The market has been steadily increasing in the eastern area of the state for some time now but this year there is no doubt that values are up in central Mass. over last year with days on market usually under 30 days and often within a week. Similarly there are multiple offers, offers over asking price, offers with fewer or no contingences, including removal of “the appraisal clause.” That’s the clause that has been added over the last several years that stated that the property had to appraise at or above the sale price or the buyer had the option to back out. This clause is required for VA buyers but not for conventional financing. One of the reasons it is being removed more often is that there is a fear amongst sales agents, sellers and also buyers that they will get an appraiser that is not keeping up with the market and that will not do the due diligence which includes some extra work, really analyzing the sales that are under agreement and calling those sales agents to get the confidential sale prices. These sale prices can not be disclosed in the report but the appraiser can have them in their file and state that they support both the time adjustment used for market appreciation and also the appraised value of the subject property. Statistics showing the increase in the average sale prices from a period of time to a period of time can also be used, such as a one year period from the past 12 months over the previous 12 months or a 6 month period to the most recent 6 month period. Certain price ranges may be relevant such as lower end isolated from higher end. Sometimes higher end homes don’t appreciate or don’t appreciate at the same rate. Condos can be isolated from single families and one project might show a different rate from another one. Multi families are extremely hot investments this year with appreciation showing just about everywhere.
So why is it that when everyone involved in real estate as well as buyers and sellers all agree that the market is going up are some appraisers still saying the market is stable and not showing time adjustments to the comparables sales? Or worse, they are saying in the neighborhood and market section of the appraisal that the market is increasing and then not doing time adjustments to the sales, which is totally contradictory. One appraiser told me “My banks don’t like it”. Another told me he wasn’t sure we should because he heard another more experienced colleague wasn’t doing them. These reasons of course are not acceptable. What will happen when the market turns around and starts to decline? Will they let others influence their judgment on time adjustments then as well? We saw that in the last crash. Appraisers were afraid to state the obvious until they thought everyone else was. I do appraisal work for many lenders and appraisal management companies (AMCs) and none of them have ever had a problem with my using time adjustments. At the beginning of the year there was a little more push back to really prove them, which got easier and easier to do with market statistics and on deposit sale prices as the spring progressed. Honestly if there are multiple offers all over asking price with properties going on deposit immediately, how in the world can any appraiser say the market is not going up. That doesn’t mean every appraisal should hit the sale price. There are buyers under duress in a sellers market who are desperate to get a house and are over paying and often don’t care. When there is a buyers market, it is often the sellers who are under duress and underselling their house. But that can happen even in this hot market. Appraisers are responsible to verify the circumstances of the sales to make sure they are truly armslength sales and then decide if they should use them or how much to weight them. So what should lenders and underwriters do when they have appraisers giving conflicting reports? The first instinct for an underwriter or reviewer is to make the appraiser who is saying it’s increasing to prove it, which requires extra work but is easily done. But I would argue that if the whole world knows it’s going up, the appraiser who is not doing time adjustments should prove it and be challenged by those engaging their services.
Real estate agents, buyers and sellers should not have to worry they will get one of the few appraisers on their deal who is behind the market or thinks they know what their client wants, when what they really want is an honest appraisal. Yes, with recent sales, a time adjustment may not be necessary in order to appraise the property at the sale price but that isn’t the point. A true picture of the market with consistency needs to be indicated on all appraisals in order to not create a misleading report. If the market is going up on one appraisal, it is going up on all appraisals in that same market. This will be very important as the market stabilizes eventually and ultimately declines.
We, as appraisers have a responsibility to tell it like it is and know how to prove it. If an appraiser isn’t sure all they need to do is get on the phone and do a little survey. Call 10,20 or more if they need to, real estate professionals in their market area and ASK what they are experiencing. Call their appraiser colleagues. Often what happens in the eastern area of the state trickles to the central area and then west. With today’s technology, often people get too isolated in their offices trying to meet deadlines and still live their life. Sometimes it is just a matter of staying connected with people not just computers. Belonging to an appraisal organization is extremely beneficial, like the MBREA or The Appraisal Institute. After 32 years as an appraiser, I still say networking is the key to not only success but continued enjoyment of the profession. See you out there!
Maria Hopkins, SRA, RA, is president of Maria Hopkins Associates, Spencer, Mass.