Alaska has work to do to improve its appraisal dilemma
A residential real estate appraiser provides professional opinions of value in order for the mortgage investor to feel secure in its lending on a property. Appraisers in Alaska are licensed by the state through the Department of Commerce, which, in turn, is overseen by the Federal Appraisal Subcommittee.
Pursuant to the Dodd-Frank Reform and Consumer Protection Act, as of Jan. 1, 2015, all new appraisers must have a college degree and go through a rigorous training and continuing education program which includes up to 2,400 hours of supervised work in no fewer than 24 months.
They are required to pass a thorough background check, including fingerprinting. There are several levels of appraisers, the most highly recognized is the MAI designation. State-licensed designations include General Real Estate Appraiser, Institutional Real Estate Appraiser, Registered Trainee and Residential Real Estate Appraiser.
With all this education, experience and supervision, one would think that there would be consistency when it comes to establishing residential value. However, that’s not always the way it works out. Recently, a newly built home on the market had an asking price of $549,000. An offer came in at $549,000; the seller accepted and the appraisal came in at $555,000.
For a buyer’s personal reason, he chose to not complete the transaction. A second buyer came in and offered $539,000. The second appraiser appraised the property for $539,000. Within 30 days, the value of the property had been reduced by 3 percent in a market that in 2014 experienced 3.23 percent appreciation. What was the correct valuation? The asking price, the first appraiser’s value or the second?
Here is another example of a discrepancy in value. A brand new home with a painted and textured garage was given a value of $35 per square foot for the garage. Thirty days later, the same appraiser appraised a similar property’s garage on the same street by the same builder at $65 per square foot.
Sloppy work to say the least, which forced a buyer to pay more than the “appraised” value of the home in order to complete the purchase. Unfortunately, the appeal process is so long and convoluted that there is little opportunity to correct these inconsistencies when faced with the potential of an expired contract to purchase.
So it is no surprise that the August 2014 review by the Federal Appraisal Subcommittee gave out its only “not satisfactory” to Alaska with a one-year follow-up instead of the standard two-year.
So wherein lies the problem? Most likely it comes down to proper supervision and management. Supervisory appraisers hire registered trainees to do much of their work, including home inspections and analyses. Depending upon the level of experience of the trainee, discrepancies even within one company can easily occur.
Prior to the new regulations, supervisors were not limited to the number of trainees they may oversee. Now, they may only supervise three.
In the garage instance, the difference in value between $35 and $65 per square foot on a 1,000-square foot garage was $30,000. Other appraisers appraised like properties between $40 and $60 per square foot for a garage. To the builder, $30,000 is the difference between a profit and a loss. To the homeowner, it is cash out of pocket at closing and the uncomfortable position of paying more than the “appraised” value for a new home.
Connie Yoshimura is the broker/owner of Dwell Realty, and a residential land developer. Contact her at 907-646-3670 or [email protected].