Highest and Best Use and Appraisals

Newz: HUD Layoffs – Including FHA, GSE Selling Guide Updates

February 21, 2025

What’s in This Newsletter (In Order, Scroll Down)

• LIA Ad: Should I Complete this Assignment?

• Highest and Best Use: A Superpower You Already Possess By Byron Miller, SRA

• High Octane’ Desert Ranch That Boasts Airplane Hangars, Racetracks, and Custom Dune Buggies Hits the Market in California for $15 Million

• Fannie Mae and Freddie Mac’s New Selling Guide Updates: What Appraisers Need to Know. What Data Sources Appraisers Are Using.

• Massive FHA cuts would create dysfunction for mortgage industry, homeowners: ex-official

• Builder Confidence Falls to the Lowest Levels Since May 2024

• Mortgage applications decreased 6.6 percent from one week earlier

Zoning in the Appraisal Process

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Highest and Best Use: A Superpower You Already Possess

By Byron Miller, SRA

Excerpts: Like the Incredible Hulk, my superpower didn’t show itself until stressed. That stress came in January 2020, when Minneapolis became the first major U.S. city to eliminate single-family residential (SFR) zoning, allowing one-to-three units to be built on what were previously (SFR) parcels. Suddenly, there was a lot of confusion in the appraisal community about when and how to perform the highest & best use (H&BU) analysis for the new zoning classification.

As chapter president of the North Star Chapter of the Appraisal Institute, I fielded a flood of questions from residential appraisers to state regulators. One thing I quickly realized was that many of the residential appraisers I spoke with didn’t know the four tests of H&BU analysis.

Let’s revisit the basics: In an H&BU analysis, real estate appraisers determine the most probable use of a property by applying four tests: whether the use is legally permissible, physically possible, financially feasible, and maximally productive. Order doesn’t matter for the first two tests, but it’s essential for the last two. Moreover, appraisers must conduct each of the four tests on the real property as if vacant, and as improved.

Applying each of these tests properly is essential to the valuation process. In many litigation situations where appraiser’s values are far apart, it’s due to H&BU analysis differences.

To read more, Click Here

My comments: Worth reading. The author is a residential appraiser. H&BU is one of my favorite topics! I have done many commercial properties for lenders and non-lenders where H&BU was not the current use. I appraised them at their H&BU.

If you only do residential properties H&BU issues is much less an issue, so you don’t do the H&BU analysis very often. Unfortunately, many of the res appraisers who call me did not think about the relevant H&BU. This article is an excellent reminder. You can get into Big Trouble with H&BU if you don’t know when it is important.

The article has a section titled: Practical H&BU Analysis of the 4 factors with an excellent case study. Interesting appraiser comment worth reading.

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High Octane Desert Ranch That Boasts Airplane Hangars, Racetracks, and Custom Dune Buggies Hits the Market in California for $15 Million

Excerpts: To anyone with a passion for off-road riding and racing, “Glamis Sand Dunes” are magical words. Each year, more than one million people drive their RVs to this remote location in the Imperial Valley so they can zoom around the sand in all manner of high-speed vehicles.

But there is only one private residence among the storied dunes that epitomizes this lifestyle—and that’s the 420-acre Dune Ranch, which boasts so many “thrilling” amenities that even the bravest of daredevils will be spoiled for choice.

The expansive property, which is made up of multiple buildings, including an 8,144-square-foot main house, features two enormous racetracks, multiple private runways, airplane hangars, and garages—and comes complete with a collection of rare off-roading vehicles.

To read the article, Click Here

To read the listing with 73 photos, Click Here

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Fannie Mae and Freddie Mac’s New Selling Guide Updates: What Appraisers Need to Know Plus What Data Sources Appraisers are Using

Excerpts: Fannie Mae and Freddie Mac recently introduced significant updates to their selling and servicing guides, specifically impacting the way appraisers analyze market areas in their appraisals. These changes, effective for appraisals on loan applications dated on or after Feb. 4, 2025, aim to increase consistency, clarity, and transparency in appraisal reports.

These selling and servicing guide updates necessitate a more in-depth, standardized approach to market analysis, particularly concerning how appraisers report market conditions adjustments and overall market trends. Appraisers will need to adapt their data collection and analysis methods to meet these heightened expectations, ensuring that all adjustments are supported with robust data.

Note that these practices are now required, as the updates went into effect on Feb. 4, 2025.

Appraisers Share Their Go-To Sources for Understanding Market Dynamics

As part of our monthly survey series, we asked our community of real estate appraisers, “What are your go-to sources for understanding market dynamics?” Here’s a quick list summarizing all the answers we received, followed by quoted comments from appraisers below:

A few of the sources

• MLS
• Local real estate professionals (Realtors, developers, buyers, brokers, property managers)
• Federal Reserve
• Fannie Mae/Freddie Mac
• FHFA House Price Index
• Bureau of Labor Statistics
• State government websites
• Town and county websites
• Local newspapers

“Typically, while reviewing an appraisal, we look at market research from area town and county websites as well as realtor information such as Zillow.”

“I try to take a well-rounded market approach that begins with a big picture national market, then the state, then I use the MLS to narrow it down to county and towns.”

“Customizable market trend reports in MLS. I also compare my MLS market trend reports to comparable properties in the market area using self-generated CMA reports in MLS.”

