Appraising Fixer Uppers

Excerpts: We’re all familiar with the term “fixer-upper.” For many different reasons, properties can come on the market in less-than-par condition. The degree and cost to cure becomes an issue to buyers and sellers, and a challenge for appraisers. At some point it’s no longer “normal market value minus cost to cure equals as-is value.”

The terms “entrepreneurial incentive” and “entrepreneurial profit” are typically discussed in terms of investment property, but the principles involved can also be applied to the many fixer-uppers—whether the buyer is a “purely investor type” or an “owner occupied investor type.” Maybe a couple new terms should be discussed: “sweat equity incentive” and “sweat equity profit.”

The rest of the post is a very good case study

To read more, click here

My comments: I have appraised many fixer-uppers. My overall ratings are: Unlivable with holes in wall or ceiling, kitchen, and bath not functional, not lendable, etc. ) In my MLS “contractor special” is often used.  Liveable: needs work but functional kitchen and bath.

Most of my appraisals are for estates, and fixers are relatively common. There are few comps as almost all homes are fixed up for sale. There are some good ideas in this post. Even if you have comps, there is often a very wide range of conditions.

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 liability, appraisal errors, non-lender appraisals, Fannie non-appraisal options, unusual homes, mortgage origination stats, etc.


9 Spectacular Homes That Let You Enjoy Life Right on the Water

Photo above shows a home overlooking the renowned Hawaiian surf break called Acid Drops.

Excerpt: The most coveted pieces of real estate are often found directly on the water. Waterfront properties, whether it’s a ranch along the river, an oceanfront home or lakeside cabin, typically increase in value as time goes on and provide homeowners direct access to their favorite hobbies, such as swimming, boating or water skiing. Similar to homes with biophilic design, water and surrounding nature can make us happier and help our overall well-being by encouraging us to spend time outdoors.

Some people crave beachside living with easy access to those sandy shores, while others may prefer homes along Miami’s Intracoastal Waterway, for example, with piers that are the perfect perch for a boat ride around the bays.

Lakeside retreats, like the ones found in France, are more quaint ways to enjoy all the benefits of living near water and nature; meanwhile, marsh or river-side homes like in South Carolina are full of charm.

To read more click here 

My comment: I want to live on an oceanfront! I lived for 30 years a waterfront homes with boat docks in my city but they was not oceanfront with spectacular views!


Indemnification Clauses: What Appraisers Should Know

Excerpts: When adding an appraiser to their appraisal panel, a lender or an appraisal management company (AMC) will present the appraiser a 5-15 page long “Appraisal Services Agreement” or “Appraiser Engagement Agreement” for the appraiser’s signature.

Here is a sample indemnification clause: Appraiser shall indemnify, defend and hold harmless AMC from and against and against any and all claims or legal actions which arise out of or relate to the following: (a) any negligent act or omission or willful misconduct by Appraiser; or (b) any breach in a representation, covenant or obligation of appraiser contained in this Agreement.

To unpack this, let’s start with what it means to “indemnify” someone. The Merriam-Webster Dictionary defines “indemnify” as:

To secure against hurt, loss, or damage;

To make compensation for incurred hurt, loss, or damage.

In other words, the appraiser is agreeing to defend the AMC (or lender) and make them “whole” in the event the AMC is sued or held liable for mistakes that the appraiser makes.

The good news for appraisers is that most of these clauses are simply restatements of common law indemnification principles, i.e. that when one party (in this case the AMC) is harmed by the actions of another (the appraiser), there is an implied obligation on the part of the wrongdoer to reimburse the harmed party.

These types of clauses are now incredibly common amongst the construction trades, real estate professionals, wedding services, financial services, and more. For example, if you are a general contractor hired by a wealthy patron to build a house…

Inside these service agreements is an often discussed and disputed clause: the indemnification clause.

To read more, click here

My comments: So many risks for residential lender appraisers! I am never asked sign one of these agreements in my non-lender work. I gave up residential lender appraisals many years ago.


Making Adjustments in Today’s Market

By Doug Smith, SRA


Excerpt: The Past: Three Comps

Appraisers will recall when comparable sales were plentiful and three comparable sales were sufficient to base an opinion of value. Appraisers sought to bracket the subject using three comparable sales.

