What’s Location Got to Do with It?
By Steven W. Vehmeier
Excerpts: We’ve all heard the old mantra that real estate is all about “location, location, location.” A perfect example of the importance of location in appraising can be found in The Villages in central Florida.
The development called “The Villages” has seventy-eight communities, each called a “village,” ranging in size from 100 to around 1,500 homes in each. In total, there are somewhere around 140,000 residents, and the home prices in these individual villages range from the low one-hundred thousand up to a couple million. In some cases, villages located near and/or adjacent to each other can vary significantly in price….
An appraiser not familiar with The Villages could easily over-or under-value a property by mixing villages. For example, let’s say the subject is a 3-bedroom, 2-bath, 2,000 square foot home with a two-car garage on a typical sized lot. It would not be hard to find hundreds of homes with similar physical characteristics nearby; however, some might be located in the “wrong” village…
Can we apply this “village” concept to other areas? Are there typically many villages or neighborhoods in and around most major cities? Do the same principles apply in comparable selection and resultant values? Of course, they do!
To read more, click here
My comments: Very interesting “case study.” Tim Andersen soon will have two articles on neighborhoods and what USPAP says in Appraisal Today monthly newsletters.
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NOTE: Please scroll down to read the other topics in this long blog post on bedrooms, bias, time adjustments, unusual homes, mortgage origination stats, etc.
11 Storybook Homes
Excerpt: They were built in the 1920s and 1930s. There’s a landmark storybook beach house in Southern California just steps from the beach, a terra-cotta and teal home in New Jersey, and an elegant secret garden storybook home in Idaho—all of which have undergone meticulous updates that don’t overwhelm their original look and feel.
To read more and see photos and info on the homes, click here
My comments: Stonehenge, in Alameda, is not on the list above. It is a Storybook development constructed in 1929. Most are smaller homes in courtyards except for a few duplexes. They are very appealing.
The photo above is one of the Alameda storybook homes. I have appraised many of them and have always wanted to live there. Alameda is an island. We don’t like changes. The older the better. We love Stonehenge! Another development in nearby Oakland has larger homes. I did not know these homes were built all over the U.S.!
To read more about Alameda and other Bay Area storybook homes, click here
Is there a development, or a single storybook home, near you? The developments “stand out” as the homes are surrounded by homes that look very different.
What is a Comparable Sale? (8-minute podcast)
By Tim Andersen, MAI
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!
Since we do not define a comparable sale, what are we appraisers to do? About the best, we can do is go with what we have. And what we have is, at best, a description. OK, a description of what? A description of the characteristics of a comparable sale. Fannie Mae, bless her bureaucratic heart, offers that description. She says a comp has the same legal, physical, and economic characteristics as the subject. Really clear, fight? NOT! But we go with what we have since we have nothing else.
To read more about this podcast and listen to it, click here
My comments: Tim is The USPAP Expert who speaks and writes a lot, plus does videos and podcasts. He also does consulting. This week I told an appraiser facing a state board complaint to contact Tim ASAP for consulting. He is very dedicated to helping appraisers.
He regularly writes articles for the monthly Appraisal Today newsletter. The appraiser offered to pay me, but I am definitely not a USPAP or state regulator expert!!Getting too many ad-only emails?
How to get more appraisals done without working longer or harder!!
- Top 10 Appraiser Time Wasters And What to do About Them By Doug Smith, SRA
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- Increase your productivity by managing your email
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Appraisal Gap Increases in “Hot” Markets
By Shawn Telford, Chief Appraiser at Corelogic
Excerpt: An appraiser’s objective is to estimate the market value of a home on a given day. Appraisers rely on recent arm’s length sales data — evidence of buyer and seller decisions — upon which to base their opinion of value.
But transactional sales data can lag; for example, a sales price may be negotiated two months before closing; meanwhile, the prices offered by buyers have continued to increase. This reality impacts the ability of appraisers to easily account or adjust for current market conditions when the market is rapidly changing.
Regardless, appraisers must include market condition adjustments in their appraisal analysis when warranted by market evidence. It is important to note that not all completed sales transactions are indicative of rational buyer behavior; appraisers must analyze the data and decide.
To read more, click here
My comment: I have seen long, sometimes heated, online discussions about dates and data for market conditions adjustments in rapidly increasing markets. Date of contract or date of sale? Getting an accurate date of the contract can be tricky. Or, using hourly, daily, weekly, or monthly data?? George Dell says to use daily data. Seems like a good idea.
How bedroom value adjustments DO NOT work
By Ryan Lundquist
Excerpt: How much is a bedroom worth? What sort of adjustments do you give when looking at two houses with a difference of one bedroom? It’s always $10,000, right? Or wait, someone else said $20,000. What’s the truth?
1) There is no standard adjustment: There isn’t a one-size-fits all bedroom adjustment. I know many of us were taught to adjust by $10,000 or $20,000 whenever we see a difference in bedroom count, but that’s just not how the market works. It sure would be easy if there was a quick adjustment to give any time we saw a difference, but the problem is canned adjustments won’t work in every price range, market, or location.
