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Bad appraisals killing real estate deals – is there a solution?



The tiresome issue of the misunderstood appraisal

Raise your hand if you’re tired of hearing about low appraisals in the news.  Raise your other hand if you have no clue what the definition of a “faulty appraisal” even is.  If both of your hands are in the air, that’s awesome, mine were.

Let’s go back to class here for a second. An appraisal is an opinion of value, it determines how much a home is worth on a given day and time, based on age, size, condition, and several other factors. There are three methods on how this can be done – the income approach, for commercial or (duh) income producing properties, like multi-family homes, the cost approach, often used for manufactured homes, and occasionally for new construction – how much it literally costs to build or rebuild a home, and finally the most common, is the comparison approach, using active and sold comps in the neighborhood. 

When done for a home purchase, an appraisal is done to protect the bank from lending more money on a home than it’s worth. It isn’t completed to meet the agreed upon price in the contract. It’s not there for the buyer’s peace of mind. It sure as heck isn’t there for the seller or Realtors involved. The lender is the client, they are the ones who are insuring their investment in the transaction by getting an appraisal ordered.

NAR and NAHB members claim lost deals

For nearly a year, between 10 and 18 percent of NAR members surveyed have reported at least one deal which has been delayed or killed due to appraisal issues. Usually the issue is that the appraisal is not meeting the contract price, and either the transaction falls apart completely, or the sales price needs to be renegotiated. Recently a report was released by the NAHB, wherein they are also reporting issues with appraisals. Within the last six months, of their surveyed members, roughly 60 percent said the appraisal was less than the contract price, and about half said the appraisal was less than the cost of building the home.

Both groups are trying to correct the problem of problem appraisals. In a NAHB statement on December 8th, they note they have been holding appraisal summits in Washington for several years with banking regulators in order to urge change of appraisal practices. One of their major concerns at this time is the use of distressed comps in new construction sales. NAR will be hosting a webinar in January with suggestions to make sure appraisers are qualified. Questions Realtors can ask when meeting an appraiser at a home, ensuring they know about upgrades, and providing neighborhood comps.

Not all appraisals are bad, but when they are…

This is all well and good. It never hurt anyone to be more informed about a property. However, to me, a crappy appraisal is one that isn’t up to standards, that is completed sloppily, inaccurately, one that doesn’t take all information into account, one in which data is falsified. Most appraisals are of quality, but when they are bad, they are really bad.

Not meeting contract price, for whatever reason; the home was overpriced to begin with, it was over-improved, the market is rapidly declining- possibly due to job loss or other economic issues, the market is driven by distressed properties, or even the condition of the home itself, this simply is not a reason to get into a huff. And I kind of have to say tuff tiddlywinks. The contract price, and sometimes even upgrades, don’t mean a whole lot, when the rest of the immediate area can’t support the value.

Katie Cosner, occasionally known as Kathleen, or KT, is a Realtor® with Cutler Real Estate and is active in her local Board of Realtors® on the Equal Opportunity & Professional Development Committee. She has been floating around online for a number of years, and is on facebook as well as twitter. While Katie has a few hardcore beliefs, three in the Real Estate World to live and die by are; education, ethics, and the law - insert random quote from “A Few Good Men” here. Katie is also an avid Cleveland Indians fan, which really explains quite a bit of her… quirks.

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  1. Ben Goheen

    December 16, 2011 at 1:39 am

    Since every area is different, so having a nationwide regulation against using a distressed property to new construction is bogus. A new construction appraisal I did a couple months ago came in low because there were TONS of 1-5 year old (bank owned) homes in the area selling for $20k less. You can't justify a higher price just because the builder won't break even – not my problem.

    What's worse, a 'faulty' appraisal or completely inaccurate information listed in the MLS? Unfortunately the latter is way more common.

    • Kathleen Cosner

      December 16, 2011 at 7:25 am

      Agreed Ben. My fav example is this: A person can *ask* whatever they want when they sell their home, there's no law against it. There's nothing stopping Buddy the Dog from throwing a For Sale out front and a list price of $500k. Just like there's nothing stopping Xena the Kitty from agreeing to pay that cool $500k. However, if the house is only worth $100k, that's all *any* bank will ever lend on it. Ever.

