Watch out for drainage problems when doing your appraisals!!
When I first heard about the collapse of the Florida condo tower, I immediately thought about a drainage problem. Previous engineering reports revealed the problems – pool leaks, water not draining properly, etc. The condo building was constructed before building codes were changed to help avoid their problem. No one knows why the building started collapsing. Drainage Problems Can Damage Foundations
Limestone is under all of Florida. In parts of South Florida, the porous limestone is not good for foundations as there is less soil covering the limestone. I have seen many videos of saltwater intrusion flooding streets. The water came up through the limestone, caused by sea-level rise.
I always check for any drainage problems at homes. They are relatively easy to spot and can cause significant damage. I appraise many hillside homes, which can easily have problems. I look at where the gutter water drains and how it is moved away from the foundation. Sloping floors are another indication of possible foundation problems.
When I go into an unfinished basement, I look for water problems. One good indication is that everything is raised from the floor. Also, water stains on the lower part of the concrete. The water is coming through the foundation. A sump pump can help.
Properties I have appraised with obvious drainage problems:
– 2 story home on a hillside. Saw radiating cracks inside on both floors in the same corner. At the corner outside of the home was a small round drainage catchment about 1 ft. in diameter, without a way to drain it away from the house. The water came through the rear of the foundation because there was no drainage system.
– Home on a hillside that was moving down the hill. Standing water under the house. Unlevel floors. Big foundation cracks. Known area of problems. Relocation appraisal with two appraisers. The other appraiser did not mention anything.
Note: A good fix for hillside homes is a “french drain” in the ground that takes the water to the sides of the home, with plastic pipe to keep the water from the sides of the foundation.
– Duplex I own on a mostly level site. Tenants mentioned water coming inside the garage on one side. They had moved everything near that side of the garage off the floor. Both units were on level ground with raised foundations. The front garage was on a slight downslope. I replaced the gutters and drains so the water drained away from the foundation. I regularly check for any problems during the winter rains. No foundation damage, fortunately.
To read an excellent article on how and why concrete fails, Click here.
Modern concrete lifespan is roughly 50-100 years. The Florida condo building is 40 years old. “Concrete is poured around steel rebar, which gives it tensile strength. But tiny cracks — found in all concrete — cause water to start rusting the steel, which then expands, cracking the concrete.”
“Photos of the Surfside basement taken before the collapse show steel rebar breaking all the way through the concrete to the point at which it is fully exposed to the salty and humid Florida air.”
We definitely have a significant infrastructure problem. Replacing concrete is very expensive: building foundations, bridges, freeways, etc.
I have watched several documentaries about what happens if there are no humans to maintain buildings, roads, bridges, etc. The roofs fail first, and water comes inside. Concrete and steel are damaged by water. Roads break down. Bridges collapse. When doing appraisals, I always tell the owners to be sure their roof does not leak. When they see stains in the ceilings, the roof has already started leaking.
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NOTE: Please scroll down to read the other topics in this long blog post on unusual homes, depreciation, vacations, state regulators, what is a comp, mortgage origination stats, etc.
What is a comparable sale?
By Tim Andersen, MAI
Excerpts: In real estate appraisal, there is no standard definition of a comparable sale. There is no formal definition in the literature. Nobody has a practical definition, either. USPAP does not have one. Fannie Mae just assumes we all know what one is. But we don’t have a standard definition. That does not make sense, does it? So, what do we do? Do we invent our own definition? It is not that easy!
You know what’s silly? There is no definition of a comparable sale, but all the AMCs know when you picked the wrong ones! And do you know what’s even more interesting? The comps you should have chosen just happen to make the deal work! No conflict of interest, no subjectivity there, right! Yep, the appraiser is always wrong, and the AMC is always right! Yes, the AMCs always choose the correct comps despite the fact that there is no formal definition of a comparable sale!
But doesn’t Fannie Mae give the appraiser the discretion and choice to select a comparable sale? Yes, she does! This responsibility falls on the appraiser’s shoulders, not the AMC’s.
To read more and listen to the podcast, click here
My comments: Tim Andersen is definitely a USPAP Expert who teaches and writes about USPAP. He consults with appraisers to help them do better appraisals or what to do when they have a state board complaint. He is a regular contributor to the Monthly Appraisal Today newsletter. He will have an article in the August issue.
How Depreciation Works
By Jamie Owen
<< Will buyers pay less for a home on a busy street? Maybe yes, maybe no.
Excerpt: The causes of depreciation can change for many reasons. For instance, changes in market conditions may impact the rate of depreciation. There are times when the people are not paying less for a home with a seemingly negative external influence when in the past, they were. For instance, in the current market, in some neighborhoods, I have noticed that some homes located on busy streets are not selling for any less than comparable homes located on streets that do not experience heavy traffic. Why?
There is such a shortage of housing inventory right now that buyers really don’t care about this type of external influence at times, at least in my market. When this is the case, a home may not be suffering depreciation from this external influence due to this location not currently causing a loss in value.
To read more and see a fun video at the bottom, click here
My comment: A comprehensive post on depreciation with some useful comments and analysis. Well done. Jamie always has some fun stuff. This time, at the bottom, a video on exotic places to dream about a vacation!!Getting too many ad-only emails?
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Limiting Liability to Third Parties
By Claudia Gaglione, Esq., National Counsel for Liability Insurance
Excerpts (from the July 2021 newsletter): Appraisers have to realize that they are far more likely to see a claim made by a third party than a claim from a client. Since 2019, over 90% of all lawsuits, claims, demands, and complaints filed with state licensing boards came from third parties.
