My wife and I enjoy watching cooking shows, including The Great British Bake Off. In these cooking challenges, different cooks create similar baked items. However, not all results are the same. Before we move on, take a few minutes to enjoy some funny outtakes from this show.
In a way, appraising real estate is like this show. Two appraisers may be working to develop an opinion of the market value of the same property.
Let’s call the appraiser’s opinion of the property’s market value the cake. The data available to be analyzed are the ingredients used to make the cake. Our standards, the Uniform Standard of Professional Practice (USPAP), are like the recipe with guidelines on how to do it.
Despite having the same pool of sales to choose from and the same standards to follow, the results of two appraisers’ work are often a little different, like the baker’s dishes. There’s nothing wrong with this. Two appraisers may choose different comparable sales to use. Or they may utilize different methods of extracting the adjustments from the market. If a market changes rapidly, and the appraisals are not based on the same effective date, this can make a difference in value opinions also. However, if two appraisers use the same market data to develop their opinion of the market value of a property, the results should be reasonably similar. Market value is best described in a range. Usually, the two opinions of value should be somewhere within that range. Of course, sometimes, the results are very different!
A REAL-WORLD EXAMPLE
Recently, a person called me with a problem they were having. They explained to me that they were getting divorced. The person and their spouse had agreed to a price they felt their home was worth. At that time, they also had applied for a loan from a bank. The bank appraiser appraised their property much higher than the amount they had agreed upon.
When that happened, the spouse, who was moving out and to be paid half the property’s market value, hired an independent appraiser to appraise it. Then, the other spouse had another appraisal completed by another appraiser. One would think that two appraisers appraising the same property around the same time, having the same general pool of data to analyze, would be reasonably close.
In this case, however, one appraiser came in around $350k, and the other came in over $150K higher. This situation doesn’t invoke trust in appraisers, does it?
While it is true that two appraisers will usually appraise the same property for different values, assuming the two appraisals are made in the same general time period and all other things being equal, the two appraised values should be within a reasonable range—certainly not over $150K apart at this price point. I don’t think you need to be an appraiser to figure that out.
I read both reports and did some research on my own. The data I examined pointed to a market value somewhere between the two other appraisers ‘ value opinions. Interestingly, the lower appraisal favored the spouse hoping for a lower value, and the higher appraisal favored the spouse desiring a higher value.
Were the two appraisers advocating for their clients? It’s difficult to say because I can’t read their minds, but you can see why someone might draw that conclusion. Can an appraiser perform an appraisal and advocate for their client while developing it?
WHAT APPRAISAL STANDARDS SAY
What do appraisal standards say? The Uniform Standards of Professional Appraisal Standards (USPAP) in the Ethics Rule states that “The appraiser must not perform the appraisal assignment with bias.” It also states that the appraiser “must not advocate the cause or interest of any party or issue.”
If both appraisers were asked if they were acting as advocates for their clients, the answer would likely be no. By the way, if the appraised value favors their client, there’s nothing wrong with that if the opinion of value is well supported by the market. Honestly, if both appraisals were well supported by the market and USPAP Standards, both appraisals would be credible and worthy of belief despite being different.
Sadly, one appraisal may have been half-baked in this case, while the other overcooked.
It’s been my experience that when an appraiser appears to be advocating for their client’s desire for a high or low appraisal, it is usually completed with numerous errors, including unsupported adjustments and/or not using truly comparable sales, which leads the appraiser’s opinion of value in a direction that is not supported by the market.
What does USPAP say about errors in an appraisal? It acknowledges that no appraisal is perfect. We all make some mistakes in our work. However, USPAP states that the appraiser “must not render appraisal services in a careless or negligent manner, such as by making a series of errors that, although individually might not significantly affect the results of an appraisal, in the aggregate affects the credibility of those results.”
The point I am trying to make here is that it is common for two appraisers to appraise the same property at different prices, and both are credible. However, if you find an appraiser who asks if you’d like a high or low appraisal, I recommend finding another appraiser. A morally flexible appraiser will often cost you more in the long run!
As an aside, I have friends who had their homes appraised, and the appraiser asked them what they thought their home was worth. They told me it seemed shady for an appraiser to ask the homeowner this question. After all, isn’t that what the appraiser’s being hired to determine? I agree. I don’t ask my client and/or the homeowner what they think their home is worth. To me, asking that is a little janky, don’t ya think? To be clear, there’s nothing wrong with an appraiser asking the homeowner what they think their property is worth. But I don’t think it’s a good idea. Hey, maybe that’s just me.
