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Pandemic and market for buyers and sellers: Appraisals
By Ryan Lundquist April 30, 2020
Excerpts: Buyers more sensitive about location & condition: For years buyers have been exhibiting sensitivity to adverse locations and homes that are not in pristine condition. In other words, buyers have higher expectations about what they
75 percent alcohol disinfectant alcohol spray nearby a house concept of disinfecting the house
are buying and they aren’t overlooking the true condition of a home or paying top dollar for junk. I expect going through a pandemic will only inflame this dynamic.
Cash out at the top: Some people are concerned about the market changing directions, so we’ll see certain owners try to cash out at the top so to speak. I’m not saying we’re at the top of a price cycle. I’m only saying some people think the pandemic has pushed us or will push us into a new price cycle.
Personal note from Ryan: Appraiser John Carlson GoFundMe: John is a well-known appraiser in Southern California and he is going through a difficult time as he was diagnosed with cancer and hospitalized. I invite you to pray for him and donate if you can. To read more, click here.
My comments: I spoke yesterday with a local appraiser friend who is thinking about selling her house and moving to a smaller, lowered priced house. (She is 78 years old, one year older than myself, but still appraising.) No listings or pendings in her area. Seemed like a good idea to me.
On June 29, McKissock had a webinar ” Appraising in a Pandemic”. In the last half hour, Ryan gave the best presentation I have ever seen on what to put in your report about the current market, not just a “I don’t know anything disclaimer”. He also had a sample statement slide. The recording was not available by my deadline. I will send it to you in next week’s email.
To read about lots more appraisal topics, continue reading below!
NOTE: Please scroll down to read the other sections of this long blog post on Appraisal Modernization – UAD and “forms” redesign, Virtual inspection tools, mortgage origination stats, Covid tips for appraisers, etc.
9-20 UPDATE: For lots of Covid analysis and news, go to my new covidscienceblog.com
DO NOT use photos or videos, taken by the owner while you remain outside, for an appraisal requiring interior inspections!!
This is NOT ALLOWED by USPAP. When the assignment requires the appraiser to do the interior inspection and photos, use of secondary source photos and interior characteristic detailing is prohibited. Google Appraisal Foundation Q&As and scroll to 2020-04: “Personal Inspection of Exterior plus Remote or Virtual Inspection of Interior.”
Or, you are standing outside taking photos through the window or directing the owner to do photos, facetime or other videos. Even if the owner is using a Virtual Inspection Tool, it is not allowed. Don’t risk your appraisal license!!
Appraisal Modernization – UAD and “forms” redesign
Last year the hot topic was Appraisal Modernization – mostly bifurcate appraisals and UAD changes. In late 2019, FHFA decided to not do much more on bifurcated. However, the GSEs have been working on UAD fields. There is an active work group of appraisers advising the GSEs on UAD changes. There has been a sample of what is being worked on floating about the internet.
Per Danny Wiley, Senior Director of Single Family Valuation at Freddie Mac since 10-19, in a Facebook post, this a very preliminary UAD list and is not to be relied on as representing what will eventually be done.
I have been following the discussion on the Sales Comparison Grid among appraisers who are on the committee and not on it. The overall opinion is that it adds too much detail, resulting in a lot more work required. FYI, members of the appraisal work group have signed confidentiality agreements.
Per Scott Reuter, at a recent webinar, the GSEs are still working on UAD changes and planning on no more fixed forms. Instead, they will be working on a long term plan for a format similar to Turbo Tax, where for example, it is a condo so you only use the parts of the appraisal relevant to condos. He said they had a three year plan and have “maybe” another year to go.
Desktops and Exterior Appraisals: Virtual Inspection Tools Can Make Them More Reliable
and Limit Your Liability!
In the May Issue of the Paid Appraisal Today.
Available Today, May 1, 2020
Excerpts: Why did I quit doing driveby appraisals after doing hundreds of them in the 1990s? I was never comfortable assuming the interior was the same as the exterior.
