Newz: Now What For Appraisers After Election? Generative AI and adjustments?
November 15, 2024
What’s in This Newsletter (In Order, Scroll Down)
- (LIA ad) Intended Use and User
- 10 Questions on the Cost Approach and Highest and Best Use
- A Real-Life ‘Yellowstone’: Historic 52,000-AcreArizona Ranch Hits the Market for $42 Million—Complete With a Private Airstrip and Off-Grid Cabin
- Now What? On a New Trump Administration
- Can Generative AI solve the adjustment support paradigm
- How Deep Fakes Have Burrowed Into Home Finance
- Murder in the flying saucer: inside The Chemosphere in Los Angeles, CA
- Mortgage applications increased 0.5 percent from one week earlier
- So Many Appraisal Cost Approach Questions
- Appraisal Business Tips
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10 Questions on the Cost Approach and Highest and Best Use
By Timothy Andersen
Excerpts: It is clear most appraisers do not like to perform the analytics inherent in the Cost Approach. This may be because most appraisers simply do not appreciate its power. Consider these 10 Cost Approach questions.
10 QUESTIONS TO CONSIDER
Take a look at these 10 questions on the Cost approach (and various items related to it). After you are finished, you will still not like to do it. But you may appreciate its analytical and interpretative powers even more.
1. On the 1004 form is the indication that Fannie Mae does not require the Cost Approach to Value. However, where does the form instruct the appraiser not to complete the analytics of the Cost approach? (Spoiler Alert: It does not.)
2. Instructions on the form state the appraiser is to “…[p]rovide adequate information to the lender/client to replicate the [herein] cost figures and calculations.” However, where does the typical appraiser provide such replicable information?
3. In addition, the reporting form requires the appraiser to “…[s]upport the opinion of site value [with a] summary of comparable land sales or other methods for estimating site value.” Nevertheless, where does the typical appraiser provide such summary information?…
So, it is clear from these Fannie Mae instructions that the appraisal of a SFR includes an analysis and valuation of the subject site separate from the valuation of the site as improved. Does this mean to conclude a site value as if the subject site were vacant and available to be put to its highest and best use? (Spoiler Alert: Yes, it does.)
To read all 10 Q&As, Click Here
My comments: Of course, for custom home construction the Cost Approach is required to determine the feasibility of construction before building the home. I got some good ideas on using the Cost Approach from this article.
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A Real-Life ‘Yellowstone’: Historic 52,000-Acre Arizona Ranch Hits the Market for $42 Million—Complete With a Private Airstrip and Off-Grid Cabin
Excerpts: 5 bedroom, 3.5 bath 6,829 sq.ft., 52,677 Acres
Historic Arizona ranch that looks like a movie set from “Yellowstone” has been put on the market for the enormous price of $42 million — offering one very deep-pocketed buyer the opportunity to channel their inner John Dutton.
The working cattle ranch, which is located in Seligman, last changed hands almost 40 years ago. However, its heritage extends far beyond that, boasting a wealth of history as well as connections to the famous Mellon dynasty.
The property was once known as the Buckman Stage Station, but it got the title Fort Rock, a nod to the surrounding rock formations, after a battle in 1866 with the Hualapai, according to the listing.
The fenced property includes a private airstrip that was recently resurrected, with the first plane landing on the site in over 30 years. Known as the “Fort,” the home serves as the living quarters of the ranch foreman. Built in 1894, the property offers 3,660 square feet of living space.
The main home, called the “Headquarters” and built in 1926, overlooks Meadow Lake. The 5,737-square-foot property has five bedrooms and 3.5 bathrooms. Several other structures house ranch employees. There’s a “secluded off-grid” cabin on the way to Trout Creek, according to the listing.
To read more, Click Here
To read the listing and see a Virtual tour and 126 photos Click Here
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Now What for Appraising? On a New Trump Administration
Excerpts: With the election behind us and Republicans poised to control most—if not all—of the legislative process, I felt it important to look at what’s been said regarding how a new Trump administration will handle appraisal-related issues. This is not what I want them to do, but rather a distillation of how various documents and comments can inform expectations.
Regardless of prior distancing, it is reasonable to expect Project 2025 to be reflected in much of the Trump administration’s efforts, so I’ll include it here. I also believe it’s likely that Trump’s approach to the GSEs and FHFA in the first term will be similar, so we can look backwards at how that played out previously. Lastly, we can look at late-first term efforts on housing finance reform as a starting point for second term prerogatives.
On GSEs and FHFA
The most obvious place to start is how we can expect the Trump administration to view the work of the Federal Housing Finance Agency (FHFA) and its ongoing conservatorship of Fannie Mae and Freddie Mac. It was, and will likely be, a clear objective to complete the recapitalization and release of the two GSEs from conservatorship—though this will require some guardrails around GSE activities such as collateral risk management.