To read more, Click Here

My comments: Read what the appraisers say.

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Conceptualizing Market Condition Trends

By David A Braun, MAI, SRA

In the February 2025 issue of Appraisal Today

I agree with what Fannie Mae is suggesting on the issue of making time adjustments on the comparison grid. You may have heard that the GSEs performed a study of past appraisals which concluded that in general appraisers are often making inappropriately small, time adjustments. I can’t validate the study, but have a gut feeling that part of it is correct.

The big picture is that appraisal principles should not be developed by the

users of appraisal services, but rather by the appraisal profession itself.

In this specific instance Fannie Mae is not developing new appraisal

principles, they are simply pointing out a deficit that they believe exists.

Should comp dates be based on contract or sale dates? Time adjustments should be based on the contract date as that date represents the meeting of the minds.

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Massive FHA cuts would create dysfunction for mortgage industry, homeowners: ex-official

Housing Wire, February 19, 2025

Cuts could lead to an inability to manage Section 8, Community Development Block Grants, Section 202 senior housing and even mortgage insurance, ex-HUD official says.

The former HUD official sees the administration disputing wide-ranging cuts as a sign of momentum for the housing industry, though the full amount of potential cuts to the FHA remains unclear. HUD did not specify where or how cuts could be made.

My comments: I could only copy a few paragraphs from the article. The Housing Wire article may be behind a paywall now. You can Google FHA layoffs for more articles, but many may say there will be a 40% layoff. Housing Wire is one of the best sources of mortgage news and analysis.

I wrote up this newsletter on Wednesday April 19 with no FHA layoffs reported. As of February 19 late afternoon, looks like layoffs will happen.

Is it 40% or who knows as of April 19.

To read the article (maybe) , Click Here

My comments: I am so glad I don’t work for the federal government. My only time was working for 2 years as a seasonal fruit and vegetable inspector Salinas, California in processing plants for the USDA many years ago. I was far away from Washington D.C., but there were many USDA manuals in each processing plant.

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Builder Confidence Falls to the Lowest Levels Since May 2024

Tariffs, Mortgage Rates and Housing Costs

Excerpts: Builder sentiment fell in February due to concerns over tariffs, elevated mortgage rates and high housing costs, according to the housing market index (HMI) from the National Association of Home Builders (NAHB) and Wells Fargo.

The HMI survey found that 26% of builders cut home prices in February, down from 30% in January and the lowest share since May 2024. The average price reduction was 5%, unchanged from January. About 59% of builders used sales incentives in February, down from January’s 61%.

NAHB Chairman Carl Harris said in a statement that uncertainty on tariffs helped push expectations for future sales volume down to the lowest level since December 2023.

“With 32% of appliances and 30% of softwood lumber coming from international trade, uncertainty over the scale and scope of tariffs has builders further concerned about costs,” said NAHB Chief Economist Robert Dietz.

To read more, Click Here

My comments: What are builders in your area saying? They are an excellent resource for market changes. They compete with existing homes. When builders lower prices it could affect existing home sales prices.

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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. We are all waiting for rates to drop in 2025.\

Mortgage applications decreased 6.6 percent from one week earlier

WASHINGTON, D.C. (February 19, 2025) — Mortgage applications decreased 6.6 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending February 14, 2025.

The Market Composite Index, a measure of mortgage loan application volume, decreased 6.6 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 39 percent higher than the same week one year ago. The seasonally adjusted Purchase Index decreased 6 percent from one week earlier. The unadjusted Purchase Index decreased 1 percent compared with the previous week and was 7 percent higher than the same week one year ago.

“Mortgage rates decreased on average over the week, as markets brushed off unexpectedly strong inflation data. Despite mortgage rates declining, with the 30-year fixed mortgage rate dropping to 6.93 percent, mortgage applications decreased to their slowest pace since the beginning of the year,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist. “Purchase applications were down for the week, as buyers remained on the fence, although loosening inventory may help support activity in the coming months. Refinance applications had been rising in previous weeks but dipped as rates remained close to 7 percent.”

The refinance share of mortgage activity decreased to 38.7 percent of total applications from 40.2 percent the previous week. The adjustable-rate mortgage (ARM) share of activity decreased to 5.4 percent of total applications.

The FHA share of total applications increased to 16.6 percent from 16.0 percent the week prior. The VA share of total applications decreased to 14.2 percent from 14.6 percent the week prior. The USDA share of total applications increased to 0.6 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 6.93 percent from 6.95 percent, with points increasing to 0.66 from 0.64 (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) increased to 7.03 percent from 6.96 percent, with points increasing to 0.53 from 0.39 (including the origination fee) for 80 percent LTV loans. The effective rate increased from last week.

The average contract interest rate for 30-year fixed-rate mortgages backed by the FHA increased to 6.70 percent from 6.69 percent, with points increasing to 0.87 from 0.80 (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 decreased to 6.31 percent from 6.35 percent, with points increasing to 0.70 from 0.63 (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 6.08 percent from 6.20 percent, with points increasing to 0.77 from 0.65 (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.

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

By Ann O'Rourke on February 21, 2025   /   appraisal how to, Fannie, Freddie, real estate market   /   Leave a comment

Tags: appraisal how to, Fannie, FHA