What’s in This Newsletter (in Order, Scroll Down) August 2, 2024
- Avoiding Court: A Common Sentiment Among Appraisers
- When Is Single-Family a Multi-Family Appraisal?
- What Is a Superhome? 10 Must-See Mansions That Define the High-End Trend
- Accurate Appraisal Underreporting
- How Confidential is Your Appraisal?
- Agencies Issue Final Rule to Help Ensure Credibility and Integrity of Automated Valuation Models
- Mortgage applications decreased 3.9 percent from one week earlier
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How to Identify a Single-Family with ADU vs. Two-Family Property 9-29-23-
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When Is Single-Family a Multi-Family Appraisal?
SFR or 2 units with an ADU?
by Richard Hagar, SRA
Excerpts: Once upon a time, it was easy to classify single-family homes, duplexes, triplexes and multi-family buildings. Though there have always been exceptions, if a property was zoned single-family residential (SFR) and there was a single home on the site, you’d use a 1004 form for bank appraisals.
If a property was zoned multi-family and there were two to four units on the site, an appraiser would use the 1025 form. And, if there were five or more units on the site, it would be something a commercial appraiser would handle via a narrative format.
Ah, the good old days. Then, along came accessory dwelling units (ADU), which in some states and cities are messing with established appraisal and lending systems.
Things Get Twisted – ADUs
Many counties and cities that allow ADUs do not “change” the official zoning; SFR 5000 still means one single-family home per 5,000-square-foot lot (and allow an ADU). What a few politically and emotionally driven cities have done is bypass the normal requirements for changing zoning (public hearings, notifications, etc.) and passed laws that overlay additional uses and requirements on to existing zoning codes. It’s their “clever” way of changing things without following the historic path to … well, changing things without informed consent by the citizens.
So, here we are: appraisers looking at zoning codes trying to determine the highest and best use for the subject’s site (as if vacant) and the structure as improved. We see SF7500 and say, “great, single family.” But did you look to see if there are overlay additions to the code? If so, did you read them? Did you look at regulations related to accessory dwelling units? If you didn’t, you’d better start looking because these things are popping up in numerous counties and cities across the United States, and they have a massive impact on unit density, the highest and best use, land values and depreciation rates.
Conflict With Lending
The Federal National Mortgage Association (FNMA) will buy a loan where the single-family home has a single ADU. Look at the below form (Figure 1) and note the two options: Units “One” and “One with Accessory Unit.” There is no space on the 1004 form to identify a second ADU.
Now we have a conflict between cities allowing two or more ADUs and the lending world of FNMA, the Federal Home Loan Mortgage Corp. (FHLMC), the VA and FHA. These entities will not buy loans with two or more ADUs. And when FNMA won’t buy (or VA and FHA insure) a loan from a lender it results in fewer lenders offering loans, higher interest rates and possibly larger down payments. In a city’s zeal to lower the cost of housing, they’ve increased the cost of housing.
Required Information
When you run across properties with ADUs, all sorts of additional information is required in the appraisal. ANSI requires the square footage to be separately indicated. Fannie Mae needs additional information specific to the ADU, and just wait until you see FNMA’s new appraisal “form,” along with its 20-plus new information fields in the special ADU section. If you want an example of how we provide square-footage information, email me (See author bio) and I’ll provide you with a copy of the form we use.
The appraisal will also require fully supported adjustments, explanations on how you determined the adjustments, and the ADUs impact on value measured by the cost, income and sales comparison approaches.
To read more, Click Here
My comments: Read this detailed article if you appraise any properties with ADUs. It is a comprehensive analysis of all the new issues. Richard Hagar is one of my favorite appraisal instructors.
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What Is a Superhome? 10 Must-See Mansions That Define the High-End Trend
July 24, 2024
Excerpts: If a mansion and a private resort hotel were thrown into a gilded blender, the result would be a “superhome.”
What exactly makes a superhome? According to Forbes, “Superhomes measure 20,000 square feet or more, and deliver on the wants of our nation’s growing ranks of super high net worth folks. Those desires include seclusion and security, as well as … opulent entertaining.”
OK then. Superhomes are prestigious properties with a massive amount of space—and they’re reserved for the truly wealthy. But the number who can indulge is growing.
“There are now more billionaires in the U.S. than ever before,” some 815 or so, reports Forbes.
Surprisingly, not all of the homes with 20,000-plus square feet of space we’ve found are outrageously expensive. Highlighted below, they range in price from a mere $6.9 million to $60 million.