The recent expansion of appraisal waiver eligibility likely does not sit well with those poised to take on leadership roles in the next Trump administration, as it underscores creep from the GSEs missions. You could also argue that the GSEs effective capture of the mortgage-related appraisal process falls into that category, though it’s difficult to see an unwinding of the new Uniform Appraisal Dataset and Forms Redesign.
On Bias and Discrimination
We have clear answers on what we can expect from the Trump administration on bias and discrimination, if we take at face value the Project 2025 statement on the matter: “Immediately end the Biden Administration’s Property Appraisal and Valuation Equity (PAVE) policies and reverse any Biden Administration actions that threaten to undermine the integrity of real estate appraisals.”
On the Consumer Financial Protection Bureau (CFPB)
Project 2025 is clear in its desire to see the CFPB abolished; it’s what would follow that could sow confusion among the housing finance system. Were the CFPB abolished, its consumer protection functions would spread among The Office of the Comptroller of the Currency (OCC), Federal Deposit Insurance Corporation (FDIC), Federal Reserve, and National Credit Union Administration (NCUA), and its prior rulemakings pulled down.
With little in the way of concrete proposals on appraisal-related issues, the various avenues the Trump administration could go down are both limitless and unknown. However, the very fact that appraisals have been mentioned in Project 2025 shows there is some cognizance and desire to seek changes.
Final Thoughts
While it’s hard to know in advance whether any administration’s work will be net positive or negative for the appraisal profession, it would be fair to characterize the past four years as ones where appraisers and appraisals were a constant focus—especially through the lens of bias and discrimination.
I know from many conversations I’ve had, there is real fatigue out there among appraisers who simply want to do their job as best they know—objective, unbiased, and impartial. If nothing else, the early days of the Trump administration may provide some respite from a tumultuous period for the profession as other priorities take center stage.
With little in the way of concrete proposals on appraisal-related issues, the various avenues the Trump administration could go down are both limitless and unknown. However, the very fact that appraisals have been mentioned in Project 2025 shows there is some cognizance and desire to seek changes.
To read more, Click Here
Note: This story is republished by Working RE from ValuSight Consulting (www.beyondthevalue.com)
My comments: Many thanks to ValuSight Consulting for writing this Most Excellent article and for WRE for republishing it. Worth reading the entire article. Very well written and understandable, focusing on appraisal issues.
I have been including info from Project 2025 and Agenda 47 in my appraisal writing. I recently wrote about waiting until you are 70 to start Social Security benefits in my monthly newsletter. I read what both documents above said, which was no changes to benefits, etc. Estimating the future today accurately is very difficult as it depends on who is appointed to positions in the new Administration and many other factors.
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Zillow’s Unreliable Square Footage
In the October 2024 issue of Appraisal Today
By Jamie Owen
I’ve written about Zillow in the past. Primarily about how unreliable their Zestimates can be. While that’s true, Zillow does provide some great data. However, before you rely on it as a data source, there are some things to keep in mind. Let’s talk about their reported finished square footage.
On more than one occasion some who have read my appraisal reports felt
that my opinion of value was too high. They felt that way because of sales they saw on Zillow that appeared to be comparable and sold for less than my opinion of the market value of the property I appraised. Why?
One of the primary reasons has to do with what they report as finished
square footage. Usually, at least from what I have seen, they include the basement finished square footage in their finished square footage estimates. Is this misleading? Not really, because they only state that this is “finished square footage”. So, what’s the big deal?
Appraisers understand that in many cases, the below-ground finished
square footage has a different value per square foot than above-ground (grade) square footage. To lump them all together can lead to some misconceptions about value.
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Excerpts: Can Gen AI provide the support for an adjustment. Well like any other appraisal question it depends on the scenario. It also varies on the Gen AI being used. Is it an image or text development tool, mathematical or data science based. We also need to factor in the skills of the user.
Gen Ai is an excellent tool that can augment the appraisal process when it is navigated responsibly by the user. As a user we should be experimenting and learning as much as we can about Gen AI. It is everywhere, spam detection, targeted advertising, spell check, cybersecurity as examples.
Solving the “Support your Adjustment” paradigm is actually rather simple. The real problem is the legacy process of trust me; 3 comps and my judgement is all you need. Coupled with the lack of professional development education teaching appraisers’ data science methods that can be easily deployed in a Gen AI application by importing a data set and simply asking it to calculate the daily, monthly or quarterly rate of change in prices using “time Series” methods. Aka “Market Conditions, Time Adjustments, Mark to market”.
To read more, Click Here
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How Deep Fakes Have Burrowed Into Home Finance
By Jeremy Bagott
Excerpts: Fannie and Freddie have been toiling at the coalface of “synthetic appraisals” – “black box valuations.”
