This episode examines the regulatory constraints that prevent banks from conducting their own property valuations, forcing them to rely on third-party appraisal firms that often deliver wildly inaccurate reports. A recent meeting with a regional bank revealed that FDIC regulations require banks to outsource market-level underwriting to appraisal vendors who source bids from appraisal firms, meaning banks can’t even see who’s conducting their valuations or assess the quality of the operators behind the reports. Land Pricer is pivoting from direct bank partnerships to targeting appraisal firms themselves, aiming to improve the quality of valuations at the source rather than fighting regulatory constraints downstream.
Key Takeaways:
- Banks Are Blind to Their Own Appraisers FDIC regulations force banks to use appraisal vendors who present anonymous bids from appraisal firms, preventing banks from vetting the quality of operators or even knowing who’s conducting their valuations.
- Appraisal Quality Varies Massively With Zero Standards CBRE produced a 100-page appraisal report for an Oklahoma subdivide that was off by 2x, over $1 million, despite the market being relatively clear-cut, and there’s no consistent standard for what qualifies as a comparable sale (some use one-year-old comps, others use three-year-old data).
- Bad Appraisals Kill Deals After Contracts Are Signed Inaccurate appraisals below negotiated purchase prices force buyers to cover gaps out of pocket or renegotiate pricing, often threatening deals that are already under contract despite reflecting true market value.
- The Entrepreneurial Play Is Targeting Appraisal Firms Directly Rather than fighting banking regulations, LandPricer is pivoting to partner with appraisal firms themselves to improve their internal processes, allowing better valuations to flow downstream to banks and lenders.
Tune in to hear the full breakdown of how regulatory dysfunction creates massive inefficiencies in land valuation and where the opportunity lies to fix it.
(Podcast transcript below)
Welcome to Get Serious, we’re at Serious Land Capital. We have successfully funded over $6 million worth of land deals and have industry leading 41 % operating margins. So today I wanted to remark on appraisal firms, primarily from the land side. mean, no surprise from that perspective, but you know, this could apply to improved properties as well. So.
You know, a bit of a story here, and I think a lot of you can probably relate to this, that you’ve ever had a buyer that has utilized third party funding and whatever bank or lender is approving that transaction that they’re basically always going to require an appraisal report. So and you’ve probably been burned by that before. So I’ll get into that in a bit here.
but to shed a little bit more light. So, on the land price or AI side, for those who aren’t familiar, this was a software project that I was working on for really the past couple of years that was attempting to build a more reliable AI-driven underwriting process specifically for land in order to price it more effectively, utilizing our own manual expertise and calculations.
for building up a profitable track record for land deals here. And as I’ve remarked over the past probably six months or so in various forms of fashion, it was too much for me to run two companies at once. So myself focusing 100 % of the time day to day on serious land capital.
The game plan was to find a different operating team to take over Lampricer. And so far that is continuing to be in the works here. It’s all but formalized at this point. And we’ve already had some interesting conversations with potential clients more on the enterprise side, targeting banks, instance, smaller regional banks.
that have land portfolios and attempting to see okay within their workflow. Couldn’t make sense to have a solution like land pricer in front of them, you know, it’s more customized accordingly, again, software development is, you know, moving so quickly and changing so rapidly in this age of AI progress that, you know, it’s tough to keep up with. So we had a meeting yesterday
with one of these regional banks and they have an AI initiative internally ongoing here. And we were kind of looking at two different pathways to target. One is just like the initial triage of land deals that they might be looking at, pre-acquisition. And then one avenue could be targeting a more consistent review of their existing
loan portfolio and ultimately determining which of these assets might be coming more distressed. They need to make a margin call on any of these properties here. those were kind of the two avenues. We were built more for the former, the actual underwriting and pricing of the land deals. That could apply.
based on the original vision of the product. would just be a bit easier or simpler rather. Nothing’s really that easy, but simpler to translate over into that workflow. What quickly became apparent during at least this meeting here is the regulatory environment that banks have to operate under is just why it gets crazy restrictive.
typical like land flipping and subdivides value add space. Like we all know it’s kind of the wild west out here. There’s a lot of different types of operators, very few regulations that you actually have to abide by. And unfortunately there are some bad actors who have taken advantage of that. And that’s why there has been more of a crackdown within the industry to shore up some of the…
you know, again, unsavory practices of certain businesses. But from the bank’s side of things, like they have the FDIC just breathing down their throat and creating, you know, a super restrictive regulatory environment on them. And what’s interesting on the, I had a sense that this was the case, but not, as in depth as when I actually kind of talking with, you know, the
the side of the underwriting that they’re doing. And so we were asking them some questions and they’re like, hey, you know, they really can’t even do their own underwriting of deals, which is just crazy, right? They’re a bank, they’re a lender, at least from like a comp perspective, because they’re, you know, kind of head of underwriting was remarking to us and they’re like, yeah, we don’t really even do our own comps. I just had to, you know, dive in a little bit deeper. I’m like, how, well, how do you price?
