Residential Appraisals and Airbnb Income?

By Julie Friess, SRA, AI-RRS, MA

Don’t get caught like a deer in the headlights! State appraisal boards ARE disciplining appraisers across the country for improperly using the business income (Short term Rental – STR) from Airbnbs on the residential 1007 Fannie Mae form.

Lenders and AMCs want residential appraisers to value these properties as both the real estate and the business values of these properties – Wrong!!


Some of the topics:

• USPAP issues

• GRM is an Income Approach that applies to homes with long long-term tenants, not homes with many Short Term Rentals.

• Functional Obsolescence

• External Obsolescence

• Covid-19 Pandemic and Airbnb’s

The photo below has an exterior entrance to a bedroom, typical for an Airbnb remodeling.

To read more, click here

My comments: This mainly applies to cities where many homes are being converted to Airbnbs, including exterior doors for bedrooms (see foto below) and expanding the number of bedrooms. In popular vacation areas, such as Sedona, AZ, where Julie lives, investors purchase homes and do extensive remodels to turn them into Airbnbs with Airbnb management companies handling everything for them (clean up, new furnishing, and renting).

Julie does not include short-term rental income (STR) in her appraisals of homes with Airbnbs. I posted her article on my website so that everyone can read it. I have a few of my comments, of course!! I’m a commercial appraiser and know how hotels and Bed and Breakfasts are appraised. The appraisals include separate values for real estate, fixtures, and Going Concern (business income and expenses).

Julie speaks about this topic regularly on our weekly Clubhouse meetup, Real Estate Appraisal Questions, every Thursday at 2 PM Pacific Time (audio-only social media). All the sessions are recorded. The May 12, 2022 session was “Residential 1004/1007 Form Appraising & AirBnB Income”.

Appraisal Business Tips 

Humor for Appraisers

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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 real estate market changing, appraisal bias research, unusual homes, mortgage origination stats, etc.


By Ryan Lundquist

Excerpts: The housing market sizzle has faded and we’ve entered a different season. We’ve basically said goodbye to the most aggressive housing market ever, and we’re in a new market now. Granted, the housing trend still feels elevated from normal, so it’s an error to call this market cold. Yet there is no mistaking a different temperature today compared to a few months ago.

10 Things on my mind about Today’s Market

1) The pandemic rush looks to be subsiding:

There was a large spike in the size of homes being purchased over the past couple of years. We’ve seen more luxury properties sell (larger homes) and buyers at higher price points (larger homes) have been taking advantage of being able to work from home. Well, that looks to be moderating as we get back to a normal size. We still need a few months of data, so I’m a bit tentative in my announcement here. But for now, it looks like we’re starting to see more normalcy in size, which suggests the mad rush to the market has subsided.

2) The trend feels uneven:

Some properties are getting lots of offers and others aren’t, and some price ranges are more competitive. Most of all, we’re seeing buyers become more sensitive to price, location, and condition since affordability has taken such a beating lately. My sense is properties at lower price points are experiencing more competition (not a shocker), but homes at any price level that check all the boxes are tending to be ultra-competitive too. Sellers, it’s time to listen.

To read 8 More topics, click here

My comments: Worth reading. What is happening in your market? Mine is similar to Ryan’s market. If I knew when markets peaked I would be very famous and rich ;> No one knows. But, we all MUST keep track of trends so we know ASAP after prices start declining. I don’t think that agents, appraisers, and buyers like this crazy market. Good time to sell, but hard to buy. Sellers could sell and relocate to an area with much lower home prices, which a friend of mine recently did.


Pierre Cardin’s Retro-Futuristic Bubble Palace in Cannes

Excerpts: The 13,000-square-foot Le Palais Bulles is embedded into a cliff near Cannes. The 2.1-acre property is spread out across six levels and includes gardens and three pools.

Cardin was the second owner of the property comprising a 13,000-square-foot luxury home with 29 rooms, a 500-seat open-air amphitheater overlooking the Mediterranean, a reception hall, and other amenities housed within a series of interconnected domes that inspired its name.

