Expert: Lori Frankfort - 9/1/2009

Question
QUESTION: I am trying to sell a duplex in Southern Calif. for $460,000.  I just received the appraisal and it gave me these values:  Comparison analysis -$405,000, Income approach- $459,992, and Cost approach(if developed)-$459,999.  It said there are "few closed sales within the subject area", so they included sales from Jan/09 & a competing area. All the sales are either bank owned or short sales.
My question is: Do the income and cost approach values have any influence, when the lender is considering the value of my property, or do they only consider the sales comparison?
And, does my house have no more value than the last foreclosure sold, no matter where it is, or when it sold. I had an appraisal in May,2009(the sale fell through) and that appraiser refused to look at any sales before January 09.  Are there any set rules for this?
Thank you for your time,
Rafael




ANSWER: Rafael, was this the appraisal ordered by the lender?  If so, it should have adjusted for the fact that the comps used were foreclosures or short sales.  This adjustment is typically reflected in the appraisal at the end of each comp's informtion.  I believe the Buyer's lender will use all three values in their decision to lend, with the most weight being placed on the Comp analysis.

There are guidelines for the use of comps, but because I'm not an appraiser I don't know what those guidelines are.  In my experience you want the most recent comps, closest in proximity, and not older than six months.  

You should speak to their lender directly to get clarification on how they intend to handle the appraisal.  If the Buyer is putting down 20% then the bank will most likely still lend on it but the Buyer has to be okay with buying a property that costs more than its appraised value.  With the income approach supporting that they should still be willing to buy, in my opinion.

Good luck.

Best,
Lori

---------- FOLLOW-UP ----------

QUESTION: Lori, the appraisal said the comparison sales were adjusted for site,living area, and condition, it didn't say anything about short sales or foreclosures. My real estate agent talked to the lender & he said he does not have to consider the other 2 values of my property, only the comparison analysis.  Do I have any recourse at this point? How do I find out about any official guidelines for appraisals or lenders?
Also, my real estate agent gave the appraiser the old appraisal from April and this new one is almost exactly the same, all the same pictures, dates,and comparisons-except she changed one, which brought my property down to 405,000.  Is this common?  It doesn't seem right, especially since the buyer has to pay for this supposedly new appraisal.
Thanks again,
Rafael

Answer
The California Department of Real Estate regulates appraisers.  I would start by calling them and getting advice.  Because this is a value "opinion" it's very vague and recourse is very difficult.  I think it needs to be pointed out to the lender that there was no adjustment for the comps being short sales / foreclosures, and urge them to get another appraisal with accurate comps.  Tell the lender that if they don't handle this effectively you'll be contacting the DRE about the entire matter.  Play hard ball.  That appraiser was lazy.  And by the way, your appraisal should have gone UP not down, as the market has improved since your last appraisal.