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Photo above info:
2325 S Ocean Blvd, Delray Beach, FL
Price: $60,000,000
It doesn’t get any Resort-style amenities include a beautiful pool, cascading water features, an elevated lounge area with a spa, a cinema-style theater, a hotel-inspired bar and lounge, a game room, and a wine cellar and tasting room.
For car enthusiasts, there’s a lounge with auto display facilities.
To read more, Click Here
My comment: I had never heard of a Superhome! When you’re an appraiser, there is always something new ;> One of the primary reasons I love appraising.
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Accurate Appraisal Underreporting
by AppraisersBlogs July 24, 2024
Excerpts: The Housing Wire article highlighting that only 40% of homes sold include an “accurate” appraisal, as defined by the Corporate Settlement Solutions (CSS) report, is deeply problematic and indicative of a concerning lack of understanding around the appraisal process. The report cited from CSS, analyzed appraisal data across 10 states in the East Coast and Midwest, finding that only around 40% of home sales included an appraisal that was within $2,500 of the final sale price. This is being presented as evidence that the vast majority of home appraisals are inaccurate.
Appraising a home’s value is an inherently complex endeavor, with numerous variables and nuances that must be carefully considered. To claim that any appraisal falling outside a $2,500 margin of the sale price is “inaccurate” is an egregiously narrow and simplistic view that fails to account for the realities of the housing market.
Given that the median home price in the US currently sits around $420,000, a $2,500 discrepancy represents a mere 0.006% deviation – an infinitesimally small margin that in no way calls into question the validity or reliability of the appraisal. This misguided definition of “accuracy” is both misleading and dangerous, as it perpetuates the misconception that appraisals should be precise to the dollar, when in reality, there is always going to be a degree of subjectivity and variability involved.
To read more, plus over 60 appraiser comments, Click Here
To read the original Housing Wire Article, Click Here Note: It may be behind a paywall.
My comment: Amazing what you can do with numbers! Appraisals are always an easy target. No one speaks for us.
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New in the August 2024 issue of Appraisal Today
- How much insurance do you need?
- If people can’t contact you, they can’t give you an appraisal order or referral.
- When there’s no other manufactured homes in the neighborhood by Ryan Lundquist
- Highest and Best Use – Why Can’t I Just Assume it Away by Tim Andersen, MAI
How much insurance – The last time I wrote about this was in 2003. A lot has changed! Also, business is slow, so now is an excellent time to review your insurance needs.
How do people contact you? I go over the phone, email, websites, etc., with tips you can do today.
Manufactured home sales? With the current housing shortage, they are becoming more popular. Includes a graphic of how to search your MLS for sales.
Highest and Best Use – Discusses Extraordinary Assumptions and don’t use an EA to assume the HBU is the same as the current use.
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How Confidential is Your Appraisal?
By Tom Horne
Excerpts: As a residential real estate appraiser with decades of experience in the Birmingham, Alabama area, I understand these concerns and adhere to strict confidentiality standards to protect my clients.
Understanding Confidentiality in Real Estate Appraisal
The confidentiality of an appraisal report is a cornerstone of professional appraisal practice. According to the USPAP, appraisers are required to uphold confidentiality to protect the interests of their clients and maintain the integrity of the appraisal process.
This commitment is outlined in the ETHICS RULE of USPAP, which mandates appraisers to act in a manner that is independent, impartial, and objective, while also safeguarding confidential client information.
The ETHICS RULE in USPAP consists of several components, including Conduct, Management, and Confidentiality. The Confidentiality section specifically addresses the appraiser’s duty to protect client information.
This means that, as an appraiser, I am bound to keep your appraisal report and its findings confidential, sharing them only with those whom you have authorized or as required by law.
What Constitutes Confidential Information?
USPAP defines confidential information as information that is either identified by the client as confidential when providing it to the appraiser and that is not available from any other source or classified as confidential or private by applicable law or regulation. This includes the details within your appraisal report, such as the appraised value of your property, and any analyses or conclusions drawn by the appraiser.
Dispelling Myths: The County Tax Assessor and Your Appraisal Report
A common concern among homeowners is whether the county tax assessor has access to their home appraisal report. The simple answer is no, the county tax assessor does not have access to your private appraisal report unless you or another authorized party provide it to them.
Real-Life Applications of Confidentiality in Appraisal
Let’s consider a few scenarios where confidentiality plays a critical role in the appraisal process:
Mortgage Refinancing- When refinancing your mortgage, the lender will require an appraisal to determine the current market value of your property. The appraisal report is shared with the lender, who is the client in this scenario. As the homeowner, you will also receive a copy of the report. However, this information is not shared with the county tax assessor or any other parties unless you give explicit permission.
