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Appraising Short-Term Rentals/Airbnb

Debate on Appraising Short-Term Rentals

By Julie Friess, SRA, AI-RRS, MA

Video 22 minutes. Worth Watching!

Excerpt: What can appraisers learn when it comes to short-term and long-term rentals? What role does an appraiser take when sorting between the two? What can appraisers learn when it comes to short-term and long-term rentals? What role does an appraiser take when sorting between the two? These questions and much more will be answered.

My comments: Julie is not referring to an owner-occupant renting out a spare room in their house for a short term. She is talking about an investor buying and renting many rooms in a house, sometimes changing the floor plan. The photo above is a good example: an exterior door for access to a bedroom. This is not typical for a single family home

In the video, Joan Trice and Julie disagreed on how to appraise Short Term Rentals. I have been a commercial appraiser for over 40 years. It is obvious to me that you need experience and knowledge of what to do when appraising them as commercial properties.

If the GSEs are unclear on this, that is their problem, not yours. Just Say No! Don’t Risk Your License! 

Julie has lived for decades in Sedona, a popular vacation location. Many homes were changed to investor-purchased Airbnbs with few home rentals available for local residents. Julie and a group of other concerned residents are now preparing for August 5, 2022, when there is an election for new city council members.

Julie and I are co-hosts every Thursday at 2 PM Pacific Time in our Clubhouse group (Real Estate Appraisal Questions). To attend, download the Clubhouse app on your smartphone. All sessions are recorded and available. Recent topics include Water rights, views, location, and more. Short-term Rentals. Zoning, Highest, and Best Use. Past, Present, and Future of Residential Appraising.

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Two articles by Julie on my website:

Residential Appraisals and Airbnb Income?

Click here to read

Excerpts from the article: Don’t get caught like a deer in the headlights! State appraisal boards ARE disciplining appraisers across the country for improperly using the business income (Short term Rental – STR) from AirBnBs on the residential 1007 Fannie Mae form. 

Lenders and AMCs want residential appraisers to value these properties as both the real estate and the business values of these properties – Wrong!!

Tales of a Trainee at Appraisal Camp Sedona

Click here to read

Residential Appraisals and AirBnb Income?

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 Cubicasa, Desktops, FHA, unusual homes, mortgage origination stats, etc.

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Posted in: appraisal business, Clubhouse, cubicasa, FHA

VA Appraisals and Fee Appraisers

V.A. as a Model for Appraisals

by Isaac Peck

Excerpts:

Step Above the Rest

It’s not a secret that being on the V.A. appraiser roster is a coveted position for most residential appraisers. So, what exactly makes the V.A. so special?

Rocha (V.A. appraiser) says the V.A. is a step above the rest primarily because of the following criteria.

V.A. wants a good quality panel

V.A. pays higher appraisal fees

V.A. delivers fast turn times to veterans

V.A. doesn’t use Appraisal Management Companies (AMCs)

V.A. has a program that encourages the use of trainees

V.A.’s Tidewater Program is fair to all sides

Fees, Turn Time, and Quality

The first four criteria are certainly related and are worth examining together. For starters, the fact that the V.A. does not use AMCs allows them to pay more directly to the appraiser, according to Rocha. “Instead of AMCs, the V.A. has a Portal which is really streamlined and easy for stakeholders to use. We can communicate in that Portal and it sends it out to all parties and keeps everyone in close communication,” says Rocha.

To read more, click here

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Proposal to Eliminate the V.A. Fee Panel

Excerpt: On May 1,8, 2022 the Subcommittee on Economic Opportunity held a legislative hearing on the Discussion Draft of H.R. 7735, Improving Access to the V.A. Home Loan Act of 2022… It would require the V.A. to consider when an appraisal is unnecessary and when a desktop appraisal should be used and, a move from the V.A. Fee Panel to a lender select program. Mortgage Bankers Association advocated for the proposal. Appraisal Institute opposed it.

