Market Value and Appraised Value: Exploring Various Appraisal Values
By Jo Traut
Excerpts: You’ve probably been asked about the difference between “market value and appraised value” by clients seeking a mortgage. However, from the perspective of the valuation profession, this isn’t an accurate question. We don’t provide an appraised value of a property. Instead, we provide an informed, objective opinion of the value of the property based on several factors and criteria as well as the type of value we’re asked to provide. Learn more about the different appraisal values and the factors that go into each.
Summary
Value in real estate is an opinion on a property’s worth influenced by market conditions and perceptions, distinct from price and cost. It includes various types, such as market value and intangible value, each serving different appraisal and financial purposes.
While most appraisals aim to determine an opinion on market value, not all appraisals are centered on this. Depending on the specific appraisal assignment, different types of value may be considered. Let’s examine eight different types of value and provide a high-level overview of each.
Understanding Market Value
Market value is the most frequently sought value in real property appraisals and can have various definitions. Most often, it is defined as the most probable price a property should sell for under typical conditions. This price assumes a reasonable exposure time on the market, with both buyer and seller acting prudently and without duress.
Types of Value (Partial List)
- Assessed Value
- Investment Value
- Insurable Value
- Value in Use
- Book Value
- Intangible Value
To read more, Click Here
My Comments: Read this article! It is the best article I have read on different types of values, plus other comments. Most appraisers use the “Fannie Mae” definition of market value. For non-lender appraisals, I have made up my own definitions, depending on what the client wants to know about their property.
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8-9-24 What’s in This Newsletter (in Order, Scroll Down)
- Market Value and Appraised Value: Exploring Various Appraisal Values
- Tappable Equity Reaches Record High
- 5 Move-In Ready Homes Priced Under $100K
- Lack of Fee Transparency: Exposing the AMC Exploitation
- Implementation date for Reconsideration of Value updated to October 31 by GSEs and FHA
- Home Appraisal Price-Gap Analysis Shows That Home Appraisals Were Higher Than Sale Prices 51% of the Time
- Mortgage Applications increased 6.9% from one week earlier
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Tappable Equity Reaches Record High
As tappable equity hits record high of $11.5T, 3 of 5 mortgage holders have at least $100K to borrow against
As of Q2 2024, tappable equity in the U.S. housing market has surged to a record $11.5 trillion, with three out of five mortgage holders possessing at least $100,000 in equity they can borrow against, according to the August 2024 ICE Mortgage Monitor Report. Despite outstanding mortgage debt hitting an all-time high of $13.8 trillion in June, rising home prices have driven mortgage holder equity to a new peak of $17.6 trillion.
The August 2024 ICE Mortgage Monitor Report underscores a significant rise in tappable equity among mortgage holders, driven by increasing home prices and reduced leverage. As the market continues to evolve, particularly in regions with growing inventories and softening prices, homeowners and lenders alike will need to navigate the changing landscape of mortgage debt and equity.
To read more, Click Here
To read the full August 2024 Mortgage Monitor, Click Here
My comments: What does this mean for you? More appraisals coming! The Fed is expected to lower rates in September. Sales will also increase as many borrowers are waiting for rates to drop.
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5 Move-In Ready Homes Priced Under $100K
Just when you think interest rates, real estate, and home insurance costs have soared to levels that are hopelessly out of reach, up pop a handful of prime properties that prove, yes, you can own a home!
Seriously, we were staggered by these five little treasures, all listed for under $100,000. One of them even comes furnished.
At this point, the term “income property” might come to mind—as all are ripe for renting out.
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PHOTO ABOVE
3. 3450 Trout River Blvd, Jacksonville, FL
Price: $99,900
Fine in Florida: Land ho! Not only is the lot larger than a half-acre, but the all-brick ranch house has three bedrooms in 1,638 square feet of living space.
The single-level home was built in 1937 but has been refurbished over the years. There’s plenty of open and bright living space, thanks to the generous windows; and the wraparound front porch begs for rocking chairs.
While there’s lots of foliage on the grassy lot, one of the location’s biggest perks is that it’s right across the street from the Trout River and all the water sports that come with it.
To read more, Click Here
My comments: They are not fixers! Good for owner occupancy (retirement home?) and rental.
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How much insurance do you need?
Excerpts: Insurance is financial risk management. You shift the risk from yourself to your insurance company.
Life insurance Example:
Many appraisers have life insurance to protect their survivors. Risk of death
is much lower than for other types of insurance. Don’t overpay or over-insure.
You need enough life insurance to replace your income as for long as your
family would depend on it, pay off debts, cover funeral costs, etc.
Income replacement. Experts recommend you have at least five times your
salary in life insurance. If you make $100,000 a year, start with at least $500,000 of life insurance.
Consider your family’s expenses. What expenses will your family have to
pay if you are gone? Don’t just think about income, but also about childcare and other needs that would become expenses if a primary caregiver dies.
If you have dependent children or elderly parents needing support, life
insurance is more important than if you have only a spouse that can be
self-supporting. When my husband died in 2004, I dropped my life insurance as I did not have anyone needing support. I had a trust and financial power of attorney so cash was available for any needs if the executor needed it when I died.
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Lack of Fee Transparency: Exposing the AMC Exploitation
by Desiree Mehbod
Excerpts from her July 30 letter to CPFB:
In their pursuit of maximizing profits, AMCs have created a race to the bottom when it comes to appraisal fees, driving down compensation for the actual valuation work while simultaneously increasing their own fees charged to lenders and consumers. Appraisers, who are the backbone of the real estate ecosystem, have seen their incomes plummet as AMCs squeeze every last penny out of the process.
