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Choosing comps in a lopsided market
By Ryan Lundquist
Excerpt: QUESTION: With so many listings receiving offers above list, and people having to pay the shortfall between the appraised value and the contract price, how do appraisers look at comps? If a property sold at $580,000, but it actually appraised for $547,000, and the buyer paid the difference, which number do you use? $580,000 or $547,000?
ANSWER: Here are a few things on my mind.
1) Weigh the comps:
In any market (not just today), we have to weigh the comps. Or another way to say it is, we have to appraise the comps so to speak. What I mean is if something clearly sells for too much, it’s reasonable to give that property less weight in our analysis. Likewise, if a property sells for too little, we might also give less weight to that sale. Granted, selling for too little isn’t as common lately, but in past markets we regularly considered whether short sales or bank-owned sales sold below market value.
2) One sale doesn’t make or break the market:
It’s important to note one sale doesn’t make or break the market. This means one lofty “lone ranger” sale doesn’t all of a sudden mean the rest of the market will go to that level. This would be like saying that record-breaking $7M sale in Shingle Springs from August will pull the rest of the market up. Nah, I don’t think so. Or Zillow buying a house for $40,000 more than the comps will cause the rest of the market to rise. Nope. If one sale closes at $580,000, but the rest of the market is below $550,000, we won’t arbitrarily accept $580,000 as the new neighborhood price threshold. The same would hold true if a different house sold at $450,000. This one “low ranger” (sorry) won’t automatically drag the rest of the market down.
To read more plus lots of comments, click here
My comment: Some good comments and tips for this crazee market!!
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To read more of this long blog post with many topics, click Read More Below!!
NOTE: Please scroll down to read the other topics in this long blog post on unusual homes, surplus vs. excess land, ANSI, USPAP, Liability, mortgage origination stats, etc.
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Futuristic Palm Springs Home
Excerpt: Designed by the architecture firm Jersey Devil, the 2,596-square-foot home (on 3.44 acres) has a ramada trellis that connects two buildings via a courtyard and functions something like a parasol.
Jordan says the architects, who had already built homes for the Nortons in La Honda, CA, and Baja California in Mexico, camped on-site in an Airstream to study the land.
The southern half of the home features a primary suite, the main living area, kitchen, and a den/office. On the northern side are two en suite bedrooms and a smaller kitchen. The property also includes a two-car garage and a 75-foot outdoor lap pool.
To read more and see lots of photos, click here
My comment: I wonder what ANSI would say about this ;>
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Excess Land vs Surplus Land, What’s The Difference?
By Tom Horn
Excerpt: An example of Excess Land would be an adjacent vacant parcel that fronts a roadway and has easy access to the lot from the road.
On the other hand, Surplus Land is not needed to serve or support the existing improvement, however, it cannot be separated and sold off. Surplus Land does not have a different highest and best use and it may or may not contribute to the value of the overall parcel.
Surplus Land An example of Surplus Land (see above image) would be a home situated on a larger than typical parcel with no direct access other than traveling over the main parcel. The home or other improvements may be situated on the site such that no division of the property is possible without negatively affecting the functional and legal use of the property.
To read more, click here
My comments: Very good images plus explanations. There is much confusion on this topic. Depending on where you are appraising, you may see it a lot, or not much. When I worked in rural areas, it was common. In cities, not much, making it easy to make a big mistake on an appraisal!
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In the February Issue of Appraisal Today:
Brief Excerpt
Differences between ANSI and USPAP
We are all familiar with USPAP. As I was writing about ANSI, I kept thinking about how they are different.
- Document price: ANSI Price $25 when updated vs.USPAP book that must be purchased every two years.
- When developed: ANSI 1996 vs. USPAP 1994 (using standards from professional appraiser organizations, established in the 1930s.)
- Document changes: ANSI every 5 years minimum vs. USPAP every two years.
- Required class: ANSI none. USPAP is Required every two years.
- Length: ANSI 16 pages (3 pages of standards) vs. USPAP hundreds of pages
- Who decides what changes: ANSI small committee with different types of members (appraisers are a minority) vs. Appraisal Foundation (TAF) selects the appraisers to be on the ASB.
- Organized and run by: ANSI Home Innovations (NAHB subsidiary) vs. TAF
- Enforcement: ANSI None – voluntary vs. USPAP: State and Federal regulators
- Funding: ANSI has been funded by NAHB since its initial development. vs. appraisers funding TAF
To read more about ANSI, plus 2+ years of previous issues, subscribe to the paid Appraisal Today.
If this article helped you understand ANSI and not have too many AMC/lender hassles, it is worth the subscription price!
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If you have any comments or info on any topics, please hit the reply button!! I’m always looking for something new ;>
If you are a paid subscriber and did not get the February 2022 issue, emailed on February 1, 2022, please send an email to info@appraisaltoday.com and we will send it to you!! Or, hit the reply button. Be sure to put in a comment requesting it.
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USPAP Says Support Everything!
By Tim Andersen, MAI – 9 minute podcast
Excerpt: USPAP says support everything! That’s really great advice, but is it practical? Appraisers have only so much time and money to do an appraisal. That report must get out the door quickly and timely! So, is there really time to explain and support everything? Let’s put it this way: there probably is not. But try selling that to your state appraisal board! You won’t. Your budget and turn-around time limitations are irrelevant.