To read more, click here

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My comments: V.A. is the best lender client for appraisers. You are working for the veteran to be sure they do not overpay, find out about problems, etc. You are not working for a lender who just wants to make the loan.

Where VA loans are soaring. Are you doing VA appraisals?

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 No more floor plans?, non-lender appraisals, hurricane with and surge risks, unusual homes, mortgage origination stats, etc.

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Posted in: non-lender appraisals, square footage, va

Subject Property Location in Appraisals

Subject Property Actual Location

By Dave Towne

Excerpts: Appraisers, this article was prompted by my ‘coming in contact with several appraisal reports where different regional appraisers report the physical location of the subject property “in” a particular City associated with the postal ZIP Code for that City. Actually, the property was not “in” the City at all. It was in the County.

Don’t say that the subject property is ‘within’ a particular City or Town due to the postal ZIP Code that applies to the street address unless that is accurate. The actual location may be miles away from there.

Starting with the ZIP Code: those are merely lines on a map the US Post Office established, used to plan mail routes, and distribute mail more efficiently. ZIP Code boundaries do not always follow City Limit or County (Parish) boundaries, and in some cases, the boundaries are a long way from the City name associated with the ZIP Code. See Map 1. This shows 5 ZIP Codes in a region. The ‘City’ for 98273 and 98274 has two ZIP Codes associated. Note how wide the area coverage boundaries are for those two ZIP Codes. It’s not shown here, but 98284 extends north into the adjoining County!

To read more, click here

My comments: I have seen this locally. For example, the two cities were very different. Having an address in one city was more valuable than in the other city. The cities shared a few zip codes. When using GPS internet searches such as Google maps, the city boundaries don’t show up or are not reliable. I keep printed maps in my car that include city and county boundaries.

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 real estate market decline in listing prices, land issues, unusual homes, mortgage origination stats, etc.

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Posted in: appraisal how to, real estate market

Appraisals and Water Frontage

Appraisals and Water Frontage

Steven W. Vehmeier

Excerpts:

What about an off-site water view?

In a large townhouse-style condominium complex, there were only eight units that had water views. The view was of a section of the Intracoastal Waterway. It was from the second floor only, and over a six-foot high concrete block wall and across an open field. The builder charged more for those units because of the partial view.

My research discovered that the open field had just been purchased by a group that was building a four-level high-and-dry boat storage building. That bit of news made quite a few folks very unhappy and had a distinct impact on the value of those units. The moral of this story is that when you see open land between your subject property and the water, review ownership and the local building and zoning department’s comprehensive land use plan.

Water rights play a major role

With many water fronting properties, the topics of “riparian and/or littoral rights” (and the “prior appropriation doctrine” in the western states) come into play, along with several other issues. Those topics are fodder for other lengthy blog posts all by themselves. Appraisers should familiarize themselves with their state laws regarding water frontage and related rights, as they can vary from state to state.

Among the rights that come with real property ownership is the right to exclude others. When oceans, lakes, bayous, estuaries, rivers, streams, and ponds are involved, this right is a large part of what property purchasers are paying for.

To read more, click here

My comments: Worth reading, especially the last section “Final thoughts on the topic.”

I have lived in my island city for 42 years and had two waterfront homes, with docks, during the first 30 years. Both had many water related issues. One was on a tidal canal and built around 1943. Over time many homes along the waterfront, including mine, had non-permitted structures built over the water. The canal was owned by the state with an unclear easement for building beyond the rear lot line. The property owners asked me to do appraisals on the homes, including the rear structures but did not like my very high fee. It was so complicated the state and the city gave up trying to straighten it out.

The other home, built in 1946, faced a small bay off an outlet to a large part of San Francisco Bay. The large rear part of the lot was owned by the state and the city, which was leased to the homeowner. When the state said they were considering giving public waterfront access along the rear of all the homes unless we paid an annual lease fee, based on the extra lot square footage, we agreed to pay it.