Like the bedtime story of Goldilocks and Three Bears, appraisers sought to identify three sales like the porridge Goldilocks finds in the home of the three bears: one hot, one cold, and one just right.

Today appraisers must expand their scope of work

Appraisers must expand their search and find not only the three reasonably similar comparables, but with an unsettled economy, lenders will soon be asking for not only additional sales, but active listings.

Some appraisers have already expanded their scope of work to include more than the traditional three comparable sales. All appraisers under current market conditions must expand their scope of work to include additional comparable sales. These are likely to stray from sales that are reasonably and directly comparable.

Adjustments are challenging

The real challenge for appraisers, whether due to scarce comparable sales or the requirement to provide more comparable sales and listing, is adapting to the need for greater attention to the adjustment process.

Like Goldilocks, appraisers are finding lumpy and watery porridge in search of porridge (Comparable sales) that are “just right”.

Market conditions, then, require the appraiser to place more emphasis on the adjustment process as more comparable sales differ in material ways from the property being appraised.

Lots of good, practical ideas for you in this article in the monthly newsletter!

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5 Resources to Help You Avoid Appraisal Errors and Violations

As busy real estate appraiser, both your time and your professional reputation are extremely valuable. One thing you can do to help save time and preserve your standing as an ethical and reliable property appraiser is to put a little extra time and effort toward avoiding appraisal errors and violations. While most common appraisal errors are minor and won’t result in disciplinary action, even small mistakes take time to correct and therefore slow down your process.

Browse the following resources designed to help you avoid common appraisal errors and violations.

Here are two:

1. 25 Common Errors in Appraisal Reports
2. How to avoid minor appraisal violations

To read more, click here

My comments: A good compilation of risk avoidance.

Written in 11-20 but still relevant today. If you’re not busy now, this is a good time to check your templates, review appraisal errors, etc.


Private Appraisal Work, the Final Frontier

By Rachel Massey, SRA, AI-RRS


Private appraisal work is similar to Star Trek’s final frontier* for us appraisers. It is one environment where residential appraisers are still valued. Our opinions are sought for work as varied as bankruptcy, estate, charitable contributions, pre-listing, before-and-after valuation, among other reasons. It is a place where we can show our clients just how valuable an appraisal can be.

If our business revolves around mortgage lending, we are used to dealing with clients who have a certain level of sophistication.

They see appraisal reports day in and day out and know what to look for. Many of us have learned to truncate our verbiage because our lending clients do not want to read volumes.

We have learned how to address areas that tend to be sticking points for Fannie Mae and Freddie Mac, such as bracketing elements of comparison.

We are used to addressing our reports in a manner that the lending client expects. Can you imagine the befuddled look on a homeowner’s face when confronted with C3/Q4/2DET type UAD language on a sales comparison grid?

To read more, click here

My comments: An excellent and well written summary of non-lender appraisal reports. Worth reading.


Five potential valuation options for loans being sent to Fannie starting April 15, 2023:

Source: Housing Wire email 1:02 am 4-11-23

  •   Value acceptance (formerly appraisal waiver)
  •   Value acceptance + property data
  •   Value acceptance + property data that turns into a hybrid appraisal
  •   Desktop appraisal
  •   Full appraisal


ASA Concerned About the Expansion of FNMA Appraisal Waiver Program 4-6-23

Excerpt: ASA believes that by expanding the appraisal waiver program and relying on data and models for mortgage lending instead of human interaction, Fannie Mae is leaving behind two very important aspects: safety and soundness as well as consumer protection. The fear is that overvaluation may occur due to a reliance on models which always try to chase value upwards but struggle in markets where real estate prices are either flat or declining.

Furthermore, with “value acceptance” there will be no warranty or reprieve for Fannie Mae when markets turn downward.

Russel (the author) expresses concern about potential overvaluation due to lack of appraisals, noting that such a situation would put taxpayers “holding the bag” if loans are made and sold based on inaccurate information.

