Highest and Best Use – Residential Appraisers Need To Understand It!

Excerpt: There are many valuation products out there. CMA’s, BPO’s and AVM’s to name a few. What you will likely not see in those kinds of valuations, is the specific zoning class for the property being valued. Why? Zoning in the Appraisal Process is very important.

With these types of valuations, a highest & best use (HBU) analysis is generally not made. However, if you hire an appraiser to value your home, we will perform this analysis. What is a highest & best use analysis? Why is it important in the development of an opinion of value? How is zoning involved?

To read more and see the fun animated gifs click here

My comments: My Most Frequent Residential Appraisal Rant!! I started at an assessor’s office in 1975. The First, and Most Important, Question was “What is the highest and best use?” In 1986 I started doing residential lender work. The form was just a check box for HBU. If you checked No, it was a big problem for the lender. Many residential appraisers don’t check the zoning, general plan, etc. One good way is to just drive around and see what is happening. For example, lots of small homes being torn down and McMansions being built. Or, lots of houses on a busy street converted to office uses. Or, a small house on a big lot with apartments all around it. A common residential issue is a possible lot split.

Don’t forget the General (Or Specific) Plan. It tells you what the city wants today and in the future for land use, which is not discussed in this article.

I have appraised a lot of older commercial properties for lenders, which often had a HBU different than the current use. I discussed it in my appraisals.

When there is a big difference in value between two appraisals, it is often due to a difference in opinion of HBU. Don’t get into trouble. Be sure to think about HBU!! If you’re not sure, contact an experienced appraiser, particularly one who does a lot of non-lender work and/or commercial appraisals.

In the Feb. 2017 issue there is an excellent article written for residential appraisers by Denis Desaix, “Residential Highest and Best Use Analysis: more than Just a “Check box” available to paid subscribers. See below.

Appraisal Business Tips 

Humor for Appraisers

Covid-19 Residential Appraisers Tips on Staying Safe

Appraisal Process Challenges

To read more of this long blog post, click Read More Below!!

NOTE: Please scroll down to read the other sections of this long blog post on builder sales, deminimus raised to $400,000, incredible ruins, Zillow, Cost, mortgage origination stats, etc.

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Covid tips for appraisers



De Minimus Raised to $400,000

by Isaac Peck

Excerpt: … More importantly, the raising of the de minimus begs the question as to what percentage of mortgages nationally will be effected. The agencies argue quite convincingly that the impact of this rule will have almost no effect on the real estate market at large, because a majority of residential real estate transactions “are sold to the GSEs or otherwise insured or guaranteed by a U.S. government agency.”

The estimated impact of the proposal, they write, will be only “three percent of all first-lien, single family mortgage transactions in the United States.” This is due, in part they say, because 91 percent of all mortgages are not currently subject to the $250,000 de minimus “due to their not being originated by regulated institutions, being sold to the GSEs or otherwise insured or guaranteed by a U.S. government agency, or having transaction amounts at or below the current $250,000 threshold.”

Read this article about the past, the present and the future click here.

My comments: When it was increased to $200,000, then $250,000 with FIRREA in 1989, we all thought doom and gloom for appraisers. It did not happen. Commercial appraisers have been doing “evaluations” for a long time (loan extensions, small business loans, etc, for portfolio loans). But, few have ever been being done for residential loans because few were in lenders portfolios. They were sold mostly to Freddie and Fannie.


Waivers and Fannie’s AVM using CU data from appraisers are bigger threats.

Lenders like evaluations because the bank examiners don’t look at them much. They focus on appraisals.

Can appraisers do evaluations? Yes. Will they replace appraisals for residential loans? What will Fannie’s investors accept? Fannie is working on bifurcated appraisals. Will they accept evaluations someday? No one knows.

The October issue of the paid Appraisal Today will have a comprehensive article on Evaluations, discussing USPAP and the differences between Appraisals and Evaluations, Appraisal Foundation and Evaluations, should you do them, etc. etc.


Fannie Mae and the Cost Approach

Excerpt: In order to comply with Fannie Mae guidelines, the sales comparison approach must be the primary method used to determine the value. In fact, Fannie Mae will not purchase a mortgage on a property if the cost approach is the primary or only method of valuation used.

Quite simply, if there isn’t enough data for the appraiser to develop a reliable opinion of value by the sales comparison approach, the mortgage will not be marketable to Fannie Mae.

To read more, click here


Incredible Historic Ruins

Just For Fun!!

Take a Break From Writing Up Appraisals!!

Scroll down the pages and look at the photos and maybe read some of the descriptions…

To read more, click here


Residential Highest and Best Use Analysis: more than Just a “Check box”

Excerpt: Highest and best use analysis is a critical step in correctly identifying what kind of property the subject is, and what comparables to use when valuing the subject.

H&HBU analysis determines

(a) what should be done with the property if it were vacant, and if the property is improved,

(b) what should be done as-it-is.

Answering these questions helps the appraiser determine who the likely buyer will be and what is the best analysis and comparables to use for the assignment. H&BU analysis can also assist in identifying obsolescence (if something should be replaced because it is

outdated, that likely translates into functional obsolescence).

The article includes a discussion of the Fannie forms, the 4 factors for H&BU, and other issues. Plus, sample comments for your appraisals.