I always wondered what other appraisers thought about these issues. They may not have even recognized or asked about them. Appraisers called very rarely.

I will never forget one of my first house appraisals here. The owner said it had a Bay view but did not mention you had to stand on the toilet to see through the window. After that, I told them the view had to be from a chair that you sat in!

Read more!!

Posted in: adjustments, desktop appraisals, hybrid appraisals, state appraiser regulators, time adjustments, USPAP

Appraisals – Check the Water Source!

Excerpt: We continue to see claims alleging that the rural property appraiser failed to adequately identify or report details surrounding a water source. In one claim, the appraiser correctly noted that the property was serviced by a “private water well.” It was later discovered that the well was not located on the property which was appraised. Unfortunately, the well was actually located on an adjacent lot that, at one time, was part of the subject lot prior to the lots being subdivided.

My comments: An appraiser lost a lawsuit because he said the vacant parcel had public water access. It did not even though many lots nearby were developed. Nearby, I noticed a large water tank. It was shared by four nearby homes. This was not in a rural area. I worked for 4 years in rural areas. Water access was critical. If there was no access, trucks had to bring the water.

Appraisers – check the water source!

10-12-17 Newz//FHA-Appraisers responsible for water quality reporting?, Hybrid appraisal survey)

Appraisal Business Tips 

Humor for Appraisers

Click here to subscribe to our FREE weekly appraiser email newsletter and get the latest appraisal news!!

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 real estate market, USPAP and contracts, unusual homes, mortgage origination stats, etc.

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My Comments on Market Changes

My inbox is flooded with news emails about opinions on what is happening now and forecasts for the future. (Most of the information in these newsletters comes from emails. I am on many email lists.) It looks like the change is starting because of increasing mortgage interest rates. I have included some of the articles below.

Fannie and Freddie have long said that they want appraisers to tell them about their markets. Include graphs and charts in your appraisal to show your clients what is happening now and why they need human appraisers.  

It is extremely important for appraisers now to closely track changes in your local markets at least once every day and tell your lender clients about it. When will it affect your market? No one knows if there will be foreclosures or when they will start. The number of potential buyers will decrease as rates go up in many markets.

Segments may be very different from the overall stats. A few examples:

  • Different price ranges – first-time homebuyers, high end
  • New homes – what is happening?
  • Detached vs. townhomes and stacked condos.
  • All cash and investors
  • How many offers
  • No inspections or appraisals?

COMPS ARE THE PAST. YOU MUST KNOW YOUR MARKET TRENDS. TRACK AND GRAPH THE NUMBER OF LISTINGS VS. PENDINGS AND EXPIREDS, DAYS ON THE MARKET, PRICE CHANGES, ETC. 

Today is NOT the same as 2008+, with its massive fraudulent loans made to unqualified buyers. Computer modeling did not predict the 2008 crash. Many were in denial that it was coming and refused to listen to appraisers. We have never seen a pandemic real estate market before. Did anyone think in early 2020 that home values all over the country would go off the charts? No one did. Appraisers wrote up long disclaimers about how they did not know the effects. Some still include them in their appraisal reports today.

Watch the excellent 4-minute video with Mark Zandi, “There’s a comeuppance coming in the housing market”. It discusses how today is different from 2008 and what is happening today. Before becoming the chief economist of Moody’s Analytics, he was a real estate economist. I listened to him for many years about real estate economics. He is very savvy. I agree with what he says about real estate. I am unsure about inflation. To watch the video, click here

I have been writing about these upcoming changes in these newsletters for a while now. Ryan Lundquist writes about this almost every week. He has lots more details and examples of graphs that can help you see what is happening in your market. www.sacramentoappraisalblog.com He writes for the Sacramento, CA market but what he writes is relevant for other markets also.

Two days ago the Fed raised rates by 0.75%. Recession? Lower inflation? Real estate market?

Read more!!

