Appraisal News and Business Tips

5-3-19 Newz: AMC Shockwave – Zillow Accuracy – 25 Appraisal Errors

25 Common Errors in Appraisal Reports

A compilation of the most common errors and deficiencies found in appraisal reports by reviewers, regulators, and appraisal boards.

Here are a few:
– Not providing enough analysis for the intended user or reader to understand the report properly.
– Inconsistencies between the description of the subject property in the improvements section and the photographs, sketch, sales comparison grid, and other areas in the report.
– Inappropriate use of boilerplate commentary in the appraisal report to describe the neighborhood or to explain the reconciliation of the sales comparison approach.
– Failure to summarize the analysis and rational that supports the Highest and Best Use opinion.
– Not complying with the most current USPAP.
Read the full list here:

My comments: Reminders are always good. For unknown reasons, I don’t see much CE or writing on these problems. These apply to all appraisals because we are licensed, not just lender appraisals.
It was soooo nice in the “old days” before licensing ;> Two Rules: Tell the  truth and disclose what is bad. No USPAP changing every two years, overzealous appraisal boards, renewal fees, etc.. Of course, the reason we have licensing is the lender mess in 1989, resulting in FIRREA,  regarding bad commercial property development loans by S&Ls
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NY AMC Law Sends Shockwaves

By Jonathan Miller
Excerpt: Last week, AppraisersBlogs ran it as a standalone post and I got a lot of feedback. To be clear, the bill was signed into law by Governor Andrew Cuomo at the end of last year and became effective 120 days later which is today (April 27, 2019).

The NY State Coalition of Appraisers (NYCAP), led by my friend and appraiser Becky Jones who along with other unnamed heroes worked hard to help make this possible, wants you to know that this law was not a last-second, fly by night effort as being characterized by The Real Estate Valuation Advocacy Association (REVAA) – the trade group that represents the bulk of the AMC industry in the U.S. – inferring this law was flimsy and easily overturnable.

No, it isn’t. It’s been a long road and achieved unanimous consensus during the process

Read more (plus links to the law):

My comments: I have been writing about AMCs for over 20 years. Prior to Dodd Frank, there were a few national AMCs. No problems. Had regular appraisers they worked with. With Dodd Frank I did not anticipate the severe negative impact on residential lender appraisers and did not oppose AMCs. I was wrong.

After Dodd Frank: huge increase in AMCs that are ruining the residential appraisal profession. (Note: I don’t use the term “Industry”). No new appraisers, excessive scope creep, extreme fee competition, etc. AMCs see an Industry to be Tamed. I see a Profession that is being Ruined.
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Consumer Protection Campaign Launched

By VaCAP (Virginia Coalition of Appraiser Professionals

Excerpt: VaCAP is excited to launch a Consumer Protection Campaign! For months we prepped, we discussed, we negotiated, we wrote, we edited, wrote some more, edited some more… finally, we recorded.

We have three 60 second consumer protection announcements airing on WRVA 1140 News Radio starting on Monday April 29th. The three consumer protection announcements will air randomly throughout the day for two weeks. WRVA 1140 News Radio live streams through Radio.com and iHeartRadio so anyone can tune in and listen. The consumer protection announcements will refer listeners to VaCAP’s website for more information where we have added a consumer page. This page has articles directly relating to consumer protection and consumer education.

Read more here, read the comments and listen to the radio ads:
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33 Deserted Places Around the World

Just For Escape for a Few Minutes from Appraisals!!

These forsaken relics of another time are strangely beautiful.
Excerpt: From Australia to Argentina, the globe is peppered with lonely, weather-worn ruins that linger like empty shells of their former selves. These rusting ghost towns, forgotten theme parks, and overgrown houses are frozen in time, abandoned by the humans who built them. They now stand like haunting reminders of livelier days, offering a fascinating glimpse back in time, before they were left behind.

Warning: May be hard not to click on a few (or more). Fascinating!! Something(s) for everyone.
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Two things to understand about Zillow’s accuracy rate

 By Ryan Lundquist
Excerpt: How does Zillow’s accuracy rate work? Let’s talk about two important points. I’m not writing because I’m angry, but only because the public places enormous trust in this brand, and I see this accuracy rate quoted everywhere. Well, let’s at least know the fine print so we can have informed conversations.

1) Median makes all the difference: Zillow says their median error rate is 5% for the United States. That sounds impressive, but we have to realize this is a MEDIAN error rate, which means the Zestimate is within 5% of the purchase price only half the time. So Zillow’s slogan could be, “We’re within 5% half the time.” But that doesn’t sound as polished as “Our median error rate is 5%”.

Lots more info and comments here:

My comments: As we all know, all real estate statistical analysis depends on data. There is a lot of data that is not available to Zillow. Appraisers have a lot more data, particularly on individual properties, such as more reliable information on subject interiors as compared with MLS, buyer motivations, etc. However, many people use Zillow to see what a property is worth. I even had estate attorneys comparing my appraisals on apartment properties with what Zillow said. The price is right for Zillow: Free!!

What everyone wants to know is: “How accurate is Zillow on a specific property”. Zillow spends millions of dollars trying to get better estimates on this.

