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Appraisal Neighborhood Analysis

Posted in: adjustments, future, real estate market, va

Tags: adjustments, forecast, real estate market, va

Appraisers and Local Market Analysis

By Ann O'Rourke on October 21, 2022 / Leave a comment

Appraisers and Local Market Analysis

By Woody Fincham, SRA, AI-RRS, ASA

Excerpts: Social media and the mainstream media make a mess of these markets even in the best of times. They do not have the bandwidth to cover local markets. When you are in a metropolitan statistical area like Charlottesville and Waynesboro/Staunton you get some reporting from the local news. Still, if it is not driven to get online clicks from hyperbole it usually is not worth reporting. National data simply does not apply to the local real estate market and the closest large markets are Richmond and Washington DC. Neither are not great metrics for what our local markets are doing.

I think everyone has heard the old saying, “You can’t see the forest for the trees.” And that is true. We are in the middle of a market transition and exactly how it is transitioning is extremely hard to predict. The best market analysis is always retrospective, as they say, “Hindsight is 20/20.” Until we get past this period over the next few months it may be hard to say definitively what is exactly happening. As an appraiser, it is super important to understand how to gather and analyze relative data.

So, what metrics are worth watching?

Inventory levels
Absorption rates and marketing times
Actual days on market (DOM)…

To read more and see the graphs, click here

My comments: Read this article, including the case study. See if there are data types and graphs you can use in your appraisals. Your clients count on you to let them know the market today, not in the past. Of course, I agree with this. Appraisers have the most valuable data and analyses in a changing market: listings, pendings, price changes, etc.

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What Causes Appraisal Revisions?

Posted in: ADUs, appraisal business, E&O, humor, real estate market

Tags: ADU, appraisal business, Fannie, liability, real estate market, RETIREMENT

Appraisal Risk, Reviews, and Revisions

By Ann O'Rourke on October 14, 2022 / Leave a comment

Appraisal Risk, Reviews, and Revisions

By Ken Dicks

Excerpts: This is part three of a three part series on appraisal review – Read parts one and two. I am often posed with the following question “How do you know when you are looking at a “good” appraisal?” The reality is there is no universal acceptance of a single method of measurement to differentiate “good” from “bad.” After many years of reading appraisal reports, my response is “One that leaves the reader with few unanswered questions, allows the data to tell the story, keeps appraiser interventions to a minimum and is able to present a case for what a property is worth, as well as what it is not worth.”

Today, while there still remains some stickiness to the QC revision process, a recent survey completed by The STRATMOR Group commissioned by appraisal management technology company Reggora, indicates 25% of appraisal reports require some form of revision. While that number may seem high to some, in the context of lending and property complexities, that is a 54% improvement in performance cited earlier in this article (from 35% 10 years ago). Is there room for more improvement? Of course, there is always room for process improvement, but on the face of it, some process improvements appear to be yielding results.

Consistent application of both quality control and quality assurance processes for appraisal review may also be in part a reason for improvement, as appraisers have a better understanding of what is needed by their client. Additionally, the tools available to both appraisers and appraisal reviewers have undergone iterative process changes and users have advanced further up the learning curve. Lastly, many lenders have progressed beyond the initial risk identification stage, or the “gotcha stage” to a holistic and strategic approach that accepts risk into their business objectives. Today lenders and stakeholders have the ability to gain risk insight beyond the initial transaction stage and utilize pattern and trend identification.

To read more, click here

My comments: Links to Part 1 and 2 are in the first line of the post. View from the AMC/Lender side. Good that reviews and reconsideration requests have gone down. Appraisers and AMCs spend less time and have fewer hassles.

Lender and AMC revision requests

What to Do When Your Appraisal Is Under Review

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What is the farthest you have traveled to complete an appraisal and still be considered geographically competent?

Posted in: adjustments, AMCs, appraisal business, lender appraisals, non-lender appraisals, real estate market, Reviews

NAR Appraisal Survey 2022

By Ann O'Rourke on October 7, 2022 / Leave a comment

NAR Appraisal Survey 2022

Excerpts from NAR Report (link below):

In May 2022, NAR Research conducted a survey of all 9,700 appraiser members and 50,000 randomly-selected non-appraiser members.

