12 Unacceptable Appraisal Practices from Freddie Mac
Here are 5:
- Reliance in any appraisal analysis on inappropriate comparable sales, or the failure to use comparable sales that are more similar to or nearer to the subject property without adequate explanation
- Use of unsupported or subjective terms to assess or rate, such as, but not limited to, “high,” “low,” “good,” “bad,” “fair,” “poor,” “strong,” “weak,” “rapid,” “slow,” “fast” or “average” without providing a foundation for analysis and contextual information
- Use of comparable sales data provided by interested parties to the transaction without verification by a disinterested party
- The use of inordinate adjustments for differences between the subject property and the comparable sales that do not reflect the market’s reaction to such differences, or the failure to make proper adjustments when they are clearly necessary
- Development of value and/or marketability conclusions that are not supported by available market data
To read more, click here
My comments: From Freddie Mac’s Selling Guide with links to more information. Nothing new, but good reminders.
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NOTE: Please scroll down to read the other topics in this long blog post on barndominiums, liability, declining prices, non-lender marketing, Freddie bad appraisal practices, unusual homes, mortgage origination stats, etc.
5 of the Most Ridiculously Extravagant Homes You Could Have Bought With the $1.9B Powerball Jackpot
1. 33550 Pacific Coast Hwy, Malibu, CA (photo above)
Why it’s here: Live among Hollywood’s elite in this sprawling spread owned by former Disney CEO Michael Eisner.
Located on approximately 5 acres overlooking the Pacific Ocean, this spectacular 25,025-square-foot megamansion was designed by architect Robert A.M. Stern. The massive, nine-building compound features everything from a gym and beach cottage to an underground tunnel from the pool to a large home theater. There’s even a cliffside elevator to the beach. The 16 bedrooms and additional guesthouses can accommodate all of your closest friends and family to celebrate your winnings.
If Eisner sells you this home, you’ll also be making California history: The transaction would be the largest sale ever in the state. (You’ll join the ranks of billionaire venture capitalist Marc Andreessen, who set the state record last year with his Malibu purchase for $177 million.)
To read more click here
My comments: See four more insanely expensive homes and dream of winning a big lottery Jackpot Someday ;> I never buy lotto tickets, but sometimes people give me one. A 2.04B California lottery was just won. I hate to lose, so I don’t like gambling, but I do like getting a raffle prize at an appraisal meeting. Often the highlight of the meeting ;>
5 Rules for Appraising Barndominiums
Excerpt: Barndominium properties are typically found in more rural areas. They could be existing barns that were converted into homes or brand-new metal pole buildings that are finished to create a residence. During the appraisal and appraisal report review processes, barndominiums require special consideration, given that they are typically unique to a subject neighborhood.
Bottom line: If the home is going to be financed by a lender, insured by FHA, or sold on the secondary market, you must make sure you compile a fair, thorough report to ensure that the lender doesn’t take a loss. These appraisals take more time and effort, therefore you should charge more for them. Here are five guidelines to follow when appraising barndominiums.
3. Dig deep for comparables
It is not necessary for one or more of the comparable sales to be of the same design and appeal as the property you are appraising. However, you’ll improve your appraisal accuracy if you use comparable sales that are the most similar to the barndominium.
Since the property could be the only barndominium in a neighborhood—or town even—you will need to expand your search. Go back further than 6 months and out of area to find comps. You may need to go to another neighborhood or town or state. Just be sure to state in your report that you found the comps in another market and note whether that market is a competing, superior, or inferior one.
To read more, click here
My comments: For 5 years, I appraised in rural areas in Northern California in the 1970s but never saw a barndominium. I’m sure there are some in California now. If you are asked to appraise one, and accept the assignment, be sure to read this blog post.
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Fact vs. fiction
Don’t let these four appraiser liability myths trip you up
by Peter T. Christensen
Excerpt: I worry that some myths about appraiser liability will never go away. These myths are repeated to the point that they’re basically accepted as fact. Here, I’ve collected four of the most common myths concerning appraiser liability in an attempt to bust them once and for all.
Myth No. 3
The only appraisers who get sued are those performing appraisals for mortgage lending.
Truth: The origin of this myth most likely correlates with the significant amount of valuation work performed for lending purposes – the more lending work, the greater the liability risk, the thinking goes. However, 20-plus years of appraiser claim records in LIA’s insurance program disproves this myth.
Expert witness work, tax work, estate work and arbitration work all produce liability claims against appraisers. In one case, an appraiser serving as an expert was sued by his client because the client’s win wasn’t financially rewarding enough. The client claimed in a subsequent professional liability lawsuit that the appraiser wasn’t suitably persuasive as a testifying expert.
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Saying goodbye to pandemic home price gains
November 8, 2022 By Ryan Lundquist
Excerpt: The trend isn’t going to be the same in every location across the country, but I suggest paying attention to pockets like Sacramento, Boise, and Phoenix that all seems to be the poster child for quick market change.
40% of pandemic price gains are gone in the Sacramento region.
We’ve seen sharp price declines over the past six months as the median price has dropped by $75,000 (or 12%) since May in the Sacramento region. This is about three times the normal speed for seasonal softening. This doesn’t mean every property is literally worth 12% less, but I have to say the change is sizeable when looking at neighborhood comps lately and hearing feedback from real estate agents. Sellers, did you hear that?
