An Appraisal is An Opinion

Recently a situation called upon me to pay for an appraisal. When the man came to start the process, we talked a little and I greatly disagreed with his assessment. Needless to say, I was not very please or impressed positively with the appraiser and I let the power which were in charge know. The man came highly recommended and had nice credentials but I felt his method of appraising the property was incorrect. I did not argue with the man though he may have desired me to but more than likely he wanted to bully me into his line of thinking.  I told him when we parted after he reminded me of his impeccable record in court record was, “Please explain it to the judge just like that.”

Later that day I had to meet with my lawyer and I explained that when we argue this matter I would like to present him with a line of questioning and I would like representation from the CA contractors state licensing boar and the Department of Real Estate as well as the EPA present. My lawyer asked why and I said, my line of questioning will have him admit under oath that the manner he with the property to be handled would be to commit felony’s and break a few laws as well. This caught the attorney’s attention and created the willingness to hear my reasoning.

The house was built in 1956, It had been rat infested and a hoarder house which had substantial structural problems. These were so severe that the architect couldn’t determine the extent that the house would need to be stripped to before the rebuilding could begin. This property also had mold in the p and two other structures that needed to be demolished also built prior to 1978. The appraiser position was he was to determine the highest value the average person would pay for the property as I understood him. That is where we had or disagreement.

I have written before on the three methods which can be used to appraise property so I will not go through them again I will simply explain my thinking on why his approach was incorrect in my opinion and mine was the preferred method which should be used.

It is important to note the words are the tools which many professionals use to earn their higher income. He was under the opinion the house in its present condition would not be available to the average buyer because it would need a cash buyer because of it substandard condition most lenders would not loan on it. He also stated that his job was to get the highest fair-market value which the average person would pay for it. But that since the average person couldn’t he would adjust these criteria to the average investor. When I questioned him on the method which many flippers put lipstick on pigs, he said he didn’t care how they made their money, he was to determine the highest value for the property.

This is the problem I had with his approach:

• Once the criteria cannot be met you must use another approach. You can’t simply adjust them to meet your need.
• His definition of fair market value was incorrect.

The following was taken from Investopedia on 9/3/2024

Fair market value is the price that an asset would sell for under current market conditions, assuming that both buyer and the seller are seeking the best possible price.  However fair market value has the following additional assumptions

• Both buyer and seller are reasonably knowledgeable about the asset
• Buyer and seller are behaving in their own best interest
• Both pastries are free of undue pressure
• Each is given a reasonable period for completing the translation
•  

In the Case of United States v Cartwright, 411 US 546 FMV was defined as “the price at which the property would exchange hands between a willing buyer and a willing seller, neither being under and compulsion to buy or to sell and both having reasonable knowledge of relevant facts.”

There is no mention of average buyers in these definitions. Each call for a reasonable buyer. I ask you the jury Do reasonable people regularly commit felonies? I believe that the fines for this felony begin at $47,500. Do reasonable people repeatedly and openly break the law? In order to accept the comparison approach for appraising this property one would need to ignore the given criteria and adapt it to meet your need based on the belief that all property holds value in spite of hazardous conditions.  Chernobyl, Three Mile Island and Hinkley California are yet good place for investor place to purchase property.

Because the criteria can’t be met for the comparison approach the cost approach must be used to appraised the property. In doing so the value will be substantially lower. These are not common cases but there are some on record. Sometimes people sell home for $1,000 or less because of condition. https://buysellsearch.com/realestate/for-sale/type-homes/under-1000

The properties on this site has 50 properties per page and 10 pages which would have one conclude that there are 500 properties listed under $1,000.00.

The property be considered damages cannot be determined until the demolition is taking place due to the discovery which will occur. The question is Should the hazardous conditions in which a property is to be demolished and then rebuilt effect the Fair market Value of a property?

If you’ve answered yes then the cost approach must be used.

An appraisal is one person’s opinion, all facts are relevant in obtaining a reasonable opinion.

Note: Images on this blog site are from a free source or taken by the author. No image or group of photos is intended to represent the people the author serves. The author does not care about Race (that is a politically correct term that he does not like because we are all of the same Race, the Human Race. He prefers the term ethnicity, color, religion, sex, gender, marital status, disability, genetic information, national origin, source of income, Veteran or military status, ancestry, citizenship, primary language or immigration status.) He is a service provider for all people. We will all rise together when we band together and help one another. Joseph Erwin is a Real Estate Broker, DRE # O2131799, and a CA general contractor # B 696662. He’s a member of the CRMLS and The East Valley Association of Realtors located in the Inland Empire region of Southern California.