Statistics and Appraisal Data

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Statistics and Appraisal Data

The key to any statistical analysis is DATA, DATA, DATA!! Single family real estate data is not very reliable or consistent, and not enough is available in many areas, as we all know.

CU is the most significant attempt to get more useful data by requiring appraisers do use specific coding and criteria. However, real estate is local, local, local. Even the number of bedrooms varies a lot as there are different criteria for determining what is a bedroom, even in the same city. Three appraisers measuring the same house will probably not have the same square footage, as I learned doing relocation appraisals.

9/20 Update.  CU (Collateral Underwriter) has let Fannie obtain lots of data from appraisals. Unfortunately, the data is not available to appraisers. Fannie uses the data to analyze report reliability. 

With CU, this is becoming more obvious as there are sometimes wide variations in how appraisers code factors. For example, why do condition ratings vary? How accurate is MLS? Is public records accurate? What is the best source?

Now that regression software is popular with appraisers for getting adjustments, I have been thinking about why it is often not very reliable. To understand even simple regression requires knowledge.

My first statistics class was in 1963. The first time I used multiple regression was in graduate business school in 1979, when I did a mini-thesis on factors in REIT stock volatility using SPSS.I used a remote university mainframe that kept blowing up and erasing my data. There were no data issues. Doing multiple regression analysis on real estate housing data was not possible. Way too much lack of usable data.

Since I started my Appraisal Today newsletter in 1992, I have been writing about AVMs. The less data that is available, the less reliable the value.

As we all know, AVMs work well in a conforming home in a large tract of similar homes, built in the past 10 years. After that, the accuracy and reliability goes down fast. Just check what Zillow’s Zestimate against your appraised value.

Fannie warning letters – GLA adjustments and lots more coming(Opens in a new browser tab)

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House for sale set to explode when light switch is turned on

House for sale set to explode when light switch is turned on

Excerpts:

Investigators in two Massachusetts cities were seeking the renters of a house for sale that was intricately wired to explode and cause “significant destruction” if someone had simply flipped a light switch, police said Tuesday night.

“It took some work to put it in there,” said Wells, who described the mechanism as involving wires meticulously snaking through several rooms from a gallon container of an incendiary substance, which was “secreted inside the house,” to a particular light switch.

“We believe the intention was that if someone had flipped the light switch on where it ended, the device would have exploded,” he said.

My comment: Wow!! Be careful out there… especially with disgruntled tenants on a sale!!

Thanks to Douglas R. Doudna for posting this online!!

http://www.nbcnews.com/news/us-news/massachusetts-house-sale-was-rigged-explode-police-say-n329601

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New FHA 4000.1 handbook – effective 6/15/15

New FHA 4000.1 handbook tidbits –

Publish Date: 03/18/2015 | Effective Date: 06/15/2015

The bulk of the appraisal section starts on pdf page 441 and runs through pdf page 507.

Here are a few tidbits posted online from appraisers who spent the weekend reading it ;>

– The Appraiser must obtain all of the following from the Mortgagee before beginning an appraisal: Any other legal documents contained in the loan file…

– Page 454 on Photos. Front and angle shots of the comps. Hallways on 2-4 units

– Handbook replaces all previous documents, including most Mortgagee Letters.

– Page 447 ii, methamphetamine (meth) contamination

– Page 441: The Appraiser must treat room additions and garage conversions as part of the GLA of the dwelling, provided that the addition or conversion space: …

– Provide 3 year prior sales history for the comps

Will this mean increased time for FHA appraisals? Depends on how much you are doing now. Remember the old VC sheets? They were a hassle!!

My comment: It is not effective until 6/15/15. There will be some webinars, online articles, etc. before that date. I will let you know.

Link to new handbook 4000.1

http://portal.hud.gov/hudportal/documents/huddoc?id=40001HSGH.pdf

For more details from FHA, see last week’s Appraisal Today email newsletter, in the archives, at:

http://archive.constantcontact.com/fs124/1101648677253/archive/1120449851537.html

For more details from FHA, see last week’s Appraisal Today email newsletter, in the archives, at:

http://archive.constantcontact.com/fs124/1101648677253/archive/1120449851537.html  

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Collateral Underwriter and price per sq.ft. adjustments

To keep up on what is happening in appraisal businesses, mortgage lending, USPAP, etc. , Plus humor and strange homes, sign up for my FREE weekly appraisal email newsletter, sent since June 1994. Go to Home on the left side of the menu at the top of this page or go to www.appraisaltoday.com
Sign up in the Big Yellow Boxes

I regularly write about hot topics in appraising and appraisal business management issues
in my paid Appraisal Today monthly newsletter.
$99 per year or (credit card only) $8.25 per month, $24.75 per quarter, or $89 per year.
For more info, go to https://www.appraisaltoday.com/products

 

From March, 2015 when CU first started
Fannie is using this to show that appraisers have been using adjustments that are too low, resulting in less reliable values. They are often low “legacy” adjustments. Also, GLA adjustment is one of the few factors that work well in regression.

I suggest using replacement cost new less depreciation. For replacement cost you can use local builders or cost service such as Marshall & Swift, whichever is more accurate in your area. Then take off depreciation. The result is depreciated cost. Divide by GLA. The result is depreciated cost per sq.ft.

Fannie uses price divided by sq.ft. which does not consider land value or depreciation, information which Fannie does not have available.

For example, builders cost on a property is $100 per sq.ft. Your estimated physical depreciation is 30%. Obviously, $25 per sq.ft. adjustment is not correct. There may be functional or external depreciation, which you can include. Be sure to include how you determined your GLA adjustment in your appraisal.

Market based GLA adjustments are better, such as matched paired sales but the method above will work as a guideline.

Why are adjustments low? To comply with the 15/25% adjustment guideline, which Fannie has removed. It was never a requirement. Fannie has never had a 10% per line adjustment guideline. Of course lenders and AMCs can still require the use of the 15/25% adjustment which could be a big problem for appraisers which can result in less reliable values. I never considered the 15/25 guideline in any of my appraisals, but I never worked for lenders or AMCs who required that appraisals conform to it.

Check out the graphs on GLA and 15%/25% adjustments in the FAQ document below. I included 4 of them in this month’s paid Appraisal Today newsletter.

Get the facts about what Fannie is saying, not just rumor and speculation. Subscribe to the paid Appraisal Today!!

https://www.fanniemae.com/content/announcement/ll1502.pdf

Appraisal Humor

Appraisal business tips

A very, very funny appraiser video!

Fannie warning letters – GLA adjustments and lots more coming(Opens in a new browser tab)

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Collateral Underwriter warning messages and Every Increasing Scope Creep from all sources

My latest opinions and observations, as of today

Fannie does not want appraisers to receive warning messages unless a “human” has reviewed the appraisal report. They want to reassure real estate agents mostly that appraisals will not be delayed. Of course, I have no idea how many underwriters have the time to read the 30+ page report. Maybe they can search the report for what they are looking. I am sure this is/will be slowing down loans.

But, I keep thinking that even if appraisers received a few CU warning messages, it is a small, small percent of all the stips from all the review software that AMCs use. No one seems to notice that appraisals take longer the more stips that appraisers receive. Particularly, when all the stips are not sent at the same time. No one seems to notice this, or care about it, except appraisers!!

These non-CU stips are mostly from arbitrary “rules” which CU does not use. Such as: picky UAD stips, “add 2 more comps”, or please review the list of “comps” from the real estate agent or borrower. Some are still using the 15%/25% adjustment rule.

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