To read the full article, plus 2+ years of previous issues, subscribe to the paid Appraisal Today.

If this article helped you avoid getting into trouble with H&BU, it is worth the subscription price!!

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If you are a paid subscriber and did not get the August 2019 issue, emailed Thursday August 1 2019, please send an email to info@appraisaltoday.com and we will send it to you!! Or, hit the reply button. Be sure to put in a comment requesting it.


The Secret Curse of Owning a Frank Lloyd Wright House

Excerpt: Frank Lloyd Wright homes have more cachet than houses built by any other architect. It’s no wonder, then, that when Wright homes go up for sale, they get plenty of attention. And, with only 400-some Wright structures still standing, surely these listings must erupt in bidding wars from eager buyers as soon as they hit the market, right?

Wrong. On the contrary, Wright homes tend to sit on the market for years. Often with numerous price cuts!

Very interesting, with good fotos and comments, plus listings with long days/years on market.

For more info, click here


Can you use brand new sales from the builder as comps?

By Ryan Lundquist

Excerpt: I get asked this question all the time. “What do you do for comps when a home is only one year old? Can you compare it to brand new homes from the builder?” Here are a few things on my mind.

Builders vs you: It’s important to step back and understand that builders are able to let buyers customize features in a house, and that’s a big deal. This is one of the alluring things about buying a new home, and it’s not something a typical seller is going to do. Thus right away a builder has more power than an owner in the resale market.

Fading premium: Just as buyers tend to pay a price premium for a brand new car, the same thing happens in real estate. And just like a car begins to depreciate when it’s driven off the lot, the same thing happens with a home. When you’ve lived in a home, it’s no longer 100% brand new, so it may not command that same price premium in the market.

Good tips in this article: To read more, click here

My comment: I quit doing appraisals on new tract homes a long time ago. Too hard to get accurate info from builders.


Zillow in Crosshairs

Excerpt: Steve Eisman, the hedge-fund manager famous for betting against the US housing market in 2008 explains why he is shorting online real estate company Zillow.

“I would say Zillow has one of the most flawed business models I’ve seen in a very, very long time,” he said during an interview on CNBC.

“They had a good business which was their internet real estate platform. The growth in that has slowed dramatically so that now the growth is zero”…

“The most problematic is what they call their, I believe, iHome business, an internet buying business where they actually go out and buy homes and flip them. I actually think the company doesn’t understand the risk, the real risk of this business which are massive…”

To read more, click here


Note: I publish a graph of this data every month in my paid monthly newsletter, Appraisal Today. For more information or get a FREE sample issue go to https://www.appraisaltoday.com/products.htm or send an email to info@appraisaltoday.com . Or call 800-839-0227, MTW 7AM to noon, Pacific time.

Mortgage applications decreased 0.9 percent from one week earlier

WASHINGTON, D.C. (August 21, 2019) – Mortgage applications decreased 0.9 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending August 16, 2019.

The Market Composite Index, a measure of mortgage loan application volume, decreased 0.9 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index decreased 2 percent compared with the previous week. The Refinance Index increased 0.4 percent from the previous week and was 180 percent higher than the same week one year ago. The seasonally adjusted Purchase Index decreased 4 percent from one week earlier. The unadjusted Purchase Index decreased 5 percent compared with the previous week and was 5 percent higher than the same week one year ago.

“In a week where worries over global economic growth drove U.S. Treasury yields 13 basis points lower, the 30-year fixed mortgage rate decreased just three basis points. As a result, the refinance index saw only a slight increase but remained at its highest level since July 2016,” said Joel Kan, MBA’s Associate Vice President of Economic and Industry Forecasting. “The small moves in rates and refinancing are potentially signs that lenders may be approaching capacity constraints as they continue to deal with the largest wave of refinance activity in three years. The refinance share of applications, at almost 63 percent, was also at its highest level since September 2016.”

Added Kan, “Lower mortgage rates have yet to lead to a notable rise in homebuyer demand. Purchase applications fell more than 3 percent, but were still 5 percent higher than a year ago.”

The refinance share of mortgage activity increased to 62.7 percent of total applications from 61.4 percent the previous week. The adjustable-rate mortgage (ARM) share of activity increased to 6.4 percent of total applications.

The FHA share of total applications increased to 9.7 percent from 9.5 percent the week prior. The VA share of total applications decreased to 11.6 percent from 12.2 percent the week prior. The USDA share of total applications remained unchanged from 0.5 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 3.90 percent from 3.93 percent, with points remaining unchanged at 0.35 (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) remained unchanged at 3.88 percent, with points remaining unchanged at 0.24 (including the origination fee) for 80 percent LTV loans. The effective rate remained unchanged from last week.

The average contract interest rate for 30-year fixed-rate mortgages backed by the FHA increased to 3.87 percent from 3.81 percent, with points increasing to 0.32 from 0.29 (including the origination fee) for 80 percent LTV loans. The effective rate increased from last week.

The average contract interest rate for 15-year fixed-rate mortgages increased to 3.30 percent from 3.28 percent, with points decreasing to 0.33 from 0.34 (including the origination fee) for 80 percent LTV loans. The effective rate increased from last week.

The average contract interest rate for 5/1 ARMs decreased to 3.35 percent from 3.43 percent, with points increasing to 0.41 from 0.35 (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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