On Value, Accuracy, and Misleading…and How They are Different From What You Might Think!
By Tim Andersen, MAI
Excerpt: Let’s start this musing by addressing the issues of value, accuracy, and misleading. You might have looked at them differently in the past. Then we’ll tie these in the idea of the value conclusion in an appraisal being right or correct.
State appraisal boards level charges against appraisers. It is very common for appraisers to defend themselves against these charges by insisting their value is “right”. Or, they assert they have properly supported their value conclusion, or something similar. In reality, this argument is utterly irrelevant and carries no weight with the appraisal board.
When it comes to value, accuracy, and misleading, the appraiser’s value opinion alone is irrelevant and weightless. This is because TAF has given state appraisal boards specific instructions. Those instructions are that the appraiser’s value conclusion is not to be a part of the board’s investigation. Nor is it to be a part of its deliberations. Therefore, it is not to be part of the appraiser’s defense since it is not part of the charges against the appraiser.
To read more, click here
My comment: Tim is a regular contributor to the paid Appraisal Today. He is The USPAP Expert and helps appraisers stay out of trouble with their state boards!! Tim also has an interesting podcast – link is on the top of the page.
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 22 Weird homes, commercial appraisals down, mortgage origination stats, Covid tips for appraisers, etc.
9-20 UPDATE: For lots of Covid analysis and news, go to my new covidscienceblog.com
Covid-19 Residential Appraisers Tips on Staying Safe
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Weird or Wonderful? 22 Homes That Are Anything But Ordinary
JUST FOR FUN! TAKE A SHORT BREAK NOW. YOU DESERVE IT!!!
Excerpts: Homebuyers and renters who dare to be different often put down roots in alternative dwellings that others eschew. Even if your inner compass tells you to steer clear of the offbeat or the outla
ndish, you may enjoy window-shopping these eccentric estates with …
Here’s one – foto above:
Sky-high Single Family Home in Prescott, Arizona
Is it a bird? Is it a plane? No, it’s the Falcon Nest, a ten-story dwelling whose 124-foot stature makes it the tallest single family home in North America.
To read more, click here
Fannie Appraiser Update
Undated. Received by email on 5-13-20
NOTE: This is about exterior only and desktops. These appraisals are NOT the same as the old “drivebys” where you assumed the inside was like the outside, no owner interviews, etc. The old Desktops (aka comp checks) are not the same now. Lots more research is required.
Excerpt: As Fannie Mae has begun to examine appraisals completed using our temporary appraisal flexibilities in Lender Letter LL-2020-04, Impact of COVID-19 on Appraisals, one issue we’ve observed is that some appraisals rely on assumptions about the subject property condition. Whether completing an exterior-only or a desktop appraisal, the appraiser must have a data source for all the relevant characteristics including interior condition. Obtaining that information, whether it be from homeowners or other sources, is not only encouraged, but is required. This is addressed in the FAQs regarding the temporary flexibilities (Q47):
As stated in Lender Letter LL-2020-04, the appraiser’s certification #10 was removed recognizing that the appraiser may have to rely on information from an interested party to the transaction (borrower, real estate agent, property contact, etc.) and additional verification may not be possible. The removal of this certification acknowledges this could affect the assignment’s results. If adequate information is not available to complete the appraisal, the assignment cannot be completed.
My comment: Of course, a big problem is that few of them are being done now. I am sure this is the reason why there is so much confusion. They are a lot of work. You could decide just to turn them down if you get requests for very few of them.
Also, some clients order the “traditional” 2055, where you drive by, take a few photos, and assume the inside is like the outside. This is NOT acceptable for GSEs and VA. You MUST ask your client what type of 2055 they are ordering or, who are they selling the loan to. FHA does not use 2055s.
I sent out similar information last week. This is the “official” notice with references. You MUST take the time to learn about all the changes and do a lot more work than before. That is why you should charge the same for full appraisals, exterior, and desktops.
To read more, click here
FHA extended to June 30, 2020
May 14, 2020, FHA has extended the time period that the “modified” ‘Desktop’ and ‘Exterior’ reports can be done, to June 30, 2020, which matches the GSE extension.
This notice is in their ML 2020-14. To read, click here
Volume of Commercial appraisals way down
I have been hearing about this from appraisers since soon after COVID started. But, what I needed was information from commercial appraisers in management positions, who work for banks who make the loans.
Two days ago (5-13-20) I attended the Appraisal Institute’s weekly Facebook Live event Wednesday at 10 am Pacific. They are usually commercial and sometimes residential.
