What many people do not know is that appraisals are the key ingredient to obtaining a home loan. Appraisals are now ordered by a 3rd party unless the buyer is using an FHA loan. Long gone are the days when the lender could call up their favorite, educated, experienced appraiser to determine the value of the home. This has created some major problems that need to be addressed! I am going to give you an example of what you may encounter right now! Let’s say I represent the seller who has his multi-family income producing duplex under contract. It appraised in Nov of 2007 for 165K.  (Worst case scenario the market in this community has dropped 20% since then) The offer price was $138K. The single-family DETACHED comps for this area would put the price of this home well above 160K! With that said, they have to find multi-family comps so that is where the problem starts. Unfortunately the buyer was not obtaining an FHA loan so the appraiser was ordered through a 3rd party. The appraisal came back at 90K with comps that were NOT comparable! When I spoke with the appraiser I could tell he was inexperienced and uneducated as he/she used comps that were not comparable and was unfamiliar with the “gross rent multi” method. That is the method that should hold the most weight when an appraiser determines a value for an income producing property. It can be used to suggest a value and/or adjust for location value. I contacted three (3) appraisers who all felt the individual did not do a good job and they all felt they could justify at least 130K. We paid for an appraisal to verify this but unfortunately it cannot be used. So what does this mean for my seller? At the moment they can either pull the property off the market, hope to find a cash buyer and/or hope a buyer obtaining financing gets a lucky draw and the bank hires a experienced appraiser. This is truly sad since the value is their unlike other times where foreclosure and/or short sales have dropped neighborhood values drastically. YES, appraisers do use distress sales as comps. In my opinion it is  TRULY IGNORANT but as one appraiser I spoke with said, “it is considered market value because it was similar in condition and location. It was also the price someone was willing to sell and pay”! I guess you can make a case either way. I am going to go much more in detail about other issues that can come with appraisals and what options do we have! Did you know your agent can work with the agent in trying to justify the value? The lender CANNOT! I will say it is a very delicate situation with a liability so be careful. I hope you enjoyed the blog and as I said, I am going to dedicate a few more to the sensitive subject of appraisals! As always, consult your local real estate expert and never recommend any information found in this blog as each transaction is unique. Lastly, laws differ from state to state so once again always consult your Realtor first!