      • John

        December 27, 2011 at 2:24 am

        I must disagree with your view on the appraisal world of today. I am a former real estate agent, and current part time builder, in that I own a company with a partner that builds entry level spec houses. (Although we have not built one in over 3 years) The last house we built had an offer put in on it, contingent on an acceptable appraisal which the buyers were to have done. The appraisal came in under their offer, although not drastically, but they did show me the appraisal. One of the "Comparables" was a 5 year old foreclosed house, that I had been through when it was for sale. The home was a true distressed property, as there was a lot of damage done before it was foreclosed, and it was build with cheap material and with some pretty shabby workmanship.

        I also refinanced my own home 1 1/2 years ago, and there were only 3 comparables used, due to the lack of them. My home is a 19 yr old 1940 sq ft, full brick, full basement ranch, constructed not the best material, but above average. One of the comparables was a 2457 sq ft 2 story, vinyl siding without a basement that sold for $210,000. Sorry, this is not a comparable! The most recent sale of the comparables was a 6 yr old, 2064 sq ft, full brick ranch with basement. Of the 3, this was the most like mine, and sold for the highest amount at $284,000. The 3rd was sold almost 12 months earlier and was a 34 yr old 1750 sq ft brick ranch with basement, that sold in less than a month for $170,000, to settle an estate.

        There ARE many issues with appraisals today that need to be corrected. The biggest is using foreclosures as comparables for new construction.

  2. Rosemary Gleason Reed

    December 16, 2011 at 9:23 am

    Specializing in Short Sales appraisals are critical to successful marketing when shorting an FHA loan. Last year I received an appraisal well above what the comps showed and upon review found it was based on a ranch, a bungalow and a colonial. (This home was a 90 year old colonial in a neighborhood made up of almost identical homes. ) Here's the kicker…the colonial used was actually an ACTIVE listing. Armed with all this to show it was sloppy and inaccurate, I still fought that appraisal through HUD for months and never got anywhere.

  3. Roger Perez

    December 20, 2011 at 9:17 pm

    I have been a real state broker, appraiser and builder for 25 years and have seen a lot of both sides of this argument. To Realtors and builders a bad appraisal is one that they dont agree with. Your article is good for the most part, unfortunately some Realtors and builders dont have a clue of what they are doing, they are priamrily salesmen, thats all. Some houses are appraising at less than construction cost because "cost does not equal market value". There are scores of beautiful , brand new houses sitting empty. They are only worth what somebody is willing to pay, which right now is nothing. You said it well with the cat and dog story , anyone can ask or pay whatever they want for an item, if the buyer pays cash there is no appraisal and he can overpay all he wants. The appraisal is only there to help the bank decide how much they are willing to lend (risk) on a deal, its not there to help an uninformed buyer to buy an overpriced house that some real estate agent told them what a great deal it is.

  4. Bill Ding

    April 25, 2012 at 11:56 pm

    Ben said; “. A new construction appraisal I did a couple months ago came in low because there were TONS of 1-5 year old (bank owned) homes in the area selling for $20k less. You can’t justify a higher price just because the builder won’t break even – not my problem.”

    While I agree that an appraiser is not to give a misleading report so that the builder won’t lose money, I’m going to have to strongly disagree with the broad brush that was used with REOs and New. If Ben had said that there were other non distressed arm’s length new construction that were similar selling for $20k less, then I would agree. But you have 2 factors that you are not factoring.

    1. New construction, (aka C1 UAD rating) vs Previously owned (aka C2 rating). Like new cars, people value new over used. Same can be seen with homes. Why do you thing that Fannie makes appraisers label new as C1 condition and previously owned, like new as a C2 rating. If your subject is new…you need to compare apples to apples. On that note, you can’t use land sales with construction costs. You need to compare a completed construction open market sale. You also need to use other developers to avoid scams, inside dealings, straw buyers, etc.