Posted in: appraisal, liability, real estate market, USPAP

Too many appraisers?

How can we fix the excess of appraisers?

Too many appraisers?

By George Dell, SRA, MAI

Easy — we do what we have always done, each time . . .

Excerpts: 1) We will raise the standards (“cost of entry”). 2) We will make it harder to become an appraiser; 3) Let the lower fees discourage newcomer appraisers.

In past issues of the Analogue Blog, we have considered the “five forces of friction” on the advancement of appraisal. Here we consider how these “frictions” will behave as appraisal demand has dropped, just as each of the five forces have found ways to reduce or “eliminate” the need for valuation expertise. Recall the five forces of friction: practices, standards, education, regulation, and client expectation.

This blog considers how each friction will respond to this “excess” of appraisers.

Practices:

Current practice is still embedded in the concepts of 8 ½ X 14 paper forms, spreadsheets, or narrative explanation of the opinion of the person (appraiser, evaluator) or automation programmer. Practices will continue to evolve toward objective data selection and predictive models. But this evolvement will continue to stay behind the inherent potential of applied data science. Habitual practice of “comparing comps” over “measuring markets” will prevail (in the absence of change in the other “frictions”).

To read more, click here

My comments: Of course, lots of politicians, appraiser organizations, appraisers and others are complaining now about an appraiser shortage and trying to recruit trainees. This is the past. Loan applications are way down, the lowest in 22 years. What was your business like before the pandemic? Not much work probably compared with 2020-2022. The Inevitable Cyclicality of Mortgage Lending. I hope you saved up lots of money over the past few years!

Non-lender Appraisals Good fees and few hassles
Purchase vs. refi appraisals

Appraisal Business Tips 

Humor for Appraisers

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NOTE: Please scroll down to read the other topics in this long blog post on declining mortgage loans, real estate market, unusual homes, mortgage origination stats, etc.

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Posted in: appraisal business, george dell, mortgage loan volume, real estate market

Residential Appraisals and Airbnb Income?

Residential Appraisals and Airbnb Income?

By Julie Friess, SRA, AI-RRS, MA

Don’t get caught like a deer in the headlights! State appraisal boards ARE disciplining appraisers across the country for improperly using the business income (Short term Rental – STR) from Airbnbs on the residential 1007 Fannie Mae form.

Lenders and AMCs want residential appraisers to value these properties as both the real estate and the business values of these properties – Wrong!!

 

Some of the topics:

• USPAP issues

• GRM is an Income Approach that applies to homes with long long-term tenants, not homes with many Short Term Rentals.

• Functional Obsolescence

• External Obsolescence

• Covid-19 Pandemic and Airbnb’s

The photo below has an exterior entrance to a bedroom, typical for an Airbnb remodeling.

To read more, click here

My comments: This mainly applies to cities where many homes are being converted to Airbnbs, including exterior doors for bedrooms (see foto below) and expanding the number of bedrooms. In popular vacation areas, such as Sedona, AZ, where Julie lives, investors purchase homes and do extensive remodels to turn them into Airbnbs with Airbnb management companies handling everything for them (clean up, new furnishing, and renting).

Julie does not include short-term rental income (STR) in her appraisals of homes with Airbnbs. I posted her article on my website so that everyone can read it. I have a few of my comments, of course!! I’m a commercial appraiser and know how hotels and Bed and Breakfasts are appraised. The appraisals include separate values for real estate, fixtures, and Going Concern (business income and expenses).

Julie speaks about this topic regularly on our weekly Clubhouse meetup, Real Estate Appraisal Questions, every Thursday at 2 PM Pacific Time (audio-only social media). All the sessions are recorded. The May 12, 2022 session was “Residential 1004/1007 Form Appraising & AirBnB Income”.

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 real estate market changing, appraisal bias research, unusual homes, mortgage origination stats, etc.

