Appraisal Accuracy

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Tuesday December 9, 2014:

Appraisal Accuracy:

Last summer I refinanced my duplex and the appraisal came in lower than I expected.  I ended having to bring money to closing in order to satisfy the equity requirement of the loan.  My opinion of that appraisal is that it was about 8% below what I thought my property is really worth.  We did submit a rebuttal to the appraisal and the appraiser made a few changes but refused to change the value.

I feel very confident in my ability to estimate the value of homes and income properties, but it’s not an exact science, it’s an estimate, and the more unique a property is, the higher the margin for error.  My duplex is definitely a unique property.  In the end it all worked out.  I have more equity in my property than I use to, my interest rate is significantly lower and so is my monthly payment.

The appraisal industry went through a major change about 6 years ago when Appraisal Management Companies (AMC) were put in place first by the “Home Value Code of Conduct” in May 2009 and then as part of the “Dodd-Frank Wall Street Reform and Consumer Protection Act” of 2010.  The AMCs became a middleman between the lenders and appraisers to make sure the appraisers act independently.  Lenders now contact an AMC to order an appraisal and then the AMC coordinates with an appraiser to do the appraisal, does quality control on the appraisal and delivers it to the lender.

The price of an appraisal hasn’t increased very much since the AMCs were put in place and AMCs take up to half of the appraisal fee.  As a result appraisers don’t make as much as they use to on each appraisal.  Many experienced appraisers have left the industry and have been replaced by new inexperienced appraisers.

The way it use to work was that lenders had specific appraisers they worked with.  An appraiser had to be good at what they did in order to get and keep a lender’s business.  Unfortunately some lenders influenced their appraisers to increase appraised values in order to make more deals work because they made more money if they did that.  So now the whole appraisal industry is paying for the acts of a few dishonest individuals.

A recent study done by Digital Risk Analytics that the Wall Street Journal reported on last week, found that between 2011 and early 2014, one in seven appraisals were inflated by 20% or more.  It didn’t report on how many low appraisals there were.  So even with the Appraisal Management Companies (AMCs) in place, we still have a problem.

How can this happen?  It all comes down to how high the subject property is rated and what properties are chosen to compare it too.  I did a search of bungalows with a basement built between 1915 and 1930, from 1,600 to 2,000 square feet that sold in the last 6 months that are located between 1300 South to 1700 South and 500 East to 700 East in SLC.  The range in value is $102 to $167 per square feet and there are 19 homes to choose from.

Even when you narrow the search for comparable sales down, the range of value can be large.  At the two extremes of value I mentioned above, an 1,800 square foot bungalow in Liberty Wells could sell for $183,600 up to $300,600.  With a range this big you can see that there is potential for an appraisal to be to high or low.  Ten appraisers could appraise the same property and come in with ten different values.

Follow up to the Canyon Property article last month:

Five more Solitude Condos went under contract since I wrote about them in the November 5th SLC Homes News and the four that were under contract all closed.  If all five Solitude condos currently under contract close this year, that will make 20 condos sold for the year, surpassing 2007 as the best year.  Looks like the Solitude condos have turned the corner.

2007: 19 units sold
2008: 13 units sold
2009: 4 units sold
2010: 7 units sold
2011: 5 units sold
2012: 10 units sold
2013: 7 units sold
2014: 15 units have sold so far and 5 are currently under contract

I was quoted in the Boston Globe last week:

I received a call last Tuesday from Julie Xie, a reporter at the Boston Globe.  She found me through my web site,, and wanted to discuss how the Olympics effected SLC.  The city of Boston wants to host the Summer Olympics in 2024.  This is that article.  The writer quoted me a couple times in it.

Health Insurance:

I know this is off topic and might sound like a Geico commercial, but I used to change health insurance plans last week and saved $938 per year and signed up for a plan with better coverage than I had.  I had 98 plans to compare and choose from and they are organized in a way that makes it easy to narrow it down.  I love that there is one place I can search and compare plans.  I only mention it here because there is a limited time each year that you can enroll and that time is now.  If you want new insurance by January 1, 2015, you have until December 15, 2014 to sign up.  You can still sign up after that, but only until February 15, 2015.  After that it’s November 15, 2015.  If you’re paying for your own health insurance like I am, I recommend you check it out.

If you found this article interesting and would like to keep up to date with the Salt Lake County real estate market, I post a couple times a week on my SLC Homes Facebook page which is at:

Thank you!

Kevin Coyle
SLC Homes
M: (801) 243-0699


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