Properties as far as I’m worried like if you don’t understand what the underlying market is, how is it even possible to? You know reliably price anything like you have to have some type of data to make decisions on and so, know diving in a bit deeper like they will do an initial Zillow review and again some some of these properties are gonna be more bit more difficult, you know, the commercial or industrial plays as we well know
Those aren’t as reliable to find comps on the MLS. Then you have to go to the loop nets or the, well, what’s, what’s the other, larger commercial one? think it has an X, X in the name. I forget for the time being, but, I know there’s at least one other, larger, you know, kind of commercial listing, website out there. I’m sure it’ll come to me later. you can Google it, of course.
and you know, the problem is, the data there, you know, you don’t necessarily get to see sold comps and stuff. So you tend to have to interface with brokers anyway, or at least get a sense of, what is even moving on the active market, if anything, to, at least start pricing properties, which is, know, cannon worms in and of itself. and so, you know, they’ll take a look at initial comps here, but, so much of what, you know,
they are regulated by in terms of like actually pricing out how much they can lend on a property is all shunted over to an appraisal firm. Like this to me was just like stunning. Again, we know that these lenders, they utilize appraisal firms, but I had no idea how, again, the regulatory environment was just forcing banks to basically outsource their
market level underwriting, you know, from a comp perspective to one of these appraisal firms. And we know that, you know, the variation in quality of what these appraisal firms can do is just all over the map because we know on the back end, a lot of these appraisal for like they’re basically doing if you’ve ever seen a rapport, you and I, I mean, we can order an appraiser, an appraisal for, you know, particular property and it’s nothing like too different than we might do internally.
You know, they’ll prep kind of just an initial DD report and we’ll look at the zoning and so forth. They’ll pull some various comps like similar to a CMA that you might see. And sometimes it’s a little bit better, sometimes worse. And, you know, the appraisal firms are under their own regulations. They have to be qualified. I’m not exactly certain what that means entirely to be a qualified appraiser appraiser. But even more interestingly on the banking side, because they
tried to remove as much bias as possible is that they have another middleman in place called an appraisal vendor who goes and sources whatever appraisal firms are out there that can work in this particular market. And then they present bids over to the bank. So I’m not even sure if the bank is seeing like behind the scenes, like they might just see bids.
which is just interesting, you know, by, uh, by itself, because it’s like, yeah, if you’re taking the, um, you know, potentially lowest bid that comes back to you, but they’re the worst quality in terms of the, uh, underlying appraisal, which, you know, is often the case, like you get what you pay for, right? I get such a backward system. so they, from, from my understanding, they can’t even see the, uh, uh, report, um, or, know, who’s conducting the report. they’re going to, they’re just trying to remove bias here.
and just going by bids. this is all FDIC regulated. And then they have to make that determination. And then that appraisal comes back in and that’s what they have to utilize for, you know, that underlying valuation, which again, we see appraisal is necessary whenever you have like a third party lender as part of a deal, especially on the Dispo side, when you’re trying to sell a property and rely on that appraisal. So like,
To me, this is a ridiculous concept because again, you’ve seen some of these appraisal reports before. We know for a fact that our company will do a lot better job than these qualified appraisal firms. Even the big companies, again, I’ve brought up before like CBRE, I’ve seen a 100-page appraisal report that they did for a potential subdivide in Oklahoma that was off by…
Literally 2x from the true value of the property and that you 2x like a huge variance is off like like over a million dollars So And the comps they were utilizing were just so poor and it wasn’t even that difficult of a market I actually thought it was more clear-cut on what you could do in that particular market And you have no idea right some some of these appraisal firms like they’ll use comps from the last year as some will use like two years ago three years ago, etc like there’s not a
solid rhyme or reason for what can be defined as a comp. Again, people are all over the place within the land industry on what comps are. to me, this was just, again, crazy that the fact that the banking industry, which obviously has trillions of dollars of AUM, assets and leader management within the entire system here is like,
regulated by such an archaic system where the banks have their hands tied from really doing their own hardcore underwriting and they have to go by some other firm that they don’t even know who is behind it and can even like suss out the quality of the operators. Like it’s crazy. It’s absolutely crazy that this is the case that’s going on right now. So to me, this is just like an obvious problem like that. And that’s what you’re looking for as an entrepreneur, like look for the great stories, look for the existing problems.