    2. Using distressed sales as comps. More often than not, there is a market reaction towards a REO and Short Sale. This needs to be taken into consideration. The bank did not want to own that house, they are not in the RE market and they have a huge problem on their back with all these foreclosed homes and they need to get them off the books. It is a distressed sale. There is undue stimulus to sell these properties. One of the conditions of Market Value is that the appraiser is to find the most probable price the subject house would get in a sale of typical buyer/seller motivations and without undue stimulus to sell. Often you have a bifurcated market where you have 2 values happening between the traditional seller without undue stimulus and a lender sale. The buyer knows the bank has to sell and they have the unfair upper hand with them. There is also a stigma attached to bank sales. They are “as-is”, special warranty deed, non-disclaimer, vacant for God only knows how long, sales. I like to think of them as a box of chocolates ***cue Forrest Gump*** Banks are a pain in the rear to deal with, the agents are often extremely difficult to talk to as well. Lien problems, title problems…all sorts of nightmares that people tell. I won’t even get into the physical conditions that are found.

    Market Value talks a great deal about motivations of the buyer/seller. Have you ever called the bank and asked what their motivations were. What made them price it like they did…how many foreclosed homes are on their books, etc??? I’m sure many of you are laughing the deer in the headlight look you would get. You could always ask the agent for a good laugh, too. In any event, REOs are unverifiable.

    All these factors that affect value must be considered. You can use C2 homes as comps as well as REOs (you’re not required to)…but should you use them, the market reaction needs to be checked and make appropriate adjustments so that it is a reflection of the most probable price of the subject’s new construction without undue stimulus. MV does not say to find the most probable price of a distressed USED house sale. There may be a “TON” of REOs in the market and driving the prices down. Of course, the prices of the non-REOs will reflect any influence they have in the market.

  5. Lori Herrington

    May 3, 2012 at 11:18 am

    We had an appraisal done to do a re-fi on our home. When the appraisal came back it was 20k less than what we expected. Upon a thorough review we found that the appraiser “rounded down” on each room in the square footage measurements, leaving off 80 sq feet as compared to 4 other previous appraisals that concurred the real and actual sq footage of our home.

    Additionally, they did not add value or even acknowledge the fact that we had an outdoor kitchen (complete with sink, fridge and built in grill) nor the fact that we had well water on the property. The comparables they used were all homes that were similar in age to ours…..however these homes had not been remodeled/upgraded as ours has. Several years ago we updated the home and included a gourmet kitchen complete with custom cabinets and granite countertops. All of the comps had the type of cabinets you would find in a low end apartment. and the flooring throughout our house is new, nice quality hand-scraped hardwood floors, where as the comps all had old out-dated carpets. (we also have several friends that are real estate agents, so I KNOW that there ARE comps of houses sold within 15 miles of my home….same age, remodeled similarily…..that SOLD for $10.00 a square foot higher than the value of our appraiser gave us in her report).

    In addition to ignoring the value of materials used inside our home (many more not listed). The appraiser gave us a price per square foot matching the lowest of the comps that she used…..with no explanation as to why the lowest number was used….not even an average. We do not have an abundance of foreclosed homes in our area….the housing crisis affected our area minimally as we are far removed from large metropolis areas. My husband is a banker and has worked with this appraiser on several other deals recently where they just failed to recognize a room in one home, gave innacurate square footage, valued a brand new home as old vs. new construction, on and on. Although the appraiser’s supervisor and owner of the company agreed that the mistakes were made on our appraisal as well as the others they flat our refused to make corrections. We brought them 3 prior appraisals to prove the square footage inaccuracy and provided them with copies of true comps.

    We had to pay $450.00 for this! I am outraged that they can handle business in such a way and have no one to answer to. My fear is that this type of problem will continue to go on unanswered and house prices in our area will start trending down based solely on bad appraisers. Any suggestions?

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Opinion Editorials

Ways to socialize safely during quarantine

(EDITORIAL) Months of isolation due to quarantine is causing loneliness for many, but joining virtual social groups from home may help fill the need for interaction.




Quarantining, sheltering in place, staying home. We’re tired of hearing it; we’re tired of doing it. Yet, it’s what we still need to be doing to stay safe for a while longer. All of this can be lonesome. As the days turn into weeks and weeks into months, the alone time is getting to even the most introverted among us.

