Have you ever needed a real estate appraisal? Perhaps you were buying or selling a home. It may have been for a divorce, or maybe something complete different. Did you feel that the appraiser was biased in any way? Probably not. There’s a huge benefit to having a neutral party involved in the valuation process. Especially when it comes to emotionally charged situations.
What does it mean to be neutral? Think about an automobile. What happens when the gears are in neutral? The car is not being advanced forwards or backwards. No matter how high the engine is revved up, the automobile does not move.
Likewise, when it comes to an appraiser, being neutral requires that our analysis and opinions are not for, or against, a cause or party. Can you think of some synonyms for the word neutral? Disinterested, indifferent, fair-minded, nonaligned, uninvolved or unbiased.
Appraisers must be unbiased in our analysis, opinions and conclusions. Why is this important? The Appraisal of Real Estate 14th Edition gives the reason when it states, “While anyone can have an opinion of value, appraisers are professionals with training and expertise in the accepted valuation methods and techniques who have an ethical obligation to remain disinterested and unbiased while performing an appraisal. That professional expertise gives the value opinion of an appraiser credibility in the marketplace that that the opinions of others market participants do not carry.”
The appraiser is usually the only party involved in a purchase of a home or in a marriage dissolution. Therefore, part of the value of hiring an appraiser is the objective, unbiased or neutral, analysis and opinion of value. If appraisers are not neutral, or unbiased, they lose credibility. Therefore, remaining unbiased should be of utmost importance to the appraiser.
REMAING NEUTRAL IN THE APPRAISAL PROCESS
To remain neutral as an appraiser, means that our only concern is to provide a supportable opinion of value, following USPAP guidelines. USPAP guidelines require that the appraiser be unbiased and impartial. Interestingly, an appraiser may have an interest with respect to the property or parties involved. Can an appraiser still perform an appraisal in that situation? On page 193 of the 2020-2021 USPAP edition it states, “If the appraiser has an interest but can provide the service in an ethical, unbiased manner, then the appraiser can agree to perform the assignment as long as the appraiser is competent and properly discloses the interest in accordance with Standards Rule 2-3.” Notice that even if the appraiser has an interest in a particular property or in one of the parties involved, they can still perform the appraisal. However, the appraiser must complete the appraisal in an unbiased manner and make the proper disclosures. Clearly, self-discipline is necessary.
Appraisers cannot be concerned about how the results of their findings affect the parties involved. At times, our clients may want us to appraise a property lower, or higher, than what is supportable for that market. At times like this, it can be challenging to remain neutral. This is where professionalism come into play. Appraisers are professionals. Part of being a professional requires having self-discipline in developing our opinion of value in an unbiased way.
Quite a few years ago, I was appraising a home for a bank. As I walked through the home, the kind homeowner accompanied me. They shared with me how one of their children had been in and out of drug rehab for years. The homeowners spent tens of thousands of dollars in doctor bills and rehab facilities trying to get their child sober. They also told me that the reason for their refinancing their home was because they were nearly broke. They further went on to explain that, due to their son’s drug abuse, he developed a serious and life-threatening health situation, for which they needed money to pay for medical help.
Amongst the details they shared with me was what they needed the house to appraise for. They also stated that if they didn’t get the loan, their son would not get the treatment that he needed and might die. Now, it goes without saying that this was a heavy load to put on an appraiser. What did I do? I had to determine whether I could remain neutral and provide an unbiased analysis.
I asked myself some questions. Was the homeowner telling me the truth? If so, was their financial situation to blame for the difficult situation they were in? Clearly much more was involved. Was their child’s life hanging in the balance, solely dependent upon my opinion of value? These were all things that were out of my control, including what the market value of their home was. Appraisers don’t manufacture values to make loans work. We develop an opinion of value based upon real market data. The value is what it is. None of these other factors had anything to do with my work. It’s not that appraiser’s are cold hearted people. Being professional means that our opinions cannot be swayed by situations like this. It requires self-discipline. And, yes, sometimes it can be difficult to maintain. If an appraiser feels that they do not have the self-discipline to complete the assignment in an unbiased way, they should not complete the assignment.
