Profile picture for maxxgraphix

Why are lender appraisals biased towards the purchase price?

This is the second time I've purchased a home and the appraisal comes back at exactly the purchase price.
  • January 05 2009 - Mason
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Profile picture for sunnyview
I completely appreciate your frustration. You are right. The appraiser that did your appraisal may have been lazy. You paid him and you got very little in the way of truly trying to find the value of the house independent of the sales price. He didn't work up an appraisal, he just justified your sales price. I have had this happen twice myself. Both times I felt the appraiser was phoning it in and not providing any real service. Personally, I would not trust an appraisal to justify the validity of purchase price for just that reason. PS My tax real market value was 127K over what I paid. The next closest sale to the house I bought was 70K over me within 30 days of my appraisal and had 700 less square feet. My appraiser came in at my exact purchase price. You are not alone. The current system is dirty and should not be trusted to provide an uninfluenced value. I would tell you to complain, but it won't so any good
  • January 05 2009
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It may be difficult to find a lender to re-fi for a cash out when you recently bought for X amount.  Not sure if you were going to sell or re-fi.....    
  • January 15 2010
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Typically a home loan appraiser is not going to stick his (or her) neck out any further than they have to on value.  In my experience, they are basically going out there to see the house and determine if the value is there or not.  Honestly I am not too impressed with an appraiser who has a purchase contract in his hand with a purchase price disclosed when appraising a property.  Kind of like taking a test with the answer key in your hand.  But, they are doing up to 10 "appraisals" a day in good times...so not surprising.
  • January 15 2010
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Profile picture for sunnyview
"The appraiser for a purchase is working for the bank and the ONLY objective is to make sure the house appraises for the amount being loaned." 

Appraisers may be there for the benefit of the bank, but buyer pays for the appraisal not the bank. The appraisers goal should be to make sure the house is worth as least as much as the purchase price, but I have seen too many occasions where the purchase price itself is used as the main justification of value separate from the true value of the house in the market or the comps. That is one of the reasons that the RE bubble inflated so quickly in my opinion. Appraisers were pressured to appraise for purchase price or they risked being blacklisted. The banks goal at that point was not to assure value, but to make the loan. Just like the banks goal was not to assure the ability of the buyer to repay, but to make the loan and collect their fees. The system did not work very well for the buyers who trusted the appraisers representations about value. It is buyer beware and understanding the goals of each party in a RE purchase helps accomplish that.
  • July 10 2009
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I realize this question was asked months ago, but want to answer for other people that may have the same question in the future.  The appraisal process for a new purchase loan is totally different than an appraisal for true value of a home.  The appraiser for a purchase is working for the bank and the ONLY objective is to make sure the house appraises for the amount being loaned.  Is is not for the actual value and the appraiser is not concerned with anything accept "will the bank be able to get their money back if the house goes into foreclosure".  They will always come back with in a few thousand dollars unless the house is ridiculously under priced or over priced. 
  • July 10 2009
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I'm not sure what you are arguing for.  "Good Comps" in large markets are arbitrary as there can be many.  In small market like mine, finding comps are difficult. 

Comparing the upward market appraisal to what is currenlty happening in this market is not even the same thing.  One many of the "drive by" appraisers are no longer employed.  Two scrutiny of appraisals, by Lender's is much tougher.

I do not see "one hand washing the other".  I sit next door to an appraiser (for full disclosure, my brother) who deals with calls from Buyers/Sellers (their Agents) much more then Lender's.  The Buyer's/Seller's are the ones I see ringing the ears of the appraiser pulling comps out of their a$$ that do not even fit the property.

An appraiser doesn't determine if you Buyer/Seller has gotten a good value, and if you buy at lower price and feel it is under market, you still have to consider that your sale is thus pushing the market further down, so to expect that you home is worth "x" over the purchase price, becuase you feel its a good deal, you have to consider that the Seller was willing to sell it at the sale price so that is where the market is going (in a downward trending market).