54% of appraisers report that appraisal management companies (AMCs) have been among the greatest challenges in their businesses in the past year; 30% cite expanding regulations.

The typical appraiser reports a 40-mile radius in which they conduct appraisals. 68% report practicing within a radius of 20–59 miles.

Virtually all appraiser respondents (97 percent) have conducted an in-person appraisal, and 79 percent have done so by desktop/drive-by appraisal. Eleven percent cite evaluations (non-appraisal opinions of value). The eight percent who cite other valuation methods most often explained that they use a hybrid approach or mostly an exterior appraisal.

Two-thirds of appraisers (66 percent) are asked monthly or more often to conduct appraisals outside of the geographic area or the property type in which they feel their expertise is. Close to one-third conduct an appraisal outside their area of expertise on a weekly basis. Twenty-three percent of appraisers report never having to conduct an appraisal outside of their geographic area or area of expertise.

Appraisers are significantly more likely than other members to say that the most competent are not being selected most of the time (22 percent vs. nine percent) or at all (16 percent vs. six percent) and much less likely to say they are being selected most of the time (12 percent vs. 23 percent).

A few comments:

“Appraisal Management Companies are destroying our profession.”
“Appraisers are the “truth tellers” in this process. While agents can “puff” we cannot! If a property is listed at $315k, with an offer of $345k, do not harass the appraiser when the appraisal comes in at list!! If it had a market value of $345k, it would have listed at $345k!”
“AMCs are a significant issue for not only appraisers but for the consumer. They bid out each appraisal to maximize their profit, usually harming turn times and passing on costs to the appraiser and to the borrower.”

To read the report, click here

My comments: Read the PDF report. Easy to read with good graphics, similar to the graphic above. Since it was done in May, it focuses on appraiser shortages and delays, mostly from the non-appraiser respondents.

It has both appraiser and non-appraiser survey questions, which is a bit tricky to read. Some of the questions are relevant today, such as AMCs. Other questions are not as relevant, such as fees, as the appraisal market in many areas is not as strong as in May when the survey was done.

How much appraisers travel was interesting. I only work in my island city, 1 mile by 3.5 miles. I hate leaving the Island! Island mentality, I guess ;> I used to work in a much larger area, of course.

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Posted in: appraisal business, Bad lenders, Fannie, real estate market

Tags: appraisal business, Fannie, lenders, real estate market

Appraisers: How and Why To Check Carbon Monoxide Detectors

By Ann O'Rourke on September 29, 2022 / 3 Comments

Killed by Carbon Monoxide: Appraiser Blamed

Read this article on how to check CO detectors. You may save someone’s life!!

by Kendra Budd, Associate Editor, WorkingRE

Excerpts: For decades, appraisers have been gently reminded to pay careful attention to smoke alarms and carbon monoxide (CO) detectors—especially noting when they are absent altogether. Many experts advise that the state and federal standards requiring these important systems exist for a reason.

A recent case in which a young couple died from carbon monoxide poisoning while they slept highlights the life and death importance of these simple alarms—and brings this issue front and center for the real estate appraiser community as a whole.

Lawsuit

As you might expect, it didn’t take long for both John and Suzy’s parents to hire a law firm and start going after all the real estate professionals involved.

As it turns out, both the appraiser and the home inspector had each independently inspected the home 18 months prior and both mistakenly reported a few of the smoke alarms present at the home, as CO detectors.

Consequently, both the appraiser and home inspector ended up on the receiving end of a “wrongful death” legal claim.

The legal team for the parents of the deceased young adults (plaintiffs) alleged that the appraiser, Darcy Doe (name changed for privacy), had negligently appraised the Smiths’ home and had reported the presence of a CO detector when in fact, none were present. Unfortunately for Doe, she labeled her photograph inaccurately in her own appraisal report to the lender.

CO Detector vs Smoke Alarm

One important lesson in these cases is that it can be extremely difficult to tell the difference between CO detectors and smoke alarms. This is a reminder to appraisers to take a second look at all CO detectors and smoke alarms—and to test them as well.

