accepted and they've got the moving van parked in front of their house? Don't laugh; it happens. The HVCC and its aftermath + the AMC parasites have corrupted the appraisal process. Hiring your own appraiser who is honest & thorough, and who will provide a 'bullet-proof' appraisal may save your deal. It will help you price your property correctly, is ammunition to convince the Buyer of the value, is evidence that the lender's appraisal may be flawed or have missed something, and worst case scenario, can be used to appeal a lowball appraisal.

    • Chris Clothier

      Thanks Trisha!

      I wish I could take credit for being that original but I can’t. It was Will Smith who originally said it.

      If you want to be really motivated, look up Will Smith on You Tube and watch his inspirational quotes. It is about a 10 minute video that will leave you floored. It is fantastic and in it, he make the statement about being realistic.

      Thanks for reading and commenting!

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