It is extremely helpful to restate the obvious when it comes to intended use and intended user. It does not matter that certain items are addressed in the standard form language attached to every appraisal. Judges will sometimes dismiss the printed words as being “generic” or “boilerplate.” They cannot dismiss specifically drafted language.
Some effective language we have seen recently includes:
“The only intended user of this appraisal is the client ________. There is no other intended user. No purchaser, seller, or borrower are intended users of this report. No party, other than the intended user, should rely upon this appraisal for any purpose, whatsoever. The fact that some party, other than the client, paid for the appraisal, either directly, or indirectly, does not make them an intended user.”
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Taking Some Time Off
By Shannon Slater
Excerpt: It is good for our physical and mental health to take breaks. We do ourselves and our clients a favor when we are able to work at our best, both mentally and physically. Working long and crazy hours can wear on us, and our minds begin to lose the sharpness we need to do good work.
Just as the markets get unbalanced and out of kilter, so does our work-life balance. It is essential to take breaks. We will not be at our best when we are not physically and mentally up to speed.
To read more, click here
My comments: Doug Smith will have an article on taking vacations in the August issue of the monthly Appraisal Today, focusing on the business issues in taking a vacation. I can’t remember the last time I never worked on the weekend, even for only a few hours. I am taking a 3-day vacation over the July 4 weekend. No checking email or phone calls etc., or working on appraisals!!
California State Workers Traveled While Appraisers Banked General Fund
By Jeremy Bagott, MAI
Excerpts: I recently revisited events that led to draconian fee hikes on licensed appraisers in California. Licensees deserve better. This agency’s malfeasance has led to artificial scarcity and the slow destruction of an important check on lending in the state.
The state’s April 26, 2019, Regulatory Notice Register describes how a nearly $20 million surplus – money overcharged appraisers in license issuance and renewal fees – was raided by the state’s general fund in a forced loan. During the multiyear repayment period, the state’s Bureau of Real Estate Appraisers, by its own account, then spent the repaid principal and interest on non-critical travel and redundant salaried positions.
This surplus should have been rebated to licensees in the following two fiscal years pursuant to Article XIII B of the California Constitution. Instead, the money simply disappeared.
To read lots more, click here
My comments: Bagott is the only Appraisal Investigative Reporter and a full-time commercial appraiser!! His 2019 book “Dispatches-Cosmic-Cobra-Breeding-Farm” was a well-researched, comprehensive analysis of problems with the Appraisal Foundation available on Amazon. I assume he is compelled to research and write about controversial appraisal issues. I was compelled to do my Covid writing for a year but quit writing the day I was vaccinated on March 5. I did not have much to write about. Everyone just has to decide if they want to get vaccinated or not. Jeremy is very dedicated.
$400,000 Castle in Indiana
Excerpt: From the outside, it resembles all things we’d expect to see in a castle: It’s a walled structure with the exterior of a fortress and a concrete courtyard. But upon further review, it’s really just a run-down and cluttered project in desperate need… It’s the sort of place you can’t help but click on when it’s shared online.
2,736 sq.ft. 2 BR, 2.5 BA, 5 stories with a 10 car garage. 7.91 acres.
To read more and see lots of fotos, click here
My comments: Sorry, it is “off market”. I have never seen anything like this in the U.S.!! Let me know if you have seen any.
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 firstname.lastname@example.org . Or call 800-839-0227, MTW 7 AM to noon, Pacific time.
Mortgage applications decreased 6.9 percent from one week earlier
WASHINGTON, D.C. (June 30, 2021) – Mortgage applications decreased 6.9 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending June 25, 2021.
The Market Composite Index, a measure of mortgage loan application volume, decreased 6.9 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index decreased 7 percent compared with the previous week. The Refinance Index decreased 8 percent from the previous week and was 15 percent lower than the same week one year ago. The seasonally adjusted Purchase Index decreased 5 percent from one week earlier. The unadjusted Purchase Index decreased 6 percent compared with the previous week and was 17 percent lower than the same week one year ago.
“Mortgage application volume fell to the lowest level in almost a year and a half, with declines in both refinance and purchase applications. Mortgage rates were volatile last week, as investors tried to gauge upcoming moves by the Federal Reserve amidst several divergent signals, including rising inflation, mixed job market data, strong consumer spending, and a supply-constrained housing market that has led to rapid home-price growth,” said Mike Fratantoni, MBA’s Senior Vice President and Chief Economist. “Purchase applications for conventional loans declined last week to the lowest level since last May. The average loan size for total purchase applications increased, indicating that first-time homebuyers, who typically get smaller loans, are likely getting squeezed out of the market due to the lack of entry-level homes for sale.”
The refinance share of mortgage activity decreased to 61.9 percent of total applications from 62.5 percent the previous week. The adjustable-rate mortgage (ARM) share of activity decreased to 3.6 percent of total applications.
The FHA share of total applications remained unchanged from 9.5 percent the week prior. The VA share of total applications decreased to 10.5 percent from 11.2 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 ($548,250 or less) increased to 3.20 percent from 3.18 percent, with points decreasing to 0.39 from 0.48 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans. The effective rate remained unchanged from last week.
The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $548,250) decreased to 3.23 percent from 3.26 percent, with points decreasing to 0.33 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 30-year fixed-rate mortgages backed by the FHA decreased to 3.19 percent from 3.21 percent, with points remaining unchanged at 0.34 (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 2.56 percent from 2.58 percent, with points decreasing to 0.37 from 0.39 (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 2.98 percent from 2.69 percent, with points decreasing to 0.23 from 0.26 (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.
Ann O’Rourke, MAI, SRA, MBA
Appraiser and Publisher Appraisal Today
1826 Clement Ave. Suite 203 Alameda, CA 94501