Property Sale- If you are selling your property and an appraisal is conducted to establish a listing price (commonly referred to as a pre-listing appraisal), the appraisal report is confidential and shared only with you (the client) and any other parties you authorize, such as your real estate agent.
Prospective buyers will not have access to this information unless you choose to share it with them.
Estate Planning- When an appraisal is conducted for estate planning purposes, the report is confidential and shared only with the parties you designate, such as your attorney or financial advisor. This ensures that sensitive information about the value of your property is not disclosed to unauthorized individuals.
To read more, Click Here
My comments: This is written for homeowners and real estate agents, but they are good reminders for appraisers. Plus, there are understandable and practical explanations of appraisal confidentiality for everyone.
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Agencies Issue Final Rule to Help Ensure Credibility and Integrity of Automated Valuation Models
July 17, 2024
Excerpts: Under the final rule, the agencies will require institutions that engage in certain transactions secured by a consumer’s principal dwelling to adopt policies, practices, procedures, and control systems designed to:
- Ensure a high level of confidence in estimates;
- Protect against data manipulation;
- Seek to avoid conflicts of interest;
- Require random sample testing and reviews; and
- Comply with nondiscrimination laws.
Driven in part by advances in database and modeling technology and the availability of larger property datasets, AVMs are being used with increasing frequency as part of the real estate valuation process.
While advances in AVM technology and data availability have the potential to reduce costs and turnaround times of the property valuation process, it is important that institutions using AVMs take appropriate steps to ensure the credibility and integrity of the valuations produced.
It is also important that the AVMs institutions use adhere to quality control standards designed to comply with applicable nondiscrimination laws.
The final rule will become effective on the first day of the calendar quarter following 12 months after publication in the Federal Register.
To read more, Click Here
To read (or skim) the 190-page Final Rule, Click Here
I wrote about Jonathan Miller’s analysis of AVMs in the 6-24-24 issue of this newsletter. “Bank AVMs Are As Wildly Inaccurate As A Zestimate – But Will Be Regulated As Legitimate Values.” To read the 6-28-24 issue, Click Here
To read Miller’s article with interesting graphics and comments, Click Here
My comments: AVM “regulations” discussions have been around for a long time. Many comments and analyses, including the reliability of AVMs, are available.
Assessors are the experts, as they have been using them for decades, since at least the 1970s.
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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, 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 www.appraisaltoday.com/order Or call 510-865-8041, MTW, 7 AM to noon, Pacific time.
My comments: Rates are going up and down. Many appraisers are not busy. Some are busy, usually with non-lender appraisals.
We are all hoping that interest rates will drop soon!
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Mortgage applications decreased 3.9 percent from one week earlier
WASHINGTON, D.C. (July 31, 2024) — Mortgage applications decreased 3.9 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Applications Survey for the week ending July 26, 2024.
The Market Composite Index, a measure of mortgage loan application volume, decreased 3.9 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index decreased 4 percent compared with the previous week. The Refinance Index decreased 7 percent from the previous week and was 32 percent higher than the same week one year ago. The seasonally adjusted Purchase Index decreased 2 percent from one week earlier. The unadjusted Purchase Index decreased 1 percent compared with the previous week and was 14 percent lower than the same week one year ago.
“Mortgage rates were little changed last week, with the 30-year fixed mortgage rate unchanged at 6.82 percent,” said Mike Fratantoni, MBA’s SVP and Chief Economist. “In recent weeks, there have been some small bursts of refinance activity, particularly for FHA and VA loans. Last week, VA refi application volume dropped sharply, which drove the aggregate result. Borrowers may be waiting for signs that mortgage rates will drift lower as the Federal Reserve begins to cut short-term rates. Purchase volume also dropped slightly because of ongoing affordability challenges.”
The refinance share of mortgage activity decreased to 38.2 percent of total applications from 39.7 percent the previous week. The adjustable-rate mortgage (ARM) share of activity decreased to 5.7 percent of total applications.
The FHA share of total applications increased to 14.2 percent from 13.4 percent the week prior. The VA share of total applications decreased to 13.5 percent from 14.8 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 ($766,550 or less) remained unchanged at 6.82 percent, with points increasing to 0.62 from 0.59 (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 $766,550) decreased to 7.07 percent from 7.09 percent, with points decreasing to 0.53 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 30-year fixed-rate mortgages backed by the FHA decreased to 6.69 percent from 6.71 percent, with points decreasing to 0.84 from 0.86 (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 6.27 percent from 6.21 percent, with points decreasing to 0.49 from 0.51 (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 6.22 percent from 6.19 percent, with points decreasing to 0.45 from 0.52 (including the origination fee) for 80 percent LTV loans. The effective rate remained unchanged 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
Online: www.appraisaltoday.com
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