The speakers, in a panel setup, were: Melanie Sieger, MAI, AI-GRS, SVP, appraisal manager for Pacific Western Bank, and Tom Boyle, MAI, chief appraiser of U.S. Bank. They discussed initial impacts and expectations for appraisers. They also discussed the effect on appraisals and valuation tips as there are very few sales, declining rents, etc. They are doing workouts, etc. They are working at home and not very busy themselves, sorta like a “staycation”….
The difference between the commercial and residential lender appraisal markets is dramatic. Many residential and very few commercial appraisals. Also, the difficulty in estimating the affect on the market is much more difficult in commercial. No MLS, other data sources, etc. They both said now you cannot just get a few comps and throw something together for appraisals. You must interview brokers, shopping center recent buyers, etc, etc.
A few days ago I had a long conversation with a commercial appraiser in Southern California who is appraising a 60,000 sq.ft. 80% vacant shopping center for estate planning purposes. I said what I usually say: what is the highest and best use? I have appraised lots of commercial properties, including shopping centers. That retail market was bad before coronavirus and is going down fast now.
I quit doing commercial appraisals in 2008, when fees dropped way down. I shifted to apartments. I like apartments as I have been a landlord for 40 years and know the relevant issues. Pre-COVID, some commercial appraisers sometimes did not spend much time on their appraisals and just looked at the comps. Now, lender clients want a lot of research by interviewing market participants. Non-lender work has slowed down now as many people are putting off ordering them.
Direct link to this session: https://youtu.be/VROmLl6iXIc
To listen to the other Appraisal Institute Facebook live recorded videos (residential and commercial), on Wednesdays at 10 am pacific time, go to Facebook and search for appraisal institute. There was another commercial Facebook live that was very good, with each speaker getting 5 minutes to talk about a market segment on the Facebook page.
Commercial Appraiser Survey says commercial appraisal orders way down and relevant market factors
Excerpt: Firstly, about half (45%) of people said their business was changed by the pandemic. This percentage is down from March’s survey where 67% said they were being affected. While that number is lower, the amount of people who said their business was much slower than normal is up from 30% to 45% in a month’s time. Notably, this survey came after the CARES economic stimulus funds were distributed and the fund depleted. Further, the unemployment rate is the highest it’s been since the Great Depression, affecting nearly every industry.
Other market factors are
– increasing deals falling through, pending sales or leases terminated or renegotiated
– pending financing withdrawn or renegotiated
– projects put on hold
– and more
To read more, Click here
My comments: In the AI video above, the commercial appraisers discuss many of the same issues. This survey is definitely worth reading. I have been appraising for 40 years, through downturns, but have never seen anything change so fast in commercial, where changes were typically much slower than residential.
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New in the June issue of the paid Appraisal Today
How to connect with other appraisers online – what is best for you?
I have been online communicating with other appraisers since the early 1990s before the first Internet browser, with Compuserve and AOL. I have accounts on Twitter, Facebook, Linkedin, email discussion groups, etc. Now, there are lots of different options that change regularly. I can help you find what you need!!
What is happening with the GSEs and FHA?
New instruction are coming out every week. It is very hard to keep track of it all. Which changes are important for you? I put links in these free emails. But, in the paid newsletter, I have a lot more details and “insider” info. Plus, the “big picture”.
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Few, if any, lenders are delaying appraisals for up to 120 days
In the Commercial Appraisal AI video discussed above, both the speaker said they don’t know any banks delaying appraisals 120 days. Why would they make a loan now and then get a lower value in 120 days?
The residential market is very uncertain now, but much less than commercial.
In the AI video above, they thought maybe the reason for the possible appraisal delay was set up was a shortage of appraisers. There is no shortage of commercial appraisers now.
The GSEs, VA, etc. do not delay appraisals.
Seven hundred missing sales
By Ryan Lundquist
Excerpts: We’re obsessed with prices. OBSESSED. But real estate is about way more. In fact, if we want to understand a market we need to move beyond a laser focus on prices. On that note, let’s talk about sales volume.
4) It’s about more than prices: The reason I’m so interested in sales volume is because it’s possible for prices to remain stable even though the number of actual sales has changed dramatically. So while it’s easy to say, “Hey, prices are okay,” I think the bigger headline has to do with what is happening behind the scene with sales volume
To read lots more click here
My comment: This blog post also has links to Ryan’s video and audio presentations. I have always looked at listings, pendings, expired, etc. Sales are the past. Ratio between listings and pendings shows you the market. Few listings and lots of pendings – good market. Lots of listings and few pendings – market problems.
The Risks – Know Them – Avoid Them
How safe is going inside a home for an appraisal compare with other places, such as grocery stores?
Excerpts: … But with general breathing, 20 viral particles per minute into the environment, even if every virus ended up in your lungs (which is very unlikely), you would need 1000 viral particles divided by 20 per minute = 50 minutes.