Solitary confinement is considered one of the most psychologically damaging punishments a human can endure. The New Yorker reported on this in a 1992 study of prisoners in detention camps in the former Yugoslavia, as well as Vietnam veterans who experienced isolation. These studies showed that prisoners who had experienced solitary confinement demonstrated similar brain activity to those who’d suffered a severe head injury, noting that “Without sustained social interaction, the human brain may become as impaired as one that has incurred a traumatic injury.”

We aren’t meant to be solitary creatures. Your “pandemic brain” is real. That fogginess, the lack of productivity, can be attributed to many things, including anxiety, but being kept apart from other humans is a big part of it too. Be kind to yourself, give yourself grace, and join others virtually. Be it an app, a class, a Facebook group, a chat room, or a livestream, someone somewhere is out there waiting to connect with you too.

The good news? We are lucky enough to live in an era of near limitless ways to interact socially online. Sure, it is different, but it is something. It’s important. The best thing about this type of social interaction is being able to hone in on your specific interests, though I’d caution you against getting caught in an online echo chamber. Diversity of interests, personality, and opinion make for a richer experience, with opportunities for connecting and expanding your worldview.

Here are a few suggestions on ways to socialize while staying home and staying safe. Communicating with other humans is good for you, physically and mentally.

Interactive Livestreams on Twitch:

Twitch is best known as a streaming service for video game fans, but it offers multiple streams appealing to different interests. This is more than passive watching (although that is an option, too) as Twitch livestream channels also have chat rooms. Twitch is fun for people who like multi-tasking because the chat rooms for popular livestream channels can get busy with chatter.

While people watch the Twitch hosts play a video game, film a live podcast, make music or art, mix cocktails, or dance, they can comment on what they’re watching, make suggestions, ask questions, crack jokes, and get to know each other (by Twitch handle, so it is still as anonymous as you want it to be) in the chat room. The best hosts take time every so often to interact directly with the chat room questions and comments.

Many Twitch channels develop loyal followers who get to know each other, thus forming communities. I have participated in the Alamo Drafthouse Master Pancake movie mocks a few times because they are fun and local to Austin, where I live. Plus, in my non-quarantine life, I would go to Master Pancake shows live sometimes. The chat room feels familiar in a nice way. While watching online is free, you can (and totally should) tip them.

Online trivia in real time:

There are some good options for real-time online trivia, but I’m impressed with the NYC Trivia League’s model. They have trivia games online on Mondays, Wednesdays, Fridays, and Sundays. The NYC Trivia League seems to have figured out a good way to run the game live while keeping answers private from the other teams. They run games on Instagram Live with a live video of the host, and participants answer via the question feature. Clever!

Online book club:

First I have to shout out my Austin local independent bookstore, BookPeople, because they are fantastic. They run book clubs throughout the year, along with readings, book signings, and all things book-related. BookPeople hosts several online book clubs during these lockdown days, and most people will find something that appeals to them.

I’m also impressed with this list from Hugo House, a writer’s resource based out of Seattle. This list includes Instagram and Goodread book clubs, book clubs for Black women, rebels, and poetry lovers. The Financial Diet recommends the Reddit book club, if you are comfortable with the Reddit format. Please note that it’s a busy place, but if you like Reddit, you already know this.

Cooking class or virtual tasting:

This is doubly satisfying because you can follow these chefs in real time, and you end up with a meal. There are a couple on Instagram Live, such as The Culinistas or Chef Massimo Bottura.

You can also participate in virtual tastings for wine, whiskey, or chocolate, though you will have to buy the product to participate in the classes (usually held over Zoom or Facebook Live). If you are in Austin, Dallas, or Houston, I recommend BeenThere Locals. The cost of the course includes the wine, spirits, or cooking kit in most cases, and all of the money goes to the business and expert hosting the class.

Look for your favorite wine, spirits, cheese, chocolate makers, and chefs that are local to you to find a similar experience. Most either prepare the class kit for pickup or delivery within a local area.

