Once Upon a Time, In a Land Far Away, The Re-Fi Appraisal Wasn’t So Deadly

Once upon a time (13 years ago), in a far away land (east side of Cincinnati) lived a beautiful princess (well, I’m “ok” looking, but certainly no princess).  The beautiful princess wanted to help nice people live in pretty castles. When it came time for nice people to sell their castle, the princess wanted to make sure her nice clients took home plenty of gold coins as a result of the sale. The princess was a pretty quick learner, and very quickly became a trusted expert in castle buying and selling in the far away land. Then, one day, a terrible darkness fell across the land. Suddenly, the castles were not selling quickly, or for as much coin! Suddenly the nice people were cranky! They didn’t like what the princess would show them! Some sounded distinctly like grumbling dragons when they spoke to her after reviewing numbers and hard evidence that the castle market was slowing dramatically. Many wanted to send her to the dungeon. Others just tossed her off the highest turret. She often landed in the moat and her princess frocks would be soiled.

When gold coins were plentiful, the princess was loved by the people. After the darkness appeared, some would even want to literally argue, challenging her to a duel, about why their castle was special, and how it had escaped the plague on the land. “But I’m next to a park” shouted one! “But I’ve just drained the swamp!” yelled the other. “Could you not see that I’ve painted the Great Hall blue, the master suite purple, and shined all the suits of armor?!” raged the next.

After the darkness appeared over the faraway land, some people decided to not sell, but perhaps re-finance their castle. Maybe take cash equity out of the castle, and dig a bigger moat or pay down some credit cards. Perhaps finance a trip to another far away land: Acapulco or the Grand Cayman Islands for instance.

If we are going to re-finance, we’re going to need an appraiser. If we have an appraiser, we have an opinion of value. The key word here is “opinion”.  I’m not here to suggest that we send the appraisers to the stockade.  Not even close. I successfully work closely with an appraisal group to assist me with our Serious Seller Program. Now, that being said, let the story telling continue.

A couple of weeks ago, someone I know gave me a copy of an appraisal, now about 6 months old.  If you can remember back with me, to January 2009, the Greater Cincinnati real estate market wasn’t exactly stellar, and the MLS stats that I posted outlining 2008 final numbers spoke to that point. As the market has continued to remain low these last 6 months, it’s possible that the future reporting will show that it was better then, than it is today!

I would love to be able to share the entire contents of this book of fiction, um, professional appraisal, but ya’ know that’s not going to happen. I will however, continue with the “fairy tale” aspect of this story, by sharing a couple of key thoughts. This was a well intentioned appraisal, I’m sure. However, the mistakes made, and the storybook effect of this tale of fiction disguised as an expert appraisal, has yet another homeowner thinking her castle may be worth a few thousand more than it is.

The point of the appraisal was, as you’ve probably gathered, for a re-finance.  The home is served by a school district with an “Excellent” rating, per the Ohio Department of Education. That school district had 207 sales in July 2008 – January 2009. In the same time period, one year prior, July 2007 – January 2008, there had been 236 sales.  I know you did the math: 29 fewer sales
Now, check out this information:
2006 – 504 Sales. Median List Price: $215,000 Median Sales Price: $209,250
2007 – 419 Sales. Median List Price: $205,000 Median Sales Price: $195,000
2008 – 387 Sales. Median List Price: $189,900 Median Sales Price: $184,500

Here’s how the fairy tale continues: this appraisal was performed the first week of January 2009, thus the appraiser would have concentrated on the 6 months prior to the report.  The appraiser would have access to the above information; however, this is not the type of sales history an individual appraiser will take the time to create or consider for one homeowner. The appraiser commented that this area had “…stable to modestly increasing property values.” I don’t know about that. What do you think?  $184,500 SOUNDS like quite a bit less to me than $195,000. A $10k drop in median value for one of Greater Cincinnati’s most popular areas in one year’s time! That’s information I might like to have if I’m selling a home, or re-financing and looking for true market value, (not pumped up re-fi value)  now that the dark cloud of slow sales has moved over the land.

Let’s consider something else in the appraisal that will cause even the sturdiest gargoyle to rock off its base. Under the “Additional Listings” section of the report, the appraiser voluntarily and arbitrarily decided to discuss a home that was being offered “for sale”, in “active” status in MLS, far above the most probable sales price, or market value, of the subject property. This home was entered into the report as an “oh, by the way” commentary. Just what did the appraiser say? Glad you asked. She noted that while “…this is not to be considered a comparable, due to the fact that it does not meet the requirements of a comparable, which is a closed sale. This listing exhibits the strength of the market in the area”.  In my book, 32 fewer sales than the year before, with a $10,000 drop in median price doesn’t sound too strong…but what do I know?   That “non-comp”  home was on the market, the day of the appraisal, January 6, 2009 at $183,500. It had first entered the market priced at $187,500. Currently, the home is still being marketed, 301 days later, and reduced to $177,500.

In some wierd way, I guess you can say the this home “…exhibits the strength of the market…” I just don’t think that was the twist the appraiser was going for.

In the meantime, there is a homeowner who has been given some “false hope” about the reality of the real estate market. Unfortunately, she has put her faith in this appraisal that is riddled with inaccuracies. I think I know a princess whose frock is about to get dirty.