Speaking increases the release of respiratory droplets about 10 fold; ~200 virus particles per minute. Again, assuming every virus is inhaled, it would take ~5 minutes of speaking face-to-face to receive the required dose.
The exposure to virus x time formula is the basis of contact tracing. Anyone you spend greater than 10 minutes with in a face-to-face situation is potentially infected. Anyone who shares a space with you (say an office) for an extended period is potentially infected.
When assessing the risk of infection (via respiration) at the grocery store or mall, you need to consider the volume of the air space (very large), the number of people (restricted), how long people are spending in the store (workers – all day; customers – an hour). Taken together, for a person shopping: the low density, high air volume of the store, along with the restricted time you spend in the store, means that the opportunity to receive an infectious dose is low. But, for the store worker, the extended time they spend in the store provides a greater opportunity to receive the infectious dose and therefore the job becomes more risky.
To read more, click here
My comments: This is the very best understandable explanation I have ever seen for COVID-19, The author is a Comparative Immunologist and Professor of Biology (specializing in Immunology) at the University of Massachusetts Dartmouth. I had read about everything in the article, but having it all in one place, including the illustrations is Most Excellent.
As compared with working in a grocery store for 8 hours, for example, appraisers choose their own PPE, are only in the home for a limited time, etc. If there is a serious problem, such as someone sick and coughing, they can leave. Grocery store employees cannot walk out the door and keep their jobs.
This article focuses on the current “opening up” of restrictions and helps you decide. Do you want to eat inside a local restaurant, shop at a book store, etc.?
What “hit” me was the section on members of a chorus, singing in a small room, who were affected. When you sing you regularly increase the volume and pitch of your voice, causing lots of air coming out of your lungs into the air. You learn to control your breath. I was in two vocal groups. One was large and practiced in a large classroom in a school with high ceilings. The other was small and practiced in a member’s small living home.
New (May 13) 1 hour video, Decoding COVID-19. The best video I have ever seen on COVID. Easy to understand. Fantastic animations. No politics, of course ;> To watch on your computer Google “PBS Nova, then (maybe) the name of the video. Very good!! Or, check your local PBS station to see when it is on TV. Links to other resources on the video’s page.
“Join the doctors on the front lines of the fight against COVID-19 as they strategize to stop the spread, and meet the researchers racing to develop treatments and vaccines. Along the way, discover how this devastating disease emerged, what it does to the human body, and why it exploded into a pandemic.”
OF COURSE, WE MUST ALL ASSUME THAT WE, AND EVERYONE ELSE, IS INFECTED. Even if you were tested this morning and was negative, you could be infected in the afternoon. Unfortunately, testing to see if you are have been infected and are immune is not reliable yet. Myself and lots of other people, are convinced we were infected in the past. I was very sick with a high fever, bad diarrhea and stomach pain in mid-March for a week. Maybe someday I will find out with a reliable test…
What appraisers are doing and my advice for interior inspections
What is difficult about going inside homes, is that you never know what will happen. In contrast, you can go to the local grocery store that you are most comfortable with, such as when there are fewer shoppers, number of people inside the store is limited if necessary, everyone wears masks, you know the layout and can get in and out quickly, etc.
Note: I may be the only one recommending face masks for occupants who don’t (or can’t) leave. But, you risk yourself, and your family’s heath if you don’t do this.
REMEMBER: WEARING A FACE MASK MOSTLY PROTECTS OTHER PEOPLE, NOT YOURSELF. YOU, AND YOUR FAMILY, ARE NOT SAFE IF OCCUPANTS DON’T MAINTAIN SOCIAL DISTANCE. IF THERE ARE OCCUPANTS IN THE HOME WHO WON’T OR CAN’T MOVE OUT, BE SURE TO REQUIRE FACE MASKS. BRING CLOTH FACE MASKS AND LET THEM USE THEM. Washable cloth masks are inexpensive. You can use them again.
What many appraisers are wearing:
– Face mask (MOST IMPORTANT)
– Disposable gloves
– Booties (maybe)
– Face shield (maybe)
You can easily get washable cloth masks. Disposable gloves are more available now. $25 (or less) for 100 on Amazon. Santizers are still tough to get. I use alcohol swabs. You can make up your own sanitizer using diluted bleach and paper towels.
What to tell the homeowner
– All doors Interior and exterior) and windows are open for at least 10 minutes before your arrival. Turn on all lights. Occupant must go outside. Issue: what about rain and snow, elderly people who have difficulty moving, etc. If there are occupants who are unable to move out, require a face mask or bring one for them. Note: Some appraisers are asking for inside social distancing. That can be difficult. Definitely need to have them wear masks.
– You will be arriving with mask, gloves, etc.
– You will bring washable face masks for them to use if they don’t have any, for use while you are there.