Quarantine chat:

To interact with another quarantined person seeking social interaction, there’s Quarantine Chat. Quarantine chat is one of the ways to connect through the Dialup app, available on iOS and Android devices. Sign up to make and receive calls when you want to speak with someone. The Dialup app pairs you randomly with another person for a phone conversation, at a scheduled time, either with anyone or with someone with shared interests.

Quarantine chat takes it a step further with calls at random times. When your quarantine chat caller calls, you will not see their number (or they yours), only the “Quarantine Chat” caller ID. If you are unable to pick up when they call, they will be connected with someone else, so there is no pressure to answer. It’s nice to hear someone else’s voice, merely to talk about what you’ve been cooking or what hilarious thing your pet is doing.

Play Uno:

Uno Freak lets people set up games and play Uno online with friends or strangers. Players do not need to register or download anything to play. Uno Freak is web-based.

Talk to mental health professionals:

If your state of loneliness starts sliding toward depression, call someone you can speak to right away to talk over your concerns. When in doubt, call a trained professional! Here are a few resources:

  • National Alliance on Mental Illness (NAMI): The NAMI HelpLine can be reached Monday through Friday, 10 am–6 pm, ET, 800-950-NAMI (6264) or
  • Crisis Text Line: Text HOME to this text line 24/7 for someone to text with who will also be able to refer you to other resources: U.S. and Canada: 74174, U.K. 85258, Ireland: 50808.
  • Psych Central has put together this comprehensive list of crisis intervention specialists and ways to contact them immediately.

There are many ways to connect even though we are physically apart. These are just a few real time ways to interact with others online. If you want something a little more flesh and blood, take a walk around the block or even sit in a chair in front of where you live.

Wave at people from afar, and remember that we have lots of brilliant doctors and scientists working on a way out of this. Hang in there, buddy. I’m rooting for you. I’m rooting for all of us.

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Opinion Editorials

Working remotely: Will we ever go back? (Probably not)

(OPINION / EDITORIAL) Now that the pandemic has opened the door on working remotely, there’s no way we’ll put the genie back in the bottle. But, here’s some ways you can adapt.



Woman working remotely on her couch with a laptop on her lap.

When it comes to working remotely, will the toothpaste ever go back in the tube?

Mark Zuckerberg recently said, “We are going to be the most forward-leaning company on remote work at our scale…” By 2030, Zuckerberg anticipates that over half of Facebook’s workforce will be remote. Many other companies are jumping on the work from home bandwagon. Working remotely has helped many businesses manage the pandemic crisis, but it’s unsure what form remote working will take over the next 10 years.

We know that employees are responding positively to WFH, as reported in this article – Employers: Lacking remote work options may cause you to lose employees. As offices transition to a post-COVID normal, here are some things to consider about your office and remote work.

What does your business gain from allowing workers to WFH?
The future of remote work depends on a conscious application of WFH. It’s not just as easy as moving employees out of the office to home. You have to set up a system to manage workers, wherever they are working. The companies with good WFH cultures have set up rules and metrics to know whether it’s working for their business. You’ll need to have technology and resources that let your teams work remotely.

Can your business achieve its goals through remote work?
The pandemic may have proved the WFH model, but is this model sustainable? There are dozens of benefits to remote work. You can hire a more diverse workforce. You may save money on office space. Employees respond well to remote work. You reduce your carbon emissions.

But that can’t be your only measure of whether remote work fits into your vision for your organization. You should be looking at how employees will work remotely, but you need to consider why employees work remotely.

The work paradigm is shifting – how will you adapt?
The work environment has shifted over the past century. Remote work is here to stay, but how it fits into your company should be based on more than what employees want. You will have to work closely with managers and HR to build the WFH infrastructure that grows with your organization to support your teams.

We don’t know exactly how remote work will change over the next decade, but we do know that the workplace is being reinvented. Don’t just jump in because everyone is doing it. Make an investment in developing your WFH plan.

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Opinion Editorials

The truth about unemployment from someone who’s been through it

(EDITORIAL) Unemployment benefits aren’t what you thought they were. Here’s a first-hand experience and what you need to know.