On that note, let’s get to the housing data, shall we? Bon appetit!
GETTING TRENDY (Summit County Stats)
Here are some fresh stats for Summit County. I’ve been appraising in Summit County since 2000, but I’ve never shared these stats with the public. So, I hope that you find them helpful! My next post in June will have more stats for Cuyahoga County.
- Median Sales Prices Up approx. 10% year over year.
- April had 1.19 months of inventory, slightly under a year ago.
- Median List Prices Up Over 7% year over year.
- On average, selling a home in April takes 6 more days than a year ago.
- On average, homes sell at 100% of their listing price, which was the case a year ago.
TRENDS ON SOME MORE LOCALIZED AREAS IN SUMMIT COUNTY
Single-family home prices per square foot were increasing at an annual rate of 8% as of last month in Fairlawn.
As of last month in Twinsburg, single-family home prices per square foot were increasing at approximately an annual rate of 8%.
Single-family home prices in Sagamore Hills have been generally flat over the past year.
In other news, these bicyclists/musicians nicely demonstrate what happened to home sales volume when the mortgage rates increased dramatically…
Let’s hope the housing market gets rolling more smoothly, especially for buyers, sooner than later…
HOME HACKS
While searching social media, I often encounter people sharing home hacks that make things a little easier. I figured I would share some of my favorites in my blogs. Here’s one for you.
To end this week, I leave you with a few fun outtakes from the Great Britsh Baking Show. Enjoy!
Have a great weekend ahead!
For my readers in the CLE area… here are some articles related to news in our local area that you may enjoy…
Cosmic dining: Welcome aboard The Astro Restaurant at Tower City – FreshWater Cleveland
What Is the Future of Cleveland? Take a Trip to Northeast Ohio in 2050 – Cleveland Magazine
If you enjoyed this blog, please check out some awesome blogs by my fellow appraisers…
The Spring Market Hasn’t Really Sprung With Or Without Cheeseballs Or A 40,000 DJIA – Housing Notes by Jonathan Miller
An insurance crisis wasn’t on my bingo card – Sacramento Appraisal Blog
What Tools Do You Use to Support Your Appraisal Adjustments? Appraisal Today
The Appraiser’s Guide to Evaluating Home Value Before You Buy – Birmingham Appraisal Blog
For my appraiser colleagues, I enjoyed this interview my friend Tim Andersen made with attorney Danny Villazon about how to stay out of trouble with your state board. Here is the video. Some sage advice here!
If you enjoy listening to podcasts, check out mine. I hope you enjoy it! You can find me on Apple Podcast, iHeart Radio, Spotify, Google Play Music, SoundCloud, Radio.com, RadioPublic, Deezer, Breaker, Stitcher, and other feeds.
You can also listen right here on the Cleveland Appraisal Blog!
www.homevaluestories.libsyn.com
I am a proud member of the Ohio Coalition of Appraisal Professionals. If you’re a real property appraiser in Ohio, check us out!
I am a member of the National Association of Appraisers. If you’re an appraiser and you’re looking to join an appraisal organization, please check them out. The NAA consists of fantastic appraisers from across the country who work hard to keep their fellow appraisers up-to-date on what’s happening.
Click here to visit their website.
Discover more from Cleveland Appraisal Blog
Subscribe to get the latest posts sent to your email.
Never watched that show. I’m honestly not really a cooking show guy, but I have watched most of the Is it Cake shows. I did watch a food truck show years ago that rocked. Maybe I need to get up to speed with the rest of the world….
Always appreciate your posts and what you are seeing. I know it takes tremendous work to write well and push out graphs and stats like this. Just wanted to say great job!!
Thank you so much Ryan! I really appreciate your support and encouraging words. It means a lot to me! I’m trying to get back in the blogging groove, but also sharing housing stats from my area. You’ve always set an awesome example of posting meaning blogs. I appreciate you my man! My wife and I do enjoy the cooking shows. It’s amazing what bakers can make cakes to look like!😃 Have a great weekend!
The appraisal business has endured 30+ years of state licensing, mandatory education, mandatory continuing education, state discipline, purported separation of lending production from appraisal, use of reviews and formalization of review processes, and all the rest. Yet still, two appraisals can differ by 43%? How is it that appraisals and appraisal processes remain so shoddy that they can produce this wide variance in results?