This has led to an exodus of experienced professionals from the field, replaced by a new generation of appraisers who may lack the depth of knowledge and expertise to properly assess the true worth of a property. Meanwhile, the lack of transparency around AMC fee structures means the public has little visibility into how their hard-earned money is being diverted away from the actual valuation work and into the pockets of these intermediary companies.
As an appraiser who refused to comply with these new practices, I chose to boycott AMCs altogether. The primary issue I took umbrage with was the contractual clauses imposed by these companies, which prohibited the disclosure of my fee to the borrower and the inclusion of my invoice in the appraisal report [1]. By keeping the borrower in the dark about the true cost of the appraisal, the AMCs are able to charge exorbitant prices and pocket the difference (as shown in Figures 1 through 10), exploiting the consumer’s lack of knowledge [2]. I recognized this as a deceptive practice that undermined the principles of transparency and honesty that are central to the appraisal profession. I was unwilling to be complicit in this type of behavior, as it would have required compromising my personal integrity.
My comments: Her entire letter is included. Maybe someone will read it at CFPB (Consumer Financial Protection Bureau)…
To read more, plus over 50 appraiser comments, Click Here
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Implementation date for Reconsideration of Value updated to October 31 by GSEs and FHA
Fannie Mae:
In May 2024, we issued Selling Guide Announcement SEL-2024-03 related to the development of a framework for lenders to review and respond to a borrower-initiated reconsideration of value (ROV). While lenders are encouraged to implement the ROV policy immediately, they must do so for loans with applications dated on or after the new effective date of Oct. 31, 2024.
To read more, Click Here
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Home Appraisal Price-Gap Analysis Shows That Home Appraisals Were Higher Than Sale Prices 51% of the Time
Excerpts: As an appraisal management company, CSS tracks these variances and regularly analyzes this data for the major markets within our operating footprint.
Recently we conducted a data analysis on the appraisal-price gap for the 10 states with the highest volume in our 19-state and DC footprint. The analysis provides the percent of homes that were over-appraised, under-appraised and appraised at the same value as the sale price (within $2,500.00).
According to the data, home appraisals were higher than sale prices 51% of the time in the first half of 2024. The gap between appraisals and sale prices for the first half of this year was the highest that we have seen since the start of the pandemic in 2020. That year, according to CSS data, 42% of homes were appraised above the sale price compared with 42% in 2021, 46% in 2022 and 50% in 2023. As of June 2024, the average over-appraisal was 9% among all markets analyzed.
Among the 10 states analyzed, Kentucky had the highest percentage of orders (73%) that appraised over the sale price for the first half of 2024 with an average over-appraised value of 10%.
In the under-appraised category, New York had the highest percentage of homes (14%) that were under-appraised with an average under-appraised value of 9% for the first half of 2024. Virginia had the lowest percentage of homes (3%) that were under-appraised with an average under-appraised value of 9%.
To read more, Click Here
My comments: The report has a data table of low, high and equal to appraisal for the 10 states. I remember other recent studies where the appraisals were too low. The best analysis, of course, is using sales not refis!
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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 WATING FOR INTEREST RATE DROP (S)!!!
Mortgage applications increased 6.9 percent from one week earlier
WASHINGTON, D.C. (August 7, 2024) — Mortgage applications increased 6.9 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Applications Survey for the week ending August 2, 2024.
The Market Composite Index, a measure of mortgage loan application volume, increased 6.9 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 16 percent from the previous week and was 59 percent higher than the same week one year ago. The seasonally adjusted Purchase Index increased 1 percent from one week earlier. The unadjusted Purchase Index increased 0.3 percent compared with the previous week and was 11 percent lower than the same week one year ago.
“Mortgage rates decreased across the board last week and mortgage application volume reached its highest level since January of this year. The 30-year fixed rate fell to 6.55 percent, reaching its lowest level since May 2023, following doveish communication from the Federal Reserve and a weak jobs report, which added to increased concerns of an economy slowing more rapidly than expected,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist. “As a result of lower rates, refinance applications increased across all loan types, particularly for VA loans, and were almost 60 percent higher than it was at this time last year and were at its highest level in two years.”
Added Kan, “Despite the downward movement in rates, purchase activity only saw small gains, with an increase in conventional purchase applications offset by decreases in government purchase applications. For-sale inventory is beginning to increase gradually in some parts of the country and homebuyers might be biding their time to enter the market given the prospect of lower rates.”
The refinance share of mortgage activity increased to 41.7 percent of total applications from 38.2 percent the previous week. The adjustable-rate mortgage (ARM) share of activity increased to 6.3 percent of total applications.
The FHA share of total applications decreased to 13.4 percent from 14.2 percent the week prior. The VA share of total applications increased to 14.3 percent from 13.5 percent the week prior. The USDA share of total applications decreased to 0.4 percent from 0.5 percent the week prior.
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($766,550 or less) decreased to 6.55 percent from 6.82 percent, with points decreasing to 0.58 from 0.62 (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 $766,550) decreased to 6.77 percent from 7.07 percent, with points decreasing to 0.50 from 0.53 (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 6.49 percent from 6.69 percent, with points decreasing to 0.79 from 0.84 (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 6.03 percent from 6.27 percent, with points increasing to 0.74 from 0.49 (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 5.91 percent from 6.22 percent, with points increasing to 0.72 from 0.45 (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.
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Ann O’Rourke, MAI, SRA, MBA
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