Rick Bunzel, home inspector and Washington firefighter was able to give us some tips on how to not only tell the difference between the two detectors, but offers additional safety tips on smoke alarms and carbon monoxide detectors as well.

For starters, the difference between a smoke alarm and a CO detector is quite simple. “The item will be clearly labeled, written on the exterior shell of the device, so you’ll be able to see it easily,” advises Bunzel. However, this can be hard to read because the signage could be the same color as the shell, so it’s incredibly important for you to get close enough to the alarm or CO detector to read it clearly (and test it!).

Bunzel was also able to provide some helpful tips for appraisers as far as how to communicate with their clients about CO detectors. For example, Bunzel says that appraisers and home inspectors should make it clear to their clients that they do not warranty if the device is working, just that it is there. “The test button doesn’t test the workability of a device—only the alarm. Just because it squeaks doesn’t mean it works,” reports Bunzel. This disclaimer language should be included in the appraiser’s report.

Another tip is to check the date of a CO alarm and smoke detector

To read more, click here

My comments: Read this article, especially how to identify and check CO detectors. The disclaimers are useful. I have CO and smoke detectors in several locations in my house. CO is much riskier than smoke as you can’t smell it.

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

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

Tags: appraisal how to, Fannie, real estate market

Appraisal in Changing Markets

By Ann O'Rourke on September 23, 2022 / Leave a comment

Sellers Chasing the ball down the road in real estate

By Ryan Lundquist

Excerpts: Commentary from a (Ryan) appraisal: Here is a bit of commentary in one of my recent appraisal reports. This is only part of what I say because I’m a man who needs a few paragraphs. One box just isn’t enough.

“At the least we ought to describe the market as showing a downward seasonal shift, though it’s possible we can call this a downward cycle if the trend persists over time. For now, it is most reasonable to categorize the market as having growing uncertainty and blatantly inflamed downward seasonal price declines compared to a normal seasonal trend. At the least, properties are clearly selling for less than they did several months ago. The regional median price has ticked down about 7% since May, which is $45,000. This doesn’t mean every property is worth $45,000 less, but it’s been clear buyers have been resisting paying higher prices.”

Okay, one last thing about size: During the beginning of the pandemic there was a blatant spike in home size due to a greater focus on larger homes at higher prices. This spike basically peaked one year ago as size has started to normalize. Now let’s keep watching to see what happens to size. Will we see smaller homes more often as first-time buyers flood the market? Will we see fewer sales at the highest prices? To be determined.

To read more, click here

My comments: Scroll down the page for more comments from Ryan. Markets are changing in many areas, but are complicated by price range, size, etc. I remember the easy days of market condition adjustments 1% per month up or down, for example, to apply to all detached home appraisals. Ryan has been writing about the ups and downs of his market for a long time. Maybe you can use some of his ideas, graphs, and/or explanations in your appraisals.

==========================================

Navigating a Changing Market

by Isaac Peck, Editor

Excerpts: … senior leaders at AMCs, lenders and the GSEs have noted that slower appraisal volume will favor those appraisers who can stay in communication with their clients and provide faster turn times. “During the heyday of 3 percent interest rates, it was acceptable for appraisers to take three to four weeks to complete an appraisal and forget to update the client. Now that volume has declined to normal levels, those appraisers who aren’t providing good customer service may see their businesses suffer,” remarked a senior executive at a major bank.

At the end of the day, (Ryan) Lundquist says his goal is to report what is happening in the market right now—accurately and without sensationalism. “I’m constantly changing what I say in my appraisals, and I’m very careful of boilerplate and canned statements. A quick change in interest rates has led to a quick change in the market. My appraisals talk about more stable prices in my area but also about uncertainty regarding the future. Pending volume is softening, available listings are skyrocketing, and it is taking longer to sell—but there are still stats that suggest there is heavy competition for certain homes. It changes by the week. There’s no easy way to quickly do this, it takes effort. There’s no such thing as being a market expert without putting in the time to be an expert,” argues Lundquist.

