I don't do a lot of review work, but have several good clients that will ask me to do them on occasion. I also received one through Appraisal Port recently that really made me question both the "training" that new or potential appraisers get, as well as the general ethics that some appraisers have.
The appraisal was on a home that was kind of out in the country on 5.7 acres. Not quite rural, but one of those "subdivisions" where the owner had 30 acres and decided to subdivide them into several small acreage lots and call it "Happy Acres". There is no infrastructure, no common areas, not even a sign. Just a few houses on acreage that are each responsible for their own little parcel, and few, if any deed restrictions.
The house itself was very nice, stucco with clay tile roof, and a nice interior finishout. Not much in the way of landscaping or outdoor improvements like pools or outdoor living areas, but not a bad place.
The value opinion from the original appraisal was $500,000. So I start my review, and the information contained in the Subject, Contract, Neighborhood, Site, and Improvements section was fine. No issues so far.
Then I got to Question 7, "Are the data and analysis presented in the sales comparison approach complete and accurate?" I reviewed the original report, and noticed immediately that the appraiser had adjusted $3,800 for 3.82 acres. Now I'll admit that the land is fairly inexpensive out there, but a value of $1,000 an acre? I looked up recent sales of similar 3-10 acre tracts, and determined an average per acre price of roughly $20,000. So I commented that I thought the land adjustments were very minimal. To oversimplify: if you had two duplicate houses, one on 5 acres and one on 8 acres, if the one on 5 acres sold for $500,000 I think it was reasonable to expect the one on 8 acres to sell for a bit more than $503,000 in that area.
So I rewrote the comps grid using all three of the original appraisers comps, but revising the adjustments and adding a few others. I won't bore you with the details, but my grid came in at $450,000, or $50,000 less.
About two days later I got a call from the original appraiser, who was not too happy. But I was certainly willing to talk to him about it. So I asked him where he came up with the $3,800 adjustment for the lot size difference, and here is where I just started shaking my head. His response? "I was taught that you adjust 10% of the actual lot value." He also made some reference to similar instruction in CE classes, which I find hard to believe.
Since he already had started off the conversation with a crappy tone of voice, I had no problem informing him that the sales grid is where we are supposed to put "market adjustments" which we obtain through proper statistical analysis, and not just a standardized adjustment derived from "what I was taught". Besides that, there were sufficient lot sales in the area to easily realize that the lot value was approximately $20,000 per acre, and so his adjustment was actually only 5%, not 10%.
I pointed out several other items he didn't account for, such as several of his comparables being in superior subdivisions with deed restrictions, recreational amenities, closer to commercial centers, etc.
He asked about an adjustment I had made for $3,000. I explained that it was for the fact that the Subject had no fireplace while the comp did. He responded that he didn't do that, and felt that it was a "chicken-sh__" adjustment. I said "kind of like inground pools? Because I noticed that you didn't adjust for the really nice inground pool & spa that comp #2 had." He didn't have much to say after that and hung up after a bit more grumbling.
Am I out of line here, or was there some AI memo I missed that said that market analysis is not required? That regardless of the house, or location, or quality, a fireplace is always worth nothing, and lot size differences are always worth 10% of whatever the tax record shows as land value? And there is no need to adjust for superior or inferior neighborhoods?
I just can't figure out if this guy was too dumb to know he was appraising to hit a specific value, or really just thought that he did a good job. Either way, it makes me sad that so many appraisers get trained like this: "If the lot size is different, just adjust it 10% of what the tax value of the land is" or "Always adjust for size at $20/sf". In my opinion, it's pretty obvious that he was trained by someone that had 10 other trainees at the same time and learned only to hit the number if at all possible regardless of the actual definition of "market value" that he was signing off on. However, I also wonder how you can take 150 hours of classroom training and not get the concept that you are doing it wrong?
I don't know if we need more training and harder tests to weed some of these guys out, or a better way to turn these reports in for a review by the state board, but something needs to be done to reign these pushers in.
Thank you, we'll be in touch!