Multi-Family Appraisal Sham?

[Dennis Tierney]

Has anyone else found multi-family appraisals in your area to be essentially worthless? I know the banks require them but I have found them to be wholly lacking in credibility. We have under contract a 48 unit that in Oct of '12 was appraised at $1.9mil. I knew the assumptions were faulty and it wasn't worth that and we have it under contract for $1.685 mil. Now another appraisal by the same guy comes in at $1.7mil. I know the local market hasn't dropped by 11% and the property is functioning at the same level as in 2012. It seems to me they play to their audience and this time since he knew the purchase price he altered it to match the price. That doesn't seem show any integrity.

[Bill Gulley]

LOL, the appraisal was likely done by an MAI appraiser! MAI stands for "Made As Instructed"!

That's a joke, BTW.

Lots of reasons for the decrease in value. Multi family projects do not just continue to go up or appreciate with rents. In a short period of time inflation can decrease values more than the rise in rents, just one aspect. Labor and materials goes up, management and other expenses can increase, higher costs of deferred maintenance and repairs are deducted as adjustments. In a year you can have new competition in the market, a new project opens and perceived market influences can change vacancy expectations.

I'd think it's more of a matter of disappointment and not recognizing market changes that are used to evaluate a current estimate of value. Values are never static nor do the always increase. The larger the project or the higher the value the more the change in value becomes more significant at a point in time. :)