Portland Area Real Estate Appraisal Discussion

I regularly speak at real estate offices around Portland, Oregon about appraisers and the appraisal process.  Lately, variations of the following questions have been most popular:

1. “Are you seeing more appraisals than normal coming in below the contract price?”  I do not have any quantifiable data to support it, but there is plenty of anecdotal evidence that this is true.  I do not personally perform appraisals for purchase loans.  However, one appraiser in my office has started checking comparable sales before accepting appraisal orders for purchases because he does not like to be a bad guy or deal with the challenges that often result from value that is below the contract price.  Other appraisers I speak to are reporting similar stories about high numbers of “unsupportable” purchase prices. 

2. “Why are so many appraisals coming in low around Portland right now?”  A 2011 study by Yanling Mayer found that less than ten percent of all appraisals come in below the contract price.  However, this number could be more than ten percent in Portland right now.  Prices are going up particularly fast for many properties and market segments around Portland due to strong demand, very low inventory, and a sense of urgency among buyers.  In addition to a hot market, this also marks the end of the seasonal spring jump when properties typically recover from winter lows and much of the annual price increase occurs in a short time.  (This concentrated annual jump in prices is discussed in a previous blog post regarding the Average Case-Shiller Portland Index.)  The quickly increasing Portland prices, combined with normal seasonal fluctuations can make it very difficult for appraisals to keep up.  This is because appraisals are strongly dependent on closed sales.  An appraisal done today might be based on the best available comparable sales that closed a couple months ago, but went pending a month or so prior to that.  Even better comparable sales data might not be fully available because it has not yet closed.  Market statistics for supporting market change (time or date of sale) adjustments also lag a few months behind, leaving an appraiser with estimated trends, projections, and feelings, rather than solid evidence for making a well-supported conclusion that lenders can feel confident funding a loan on.  The good news is that typically price increases slow late in the summer and market statistics start to catch up with current sales.  This means that there are likely fewer low appraisals for closings in late summer, fall, and winter months.

3. “What options do I have if my appraisal comes in low?”  There are four alternatives if an appraisal comes in low on a pending sale. 

   1. Cancel the contract.  The appraisal might be a wakeup call that this is not the best deal for this buyer.  It might be time to find a different home to purchase.

   2. Renegotiate the contract.  Sometimes when an appraisal comes in low, the two parties can split the difference and make the deal work.  However, this option can be painful for buyers or sellers.

   3. Ask for a second appraisal.  Some lenders are willing to order a second appraisal as long as there is evidence that the first appraisal is flawed.  Lenders do not want to be accused of, “shopping for a value” by ordering appraisals until they get the value conclusion they want.

   4. Dispute the appraisal.  See question #4 below.

4. “Can an appraisal really be disputed?”  An appraisal can be disputed successfully if it contains an error or if there is compelling evidence of flawed analysis.  Most lenders or appraisal management companies have a formal dispute process that involves filling out a form and submitting it for review.  In my career, I have had many people try to dispute my value opinions; a few have successfully convinced me to change my value.  On one occasion, I thought that a comparable sale just up the street from the subject set a firm upper limit of value by being superior in most ways.  However, the borrower had been in that property and pointed out some things about it that I had not been able to uncover in my research.  Consequently, I was able to verify the new information and revise my value opinion.  I have also been successful at disputing several appraisals done by other appraisers.  The best way to dispute an appraisal and win is not by disputing the opinion, but by pointing out errors of fact and building a strong case for an alternate conclusion.  Remember that a value below the contract price does not mean that the appraisal has errors.  Here is a blog post on how to challenge an appraisal.

Did I leave anything out or do you want to join in the conversation?  Let me know by commenting below.

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Thanks for reading,

Gary F. Kristensen

Great info. Thanks for answering those questions Gary. I can share this with my clients.

Thank you Jonathan for following and please share.

Gary, Very informative. No wonder you're in such high demand as a speaker in the Portland area.

Great info Gary! I hope those real estate agents know what valuable appraisal information you are providing them. They are definitely getting the scoop from the best Portland appraiser!

Thank you Frank and Paul for your kind comments. I love getting out and meeting lots of real estate agents.

Good stuff, Gary. Real estate is simple, yet complex. When a market begins to slow down, the agents know it because there is less activity. Yet the appraisers also know it, which sometimes leads to "low" appraisals. This underscores how important it is for sellers / agents to price properties according to the market.

Thank you Ryan for your take. Yes, pricing appropriately is very important. In Portland price increases have not started slowing, but they may as summer proceeds.

I get a lot of these same type questions in my area Gary. That is understandable for agents to want to know this since they are trying to sell homes. A good way to avoid low appraisals is to get a pre-listing appraisal. Thanks for sharing the answers you provide to the agents Gary.

Good point Tom, I'm glad that you mentioned that. Pre listing appraisals are a great tool with many other benefits as well (I have a blog post on that).

Good post, here in Chicago there are a few major publications that have put articles out about a shortage in housing stock; however, those articles talk about the broader Chicago market. Some of the most poplar markets have an over supply that gets drowned out in the talking points by these publications.

Thank you John. Yes, that is true around Portland as well. The close-in markets are very hot when some other areas might not be and the close-n markets tend to get all of the press. However, there is almost nothing near Portland that I have seen that is in over supply.

Nice discussion....

I think those questions are also applicable even if you're not living in Portland. I must also try to ask that on my appraiser. :)

Thank you Justin for following. You're correct, these appraiser questions are also true outside of Portland, Oregon.

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