Why I would do drivebys now
With a Virtual Inspection Tool, I get geocoded photos of specific rooms, with multiple photos required for some rooms (kitchens, for example) and specific exterior photos. Today, lots of online information is available such as google street and aerial views, building permits, etc.
The COVID Modified Scope of Work requirements are a significant change for appraisers. Interviewing homeowners, asking them to take non-geocoded fotos, etc. is a lot of work. Also, it is not very reliable. Some owners could take photos of a neighbor’s remodeled kitchen. Or, take photos but not showing parts of the house needing lots of work.
I tested two of the Virtual Inspection Tools, that are available free to all appraisers.
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Credit unions can delay appraisals until 4 months after a mortgage closes
NCUA passes own version of federal banking rule
Excerpts: Loans sold to or guaranteed by the Federal Housing Administration, Department of Housing and Urban Development, Department of Veterans Affairs, Fannie Mae or Freddie Mac will still require an appraisal before closing, per each agency’s or company’s rules.
“Being able to quickly access equity in real estate could help address this need. However, government restrictions on non-essential movement and health and safety advisories in response to the National Emergency declared in connection with COVID-19, including those relating to social distancing, have led to complications with respect to performing and completing real property appraisals and written estimates of market value needed to comply with federal appraisal regulations,” the NCUA continued. “As a result, some borrowers may experience delays in obtaining funds needed to meet immediate and near-term financial needs.”
“Under this interim final rule, deferrals of appraisals and written estimates of market value will allow for expeditious access to credit. The deferrals, which will be temporary, are offered in response to a National Emergency,” the NCUA said. “Credit unions that defer receipt of an appraisal or written estimate of market value are still expected to conduct their lending activity consistent with safe and sound underwriting principles, such as the ability of a borrower to repay a loan and other relevant laws and regulations.”
My comment: I have no idea why delaying an appraisal for 120 days would mean more appraisers would be available. I have not heard anything about any appraisals being delayed. Please hit the reply button if you can tell me anything. It seems very unusual and risky to me. Some commercial property values have been declining for awhile, especially retail. Credit Unions are not commercial banks. They are owned by their members and should be very conservative.
COVID-19 Science Update for my April 3 monthly newsletter – Testing
It is so hard to believe how much has changed in a month!!
Below are good podcasts on a current hot topics
To read the April 3 newsletter plus previous updates in these free email newsletters, click here
NOTE: I have been listening to podcasts every day for a very long time. COVID-19 topics can get very technical or political. Podcasts are usually the best source of these types of explanations.
News about COVID changes for GSEs etc. for appraisers is done mostly in webinars now, which I regularly review in these newsletters.I have been including some of the many appraiser webinars (2-4 a week now) for awhile.
Today, one of the hottest topics is testing (to get virus data) as many areas are opening up or planning to loosen some shelter in place and other restrictions. Tests are needed to re-open without more deaths resulting. The tradeoff is between the economy and health (especially deaths). We don’t like to think of it this way, but it is the reality of all pandemics.
I wrote a lot about testing in my April 3 newsletter. This is the key to finding out who is infected (and who has been infected in the past).
There are two types of tests: who has the virus now and who had it and developed antibodies to the virus. From the science side, tests are hard to understand for most people and can quickly get too technical. Also, there are too many “political” issues about supply, reliability, etc.
Make Me Smart Podcast 181. We need millions of test to open this economy. So, where are they?
This is the best, most understandable non-technical explanation I have heard or read (for non-scientists). Listen to the first 15 minutes. After that there is a commercial and chit chat about other topics. This podcast is a spinoff of Marketplace, one of my favorite podcasts.
4-29-20. 15 minutes.