The cave-like domes were built from reinforced wire mesh spray-coated with a concrete mix.

To read more and see lots of photos, click here

My comment: Great photos inside and outside. Plus a short video on the renovation.


Appraisal Today 30th Anniversary – June 2022

What a Wild Ride it Has Been!!


The past: Significant changes in 80s and 90s

• Computers – 1981: first IBM PC, 1993: first digital cameras, 1996: Windows replaces DOS

• Internet – 1993: first usable web browser (Mosaic), 1995: some

appraiser live chats on AOL and Compuserve and limited use of

Internet, 1998 I started my first website.

• Mortgage Lenders – 1989: FIREEA and appraiser licensing, 2009: HVCC and AMCs took over

• Appraisal forms – Early 1980s: first forms software, 1987: First


• EDI to UAD – 1994: EDI maybe, 2011: UAD

The O’Rourke forecast

Residential appraisal forms

The new online form, scheduled for 2024, will transform lender

appraisal reporting. Because it is online, the form is flexible and easily changed. Hopefully, it won’t stay the same as long as the 2005 URAR.

ANSI Z765 changes

ANSI will expand and change over time to reflect what appraisers need. FHA and VA will require ANSI. More MLSs will require, or strongly encourage, the use of ANSI. The square footage and building sketch will be done using smartphones, which will become much more accurate.

Changing to ANSI for assessors would be very difficult, as all the homes need to be done, a massive task. Public records will not be the primary source for GLA in many MLSs.

To read more about the past, the present, and the future, plus 2+ years of previous issues, subscribe to the paid Appraisal Today.

If this article helped you learn more this topic and many more appraisal articles, it is worth the subscription price!!


Excerpts: The hardest time to appraise is in a Changing Market. But how do we know if or when a market changed? Having a Knowing is different than having a Belief. It is an active process that only individuals can achieve for themselves, not something we get the way we get Beliefs.

Appraisal sins are forgiven when the markets are strong, and prices are increasing at double digit rates as they have been. Once prices stop going up, deficiencies often are given a harder look. I call this the Time of Ripeness, but what does that mean?

Ripeness is a legal term I learned from an Environmental Law course which means, a time to act after other remedies have been exhausted, although it is used in many different contexts. We are near the end of what had been a booming market, or, in some cases we are in markets that have turned. In that context, the Time is Ripe for appraisers to buckle down and deal with what is happening, as it is happening, or they will be over estimating values.

If, say, a particular market or market segment had increased by double digits in the last year at a rate of 2% per month, then it stopped going up 2-3 months ago and if appraisers are adjusting sales from months prior at the 2% rate, it will result in a higher indicator on each sale used.

As markets slow down, marketing times become longer, then Listing prices start to be reduced and at some point, current Listing’s and Pending’s are at price levels below the Closed Sales of the recent past.

To read more click here

My comments: I have known Steve Smith for over 30 years. He is very savvy. He taught a few mortgage fraud classes for my seminar business in the 1990s. Good instructor and writer. Started the Inland Appraisers Forum (now the National Appraisers Forum). I check the posts regularly as it is my primary source for what knowledgeable and experienced appraisers discuss.


Sowden House in Los Angeles

Excerpts: Inspired by ancient Mayan pyramids, the façade’s sandy concrete blocks emerge from a lush Californian garden. The Sowden House of 1926 gives a nod to the ancient temple references of its forebears, but makes them decidedly more explicit. With its symmetrical façade crowned by a prow of heavily worked concrete and its grand entry stair that leads from the street through a jungle landscape, the structure emerges like a ruined temple nestled in a primordial forest – Angkor Wat by way of Hollywood Boulevard.

The formal entry progression leads through a set of copper gates, up another internal staircase and eventually arrives at the threshold proper, where the architectural drama unfolds in one theatrical sweep of space: two peaked pavilions, made of stepped concrete blocks, connected by two low arcades, wrapped around a lushly planted courtyard cloister.