Have I ever told you how I owed the government over two grand because of unemployment in 2019, and only just finished paying it back this year?

This isn’t exactly the forum for memoirs, but this is relevant to everyone. So I’ll tell y’all anyway.

It all started back in 2018 when I came into work early, microwaved my breakfast, poured coffee, and got pulled into a collaboration room to hear, “We love you and your work, April, but we’ve been bought out and you’re being laid off.”

It was kind of awkward carrying my stuff out to the car with that Jimmy Dean sandwich in my mouth.

More awkward still was the nine months of unemployment I went through afterwards. Between the fully clothed shower crying, the stream of job denial, catering to people who carried rocks in their nostrils at my part-time job (yes, ew, yes, really), and almost dying of no-health-insurance-itis, I learned a lot!

The bigger lesson though, came in the spring of the following year when I filed my taxes. I should back up for a moment and take the time to let those of you unfamiliar with unemployment in Texas in on a few things that aren’t common knowledge.

1: You’re only eligible if you were laid off. Not if you had quit. Not fired. Your former company can also choose to challenge your eligibility for benefits if they didn’t like your face on the way out. So the only way you’re 100% guaranteed to get paid in (what the state calls) “a timely manner”, is a completely amicable split.

2: Overpayments have to go back. Immediately. If there’s an error, like several thousand of Texans found out this week, the government needs that cash back before you can access any more. If you’re not watching your bank account to make sure you’re getting the exact same check each time and you have an overpayment, rest assured that mistake isn’t going to take long to correct. Unfortunately, if you spent that money unknowingly–thought you got an ‘in these uncertain times’ kinder and gentler adjustment and have 0 income, you have a problem. Tying into Coronavirus nonsense is point three!

3: There are no sick days. If ever you’re unable to work for any reason, be it a car accident, childbirth, horrible internal infection (see also no-health-insurance-itis), you are legally required to report it, and you will not be paid for any days you were incapacitated. Personally, my no-health-insurance-itis came with a bad fever and bedrest order that axed me out of my part time job AND killed my unemployment benefits for the week I spent getting my internal organs to like me again. But as it turned out, the payment denial came at the right time because–

4: Unemployment benefits are finite. Even if you choose to lie on your request forms about how hard you’re searching for work, coasting is ill-advised because once the number the state allots you runs out…it’s out. Don’t lie on your request forms, by the way. In my case, since I got cut from my part-time gig, I got a call from the Texas Workforce Commission about why my hours were short. I was able to point out where I’d reported my sickness to them and to my employer, so my unpaid week rolled over to a later request date. I continued to get paid right up until my hiring date which was also EXACTLY when my benefits ran out.

Unemployment isn’t a career, which is odd considering the fact that unemployment payments are qualified by the government as income.

Ergo, fact number five…

5: Your benefits? They’re taxed.

That’s right, you will be TAXED for not having a job.

The stereotype of the ‘lazy unemployment collector burdening society’ should be fading pretty quickly for the hitherto uninformed about now.

To bring it back to my story, I’d completely forgotten that when I filed for unemployment in the first place, I’d asked for my taxes NOT to be withheld from it–assuming that I wasn’t going to be searching for full time work for very long. I figured “Well, I’ll have a tax refund coming since I’ll get work again no problem, it’ll cancel out.”

Except, it was a problem. Because of the nine month situation.

I’d completely forgotten about it by the time I threw myself into my new job, but after doing my taxes, triple checking the laws and what I’d signed, it was clear. Somehow…despite being at my lowest point in life, I owed the highest amount in taxes, somewhere around the 2k mark.

Despite being based on a system that’s tied to how much income you were getting before, and all the frustrating “safeguards” put in place to keep payments as low and infrequent as possible, Uncle Sam still wants a bite out of the gas-station Hostess pie that is your unemployment check. And as I’m writing this, more and more people are finding that out. And even as we enter 2021, there is still more to be aware of – we’re not out of the woods yet.

I’d like to end this on a more positive note… So let’s say we’ve all been positively educated! That’s a net gain, surely.

Keep your heads up, and masked.

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