To read more, click here

My comments: This article uses AEI data, graphs, and reports from June. Some are out of date in September. I follow AEI (American Enterprise Institute), which has excellent data and reports. For more info on AEI, click here

The MBA data, loan application volume (see below) is the future of appraisal volume. Using recent September data, loan applications are below the levels in 2019 and still dropping. I have a graph of this every month in my paid monthly newsletter. Loan applications went up this week but are still below 2019 levels.

The upcoming October issue of the monthly Appraisal Today has an article, “Which are your best current and former AMC/lender clients? What do they want?” The Big Three: Turn Time/Quality/Fee. I discuss what lenders want and how to provide better service and get more business. Number 1 for lenders (AMCs’ clients) has always been turn time.

What is the farthest you have traveled to complete an appraisal and still be considered geographically competent?

Appraisal Business Tips

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Appraisers – The Past and The Future

Posted in: appraisal business, non-lender appraisals, va

Tags: appraisal business, real estate market, va

Appraisers: What should you have in your car?

By Ann O'Rourke on September 16, 2022 / Leave a comment

Appraisers: What should you have in your car?

Excerpt: Here are a few items:

Screwdriver: A screwdriver has many uses. You can use it to take the cover off a crawl space entry panel, check wooden structural members for rot or insect damage, remove an electrical outlet cover to check for insulation in the walls, etc.
Voltage detector: To determine whether wires are live.
Ice pick: To check for termites or wood rot.
Magnet: To determine whether old pipes are made of iron or lead.
Mace or pepper spray: To defend yourself, especially if you’re appraising REO and foreclosure properties.
Bug spray: To protect yourself from mosquito bites, ticks, etc.
Spare clothes and footwear: Including an extra coat or jacket, hat, and boots—especially if you work in rural areas.

To read more, click here

My comments: Good tips! I definitely need to add some of the items to my car, especially dog repellent, which is not on the list. I have been bitten by dogs. I left the homes and contacted the lender. Don’t know if they got their loan and did not care. Once two large Dobermann dogs broke down a trailer door. I barely got into my car in time.

This was originally posted on McKissock’s Appraisal Blog, but that link was not working.

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Reconsideration of Appraised Value

Posted in: appraisal business, appraisal management company, non-lender appraisals, real estate market

Tags: AMC, appraisal business, non-lender appraisals, real estate market

Reconsideration of Value and Appraisers

By Ann O'Rourke on September 9, 2022 / Leave a comment

How to Respond to ROV Requests: Updated Guidance

By Greg Stephens, SRA, AI-RRS

Excerpts: Suggested protocols for responding to Reconsideration of Value requests

When you receive an ROV request, some recommended steps to take include:

1. Maintain USPAP compliance – Confirm the ROV request came from your client, either directly or through the client’s AMC, acting as an agent for the client, or other party designated as an agent by the client. The importance of this cannot be overstated. Appraisers are still required to comply with USPAP when responding to an ROV request, including the confidential nature of assignment results.

2. Identify ROV content to determine next steps – take the time to analyze the content of the ROV to determine what specifically is being requested of you (the appraiser) and what level of information will be needed to respond to the requestor of the ROV. This is an opportune time to maintain a professional demeanor and not react to an ROV request as if it is an affront to your competency or experience. After receiving an ROV request, send an acknowledgement of receipt and advise the client that the ROV request will be analyzed and responded to in a timely manner.

To read more, click here

Click here to listen to Tim Andersen, MAI’s podcast, “Reconsiderations of Value: Satan’s Own Seed, Right?” (Podcast 9.5 minutes) on ROVs, included in a 12-21 issue of this newsletter, so it may look familiar to you.

My comments: ROVs are a PITA for many appraisers. Very well written and practical. Greg Stephens is a very experienced appraiser and reviewer. He worked in management positions for several large AMCs.

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Working with difficult appraisal clients

Posted in: appraisal business, Appraisal Foundation, appraisal how to, liability, USPAP

Tags: appraisal business, appraisal how to, liability, non-lender appraisals

Appraiser Pressure – What To Do?