And so now it’s like, okay, probably the banks, that’s going to be a harder play from implementing a software with them because they are so tied down by regulation. So it’s like, okay, let’s step up further up the chain to these appraisal firms and see, okay, can you plug in more there to improve their processes so that it still filters down to the banks in order to improve their own.
lending and not getting tied up with poor assets there. again, this is just a stunning revelation. So we’re trying to get in touch with some of larger appraisal firms out there already. Some wheels are turning. If anybody listening to this, this kind of resonates and you might personally know an appraiser or have a good relationship with one of those firms that might be a bit more tech forward and might be interested in having a conversation to see how we could
you know, improve their own internal processes and, you know, give them a more efficient tool to, uh, uh, to work with from a pricing perspective. Um, I would absolutely love to, uh, to chat further about that. So, you know, you know how to reach me, um, email, text, uh, contact form, whatever DM. Um, and, uh, again, like look, as I alluded to at the start of this podcast on, you know, how often this could, you know, potentially blow up a deal on the Dispo side, like
That’s the thing sometimes is you get so far down a particular pathway with a buyer and you’re waiting on an appraisal report and it comes back as potentially wildly inaccurate or below the purchase price that you had already negotiated and signed an offer with from the buyer and knowing that’s the true market. But if the appraisal firm just disagrees with that and decides to
you know, use comps that are inappropriate and doesn’t understand the market. Like they can blow up the whole deal because then the bank can say, hey, we need the purchase price to come down or the buyer is going to have to come out of pocket in order to, you know, close the gap from the total loan that we’re willing to underwrite on this deal. It doesn’t happen all the time, but it’s definitely happened to us before, including recently where a bank was just like,
or appraisal firm was just wildly off. I don’t even know where they were getting a report on their number that really threatened the deal to be able to close. Fortunately, we able to work through it. But I’m sure almost any land investor can report on something like that to where you get stuck from this third party firm that might not know what they’re doing or one other example to share.
to like, this comes into property taxes, right? Like the counties, they rely on these appraisal firms for determining valuations for underlying property and you know, that is…
you know, kind of sets the, you know, total possible taxable income that the state is going to make and the county is going to make on property taxes. So they’re kind of inclined to keep those a bit higher so they can get more revenue in like on average, you got to look where the incentives are. And like I remember for the house, my wife and I own in Austin, like the first year,
We had an appraisal firm that was just valuing our house like far too high, like a huge jump. It was like 150K more than what we had paid for it, even over the first year. we had bought our house just before the turning of a year. And then a couple other neighbors who had, you know, identical floor plans for us bought in that following year. And we got hit.
with this huge jump in pricing because they were attributing an entire year of appreciation when in reality there was no difference. It was a two to three week difference compared to the neighbors who did not get a bump. And so we were fighting with accounting for this. Unfortunately, we won and got a price much, lower.
to get lower taxes, but I remember being on the line with the appraisal firm and the county tax department and where they were arguing for comps that were in completely different neighborhoods and different years that were being sold and so forth. And I was like, how can you take yourself seriously doing this when me as a homeowner next door, but also more sophisticated, like pointing out now literally my next door neighbor,
they paid even less than what we did, you know, a few, few, uh, weeks later, their tax bill is considerably lower. And you’re trying to argue that it should be like a hundred, 150 K plus, like it, didn’t hold up. They, they, took our side from that, but like, you can see sometimes the, the incentives that, uh, these appraisal firms might have, and some are just going to be better at other jobs than, uh, then, then not here. So, um,
Again, all these are just kind of pointing out issues within the system that I think are in need of radical transformation, just like pricing writ large across the industry. hopefully you found this interesting. Again, if you know any appraisal firms out there that you think might be open for conversation, please reach out to me. I would love to have a chat.
and can kind of go from there. So SeriousLand.Capital for any of your funding needs, 50K minimum purchase price, subscribe and share everybody. Looking forward to next time. Take care now, bye.