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Posted in: appraisal how to, bias, real estate market

Tips on appraising new construction homes

6 Tips for Appraising New Construction Homes

Excerpts: New construction is treated a little differently by lenders, FHA, and the GSEs. When appraising new construction homes, you must take into consideration certain features and attributes that don’t necessarily apply to re-sales. It requires more work, so you want to be sure that you are charging for your effort. However, perhaps more than that, you want to be sure you’re following the proper protocol. Stick to these best practices to ensure you cover all your bases.

3. Talk to multiple local builders You can gain valuable information from builders—as long as you talk to them now to evaluate current costs and value. Some of the best construction cost data is compiled by you as you complete new construction appraisal assignments. When appraising new proposed construction, the prior data can be reviewed for those construction projects that are most similar to the subject property in quality, size, and features and be used as cost data to support cost estimates for the current appraisal. As the cost of construction materials generally continue to spiral upwards, it may be necessary to adjust for time, depending on how old the cost data is.

To read more tips, click here

My comments: Well written and worth reading. New home construction appraisals can be tricky. I quit doing them a while ago – too many various hassles, but many appraisers like doing them. There are few new homes built in my area, except stacked condos. Land is too expensive.

Appraisal Business Tips 

Humor for Appraisers

Click here to subscribe to our FREE weekly appraiser email newsletter and get the latest appraisal news!!

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 VA appraisals, appraisal modernization, eliminate VA panel, unusual homes, mortgage origination stats, etc.

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Posted in: appraisal business, appraisal how to, Fannie, liability, va

CubiCasa – Home Measurement From Inside A House

CubiCasa and a Desktop Mess – an appraiser’s experience

By Jamie Owen

Excerpts: I called the listing agent on the property I was to appraise and asked if they knew how an appraiser might go about obtaining a floor plan (for my desktop appraisal). She had no idea and had never heard of this type of thing being needed. I was really at a dead end here. I called the bank and explained the situation. They ended up converting the assignment to a traditional type of appraisal so that I could just make the inspection myself.

I called the chief appraiser of the bank that ordered the appraisal. I know him well and have worked together with him on some complex assignments. He said the whole thing is a mess. Some appraisers are submitting reports where they have the listing agent hand-draw the interior walls on copies of the county auditor’s sketch outline. This is also a no-no. Fannie Mae will accept nothing hand-drawn in terms of the sketch…

I decided to test CubiCasa. I downloaded the software to my iPhone 11… I must tell you that I was very impressed! The scan took 15 minutes to do. By the way, I measured the home also. It took about 15 minutes for me to measure the home. But it would have taken a lot longer if I had to add walls and doors!

In less than a day, the sketch was sent to me via email, and it was awesome! It was professional-looking and had all the data that I needed. Its measurements were within 15 square feet of mine on a home that was just over 2,400 square feet. It also broke down the square footage of each floor and the dimensions of each room and its gross living area calculations.

I have been using it and then comparing my measurements with its measurements. It is consistently within 1-3% of my measurements. The 3% variance is with larger homes with complex angles and tricky areas to measure. In my view, that’s pretty good!

To read more and see a fun video and animated gifs, click here

My comments: Desktop appraisals are a new type of assignment for appraisers. I wrote about CubiCasa and Desktops in recent newsletters. I tested it and spoke with knowledgeable people. I am using it. No more exterior measurements!

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 Retirement, real estate market changes, ANSI, Appraising luxury homes, unusual homes, mortgage origination stats, etc.

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Posted in: ANSI, appraisal business, desktop appraisals, real estate market

Borrower Keeps Calling Appraiser

Borrower Keeps Calling Appraiser

Appraisal Business Tips 

Humor for Appraisers

Click here to subscribe to our FREE weekly appraiser email newsletter and get the latest appraisal news!!

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 appraisals under contract price, bias, vacant land, hybrids, fannie bad appraiser list, unusual homes, mortgage origination stats, etc.

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Posted in: appraisal how to, bad appraisers, bias, Freddie, hybrid appraisals