Therefore, I determined that I could move forward and provide an unbiased opinion of value. My opinion of value was lower than what they were hoping for. This was at a time when many loan officers would just find another appraiser who was willing to appraise the home for what they wanted. I don’t know if that happened in this case. It wouldn’t surprise me if it did.
REAL ESTATE TRANSACTIONS
In real estate transactions, appraisers have to be careful of not being biased when it comes to the purchase price of a home. An appraiser’s work is to estimate the market value of the property. Not to come in at the purchase price. To be neutral means that the appraiser’s concern is not to make a deal “work”.
There is evidence that in a purchase transaction, some appraiser’s are allowing the purchase price to bias, or influence, their opinion of value. This may be why many market participants are of the opinion that the definition of market value simply means, whatever a buyer is willing to pay for a property. That is simply not what market value means.
Conversely, to remain neutral also means that the appraisers objective is not to “kill” a deal. I don’t know of a single appraiser who is going around appraising properties below market value, like some value vigilante, when the contract price is supported by other comparable sales in the neighborhood. Why would any appraiser do that? That being said, in some difficult assignments, an appraiser who does not have the expertise necessary in appraising a particular kind of property, may inadvertently appraise a property for less than market value. That situation is not about motive. They may be neutral. In that case, it’s about their skill level.
When it comes to marriage dissolution, usually, one party wants the value to be high and the other wants a lower value. No matter who the client happens to be, the appraiser must remain neutral.
I have appraised homes in which both parties agreed to use me for the appraisal in a divorce. In these situations, it is common for one spouse to point out all the positive aspects of the home while, during the same inspection, the other spouse is pointing out all of the negative aspects of the property. Sometimes, at the very same time. I completely understand the reasons why. As a neutral party, I have to consider all of the information provided, and then develop an unbiased opinion based upon all of the facts presented. That includes addressing all of the positive and negative aspects of the property, in my report.
SOME THINGS TO THINK ABOUT
Have you ever seen a courtroom scene on TV or in a movie? Many times one of the attorney’s will ask an inappropriate question, and the immediately withdraw the question. The idea is that they have just planted a seed in the minds of the jury.
While the jury is supposed to be disciplined enough to not consider the question, they also can’t unhear the question. While in real life, this tactic is rare in court, and looked down upon in the legal profession, it does occasionally happen. It’s not good form.
Sometimes homeowners try to do something similar. They plant the seed of value by sharing what they think their home is worth. Especially in situations when the homeowner is refinancing. The loan officer may have told the homeowner how much the home needs to appraise for in order to make the loan work. The homeowner may try to share that information with the appraiser. Even if they do, the appraiser has to use self-discipline and not allow that to sway their opinion of value.
I know of appraisers who routinely ask the homeowner what they think their home is worth. While that may not be technically wrong, I don’t think that it is a good idea. After all, isn’t that what the appraiser is supposed to determine? Honestly, I don’t want to know. I would rather do my own research and analysis and develop my opinion based upon my own research and analysis. While there are some shifty appraisers out there, who are willing to stretch the value beyond what is realistic, most are not.
Speaking of being influenced, in the State of Ohio, it is a fifth-degree felony to try and coerce or influence an appraiser. Let that marinate a little. Many other States also have laws that make it illegal to coerce or influence an appraiser. That has not stopped some agents from telling me that they have “a lot of work they would like to send my way.” But first, “let’s see how you do on this appraisal” for the bank. I kid you not! In full disclosure, that doesn’t happen very often. I should point out that most real estate agents are professional and respectful of appraisers and our work, at least in my experience. However, that situation has happened to me several times over the past couple of years.
