What AMCs say to appraisers and How to Respond
By Steven W. Vehmeier
Excerpts: A student contacted me with the following dilemma concerning an Appraisal Management Company (AMC) request: “I told the Management Company that I cannot mark the Zoning Compliance as ‘Legal’ if the report is marked “as-is,” because this would not be true for the current “as-is” condition of the subject on the effective date of the appraisal. The AMC insists that as long as I disclose in the addendum that the zoning is currently ‘illegal,’ then I can mark on the first page as ‘Legal.’”
Taking the matter to the source can be accomplished by: 1) personal research of the appropriate documents, which is sometimes faster, or 2) emailing the controlling entity for their official answer. Notice I didn’t say to phone them. I want the answer in writing to pass on to the client/AMC.
To read more, click here
My comment: Some Most Excellent and practical tips!! My bottom-line advice: Fire the AMC! We all know there is always another AMC that is desperate for appraisers today. Now is a good time to shop for one that is easy to work for. You could check in appraisal online groups to see what they say. If they are not competitors, hopefully, you can get some good ideas. Be sure to post your location.
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NOTE: Please scroll down to read the other topics in this long blog post on unusual homes, FHA, Fannie, E&O, liability, time adjustments, price per sq.ft. mortgage origination stats, etc.
Fannie: Clarification on age of appraisals
Excerpt: We’ve issued a clarification (July 7, 2021 Selling Guide update) on the age of appraisals and appraisal update requirements that we thought you’d like to know about.
When an appraisal is obtained, the property must be appraised within the 12 months that precede the date of the note and mortgage.
With this update, we clarified that the age of the appraisal is based on the effective date of the appraisal report, the appraisal is valid for up to four months, and can be used up to 12 months if the value of the property has not declined, among other requirements.
However, when the effective date of the original appraisal report is more than 12 months from the date of the note and mortgage (with or without an appraisal update), a new appraisal is required.
An exception is made for single-closing construction-to-permanent transactions (view policy).
In Case you Missed It!
Meet Marcus, an energetic real estate appraiser trainee and Appraiser Diversity Initiative (ADI) scholarship awardee, as he discusses how his ADI advisors and supervisor appraiser are helping him on his path to success in this video.
FHA Announces Revisions to Property and Appraisal Quality Control Review Requirements June 30, 2021
Excerpts from Mortgagee Letter 2021-17
Handbook 4000.1 Section V.A.3.c.ii(C)(1)(b) requires Mortgagees to perform appraisal field reviews on all Early Payment Defaults (EPDs). This Mortgagee Letter decreases the appraisal field review requirement for EPDs from 100 percent to 10 percent and reinforces appraisal field review requirements for discretionary targeting and other specific risk factors. It also clarifies property and appraisal review guidelines for all Mortgages selected as part of a Mortgagee’s origination and underwriting QC sample to emphasize that QC reviews must evaluate all information used to support the property value and eligibility for FHA insurance.
In recognition of the unique challenges posed by the COVID-19 National Emergency, FHA issued a temporary partial waiver of existing field review requirements in June 2020, which provided Mortgagees with flexibility to use third-party valuation tools as an alternative to field reviews. A subsequent waiver was issued in December 2020, which extended the field review flexibility until further notice. This Mortgagee Letter serves as notice that the temporary waiver will expire on June 30, 2021, remaining in effect for Mortgages selected for QC review through June 30, 2021.
Link to Mortgagee Letter 2021-17 (Appraisal related comments are highlighted in yellow. Scroll down the page)
Link to emailed notice of changes (copied above)
My comment: If you do FHA appraisals, check the Letter to see what is relevant for you.
2021 E&O Insurance Update – Where to Get E&O insurance, Most frequent claims, etc.
Excerpt: Be sure to check your policy exclusions
Make sure your policy covers the work you do. For example, does it cover you for expert witness work? What about reviewing appraisals?
Before renewing or changing insurers be sure to carefully check the exclusions. All policies have exclusions. What is excluded and what you can get for an additional fee. Exclusions have been increasing. Risky exclusions include claims for financial damage and prior acts.
Some companies exclude the typical new construction, vacant land, etc. Ask for a sample policy and carefully check the policy exclusions before renewing or changing companies. You could also have your business attorney review your policy. Other types of exclusions are claims based on discrimination, pollutants, mold, or waste.
Per Claudia Gaglione, Esq., “Sometimes the policy language is hard to understand, but you need to make sure that the sort of work you do is not excluded from coverage. If you can’t understand the policy language, then call the broker. If they can’t explain things to you: that is a problem.”
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Valuing Land When There Are Few or No Vacant Land Sales
by Philip G. Spool, ASA
Excerpts: Why value the land when appraising a property? There are two reasons why you would need to value the property site (land) in an appraisal report. A very important reason is to determine the highest and best use of the property. If the value of the land is equal or greater than the property with the existing improvements (utilizing the Sales Comparison Approach and/or the Income Capitalization Approach), then the highest and best use of the property would be to either demolish the existing improvements and construct a building consistent with the immediate area or to consider the existing improvements as an interim use.