To read more analysis, click here
My comments: Worth reading. I am appraising two homes for private sales in my city. One was built in 1983 and is in our only relatively large planned community. It is a 2 bedroom/2 bath model. There were only two sales from January 2021. I have been appraising there since 1986 and knew there was a price difference between two and three bedroom homes. They were selling to the next door neighbors. Both parties were familiar with the local market. I did time adjustments on the two old sales and had a third sale of the same model with a 3rd bedroom addition, which sold for less than the model 3 bedroom/2 bath due to functional problems (access to third bedroom). I would have really liked to do a range of values as the value I used was somewhat uncertain.
In the much older main part of Alameda, the other private sale was a home inherited by 8 different family members in 2009. One of them wanted to be bought out. The subject had 3 bedrooms. I have appraised many homes in this part of Alameda that were similar in size. Some had two bedrooms, and others had 3 bedrooms. Most of the homes were built prior to 1930 as classic bungalows or Victorians. Some had two bedrooms and a large dining room, and some had no dining rooms and 3 bedrooms. They have been selling for the same price if similar in size, updating, etc. for decades.
I also had to appraise the above home for the date of death on May 25, 2009. What a difference in the markets: lots of expired etc. vs. everything sells! My assistant and I kept getting whipsawed going back and forth checking the two appraisals. Fortunately, prices were stable in May 2009. I checked appraisals I had done at that time of similar homes. I also had excellent historic price trend graphs.
I have appraised many one bedroom homes. They were all worth less than two bedroom homes. I always carefully research whether or not a second bedroom can be added, which makes a difference in value. One time I said a second bedroom could not be added as the home was too close to the property line per building regulations (fire hazard). Later, the buyers somehow got a variance and added a bedroom. I had never heard of anyone getting that type of variance in that city. Ya never know!!
Appraiser Bias Narrative
Excerpts: You’ve probably have heard what happened. An interracial couple orders a residential appraisal in Jacksonville, value comes in at $330,000 for the black wife and $465,000 for the white husband. Different appraisers, same bank, different comps, different outcome.
Do we have all the facts? No. I’m of course on the side of appraisers and fully believe this isn’t a systemic problem, but again it doesn’t matter what I think as an appraiser.
What matters is that we participate in the narrative. Will we pick up the mic?
If you’re a residential appraiser, you’re probably thinking to yourself, “I’m not bias. This issue doesn’t involve me.” If you’re a commercial appraiser, you’re probably thinking, “I’m not bias. Besides, if anything this might be a residential problem.” Regardless of how appraisers feel about the issue, it doesn’t matter.
What matters is for us to seize the opportunity to be part of the conversation. The narrative. If we don’t stand up and take the mic, others will tell our story…
Pay attention to ROV. The concern is if reconsideration of value (ROV) becomes the norm.
If the public, in general, believes that they can push back against an appraisal using the idea of bias, then we have lost control of the narrative. This applies to both residential and commercial.
To read more, click here
My comment: Very well written, with some good ideas. Worth reading for all appraisers. I have been subscribing to realwired emails for many years as I do both commercial and residential appraising. The company sells commercial appraisal software for writing reports and managing data. To subscribe to their blog, go to https://realwired.com/blog/
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. I have been following this data since 1993. 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 2.4 percent from one week earlier
Mortgage applications decreased 2.4 percent from one week earlier
WASHINGTON, D.C. (September 1, 2021) – Mortgage applications decreased 2.4 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending August 27, 2021.
The Market Composite Index, a measure of mortgage loan application volume, decreased 2.4 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index decreased 3 percent compared with the previous week. The Refinance Index decreased 4 percent from the previous week and was 2 percent higher than the same week one year ago. The seasonally adjusted Purchase Index increased 1 percent from one week earlier. The unadjusted Purchase Index decreased 2 percent compared with the previous week and was 16 percent lower than the same week one year ago.
“There was little change in mortgage rates last week, with the 30-year fixed remaining at 3.03 percent. Despite low rates, refinance applications declined, with some borrowers still waiting for rates to drop even lower. Recent uncertainty around the economy and pandemic have kept rates low over the past month, which is why the refinance index has oscillated around these levels,” said Joel Kan, MBA’s Associate Vice President of Economic and Industry Forecasting. “Even with a slight increase, purchase activity hit its highest level since early July, as applications for conventional and government loans increased. Home purchase activity continues to be dominated by higher price tiers of the market, with the purchase average loan size now at $396,500, the highest average in five weeks. According to FHFA, June’s year-over-year increase in home prices was 18.8 percent, while the second quarter saw a 17.4 percent increase overall. Both measures set new records, as housing demand continued to outpace the inventory of homes for sale.”
The refinance share of mortgage activity decreased to 66.8 percent of total applications from 67.3 percent the previous week. The adjustable-rate mortgage (ARM) share of activity increased to 3.2 percent of total applications.
The FHA share of total applications increased to 11.2 percent from 11.0 percent the week prior. The VA share of total applications decreased to 9.7 percent from 10.0 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 ($548,250 or less) remained unchanged at 3.03 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 increased from last week.
The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $548,250) remained unchanged at 3.13 percent, with points remaining unchanged at 0.26 (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 decreased to 3.09 percent from 3.10 percent, with points decreasing to 0.25 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 15-year fixed-rate mortgages increased to 2.39 percent from 2.38 percent, with points increasing to 0.30 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 5/1 ARMs increased to 2.80 percent from 2.68 percent, with points decreasing to 0.13 from 0.24 (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