Despite efforts to toughen licensing requirements, no two home appraisers are alike.
Last October Yolanda Perez visited Capital Community Bank on South Sixth Street to refinance her home--a clean, brown, two-story house in Enos Park. She went through the usual paperwork and agreed to pay $235 for a routine appraisal, which the bank would then use to set a limit on her loan.
"Later the loan officer called and said, 'Bad news. The house was appraised at $30,000,'" Perez says. She was shocked: she'd paid $45,000 for the place in 1993, and when she recently took out a home-equity loan from another bank the house was valued at $63,000. Capital Community told her it could only refinance part of her mortgage, so she took her business to another bank, which appraised the house at $61,000.
Perez remains angry about the time and money spent at Capital Community. She wants more than a refund: she demands an explanation. She's consulted a lawyer and recently filed a complaint with the Office of Banks and Real Estate (OBRE), a state agency that regulates and disciplines appraisers. "I want my check back," Perez says. "If this man can do this and then a bank sit back and not listen to a potential customer, it's poor business."
Perez wonders whether the bank even wanted her business. Some lenders may avoid certain neighborhoods, which is illegal, but, if anything, a bank tends to pressure appraisers for high assessments, not low ones, according to J. Gene Schmidt, president of First National Bank of Mt. Pulaski, which owns Capital Community Bank. "There is a lot of pressure on appraisers by banks and lending companies to inflate appraisals," says Schmidt, who was once an appraiser himself. "We don't gain anything with a low appraisal. We only make money if we make loans."
More likely, Perez's low-ball appraisal may have simply been the unfortunate byproduct of a sloppy trade.
The state wants appraisers to meet higher standards of professionalism. Starting this September, OBRE will require tougher rules for appraisers, certifying only those who have spent two years with licensed veterans signing off on their work. Previously, Illinois' home appraisers had to only take courses and pass a test. The new requirement, says OBRE spokesperson Clare Thorpe, is already found in many other states.
Of the roughly 5,500 home appraisers licensed in Illinois, OBRE has disciplined no more than 35 per year, according to agency records dating back to 1993, when just one was disciplined. But disciplinary actions picked up in the late 1990s, after the agency began a campaign to educate consumers about its services. It now has a toll-free consumer hotline (877-793-3470), and people can check its Web site (www.obre.state.il.us) to see whether specific appraisers have ever been disciplined. The most common type of complaint the agency receives, Thorpe says, is that an appraiser skewed an assessment to please a client, whether a bank or property owner.
Home appraisers employ a few common methods to assess the value of a home. Almost all use a "sales comparison" approach, in which the house in question is compared to other nearby houses sold within the last year. The houses should have many of the same features. For newer homes, appraisers will sometimes use a "cost" approach, which relies on how much it takes to build a comparable home. A third method, the "income" approach, is used to assess a rental property's value, which is partially determined by calculating how much money it will generate. All three appraisals performed on Perez's house relied on the sales-comparison approach. How this method was employed reveals the subjective nature of appraising.
"I remember the house," says Michael Carnduff, the appraiser who valued Perez's house at $30,000. He recalls that the house was "well-kept and maintained." He based his November 2002 assessment on comparable homes, the condition of the Enos Park neighborhood (which he described as "in obsolescence"), and the housing market. He says some appraisers are only interested in giving the lender what it wants. "Banks will score an applicant by looking at income and equity and come up with an amount and tell the appraiser to provide an assessment to match it," he says.
But he says he prices a home with "no emotions or bias against it." A computer helps him find homes sold within a year and that match the characteristics of the house he's appraising. "An appraisal is a snapshot in time, based on market data and the economy," he says. "I want to show the value that's there. A bank will do want they want with it."
According to OBRE, no disciplinary actions have ever been taken against Carnduff. Bank officials speak well of him. "He's pretty much right on the money," says First National's Schmidt. "He tries to do a good job. He doesn't over-inflate or undervalue."
But Carnduff's good reputation makes his assessment of Perez's home all the more perplexing, especially when compared to Perez's other assessments, which value her house at more than double his appraisal. The homes Carnduff used as comparisons sold for between $11,900 and $16,500, compared to the $45,000 Perez paid. Some of the other homes are rental properties and are visibly deteriorating. In addition, Carnduff's original sales-comparison figure, according to the appraisal document, was $26,835. He adjusted this to $30,000, he says, based on "ratios" he uses for a final estimate.
Sean McKinnley is the appraiser who came to Perez's house about a month after she was through with Capital Community Bank. Working for U.S. Bank, McKinnley took a look at Carnduff's assessment and didn't agree with it. He pointed to the use of rental properties as comparable and recommended that Perez complain to the OBRE. McKinney's own assessment compared Perez's house to much nicer properties, including a few Northend homes outside of Enos Park.
Carnduff says he grew up near Enos Park and remembers when the neighborhood was "nicer." Sangamon County's assessment of Perez's home--for property tax purposes--gives it a market value of about $43,000, closer to Carnduff's estimate than anyone else's. Yet comparing private and county assessments is tricky, says Capital Township deputy assessor John Venturini. His office assesses houses without nearly as much analysis and often doesn't take into account home improvements. "When property owners feel an assessment is too high, they can contest it," he says. "People whose homes are undervalued, you generally never hear from them."
Perez still wants to know why it was so easy to do business with one bank and not another. "I really feel like I need an explanation," she says.