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Home prices are declining in some markets, so say the Big Data analysts

“The pace of increases for home prices continues to slow,” says David M. Blitzer, Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices. “Homes began their climb in 2012 and accelerated until late 2013 when annual increases reached double digits. Subsequently, increases slowed until now when the National Index is up 4 percent in the last 12 months. Sales of existing single-family homes have recovered since 2010 and reached their peak one year ago in February 2018. Home sales drifted down over the last year except for a one-month pop in February 2019. Sales of new homes, housing starts, and residential investment had similar weak trajectories over the last year. Mortgage rates are down one-half to three-quarters of a percentage point since late 2018.

What does this mean for you? Remember the last crash, which surprised (almost) everyone. Now, slower price increases and declines in some areas, fewer new homes being built, etc. is in the media. Don’t make the mistakes we all made missing the previous changes. Maybe the data analysts will figure out that the past does not always predict the future, which is how they failed in the last crash. The last time the entire country had price crashes was the Great Depression. Guess they did not use that data.

Prices go up and down in many areas. I purchased my house in 1995 for $375,000 with 100% seller financing. Had been on the market for 2 years. I sold the house in March 2008 for $1,000,000. Prices had declined about 10% over the previous year. I did not see any signs of significant price declines coming then. Soon after it closed, values declined quickly by about 30%. It recently re-sold for $1,500,000. I was very, very lucky.

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Bring on the refis!! Freddie Mac expects mortgage rates to remain low all year

Excerpts: Favorable mortgage rates are expected to boost homebuyer affordability for the remainder of 2019, according to Freddie Mac’s April Forecast.

According to the government sponsored enterprise, the 30-year fixed-rate mortgage is now projected to average 4.3% this year, falling from last year’s 4.6%.
Freddie Mac expects low mortgage rates to drive an increase in single-family mortgage originations for the rest of the year. As Freddie Mac noted, those lower rates have already resulted in more refinance activity, and the GSE expects that trend to continue.

What does this mean for you? Who cares about a slow down in price increases if you are doing a refi? Owners have huge equity increases. Appraisals depend on refis, much more less on sales.  They much more sensitive to interest rates than sales.
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HOW TO USE THE NUMBERS BELOW. Appraisals are ordered after the loan application. These numbers tell you the future for the next few weeks. For more information on how they are compiled, go to www.mbaa.org
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Mortgage applications decreased 4.3 percent from one week earlier

WASHINGTON, D.C. (May 1, 2019) – Mortgage applications decreased 4.3 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending April 26, 2019.
The Market Composite Index, a measure of mortgage loan application volume, decreased 4.3 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index decreased 4 percent compared with the previous week. The Refinance Index decreased 5 percent from the previous week. The seasonally adjusted Purchase Index decreased 4 percent from one week earlier. The unadjusted Purchase Index decreased 3 percent compared with the previous week and was 1 percent higher than the same week one year ago.“Mortgage rates were lower last week – with the 30-year fixed rate declining to 4.42 percent – as concerns over global growth, particularly in Germany, outweighed more positive domestic news on first quarter GDP growth and business investment,” said Joel Kan, MBA’s Associate Vice President of Economic and Industry Forecasting. “Applications to refinance and purchase a home both fell, but purchase activity still remained slightly above year ago levels. The drop in refinances were driven by fewer FHA and VA loan applications, which typically lag the movement of conventional loans.”

Added Kan, “The ARM share of applications decreased to 6.2 percent, its lowest share since August 2018. So far in 2019, we continue to see a preference for 7/1 ARMs, which account for around 36 percent of all ARM applications, followed by 10/1 and 5/1 ARMs. This is another indication that the few borrowers who choose to apply for ARM loans are electing to reap the benefit of lower rates, as well as some rate stability.”

The refinance share of mortgage activity decreased to 38.8 percent of total applications from 39.4 percent the previous week. The adjustable-rate mortgage (ARM) share of activity decreased to 6.2 percent of total applications.

The FHA share of total applications decreased to 9.5 percent from 9.9 percent the week prior. The VA share of total applications decreased to 10.9 percent from 11.3 percent the week prior. The USDA share of total applications remained unchanged from 0.6 percent the week prior.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($484,350 or less) decreased to 4.42 percent from 4.46 percent, with points increasing to 0.46 from 0.44 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans. The effective rate decreased from last week.

The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater
than $484,350) decreased to 4.31 percent from 4.35 percent, with points decreasing to 0.23 from 0.25 (including the origination fee) for 80 percent LTV loans. The effective rate decreased from last week.

The average contract interest rate for 30-year fixed-rate mortgages backed by the FHA decreased to 4.39 percent from 4.49 percent, with points decreasing to 0.47 from 0.57 (including the origination fee) for 80 percent LTV loans. The effective rate decreased from last week.

The average contract interest rate for 15-year fixed-rate mortgages decreased to 3.81 percent from 3.87 percent, with points decreasing to 0.40 from 0.44 (including the origination fee) for 80 percent LTV loans. The effective rate decreased from last week.

The average contract interest rate for 5/1 ARMs decreased to 3.81 percent from 3.92 percent, with points increasing to 0.54 from 0.28 (including the origination fee) for 80 percent LTV loans. The effective rate decreased from last week.

The survey covers over 75 percent of all U.S. retail residential mortgage applications, and has been conducted weekly since 1990. Respondents include mortgage bankers, commercial banks and thrifts. Base period and value for all indexes is March 16, 1990=100.
Ann O’Rourke, MAI, SRA, MBA
Appraiser and Publisher Appraisal Today
2033 Clement Ave. Suite 105
Alameda, CA 94501 Phone 510-865-8041
Fax 510-523-1138
Email   ann@appraisaltoday.com

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