Fannie and Freddie, like the Pentagon planners in the ‘60s and the computer scientists at Fitch and Moody’s in the aughts, have been toiling at the coalface of “synthetic appraisals” – “black box valuations.” Hiding behind a wall of gibberish and acronyms, they call the practice “Value Acceptance + Property Data.” It has contributed to what we have today: a massive fraud-filled housing bubble in which starter homes in many markets are selling for over a million dollars and homes nationwide have seen a doubling and tripling of prices.
Fannie and Freddie, the silent partners in most U.S. home sales, have enabled it.
As early as 2017, the website HousingWire reported that Fannie would be following Freddie in guaranteeing mortgages without the appraisal of certain homes put up as collateral. While the Dodd-Frank Act curbed issuance of “liar loans” – so-called “stated income loans” – Fannie and Freddie have ushered in its equivalent for the new era with “the black-box appraisal.”
To read more, Click Here
Murder in the flying saucer: inside The Chemosphere in Los Angeles, CA
Designed by famed architect John Lautner, the Chemosphere is an LA midcentury modern relic
Excerpts: Hovering above the treetops along Mulholland Drive, the road snaking through the Hollywood Hills, a flying saucer appears. It’s not a prop leftover from a sci-fi film production but rather an unusual architectural wonder called the “Chemosphere.”
Technically it’s a house, though you wouldn’t immediately guess that from the shape. It calls to mind an observation deck crossed with a water tower from the near future. Accessible via a central funicular, the single-family dwelling, designed by famed modernist architect John Lautner, has a 360-degree view of the city below.
Billed as the “world’s first space-designed home” when it was completed in the early 1960s, the octagonal Chemosphere was not actually an outgrowth of the populous’ fixation with the then-ongoing space race — though it does have ties to Southern California’s prosperous aerospace industry, says Alan Hess, an architect, historian and the author of “The Architecture of John Lautner.” (And, it must be noted, Lautner designed Bob Hope’s famous UFO-esque house in Palm Springs.)
To read more, Click Here
My comments: To read more, Google Chemosphere. Thanks to Joe Lynch for sending me this link. If you see an article or listing about an usual home, send me the link. Your name may appear in this newsletter!
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. We are all hoping for lower rates in 2025 and more appraisal business!
Mortgage applications increased 0.5 percent from one week earlier
WASHINGTON, D.C. (November 13, 2024) — Mortgage applications increased 0.5 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending November 8, 2024.
The Market Composite Index, a measure of mortgage loan application volume, increased 0.5 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 2 percent from the previous week and was 43 percent higher than the same week one year ago. The seasonally adjusted Purchase Index increased 2 percent from one week earlier. The unadjusted Purchase Index decreased 2 percent compared with the previous week and was 1 percent higher than the same week one year ago.
“Mortgage rates continued to increase last week, driven by higher Treasury yields as financial markets digested the likely impacts of a Trump presidency. The Federal Reserve’s 25-basis-point rate cut was already anticipated and did little to move the markets,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist. “The 30-year fixed rate was at 6.86 percent last week, its highest since July 2024. However, despite the increase in rates, applications increased for the first time in seven weeks.”
Added Kan, “Purchase applications picked up and remained close to levels from a year ago. FHA and VA purchase applications drove the stronger overall purchase activity, increasing 3 percent and 9 percent, respectively. FHA mortgage rates bucked the overall trend and were lower over the week, which likely helped some borrowers. Conventional purchase applications were also up slightly. Meanwhile, the upward climb in rates led to refinance activity falling to its lowest level since May 2024.”
The refinance share of mortgage activity remained unchanged at 39.9 percent of total applications from 39.9 percent the previous week. The adjustable-rate mortgage (ARM) share of activity decreased to 6.5 percent of total applications.
The FHA share of total applications increased to 16.0 percent from 15.5 percent the week prior. The VA share of total applications increased to 13.3 percent from 12.5 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 ($766,550 or less) increased to 6.86 percent from 6.81 percent, with points decreasing to 0.60 from 0.68 (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) increased to 7.00 percent from 6.98 percent, with points decreasing to 0.48 from 0.65 (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 6.75 percent, with points decreasing to 0.76 from 0.87 (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 remained unchanged at 6.21 percent, with points increasing to 0.63 from 0.55 (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 6.06 percent from 6.05 percent, with points decreasing to 0.64 from 0.84 (including the origination fee) for 80 percent LTV loans. The effective rate decreased from last week.
The survey covers U.S. closed-end residential mortgage applications originated through retail and consumer direct channels. The survey has been conducted weekly since 1990. Respondents include mortgage bankers, commercial banks, thrifts, and credit unions. 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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