Vince, I feel your frustration! This was an unusual case, at least in my experience. Most of the time, two well trained appraisers who are appraising the same property at around the same time are reasonably close in terms of their opinions of value. In the case I mentioned, the appraiser who had the much higher value opinion used sales that were so vastly superior that they were not really comparable. It’s difficult to tell if this was a lack of training or something else. As is the case in all professions, there are also bad actors who are trying to please their clients by hitting target values. It really depresses me because there are a lot of great appraisers out there doing great work. I don’t think this situation is reflective of the majority of appraisers out there.
A measurement must be valid and reliable. It must measure what it purports to measure, and it must be reproducible no matter who does the measuring. On the first point I’m not sure I know what an appraisal is supposed to measure – an actual price? A price under the hypothetical conditions of “market value”? A normative or sustainable price? But that’s an issue for another day. Reliability means two appraisers should be close in their conclusion of value. You say your experience is that they usually are. But does anyone know? Has anyone actually studied appraisals made by different appraisers around the same date and calculated their average variance? AVMs can presumably provide statistics on how close their predictions are to closed prices, stratified by variance breakpoints. And I assume these statistics can be compared to the statistics from other AVMs so that the model predictions are convergent, if not exactly the same. And they are free of the suspicion of advocacy. I really don’t think the future of residential appraisal looks very promising.
You are correct that an appraisal must be reproducible. As appraisers, we develop a supportable opinion of what the most probable sales price of the property would be, using a specific definition of market value. If the property is not being sold, we appraise it as though it were being sold in a hypothetical sale. Our opinions must be based upon supportable data and recognized analysis and there should be enough data in our workfiles to reproduce our report. When measuring the market, we’re not normally measuring a hypothetical market. We’re supposed to be measuring the market as it as of the date of the value. I am not aware of any studies being made to measure the differences between two appraiser’s opinions of value. That would be interesting. I think it also depends on the availability of data and the property being appraised. If two appraisers are appraising a very complex property, with very little data to rely upon, it would make sense that the differences might be wider than appraising a property that is not complex. In the example I provided, this property where the two appraisers were far apart in value, it was not a complex property. As I mentioned in my article, two appraisers who have solid support for their conclusions can both have credible appraisals despite having different opinions of value. But there are cases when one may be supportable and the other not. That’s when it gets down to how the appraiser supported their opinion. With regard to AVM’s I think they can be a great supplemental tool in areas where there are a lot of similar homes that are selling. However, they can also be way off! While it is true that AVM’s cannot advocate, they also have their own downfalls. There are times when it takes an experienced appraiser to recognize certain things. For instance, there are times when mathematically, an appraiser may be able to develop an adjustment for a particular amenity. However, the market may not really be paying more for it, even though an algorithm may apply a value to it because it sees it mathematically. I don’t know what the future will hold for us appraisers. I do believe that there is a great need for honest, hardworking appraisers who are ethical and desire to support their work. But I also agree that appraisers who are not supporting their work properly, are really hurting our profession. And that’s been the case ever since I started appraising in 1998. To be frank, and perhaps a little self-serving here, I believe that if they did away with appraisers, it would create much more damage to the housing market, and people who rely upon appraisals for other reasons, than these relatively small group of appraisers who are doing bad work. We’ll see what happens. In recent years, I’ve had a number of younger appraisers either just getting into the business or who have been in the business a short time, who desire to perform solid work and are taking pride in doing so. That gives me hope! I appreciate you writing in Vince! And thank you for reading this article! I appreciate your thoughts here!
It’s interesting how even with the same pool of data, appraisers can come to slightly different conclusions. I never thought about how a rapidly changing market could affect the final appraisal. It makes sense that, in some cases, the effective date of the appraisal can lead to discrepancies. I also agree with the idea of market value being a range—appraisers are interpreting data, and it’s not always going to be a perfect match.
https://prestigeestateservices.com/locations/denver/
Hi, Donna! Thanks for writing in! There’s a lot to think about when performing an appraisal. The market is made up of many people, who all have their unique views and motivations. Trying to capture what most would pay for certain amenities can be tricky. That’s also why value is really best described in a range. I hope you’re doing well! Thanks so much for reading my article and writing in! My best to you!