Bruce Norris is joined this week by appraiser and investor, Rick Solis.
Rick has been appraising properties since 1989. Rick says it was a perfect time to start because he got to see both cycles. In 1989, you didn’t even need a license. Education, Rick says, has not improved appraisals. Bruce talks about how he got his appraisers license and why. They both say much of the business is street smarts.
Rick got into the business because he purchased a Dave Delgado seminar. He started buying a lot of houses. He realized he needed to know how to evaluate properties.
Bruce asks if appraisers are under pressure to come in at a certain number. Rick says pressure is coming from several sources including agents, buyers, sellers, and banks. From 2004-2006 the pressure was for the appraisers to come in high. Today, banks put appraiser reports through many more hoops. They are looking for something wrong with it and they have review appraisals done. They also use an automated valuation model (AVM) to check numbers. In a down market, the AVM is not an issue. It’s a real problem in an up market. Everyone is just being much more conservative.
Bruce asks Rick how he compares this downturn from the 90s. Rick says this downturn is much worse. There was a more gradual decline over several years in the 90s. Prices are much more erratic in the current market and it varies from month to month.
Rick says areas with lots of new houses, where there are lots of first-time homebuyer inventory, and far out areas seem to have gotten pummeled. Sometimes 60% of the value disappeared. Rick tries to turn down appraisals for irregular products (dirt roads, manufactured homes, etc). It’s very difficult to find comps and arrive at a number.
Rick says in 2009 he expects to see drops in pricing every month for the Inland Empire. Rick says in his area in LA, sales seem to have dropped by 75%. Prices are still coming down there too. Bruce asks Rick what percentage of sales in Victorville were REO. Bruce says 92% of all sales in the area were REO. Reselling in that area would be very difficult. It would be very difficult to get an appraisal too. When 98% are vacant and need work and almost all sales are REO, it’s very difficult to get comps to substantiate a higher price.
Bruce asks what Rick is running into when working with investors. Rick says too many investors are going off the sales price in the MLS. The numbers are incorrect at times because of bad data entry or concessions. Some of the busy REO agents are having assistants enter in the data and they aren’t being careful.
Rick says he uses the MLS but confirms those prices with public record. He uses Real Quest and Dataquick to make sure his numbers are correct. Luckily, data is getting a little better and more complete.
Rick says listings aren’t so much calculated into his appraisals but he does spend more time on pending sales.
Bruce asks if the goal for appraising properties for an investor is different then doing to for retail buyers. Rick says working with buyers is different because the buyer is dictating the price. It becomes its own comp. The investor purchase is more difficult.
Tune in next week as the conversation continue.
Rick is the senior appraiser at Ace Appraisals. Rick has been a full time real estate appraiser since 1989 and a HUD approved appraiser since 1993. He has extensive investor and appraisal experience in residential real estate in the Los Angeles, San Bernardino, Riverside, and Orange County areas.