Appraisal pic 2The last three years have been an interesting ride for most Seattle condo watchers.  When the market started slowing down in the fall of 2008, a lot of people believed (in retrospect, hoped) that the slow down in prices was just a small correction.  However, when prices continued to slide over the next few years, condo owners were and still are faced with a tough decision of either holding on, renting the unit out, selling it at a loss, or short selling.

With a higher proportion of shorts sales and bank owned properties on the market versus four years ago, we are seeing a split value in comparable data from the distressed and non-distressed properties.  Pricing your condo correctly today has become more critical than ever.  This important job lies mainly with your Realtor (assuming you're not doing it DIY).  If you have a buyer for your home, will it pass the buyer's bank appraisal?  How are appraisers valuing properties in this market and what has changed?

I interviewed two appraisers who shared their perspectives. This may be worth taking into account as you select what pricing strategy to use for your condo.

(Contributed by an anonymous appraiser with 20 years of experience. Excerpt of the interview is provided. To read the extended version, please click here.)

1.) How has appraising changed for you from three years ago?

In the time frame you are talking about the Home Valuation Code of Conduct was put into place.  Often referred to as the HVCC.  The attorney general for the State of New York at the time forced Fannie Mae and Freddie Mac to settle out of court on a lawsuit.  Part of the settlement was to put in place the HVCC.  One of the major effects of this new set of rules was the requirement of another layer of separation between the lender and the appraiser.  Under HVCC lenders cannot order appraisals directly from appraisers.  Instead, they have to order them from appraisal management companies (AMC’s) who then order them from appraisers.  The fee the lender pays for the appraisal did not go up, but there is now another party involved in the order.  As the AMC is in control, they feel that they deserve 30% to 50% of the fee for doling out the order.  

Another change:

When we first started in the business allowable comparables could be as much as a year old.  (Sold and closed within a year of the inspection of the subject property.)

Lenders now want comparables to be within 90 days.  As fewer properties are selling this is sometimes tough to do.

Another change:

Appraisers are now required to find out what the concessions were for each comparable in the report. 

We are required to contact someone knowledgeable about each transaction and find out if the seller paid any of the buyer’s closing costs or fees.  

2.) With more properties coming on the market as short sales and bank owned, how does that change the way you appraise?

Fannie Mae Guidelines state that the best comparable for a house in a plat or a unit in condominium is a recent sale in that plat or the sale of a unit in that condo. However, let’s go to your next question:


3.) We are seeing a split value between the short sale/ bank owned and the non-distressed properties, how do you reconcile them if you have half of the comps selling for a lower price and half of the comps selling at a higher price. (Eg. Subject properties is listed at $490,000, short sales/bank owned comps are around $450,000’s and non-distressed comps are selling around $525,000’s)

Your question speaks directly to the definition of market value:

Definition of Market Value:

The most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale,

The buyer and seller, each acting prudently, knowledgeably and assuming the price is not affected by undue stimulus.

Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby:

(A)    Buyer and seller are typically motivated;

(B)    Both parties are well informed or well advised, and each acting in what he or she considers his or her own best interest;

(C)    A reasonable time is allowed for exposure in the open market;

(D)    Payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto; and

(E)    The price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale.

Take a look at the underlined parts above.  The sellers of bank owned and short sale properties are NOT typically motivated.  There is undue stimulus. 

They have a completely different agenda than your average home seller who is moving because of his job or upsizing now that they have kids.

If at all possible, I avoid using short sale properties and foreclosed properties as comparables.  My report will state how many short sales and foreclosed sales happened in the complex. 

It should be noted that I will also do what the client asks me to do.  If the client (the lender) wants short sales or foreclosed sales in the report I will put them in.  They are the client. 

If there are no other sales in a neighborhood or complex other than short sales and foreclosed sales, then they are the market and they will be all that is available for the appraisal report.


4.) What other things should owners know when it comes to appraisal of their condo?

Appraisers have to contact the management company to get information regarding the complex, verify dues and special assessments, find out how many of the units are rented, which utilities are included in the HOA dues, verify parking space number(s) and similar data.

Some management companies think of appraisers as a revenue source.  They refuse to answer questions until a fee is paid.  This is certainly not always the case and there are plenty of great management companies out there who are more than happy to talk to appraisers.  But… every once in a while …   Don’t be surprised if your appraiser asks you to contact your management company yourself and ask a list of questions. 


(Contributed by Mike Reed of R2 Appraisal, Inc. Appraiser for 15 years. Mike can be reached at or  visit for more information about his service.)


1) How has appraising changed for you from three years ago?

The process of appraising has not changed at all from 3 years ago.  We use the same methods to derive a market value opinion for a property now as we have for many years.  The business of appraising has changed dramatically.  Most residential appraisers garner a majority of their work from the residential mortgage world.  That segment of the business is far different than it was three years ago because of the entry of appraisal management companies (AMC’s) that act as a buffer/middleman between the appraisal professionals and the mortgage lenders.  Appraisers no longer hold individual mortgage loan producers as clients; we get ourselves approved with different AMC’s or bank rotations and wait for our name to come up-we no longer have any communication with the mortgage brokers or loan officers.  That change in our Client dynamic significantly changed the business model for the industry.  The AMC’s charge a fee to either the lender or the appraiser for their services, which lowers the compensation available to the professional appraiser.  There are a few benefits with the new model for some appraisers and for others it has been a serious blow.


2) With more properties coming on the market as short sales and bank owned, how does that change the way you appraise?

The amount of distressed sales (short sales or REO’s) does not change the way we appraise, we use the same methods regardless of the prevalence of distressed sales. 


3) How do you differentiate between distressed sales and non distressed sales to determine which sales are best to use as comparables?

Our function in an appraisal for a mortgage loan is to determine the fair market value of the unit. The selection of the comparables is the key element needed to provide a reliable value.  There is no easy answer to that question.  Each appraisal problem is unique and has its own solution.  Each assignment requires a fresh look at that segment of the market to determine how relevant the distressed sales are.  Whether or not we use distressed sales is often irrelevant.  If the distressed sales have negatively affected the market; then the non-distressed market sales we use as comparables should have been affected and the market value we derive from those non-distressed sales should account for the distressed sale affect.  If the distressed sales have not affected a market then the same theory holds true. 


4) What other things should owners know when it comes to appraisal of their condo?

The relevant challenge in our market is for projects built between 2004 and 2008.  In many of those projects, just about all of the owners are selling at a loss compared to their initial investment.  For some of those owners, it sadly makes more sense for them  to walk away or short sell as opposed to staying put.  For just about every condo appraisal, the most suitable comparables are sales from the same building.  That can lead to some appraised values that may disappoint some sellers/owners.  The biggest item condo owners need to understand is that the appraised value of their unit will be determined by the most recent similar sales available to the appraiser.  Keep up on the sales in your building, that should give you a gauge with which to estimate the value of your own unit.  Also, understand that appraisers typically use sales that closed less than six months prior; any sales that closed before that are not reliable and most lenders frown on their use.  

Related post:

Should You Refinance Your Condo's Mortgage


By Wendy Leung with Seattle Condo Review. A guide to Seattle condos exclusively for buyers and sellers.