ABA Banking Journal - May 2010 - (Page 16)
ABA Community BAnking? |? REAL ESTATE CHALLENGE
Seeing red over appraisals?
Low values drive bankers up the wall. Here’s why there’s a problem and how to improve the appraisal process for the next round By?GeorGe?r.?mann?and?Larry?r.?WoodaLL
common complaint heard across the nation concerns low values in new appraisals. Is this the result of a real decline in value or appraisers becoming conservative? First, realize that appraisers are the last people to receive factual information on current price levels. Before an appraiser becomes aware of a property being sold, the owner, real estate brokers, and potential buyers have all been involved in setting and arriving at a transaction price. Thus, the market has caused prices to decline over the past two to four years—not appraisers. Appraisers simply reflect and analyze the market. We b e l i e ve t h e d e c l i n e i n appraised values seen by most banks can be attributed to two factors: The aforementioned decline in market prices, and a change in appraisal quality. Generally speaking, if we look at a 2006 appraised value of, say, $1 million and a 2010 appraised value of $500,000, we find the change is attributed partially to price decline and partially to the original appraisal being poorly supported, unsupported, or the data itself having been analyzed poorly. Whether acknowledged or not, banks have gone from using marginal appraisers who “hit the number” or quoted the lowest possible fees during the boom days, to using the best appraisers today as they
16? |? ABA BANKING JOURNAL? |? may?2010
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