Is Your Home Appraisal Really Accurate?

by : Bob Schwartz

Working generally as a San Diego California real estate listing broker, I frequently receive calls from appraisers who desire to validate the reported San Diego MLS sales price, ask about the condition of the property and if the seller gave any buyer concessions. When I say concessions, I am referring to payment of buyer's closing/loan costs or adding some improvement to the property prior to the close of escrow. Obviously, the appraisers were trying to do their best to ensure that their appraisals would match the true resale value.

Almost two years ago, the frequency of these appraisal calls began to diminish and for the last 18 months or so, I personally have received possibly just one such call for my last six sales.

I've confirmed the phenomena of these vanishing appraisal calls with other local brokers. I also called a few San Diego appraisers, but just one would talk about this and only after assurance of anonymity. This appraiser originally said with the new California State licensing law there were many more new appraisers and questioned their competency. When pressed, he very reluctantly conceded that my assumption that the real pressure to bring in the appraisals at the contracted purchase price (all San Diego resale appraisers have a copy of the purchase contract prior to inspecting the property) was causing them not to question the listing broker on condition or especially, seller concessions.

It's my view, in our current San Diego real estate market, that it is exceedingly rare for a buyer not to get concessions from the seller. I'm not talking small change here; these real life recent sales show:

La Mesa $362,000 sale - $4,500 credit to buyers
San Carlos $480,000 sale - $14,400 credit to buyers
Mission Valley $360,000 sale - $10,000 credit to buyers
San Carlos $385,000 sale - $10,000 credit to buyers

So, are the San Diego real estate buyers who are now paying approx. $375 for a residential real estate appraisal, really acquiring a true reflection of their impending new properties value?

If an appraiser looks at the $480,000 sale above, as a comparable without inquiring about the concessions ($14,400 in this real example) the appraisal will be too high. If the appraiser does inquire about the concessions, they have to consider the comparable property was worth not $480,000 but $465,600!

Without payment of the concession, it is not likely that this property would have sold. If the real facts did cause the new appraisal to come in below the contracted purchase price, the buyer (paying for an accurate appraisal) would be not be obligated to go forward with the sale.

In today's strong San Diego's buyer's market, the buyer would be in a very strong position to have the seller reduce the sales price to the accurate appraised value and thereby potentially save thousands!

I'm not a licensed California appraiser, just a California licensed real estate broker with three decades of residential real estate experience, Many may not be in agreement with the fact that these concessions reduce the real resale value of properties. I can understand their opinion. But, I think they are dead wrong!

No seller I know, is willing to give away thousands of dollars of their equity if they could avoid it. This is a classic example on the part of pressured appraisers, of hear no evil, see no evil!

The easy correction to this problem would be a State requirement that appraisers of residential properties use due diligence to confirm the full details of all comparable sales used in an appraisal. Until this happens, I would advise San Diego home buyers to tell their mortgage lenders that they want a copy of the appraisal and will be looking for some notation on the document showing that the appraiser made inquiry into both the condition and possible concessions on each comparable used.