In conclusion, the next time you explain how you arrived at your site value in your appraisal report and you state that you utilized the Extraction or Abstraction Method, be sure you use the correct procedure in addition to having your support in your workfile. Or better yet, have it indicated in detail within the text addendum of your appraisal report.
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My comments: He left off my favorite – The Subtraction Method! Sales Comparison Value less depreciated cost. In the Bay Area, land to value ratios has been very, very high for decades. I remember when lenders did not like anything over 30%. There have been no residential lot sales in my town for decades. Older fully developed nearby cities have the same problem. Or a any land sales are in poor locations. No new construction. When required, such as for HBU or proposed new construction, I have used some of the methods above. I charge much higher fees.
How do you time adjust?
By George Dell, MAI
Excerpts: Before we continue, it is important to note that a time adjustment comprises two main elements: 1) the change in the value of the dollar; and 2) the movement of the subject in its specific market segment.
I was able to sort adjustment methods by data source used (mostly compiled, published reports) and by the analytic used (which ranged from “do nothing” to market-specific algorithms). Here is the list:
Ignore it means no time adjustment, but find one sale above what you need to make the deal.
Zero means “it’s too hard to support,” so just use the most recent comps. (This is the fallacy of insufficient reason, which says pretend it is a level market, even though you know it is not level.)
National CPI (consumer price index) handles the “value of the dollar” part but ignores the subject market price changes. This seems more clever and makes the bracketing-fudging a bit easier.
To read the other methods, click here
My comments: Worth reading A comprehensive list from the easiest and least reliable, to the most difficult and most reliable. Something for everyone!! I’m trying not to think about all the appraisers who make no time adjustments even when local newspapers talk about big price increases. Yes, sometimes there is no time adjustment in a market segment, but you should state the support.
6 Reasons You Should Not Be Using Price Per Square Foot To Price Your Listings
By Tom Horn
4) Not all areas should be included in the gross living area – If you are including questionable areas in the gross living area of the home and then multiply that by the price per square foot, your value estimate will not reflect an accurate indication of value.
5) The law of diminishing returns – If you use price per square foot and are not aware of the law of diminishing returns, then you can make a huge mistake in pricing. The law of diminishing returns states that with everything else being the same (such as quality, condition, size, and features), a larger property will sell for less per square foot. The added value for each additional square foot will continue to decline.
To read more, click here
My comment: Written for agents but some good ideas for appraisers. Of course, some residential appraisal forms calculate the price per sq.ft.. on the grids. I delete the calculations on my appraisals. Even worse is automatically calculating the weighted average of the comps!! I have no idea who decided to include it and how it is calculated.
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 1.8 percent from one week earlier
WASHINGTON, D.C. (July 7, 2021) – Mortgage applications decreased 1.8 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending July 2, 2021.
The Market Composite Index, a measure of mortgage loan application volume, decreased 1.8 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 2 percent from the previous week and was 8 percent lower than the same week one year ago. The seasonally adjusted Purchase Index decreased 1 percent from one week earlier. The unadjusted Purchase Index decreased 1 percent compared with the previous week and was 14 percent lower than the same week one year ago.
“Mortgage application activity fell for the second week in a row, reaching the lowest level since the beginning of 2020. Even as mortgage rates declined, with the 30-year fixed rate dropping 5 basis points to 3.15 percent, both purchase and refinance applications decreased,” said Joel Kan, MBA’s Associate Vice President of Economic and Industry Forecasting. “Treasury yields have been volatile despite mostly positive economic news, including last week’s June jobs report, which showed ongoing improvements in the labor market. However, rates continued to move lower – especially late in the week. The 30-year fixed rate was 11 basis points lower than the same week a year ago, but many borrowers previously refinanced at even lower rates. Refinance applications have trended lower than 2020 levels for the past four months.”
Added Kan, “Swift home-price growth across much of the country, driven by insufficient housing supply, is weighing on the purchase market and is pushing average loan amounts higher.”
The refinance share of mortgage activity decreased to 61.6 percent of total applications from 61.9 percent the previous week. The adjustable-rate mortgage (ARM) share of activity decreased to 3.3 percent of total applications.
The FHA share of total applications increased to 9.8 percent from 9.5 percent the week prior. The VA share of total applications increased to 10.8 percent from 10.5 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) decreased to 3.15 percent from 3.20 percent, with points decreasing to 0.38 from 0.39 (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 $548,250) decreased to 3.20 percent from 3.23 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 30-year fixed-rate mortgages backed by the FHA decreased to 3.17 percent from 3.19 percent, with points decreasing to 0.32 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 15-year fixed-rate mortgages decreased to 2.52 percent from 2.56 percent, with points decreasing to 0.23 from 0.37 (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 2.94 percent from 2.98 percent, with points increasing to 0.34 from 0.23 (including the origination fee) for 80 percent LTV loans. The effective rate remained unchanged 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