It’s easy to fixate on the median price, but when appraising in neighborhoods my trendlines are also showing a sharp change. Here’s an example with the 95747 ZIP code in Roseville. As I talked about recently, I am definitely selecting the “declining” box in my appraisal reports.I heard someone talk about the housing market as if it was a parked car, but I emphatically disagree with the analogy because the market hasn’t literally stopped. For instance, over the past two months in the region there were 1,800 fewer sales compared to last year, but there were nearly 3,400 sales that did happen. I find it’s easy to fixate on the glaring portion of the market that’s missing, but let’s not forget to see the part that is happening.
To read more, click here
My comments: Many appraisers are looking for help on how to make local market conditions adjustments. National, city, and state opinions are not very useful today. Location, location, location!
Ryan has been doing these market analyses for a long time in changing markets. Look at his graphs and read his comments on his local market(s). What graphs do you want to use?
There are many different appraiser opinions on explaining your market condition adjustments or why you did not make one. Your lender clients rely on you to tell them what is happening in your local market.
Attracting More Appraisal Business
Nov. 3, 2022 By Jamie Owen
Answer your phone and be kind
This seems obvious, but I can’t tell you how many times I have answered my phone only to hear the person start by saying how pleased they are that I actually answered. If you can’t answer and don’t have an answering service or an assistant that answers the phone, be quick about returning calls. I’ve also had people say they were happy because I returned their call when many appraisers did not.
Offer services other than just appraising
When performing an appraisal, there are things we do in the process that people are willing to pay for without having an appraisal completed. For instance, what about taking photos? Have you considered starting a little business taking photos for real estate agents, or homeowners who are thinking of selling their home on their own and need someone to take photos of their home?
Offer a lunch and learn
Another way to become a resource is to offer to go into the offices of banks, attorneys, and real estate agents to teach others about what we do, or what’s going on in the market, or simply to answer questions people may have about appraisals.
To read more, click here
My comments: Don’t forget to smile when you answer your phone. It works very well by getting you to feel friendly. It is used extensively in telemarketing. Jamie has some good ideas. He does what he writes about, so he speaks from personal experience. He focuses his blog on real estate agents and home owners for marketing purposes. Sometimes he writes for appraisers.
My first published writing was an appraisal/real estate column in my local newsletter in the late 1980s. I realized that I did not like to write about consumer topics. But a blog, emailed newsletter, etc. to agents is one of the best ways to market your non-lender appraisal services consistently.
My additional marketing comment: Get a FREE Google Business Listing ASAP. I wrote about it in a recent monthly paid newsletter issue with many appraiser tips. You can do it yourself. You can set up includes a one-page “website” if you don’t have one.I have had one for many years. My listing is at the top of the searches for Alameda appraisals on the right side of the page.
Eagle’s Watch Malibu – Architectural w/Ocean View
Excerpts: Eagle’s Watch is one of Malibu’s most famous houses, impossible to miss while driving the Pacific Coast Highway, and designed by legendary architect Harry Gesner. Perched above the Pacific Ocean, Eagle’s Watch has the best unobstructed panoramic view in Malibu. 3 bedroom 3 1/2 bath home
To read more and see lots of fotos, click here
My comment: I have always wanted to live in Malibu. Renting this fabulous house for a day for $1,175 would be a great way to say I stayed in a famous water view house in Malibu! Incredibly cheaper than buying it, or renting on a yearly lease ;>
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.mba.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 go to www.appraisaltoday.com/order Or call 510-865-8041, MTW 7 AM to noon, Pacific time.
My comments: Rates are going up. Some appraisers are very busy, and others have little work. Varies widely around the country.
Mortgage applications decreased 0.1 percent from one week earlier
Mortgage applications decreased 0.1 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending November 4, 2022.
The Market Composite Index, a measure of mortgage loan application volume, decreased 0.1 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 4 percent from the previous week and was 87 percent lower than the same week one year ago. The seasonally adjusted Purchase Index increased 1 percent from one week earlier. The unadjusted Purchase Index decreased 1 percent compared with the previous week and was 41 percent lower than the same week one year ago.
“Mortgage rates edged higher last week following news that the Federal Reserve will continue raising short-term rates to combat high inflation. The 30-year fixed rate remained above 7 percent for the third consecutive week, and there were increases for most other loan types,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist. “Purchase applications increased for the first time after six weeks of declines but remained close to 2015 lows, as homebuyers remained sidelined by higher rates and ongoing economic uncertainty. Refinances continued to fall, with the index hitting its lowest level since August 2000.”
The refinance share of mortgage activity decreased to 28.1 percent of total applications from 28.6 percent the previous week. The adjustable-rate mortgage (ARM) share of activity increased to 12.0 percent of total applications.
The FHA share of total applications decreased to 13.3 percent from 13.5 percent the week prior. The VA share of total applications remained unchanged at 10.3 percent from 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) increased to 7.14 percent from 7.06 percent, with points increasing to 0.77 from0.73 (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) decreased to 6.50 percent from 6.55 percent, with points increasing to 0.78 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 30-year fixed-rate mortgages backed by the FHA increased to 6.86 percent from 6.70 percent, with points increasing to 1.37 from 1.18 (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 6.40 percent from 6.37 percent, with points increasing to 1.13 from 1.05 (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 5.87 percent from 5.79 percent, with points increasing to 0.92 from 0.90 (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.