A certain condo was listed in beautiful Buena Park on lakefront with a view of Lake Michigan for $125,000! Many would say this is incredibly underpriced, however for the broker involved, he thought it was fair market value.
As our market continues to transition, many could likely say that that condo was a deal. The problem for the managing broker, Mark Zipperer of Remax Edge, wasn’t the listed price; it was that the unit was appraised for $105,000, and decided to speak out regarding the problems with real estate appraisals.
Zipperer commented, “This is why I think the entire industry should be reevaluated. They have internal issues that they have to solve. They (real estate appraisers) are killing our business.”
Shocked by the results, this is something Brokers and Agents had grown somewhat accustomed to over the last few years when the market was still finding its bottom; he went through the Comparative Market Analysis, CMA. What he discovered was that the appraiser failed to consider some crucial information that had an effect on his results.
For starters, the appraiser failed to use a unit with the same floor level and generally considered to have similar view amenity. The unit appraised was on the 17th floor and one of the units which was used for comparison, although in the same building, was 10 floors below. In and of itself, a unit 10 floors below is not a problem, especially if it is the same tier and generally the same floor plan. Traditionally in vertical buildings in large cities the prices are higher as the floors get higher due to better views and less noise from the traffic below.
Coincidentally, Mark Zipperer was the Broker on the other unit referenced in the appraisal as well. So what he pointed out to the appraiser was that the other unit was a short sale and not a conventional sale.
The kicker here is that the lower unit did not have the luxurious lakefront view that the unit on the 17th floor had… This presented yet another challenge between the Broker and the appraiser.
Another “comp” used in the appraisal was from a nearby building which had no balcony when the unit being listed had a balcony. Again, this is not a problem, but if the typical buyer is seeking a balcony, then a financial adjustment is best suited to achieve parity.
The National Association of Realtors released the Realtor Confidence Index back in March 2013, which reported some disturbing results.
<!--[if !supportLists]-->· <!--[endif]-->29% of Realtors that took the survey reported problems with appraisals.
<!--[if !supportLists]-->· <!--[endif]-->10% of Realtors said the appraisals resulted in the sale being negotiated down.
<!--[if !supportLists]-->· <!--[endif]-->10% of Realtors reported that the Contracts failed to close as a result of the appraisal.
In the end the appraiser did make some adjustments to the appraisal report for being on a higher floor, having the lake view and it being a non-distressed sale. However, this could stand as a lesson for Agents; to make sure to confirm with the appraiser that he/she has experience in the area and in a case like this, the building itself or others like it close by.
Of course we cannot overlook, that in most cases, the appraiser is assigned an appraisal by a lender’s appraisal management company, and therefore the lender has no say in who will handle the assignment. If the appraiser assigned to your transaction does not have the experience necessary in that specific neighborhood, subdivision, or in this case, a high-rise building, an agent can always submit a request for a competent appraiser.