Some in the lending industry may feel as though providing the appraiser with what they “need” the appraisal to come in at to make the loan work, ensures that if the market value is within a few thousand dollars, the appraiser will not unnecessarily miss coming in at the number, “killing” the loan.
Here are my thoughts on this. First, if a bank doesn’t want to make a loan on a home in which the market value is just under what they were anticipating it being, then value is not the issue. It could be credit, or some other factor. Secondly, market value is never just a single point number. There is always a range. I believe that if appraisers were able to express their opinion of value in a range, it would be very helpful on many levels in the lending industry. For non-lender work, appraisers can provide a range, and I usually do. However, for lending, appraisers still must provide a single point value, for which the lenders give all consideration.
THE APPRAISER IS NOT SIGNALING YOU
What if a homeowner indicates to the appraiser what they hope the property will appraise for? If the appraiser continues to be friendly throughout the visit, even after that information is shared, that shouldn’t be taken as the appraiser “winking” back, indicating that the value will come in where they want it to.
The appraiser is being professional. Our professional and friendly manner has nothing to do with our conclusions regarding value. During the inspection, the appraiser has not developed an opinion of market value yet. Nor should they allow any information presented, sway them towards a value conclusion.
Much like the neutral position on an automobile, where the engine is neither advancing nor reversing, the same is true of the appraiser’s position. No matter how much someone may try to rev our engine in one direction or another, our position is not to make a deal “work”, nor to “kill” a deal. The appraiser’s work is simply to provide a supportable, credible opinion of value. Whatever happens after that is out of the appraiser’s concern and control.
I think you’ll agree with me that some drivers should never move their vehicle out of neutral! I would like to respectfully submit this video as evidence to support my conclusion. Enjoy!
Thanks so much for being here and reading my article! Have a great two weeks!
OLD CLEVELAND APPRAISAL BLOG
If you originally subscribed to my old blog, you may have received an email this week, with a post from my former Cleveland Appraisal Blog site at www.AspenAppraisalServices.net. It was an article from Redfin, entitled “How to Build Equity in Your Home”. In that article, many of my fellow appraisers share their expertise on things that can add equity to a home. I have a link below as well. The author gave me permission to post this to my blog. I figured it would be a good one to post to the blog on my other website.
In the weeks and months to come, I am going to repost some of my original articles written on this blog, to my old website blog. I will still be blogging here with fresh content every two weeks, like normal. I am mentioning this so as not to create confusion out there, because it is also called the Cleveland Appraisal Blog. This old blog site is where I started blogging a number of years ago.
Looking for a qualified real estate appraiser in your area? Go to www.FindMyAppraiser.com
Are you a consumer looking for information on real estate? Go to www.ConsumerHomeValue.com
If you enjoy listening to podcasts, check my new podcast out. I hope you enjoy it! You can find my on Apple Podcast, iHeart Radio, Spotify, Google Play Music, Sound Cloud, Radio.com, RadioPublic, Deezer, Breaker, Stitcher as well as other feeds.
You can also listen right here at Cleveland Appraisal Blog! www.homevaluestories.libsyn.com
Here are some links to other articles and videos I enjoyed recently! I hope you will also…
Some Housing Styles Really Stand Out In Any Location – Housing Notes by Jonathan Miller
Two Paths to Appraisal Modernization!!! – Voice of Appraisal with Phil Crawford (PODCAST)
Tax Records is not the definitive source for square footage –Sacramento Appraisal Blog
How to Build Equity in Your Home –Lexi Klinkenberg of Redfin
Things To Consider When Making Home Renovations – Birmingham Appraisal Blog
Appraisal Creep – Spot Value – MLS Most Popular Words – Competency – APPRAISAL TODAY
Statistics vs. Data Science Huh? – George Dell’s Analogue Blog
An Interview with Craig Morley – The Appraiser’s Advocate with Time Andersen (PODCAST)
A Little About Google and SEO – The Approach Coach (PODCAST)
When My Home Doesn’t Appraise High Enough – The APPRAI$AL Cast (PODCAST)