To read a brief intro and listen to the podcast (first 15 minutes) click here
The Indicator Podcast: Why we didn’t prepare for the pandemic
Not about today’s political issues, such as blaming and finger-pointing. Goes from the big volcano hundreds of years ago in Pompeii to Gov. Arnold Schwarzenegger in the early 1990s. “The reasons we don’t seem to learn from our mistakes are behavioral and economic. They’re also highly rational.”
In 2004, my husband had a stroke and was in a nursing home for 6 months before I brought him home. He could not use the right side of his body. I visited 3-4 hours a day and learned a lot. They are not hospitals. There was only one nurse for the many patients in his wing of the nursing home. He was private pay in a semi-private room. Many patients were Medicaid (Medi-cal in California) with 3 patients crammed into a small room. The care at his nursing home was fine, above the typical nursing home in the area. It was owned by a groups of local physicians at that time.
Nursing homes are very risky for any infectious disease. One of the first known number of large COVID-19 infections was a nursing home in Seattle. Nurses aides are low paid. Nursing homes have very small profit margins with not much money for PPE, and each nurses aide has many patients to work with every day.
The workers have no idea who is infected and can easily spread the virus to other patients and their own family members at home. If the patients and workers were tested regularly, this could have been avoided. They are finally just starting to do tests in California and other states, when possible.
What is needed now is regular testing for all patients and workers in all nursing homes to see if they are infected. They are our most at risk people because of age and health problems. Testing in assisted living facilities is also strongly recommended.
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
Mortgage applications decreased 3.3 percent from one week earlier
WASHINGTON, D.C. (April 29, 2020) – Mortgage applications decreased 3.3 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending April 24, 2020.
The Market Composite Index, a measure of mortgage loan application volume, decreased 3.3 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 decreased 7 percent from the previous week and was 218 percent higher than the same week one year ago. The seasonally adjusted Purchase Index increased 12 percent from one week earlier. The unadjusted Purchase Index increased 13 percent compared with the previous week and was 20 percent lower than the same week one year ago.
“The news in this week’s release is that purchase applications, still recovering from a five-year low, increased 12 percent last week to the strongest level in almost a month. The ten largest states had increases in purchase activity, which is potentially a sign of the start of an upturn in the pandemic-delayed spring homebuying season, as coronavirus lockdown restrictions slowly ease in various markets,” said Joel Kan, MBA’s Associate Vice President of Economic and Industry Forecasting. “California and Washington continued to show increases in purchase activity, with New York seeing a significant gain after declines in five of the last six weeks.”
Added Kan, “Contributing to the uptick in purchase applications was that mortgage rates fell to another record low in MBA’s survey, with the 30-year fixed rate decreasing to 3.43 percent. However, refinance activity declined 7 percent, as rates for refinances likely remained higher than those for purchase loans. Lenders are still working through pipelines at capacity, and observed changes in credit availability for refinance loans have also in turn impacted rates.”
The refinance share of mortgage activity decreased to 71.6 percent of total applications from 75.4 percent the previous week. The adjustable-rate mortgage (ARM) share of activity increased to 2.9 percent of total applications.
Looking at the impact at the state level, here are results showing the non-seasonally adjusted, week-over-week percent change in the number of purchase applications from Washington, California and New York:
The FHA share of total applications increased to 11.5 percent from 10.3 percent the week prior. The VA share of total applications decreased to 13.3 percent from 13.8 percent the week prior. The USDA share of total applications increased to 0.5 percent from 0.4 percent the week prior.
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($510,400 or less) decreased to 3.43 percent from 3.45 percent, with points increasing to 0.34 from 0.29 (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 $510,400) decreased to 3.72 percent from 3.81 percent, with points decreasing to 0.33 from 0.34 (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 increased to 3.39 percent from 3.33 percent, with points increasing to 0.20 from 0.19 (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 decreased to 2.98 percent from 3.03 percent, with points decreasing to 0.28 from 0.33 (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 remained unchanged at 3.29 percent, with points increasing to 0 from -0.15 (including the origination fee) for 80 percent LTV loans. The effective rate increased 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.