There’s a reason USPAP says support everything. With support, your value conclusion is accurate, reliable, reproducible, and credible. USPAP demands the appraisal conclusion(s) be credible. Our friends the GSEs, et al, demand accuracy, reliability, and reproducibility. We appraiser can give them both. Yes, it takes more effort, more organization, and more planning. But remember that defending yourself against a formal state charge will cost a lot more than whatever your appraisal fee was.
To read more and listen to the podcast click here
My comment: As usual, Tim has excellent advice on Keeping Out of Trouble!! His mission is to help appraisers understand USPAP and produce better reports. I subscribe to Tim’s Most Excellent Podcasts.
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ANSI: I’ll Tell You What You Can Do with This ANSI Stuff!
by Richard Hagar, SRA
Excerpt: Assessor’s Square Feet
Here’s something I hear all of the time: “Why not use what the assessor indicates at least that way the subject and comparables are using the same system?” Well yes, no and maybe. Not even county tax assessors have a single uniform method for obtaining square footage. Some tax departments use:
- SF supplied by the builder on a permit application form,
- SF supplied by the floor plan when it was submitted for permits,
- SF based on aerial photographs (which usually includes the overhanging roof line making the house larger than reality).
- SF taken from the homeowner when they turn in a professional appraisal as part of a tax dispute.
- Physical measurements by a tax assessor.
And, In Montana (as well as a few other states) many of the homes are built without building permits. The assessor, once they determine that a house even exists, stands on the nearest public road and uses a laser to pinpoint the corners and estimate the SF. There’s no opportunity for them to determine the space of large-vaulted areas in an entryway.
For the most part there’s not even a standardized method within the same assessor’s department.
To read more, click here
My comments: Excellent article, well written. Read it. I am now using tenths of a foot plus 5 ft. on sloped ceilings. I should have started disclosing how I measured houses 35 years ago, when I started my fee business! In California, because of Propostion 13, effective 1979, properties are re-appraised on transfer of ownership and new construction. The data gets older and older and more out of date. Permits often trigger a re-appraisal, so some homeowners don’t get permits.
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For lots of links and info, go to my ANSI Z765-2021 Resources Web Page at www.appraisaltoday.com/ANSI
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“Trailer Park” with 25 Train Car Homes in Jacksonville, Florida
Take a break and see this fun video!!
The two-bedroom, 880 sq.ft. train car, sold for $285,000 last November. But you’ll still want to see inside this unusual property built specifically for partying. The homes are on short railroad tracks.
To watch the fun video with interior and aerial views, click here
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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 info@appraisaltoday.com . Or call 800-839-0227, MTW 7AM to noon, Pacific time.
My comments: Rates going up. Make money while the mortgage market is hot!!
Mortgage applications decreased 8.1 percent from one week earlier
WASHINGTON, D.C. (February 9, 2022) – Mortgage applications decreased 8.1 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending February 4, 2022.
The Market Composite Index, a measure of mortgage loan application volume, decreased 8.1 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index decreased 6 percent compared with the previous week. The Refinance Index decreased 7 percent from the previous week and was 52 percent lower than the same week one year ago. The seasonally adjusted Purchase Index decreased 10 percent from one week earlier. The unadjusted Purchase Index decreased 3 percent compared with the previous week and was 12 percent lower than the same week one year ago.
“Mortgage rates continued to edge higher last week, with the 30-year fixed rate climbing to 3.83 percent. Rates followed the U.S. 10-year yield and other sovereign bonds as the Federal Reserve and other key global central banks responded to growing inflationary pressures and signaled that they will start to remove accommodative policies. With rates 87 basis points higher than the same week a year ago, refinance applications continued to decrease,” said Joel Kan, MBA’s Associate Vice President of Economic and Industry Forecasting. “Purchase activity slowed after the previous week’s gain. Both conventional and FHA purchase applications saw proportional declines, resulting in purchase activity overall dropping 10 percent. The average loan size again hit another record high at $446,000. Activity continues to be dominated by larger loan balances, as inventory remains tight for entry-level buyers.”
The refinance share of mortgage activity decreased to 56.2 percent of total applications from 57.3 percent the previous week. The adjustable-rate mortgage (ARM) share of activity remained unchanged at 4.5 percent of total applications.
The FHA share of total applications increased to 8.0 percent from 7.7 percent the week prior. The VA share of total applications increased to 10.0 percent from 9.1 percent the week prior. The USDA share of total applications remained unchanged at 0.4 percent from the week prior. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($647,200 or less) increased to 3.83 percent from 3.78 percent, with points decreasing to 0.40 from 0.41 (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 $647,200) increased to 3.62 percent from 3.59 percent, with points increasing to 0.35 from 0.31 (including the origination fee) for 80 percent LTV loans. The effective rate increased from last week.
The average contract interest rate for 30-year fixed-rate mortgages backed by the FHA increased to 3.93 percent from 3.86 percent, with points decreasing to 0.54 from 0.55 (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 increased to 3.16 percent from 3.01 percent, with points increasing to 0.47 from 0.41 (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 3.13 percent from 3.09 percent, with points unchanged at 0.35 (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.
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Ann O’Rourke, MAI, SRA, MBA
Appraiser and Publisher Appraisal Today
1826 Clement Ave. Suite 203 Alameda, CA 94501
Phone 510-865-8041
Email ann@appraisaltoday.com
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