– You will measure the outside and they cannot follow or “help” you.
– You will ask or answer any questions outside (6 ft. distance) .
What heath issues to ask the homeowner about before you go
– Some appraisers ask about health issues. Of course, no one knows if they have the virus, but you can ask if anyone is sick, especially sneezing or coughing, which is very, very risky for you.
How much time in the house:
– As little as possible.
– Interview etc. outside the home with 6 ft. distance
What to do after inspection
– Glove disposal
– Sanitize vehicle and hands
– Some appraisers change clothes in garage and wash them, similar to heathcare workers.
REMEMBER: ALWAYS DISPOSE OF GLOVES. ONLY USE ONCE: Not touching anything can be hard to remember all the time. Do not use gloves at the next house as you could contaminate it. Or, disinfect the gloves if you don’t throw them away. Gloves are much easier to purchase now.
Social distancing can be difficult inside a home or in geographic areas where many do not do social distancing.
Where I live (San Francisco Bay Area), (almost) everyone wears masks and does 6 ft. distancing, so people are used to it. If you work in states or areas that are not like this, you will have to persuade them to do it.
– Occupant wants to shake hands, etc. Explain that you don’t do that anymore (or whatever you are comfortable with). During flu season, for a long time, I didn’t shake hands. I said that I am not feeling well. Not a good idea today, so they don’t call 911 ;> Give them a mask.
– Occupant gets very close and won’t step back. Give them a cloth mask. Leave if they refuse to step back or use mask. Don’t risk your, and your family’s, health.
FYI, I have difficulty remembering about social distancing myself sometimes. Recently my landscaper came over to fix my sprinklers. Got way too close when asking him questions. Hard to change the habits of a lifetime!!
FYI, the April 1 issue of the paid Appraisal Today newsletter focuses on the science side of COVID-19, such as what is a pandemic, testing (data) and pandemics (comps) in the past, etc. You can read a free copy at www.appraisaltoday.com/coronavirus . I update it when I include information in these newsletters, such as the above.
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 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 email@example.com . Or call 800-839-0227, MTW 7AM to noon, Pacific time.
Mortgage applications increased 0.3 percent from one week earlier
WASHINGTON, D.C. (May 13, 2020) – Mortgage applications increased 0.3 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending May 8, 2020.
The Market Composite Index, a measure of mortgage loan application volume, increased 0.3 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index increased 1 percent compared with the previous week. The Refinance Index decreased 3 percent from the previous week and was 201 percent higher than the same week one year ago. The seasonally adjusted Purchase Index increased 11 percent from one week earlier. The unadjusted Purchase Index increased 11 percent compared with the previous week and was 10 percent lower than the same week one year ago.
“There continues to be a stark recovery in purchase applications, as most large states saw increases in activity last week. In the ten largest states in MBA’s survey, New York – after a 9 percent gain two weeks ago – led the increases with a 14 percent jump. Illinois, Florida, Georgia, California and North Carolina also had double-digit increases last week,” said Joel Kan, MBA’s Associate Vice President of Economic and Industry Forecasting. “We expect this positive purchase trend to continue – at varying rates across the country – as states gradually loosen social distancing measures, and some of the pent-up demand for housing returns in what is typically the final weeks of the spring home buying season.”
Added Kan, “Mortgage rates stayed close to record-lows, but refinance applications decreased for the fourth consecutive week, driven by a 5 percent drop in conventional refinances. Despite the downward trend over the last month, mortgage lenders remain busy. Refinance activity was up 200 percent from a year ago.”
The refinance share of mortgage activity decreased to 67.0 percent of total applications from 70.0 percent the previous week. The adjustable-rate mortgage (ARM) share of activity decreased 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 11.1 percent the week prior. The VA share of total applications increased to 13.7 percent from 13.3 percent the week prior. The USDA share of total applications increased to 0.6 percent from 0.5 percent the week prior.
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($510,400 or less) increased to 3.43 percent from 3.40 percent, with points decreasing to 0.29 from 0.30 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans. The effective rate increased from last week.
The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $510,400) remained unchanged at 3.69 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 remained unchanged at 3.37 percent, with points increasing to 0.21 from 0.20 (including the origination fee) for 80 percent LTV loans. The effective rate remained unchanged from last week.
The average contract interest rate for 15-year fixed-rate mortgages decreased to 2.92 percent from 2.93 percent, with points decreasing to 0.28 from 0.29 (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 increased to 3.26 percent from 3.20 percent, with points decreasing to 0.04 from 0.36 (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.
NOTE: NEW POSTAL ADDRESS
Ann O’Rourke, MAI, SRA, MBA
Appraiser and Publisher Appraisal Today
1826 Clement Ave. Suite 203 Alameda, CA 94501