To read more, click here

My comments: The property was purchased in 2001, with much deferred maintenance, and has been restored inside and outside. I wonder if I will ever have a house named The O’Rourke House? Probably not, but you never know. Some historic homes in my city will always be known by the name of their original owner.


How Common Is Appraiser Racial Bias — an Update

May 26, 2022

By AEI, Ed Pinto and Tobias Peter

Excerpts: We undertook the first study, which we released in January 2021, to statistically examine the level of racial bias in human performed appraisals using a large dataset. We found that contrary to media allegations, racial bias by appraisers on refinance loans is uncommon and not systemic.[2]

This short report provides an update to some of our prior research, taking advantage of two additional years of data, which increased our sample size from 240,000 to almost 890,000 due to the refinance boom induced by low mortgage rates after the start of the COVID-19 pandemic. Using the expanded dataset – just like with the initial dataset – we find that appraiser racial or ethnic bias is not systemic or widespread.

However, more research is needed to identify the extent of “bad apples”, implicit bias, and incompetence. For this to happen, one needs to study individual appraisers. The data already exist today and such a study should follow the methodology recently outlined in a Fannie Mae study, for which researchers have already assembled a substantial database.[5]

At the end of the paper, we propose a detailed outline on how to conduct such a study. Given the seriousness of the accusation, an independent regulator should evaluate the work of individual appraisers for both bias and incompetence without delay using readily accessible data.

For more details, footnotes, and a link to the full report, click here

My comments: The report is well written and understandable with tables. AEI is a traditional conservative think tank that focuses on the mortgage market, appraisal-related topics, and other economic topics. AEI regularly reports on waivers. I subscribe to their updates.


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

My comments: Rates are going up. Make money while you can!!


Mortgage applications decreased 2.3 percent from one week earlier

Mortgage applications decreased 2.3 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending May 27, 2022.

The Market Composite Index, a measure of mortgage loan application volume, decreased 2.3 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 5 percent from the previous week and was 75 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 2 percent compared with the previous week and was 14 percent lower than the same week one year ago.

“Mortgage rates fell for the fourth time in five weeks, as concerns of weaker economic growth and the recent stock market sell-off drove Treasury yields lower. Mortgage applications decreased to the lowest level since December 2018, as the purchase market continues to struggle with supply and affordability challenges,” said Joel Kan, MBA’s Associate Vice President of Economic and Industry Forecasting. “With the 30-year fixed rate at 5.33 percent, the refinance market continues to shrink, led by larger decreases last week for FHA and VA refinance applications. The refinance index was 75 percent below last year’s level, when rates were more than 200 basis points lower.”

Added Kan, “Purchase applications last week were 14 percent lower than last year, with more activity in the larger loan sizes. Demand is high at the upper end of the market, and supply and affordability challenges are not as detrimental to these borrowers as they are to first-time buyers.”

The refinance share of mortgage activity decreased to 31.5 percent of total applications from 32.3 percent the previous week. The adjustable-rate mortgage (ARM) share of activity decreased to 8.7 percent of total applications.

The FHA share of total applications decreased to 10.8 percent from 11.3 percent the week prior. The VA share of total applications decreased to 10.2 percent from 10.4 percent the week prior. The USDA share of total applications remained unchanged at 0.5 percent from the week prior.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($647,200 or less) decreased to 5.33 percent from 5.46 percent, with points decreasing to 0.51 from 0.60 (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 $647,200) decreased to 4.93 percent from 5.02 percent, with points remaining unchanged at 0.41 (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 5.20 percent from 5.36 percent, with points decreasing to 0.69 from 0.82 (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 4.59 percent from 4.72 percent, with points decreasing to 0.63 from 0.70 (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 4.46 percent from 4.49 percent, with points decreasing to 0.68 from 0.76 (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.

Ann O’Rourke, MAI, SRA, MBA
Appraiser and Publisher Appraisal Today
1826 Clement Ave. Suite 203 Alameda, CA 94501
Phone 510-865-8041

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