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Appraisal Challenges: Straight from the Battlefield

Chip Wagner is an appraiser with over 20 years experience. Below is a comment he made to Monday’s post. We thought so highly of his response that we received his permission to post it directly on the blog. – The KCM Crew

There are many challenges facing the real estate industry today, and one of the biggest is the abundance of foreclosures and short sales proliferating the marketplace in many areas of our country.

I am a third-generation, professional residential real estate appraiser with over 20 years of experience in the Chicago area, and I have never seen a marketplace like I have over the past 2-3 years.

The first issue is the Home Valuation Code of Conduct (HVCC), and the second issue is the marketplace itself. The HVCC has given the appraisal profession a major blow, and the most experienced of residential appraisers are leaving the industry. The intent and desire was to insulate appraisers from lender-pressure to direct values (push the numbers higher). The unintended result has allowed the additional layer of insulation (appraisal management companies) to seek appraisal services from appraisers willing to do the work for appraisal fees of 25% to 75% less than our fees before the HVCC was enacted in May 2009. In many cases, the quality appraisers have diversified away from the business, and this in turn is leading to less-experienced appraisers trying to survive in the most complex real estate market anyone has seen since our Great Depression. Geographic competency has become a major issue as out-of-area appraisers are going into areas they have never been to for the work.

The HVCC has caused me to completely diversify my appraisal business away from doing lending appraisals into better appraisal work where my clients truly do want to know the value of the property. (Relocation, attorneys, and other private parties for litigation, divorce, estates, trust, tax appeal, etc.)

The appraiser analyzes and interprets the market, and is an unbiased disinterested third party giving an opinion of “Market Value.” What the lender decides after receiving the appraisal report is one of the issues out there as well.

What the bank elects to do as far as making a loan is a completely different scenario. I have a relative who attempted to purchase a condominium in Florida this Spring with over 35% down, FICO scores in the high 700’s, an appraisal over $40,000 higher than the negotiated purchase price, yet two lenders (not one, but two) who approved the pre-qualification of the borrower would not make a loan on the property.

I know of another scenario where a close family friend attempted to refinance, the appraisal came back $25,000 higher than he needed to qualify, but the lender and their underwriter decided to do a desk-top review and lowered the value $50,000 below the appraised value.

My daily challenge is finding “good comparables” and in many cases, they don’t exist. The marketplace is proliferated with data of distressed sales. The definition of value in a foreclosure or short sale is going to be “Liquidation Value” – not “Market Value.” So it is indeed unfair to use comparables that sold at liquidation value in a property where market value is supposed to be estimated by the appraiser.

Another concern is that as our real estate market bottoms out, and prices begin to appreciate or increase again which they are in some areas of the country, we are going to have a data pool of comparable properties supporting lower values. Really a catch-22 situation.

But what has happened, in some markets, the only homes selling are the distressed sales. This creates the new “norm.” The real estate principal of “Substitution” states that when several similar or commensurate commodities, goods, or services are available, the one with the lowest price will attract the greatest demand and widest distribution. This is the primary principle upon which the sales comparison approach is based. If competing properties are priced at $179,900, why would you pay $200,000? Food for thought.


A. L. Wagner Appraisal Group, Inc. ~ Real Estate Appraisers & Consultants
Specializing in Relocation, Litigation & Lending Appraisals Naperville ~ Plainfield ~ Chicago ~ Flossmoor
1807 S. Washington Street – Suite 110, Naperville, IL 60565
Telephone 630/416-6556 ~ Fax 630/416-6591

website: www.wagnerappraisal.com

blog:  http://chipwags.blogspot.com/

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6 replies
    AL WAGNER says:


  2. Appraiser Exposes Bank Corruption
    Appraiser Exposes Bank Corruption says:

    I am still amazed that appraisers with as much experience as the author still believe that the “intent and desire was to insulate appraisers from lender-pressure”. If appraisers truly believe that the intent of HVCC was honorable please call me right away. I have some ocean front property to sell them in Kansas.

    The ugly truth is that banks found a way to use the old 8,000 man appraiser’s petition (over lender pressure) against appraisers. By bringing it up again they were able to force nearly all assignments to go through AMCs (that they conveniently owned). Notice how the original HVCC document prohibited banks from owning a major portion of the AMC; notice how that language disappeared before it took effect.

    To make a long story short, HVCC was nothing more than a ploy by banks to accomplish two things:

    1) Reduce bank competition (mortgage brokers) to a heap of ashes.
    Mission accomplished

    2) Reroute billions of dollars in appraisal fees into the pockets of banks via their solely owned AMCs. Mission accomplished.

    Put a public relations spin on it so that everyone thinks appraisers are being protected from lender pressure, it halts manipulation in the mortgage market, and consumers are being protected. If the consumer asks why their appraisal bill went from $300 to $600 just smile and say it’s the cost of consumer protection.

    HVCC & HVCC 2.0 (Dodd / Frank) were (and are) nothing short of legalized extortion using Andrew Cuomo as a puppet. Ever wonder how millions of dollars magically appeared in Cuomo’s NY Governor’s election campaign fund? Ever wonder why HVCC was scheduled to disappear one month prior to the NY governor’s election? Take a guess.

    It will all be in the book that we’re working on: “The Rape Of The American Homeowner” which will be available soon.


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  1. […] sale may be more difficult than he first. The residential appraisal process has gone through a complete overhaul in the last twelve months. It has become more difficult to get the banks to agree on the contract […]

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