By Ann O'Rourke on September 2, 2022 / Leave a comment

How to Handle Appraisal Pressure and Stay Ethical?

Excerpts: There’s no simple and easy way to deal with appraisal pressure. A major source of frustration for appraisers is the realization that clients do not have to follow USPAP. The ethical and performance requirements of USPAP apply only to appraisers, not to clients. In other words, USPAP doesn’t prohibit a mortgage broker from calling and asking you to develop an appraisal based on a predetermined value, but USPAP does prohibit you from accepting that assignment.

When you are faced with appraisal pressure, here are some strategies to manage the situation and still maintain your reputation as an ethical, unbiased appraiser.

1. Educate your appraisal clients

A lot of what appraisers consider pressure from clients is merely a result of the client’s lack of knowledge about appraisal standards and ethics. A lender might ask an appraiser to guarantee values beforehand simply because he or she is unaware that it is unethical for an appraiser to do so.

Avoid this by explaining why you cannot guarantee a value or remove that deferred maintenance photo from your report. You might be surprised at your client’s response if you take the time to educate him or her.

For 8 more reasons, click here

My comments: Appraiser Pressure – What To Do? Can you learn to be an ethical appraiser (or person)? Do you try to be ethical in whatever you are doing? Does it depend on who trained you? Or, do you learn from your parents when growing up? A Very controversial topic!

The Good Appraiser (for anyone who wants their number) Always gives us what we need: – Unethical Appraiser. The Bad Appraiser: A deal killer – Ethical Appraiser.

I was trained at an assessor’s office with no pressure to appraise high or low, fail to disclose defects, etc. I was very lucky. Fee appraisers are under lots of pressure. You learn that people are always looking for a value. for example, when doing an appraisal for a divorce, I always say, “If neither spouse likes my value, it must be okay.” For new clients, I make it very clear that I will not be unethical by giving them what they want upfront. I have lost many clients over the years because I was ethical.

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So Many Appraisal Cost Approach Questions

Posted in: ADUs, AMCs, real estate market

Tags: ADUs, AMC, real estate market

Cost Approach – When to Use in Appraisals

By Ann O'Rourke on August 26, 2022 / Leave a comment

Fannie Mae and the Cost Approach

Excerpt: We often receive questions from appraisers regarding Fannie Mae and the cost approach. For example: “I’m appraising a property and have been instructed to comply with Fannie Mae guidelines. I understand that Fannie Mae requires the sales comparison approach, but what if there aren’t enough good comps? Can I use the cost approach as the primary method of valuation?”

Answer: No!

In order to comply with Fannie Mae guidelines, the sales comparison approach must be the primary method used to determine the value. In fact, Fannie Mae will not purchase a mortgage on a property if the cost approach is the primary or only method of valuation used.

Quite simply, if there isn’t enough data for the appraiser to develop a reliable opinion of value by the sales comparison approach, the mortgage will not be marketable to Fannie Mae.

However…

To read more, click here

My comment: I included this article plus the one below, which both address the Cost Approach’s common appraisal questions.

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The Cost Approach: An Underutilized Approach to Value

Excerpt: In residential appraising, the cost approach and the income approach have in many cases become less utilized in favor of sole reliance on the sales comparison approach.

There are occasions when the income approach can be the primary indicator of value for residential properties, such as developments with a high percentage of homes owned by investors.

The fact that Fannie Mae won’t accept reports that rely solely on the cost approach, with a few rare exceptions, doesn’t mean that approach can’t be the primary indicator of value. It just means Fannie Mae won’t buy that loan.

To read more, click here

My comments: I started with an assessor’s office in the 1970s. At that time, my county was changing from only using the Cost Approach for decades to a sales-based approach. I never liked to use only the Cost Approach when I started doing fee appraisals.

In my area, there are very few land sales. There has not been one for over 20 years in my city. Depreciation is always iffy when appraising Victorian homes built before 1915.

But, I always use the Cost Approach for new construction to determine the financial feasibility of custom homes. I use a few land sales from other cities. If the new proposed home is on a vacant parcel, I go back to when the parcel was purchased, sometimes many years ago, and do a market condition adjustment.

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