Furthermore, he argues that models and data collectors cannot replace experienced appraisers who can provide accurate valuations with their expertise; thus relying solely on technology may lead to repeating mistakes from two decades ago which caused significant financial losses for many homeowners as well as lenders.

Russell argues that agents and brokers have a direct financial incentive to see deals consummated for the highest possible selling price due to percentage-based commission

To read more, click here


Fannie Mae squeezing out appraisers with new automated program

Value Acceptance + Property Data option means someone with a handheld device is going to stroll through your house.

Orange County Register (CA) 3-30-23

Excerpts: Homeowners and buyers, come April 15, mortgage giant Fannie Mae will have you and appraisers by the throat when it launches a new home valuation program.

The launch of “Value Acceptance + Property Data” means someone with handheld technology is going to stroll through your house and around the property. It could be a real estate agent, a home inspector or even a part-time Uber driver looking for some easy money. What it won’t need to be is a state-licensed appraiser.

Because the program is new, we don’t know what this new appraisal system will cost a borrower.

But what we do know is this gives even more power to Fannie, which will largely dictate home values across America once this program is fully implemented. As it is, roughly two-thirds of residential press

But what we do know is this gives even more power to Fannie, which will largely dictate home values across America once this program is fully implemented.  As it is, roughly two-thirds of residential press

As it is, roughly two-thirds of residential property valuations are aimed at Fannie and Freddie Mac mortgages.

My hunch: The mortgage industry likely will fall in line as it has for other programs instituted by mortgage giants Fannie and Freddie Mac.

To read more, click here

My comments: List of lender choices plus two comments above from very different sources. Value acceptance is 3 out of 5 – no appraisers. Future for residential lender appraisers will be fewer full appraisals, except for the “tough ones” and high-end properties. Or desktop appraisals and inspection only. Think about increasing your skills to move into these lender markets. Diversify!!


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, click here.

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 Or call 510-865-8041, MTW, 7 AM to noon, Pacific time.

My comments: Over time rates are going up and down. Some appraisers are very busy, and others have little work. Varies widely around the country.


Mortgage applications increased 5.3 percent from one week earlier

Mortgage applications increased 5.3 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending April 7, 2023.The Market Composite Index, a measure of mortgage loan application volume, increased 5.3 percent on a seasonally adjusted basis from one week earlier.

On an unadjusted basis, the Index increased 6 percent compared with the previous week. The Refinance Index increased 0.1 percent from the previous week and was 57 percent lower than the same week one year ago.

The seasonally adjusted Purchase Index increased 8 percent from one week earlier. The unadjusted Purchase Index increased 9 percent compared with the previous week and was 31 percent lower than the same week one year ago.

“Incoming data last week showed that the job market is beginning to slow, which led to the 30-year fixed rate decreasing to 6.30 percent – the lowest level in two months,” said Mike Fratantoni, MBA’s SVP and Chief Economist. “Prospective homebuyers this year have been quite sensitive to any drop in mortgage rates, and that played out last week with purchase applications increasing by 8 percent. Refinance application volume was a mixed bag with total volume essentially flat, conventional volume down for the week, but VA refinance volume increasing. The level of refinance activity remains almost 60 percent below last year, as most homeowners are currently locked in at much lower rates.”

The refinance share of mortgage activity decreased to 27.0 percent of total applications from 28.6 percent the previous week. The adjustable-rate mortgage (ARM) share of activity decreased to 6.0 percent of total applications.

The FHA share of total applications increased to 12.3 percent from 12.0 percent the week prior. The VA share of total applications increased to 12.8 percent from 11.0 percent the week prior.

The USDA share of total applications decreased to 0.5 percent from 0.6 percent the week prior.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($726,200 or less) decreased to 6.30 percent from 6.40 percent, with points decreasing to 0.55 from 0.59 (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 $726,200) decreased to 6.26 percent from 6.36 percent, with points decreasing to 0.42 from 0.47 (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 6.29 percent from 6.33 percent, with points decreasing to 0.91 from 0.92 (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 5.78 percent from 5.97 percent, with points increasing to 0.57 from 0.54 (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 5.51 percent from 5.61 percent, with points decreasing to 0.9 from 1.02 (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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