  • January 06 2009
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Profile picture for sunnyview
"Meeting the sale price" still happens. I want good comps and an honest appraisal. I was not looking at the appraisal as a way of reducing a down payment requirement or eliminating PMI. When I saw the assessed amount, I laughed and then felt sorry for the last owner who paid their taxes based in part on that ridiculous amount. Appraisals can be very good, but many are not. I have seen practices in the industry that I personally could not deal with. Banks and consumers deserve better. I appreciate good appraisal work as much as I despise bad work. I get upset with appraisers because people who buy trust that the appraisal that they are getting somehow justifies their purchase price. It doesn't.  I have heard too many people especially in the bubble use the phrase "well the house appraised so it must be a fair deal". NO. Banks should be more careful millions of houses changed hands with little or no scrutiny about the price paid. An appraisal was done, but that didn't really do much for anybody not the buyer, not the bank and not the country. Appraisals should be reasoned and independent, but many times they are not. That is what bothers me. I am happy with the house I bought and know that I got good value in my market, but that is not something that any appraiser helped me decide. People should demand more from the system than one hand washing the other. I hope this mess will at least change the banks priority a little. Only time will tell if it will or not.
  • January 06 2009
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Tom,
Absolutely correct.
  • January 06 2009
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The appraiser who did the appraisal should answer your question.  Without seeing the appraisal and reviewing the appraisers work no one can answer your question accurately.  The responses are speculative.  The appraisal could be a valid opinion or it could be a "lazy appraiser", but without seeing details it is only speculation.
  • January 06 2009
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Whether fair or not one reason that most appraisals in a declining market do not go over sale price are because we are in a Nationally declining market and if its an arms length transaction what you have offered has to hold some bearing on the true value of the property (that's just my thoughts, not sure if that enters appraiser's consideration), but also in a declining market, an appraiser who takes far more responsibility with their stamp (as compared to REA) have to justify why they are over (to the Lender).

I see everyday Appraiser's coming in under sales price and the Lender's usually don't have a problem with that, its usually the Seller who has the problem.
  • January 05 2009
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I will have to disagree with the tone of this conversation.  Sure you have many run them through appraisers, but I think there are two different issues here and they are being lumped together and being put on "appraisers trying to appeze the lender".

Sunnyview,
What you are talking about "meeting the sale price" was more so occuring in an up market and you had many builders and lenders tacitly forcing appraiser (with a carrot - more business) if a certain price is met.  Many of those appraisers are not as busy today.  Most lenders want an appraiser that will give them an honest appraisal.  The lenders do not want to get caught with their pants down (again).

Maxxgraphix,
You seem to be arguing that your appraiser is not valuing your property enough and in fact your property is worth more then the sale price.

I'm not sure why you want that, but if you have an arms length transaction you are setting future comps with your purchase (different story).  There are a myriad of reasons why you do not see appraisals go over and if you have justifiable comps to illustrate that property is worth more then you should provide that to the appraiser and they can tell you why the would or would not use the comp.  An appraiser has to justify their value especially if challenged and different appraisers will give you differing appraisals using the same comps.  The reason is because they have to justify the differences in the property which are more nuanced and subjective as you can imagine.
  • January 05 2009
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Profile picture for maxxgraphix
The home in question was priced low to create a quick sale. It's a sale to settle an estate due to death. I just happened to be first to get the low price. There were others right behind. So, if the appraisals are rigged as stated, then one could refinance at an 80% LTV if the actual value was higher than original purchase price.
  • January 05 2009
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Profile picture for wetdawgs
If you want an honest appraisal and got BS, then perhaps you should pay for an appraiser not related to the loan process.

However, a very fundamental issue the appraisers are dealing with is that the house is worth what someone is willing to pay.   One does not end up with instant equity when purchasing a house, no matter how much you wish it. 

Goverment tax estimates are never a good number for comparison on purchase appraisal values.
  • January 05 2009
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Profile picture for maxxgraphix
Ok, but what if the property is actually worth more than the banks appraisal? Why would an appraiser come back with the exact purchase price when it's really worth more? The purchase amount is $250k. Even the state tax estimate is 20% higher. Comps are all over $300k. Zillow Zestimate is $317k. Insurance estimate is $314k for buildings alone.

We asked for an honest appraisal, we got B.S.
  • January 05 2009
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Profile picture for sunnyview
That is the easiest number to justify since a willing buyer is one the line for that price in the open market. Also, the bank likes to use appraisers that "help" them write the loan for the requested/qualified for amount. Estate appraisers do not have that set sales number to work with so they construct appraisal a bit differently and have to rely on the best selected comps alone without a target range to start with. An estate type appraisal would make many sellers very unhappy in this market and they have not been favored by banks for a long time either. Long story short, most modern appraisals are almost always biased in favor of the sales price. Now that the banks are in trouble and they want a real appraisals done there is problem. They have trained appraisers for years to appraise for sales price period and many appraisers still do that even if the property is questionably priced. Sad but true.
  • January 05 2009
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