Appraising Factory-Built Houses

Factory-Built Houses: Types, Benefits, and Tips for Appraisers

By Dan Bradley

Excerpts: Factory-built houses are an important, yet often overlooked, part of the American housing market. Approximately 10% to 12% of new housing starts in the United States are factory-built. There are several advantages to building a house in a factory. For example, certain houses can be constructed for 50% less than a similar-sized site-built home, making quality housing more affordable for thousands of Americans. As an appraiser, your knowledge of factory-built housing is key to a credible appraisal.

This article examines several different types of factory-built houses, their five main advantages, and tips for appraising them.

Factory-built house is a term that refers generally to a number of house types that are constructed or fabricated, at least in part, off site. The prefabricated components are transported to the site and finished or reassembled there. By contrast, site-built, or “stick-built,” homes are put together at the building site from thousands of individual pieces (e.g., studs, nails, sheets of drywall, shingles, wires, pipes, electrical outlet boxes).

For appraisers, understanding the specific type of factory-built house you’re dealing with is key. It tells you which building codes apply, gives you clues about the construction process, and impacts how you approach the valuation.

Factory-built homes include:

  •   Mobile homes
  •   Manufactured homes
  •   Modular homes
  •   Panelized homes
  •   Pre-cut or kit homes

To read more, Click Here

My comments: This is worth reading, especially if you appraise these types of homes. It provides very good, understandable explanations, including identifying the types. For example, GSEs will not purchase or securitize a mortgage on a mobile home manufactured before June 15, 1976. Likewise, HUD will not issue FHA mortgage insurance on a pre-1976 mobile home.

I work in an urban/suburban area, mostly built up, and have appraised very few of these homes. However, they are definitely more affordable housing, which is a very hot topic now.

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I Can’t Believe I Just Bought a $5M Mobile Home’: A Look Inside 5 of America’s Most Lavish Trailer Parks

Just for Fun!

Excerpts: Multimillion-dollar price tags usually come attached to massive mansions or luxury condos—but now, it’s becoming more common to find them in mobile home parks in enviable locations.

But these aren’t just any trailer parks, as they’re more commonly known. For one, they usually sit on prime real estate. And the neighbors? They’re traditionally billionaires or A-list celebrities.

Prices in some of these parks can generally range from $1.5 million to more than $6 million, but that hasn’t put off buyers with that type of cash to spare.

Arguably, the most famous trailer park in America is Paradise Cove in Malibu. Here, celebrities “slum it” in mobile homes to be close to some of the most expensive real estate in the world.

In 2019, fashion maven Betsey Johnson sold her small pink house here for $1.9 million; in 2018, former “Baywatch” babe Pamela Anderson unloaded her trailer for $1.75 million; and in 2016, songbird Stevie Nicks sold hers for $5.3 million.

To read more and see the photos, Click Here

My comment: I had to include this fun article related to the article above

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Appraisers Riding the Waves of Up and Down Mortgage Rates

Appraisal Business Tips 

Humor for Appraisers

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NOTE: Please scroll down to read the other topics in this long blog post seller concessions, all cash sales, liability, new fee survey, unusual homes, mortgage origination stats, etc

 

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European-Inspired $115M Bel-Air CA Mansion Dubbed ‘Villa Del Amor’

Excerpts: 9 bedrooms, 13 baths, 14,941 sq.ft., 1.65 acre lot, Built in 2015

$115 million mega mansion said to be owned by investors Paul Kessler and Diana Derycz-Kessler, known for their luxury candy company Sugarfina, is far and away this week’s most expensive listing on Realtor.com®.

Dubbed “Villa Del Amor,” the $115 million European-inspired villa in Los Angeles was custom built by the couple in 2015. Over-the-top details include imported finishes, nine fireplaces, a wine cellar, media room, fitness center, and maid’s quarters. The stunning 1.65-acre lot offers breathtaking views of the Bel-Air Country Club Golf Course.

To see the listing with 33 photos, Click Here

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10% Discount for Paying Cash on Home Sale– Research

Excerpts: Homebuyers who pay cash for a property can spend 10% less on average than those who take out a mortgage, new research from UC San Diego’s Rady School of Management suggests.

State of play: About one-third of home purchases are paid in cash — the highest share in nearly a decade.

The fine print: The researchers analyzed county and Redfin data from millions of home sales and offers nationwide from 1980 to 2021.

They also conducted an experimental survey asking homeowners to consider competing offers from all-cash and mortgage buyers.

Abstract of research report, The Mortgage-Cash Premium Puzzle

All-cash homebuyers account for one-third of U.S. home purchases over 1980-2017. We use multiple datasets and research designs to robustly estimate that mortgaged buyers must pay an 11% premium over all-cash buyers to compensate home sellers for mortgage transaction frictions.

A dynamic, representative-seller model implies only a 3% premium, which would suggest an 8% puzzle. Accounting for heterogeneity in selling conditions explains half of this difference, but there is still a puzzle in conditions with high transaction risk.

An experimental survey of U.S. homeowners replicates these patterns and suggests that belief distortions can explain the puzzle in these high-risk states.

To read more, Click Here

To download the 132 page research report, Click Here

My comments: I never thought about an adjustment for cash sales. I have done appraisals for refis soon after a home was purchased for cash since the 1980s, but they were not very common. Cash sales have increased significantly due to the recent lack of homes available for sale. Most sellers always preferred all-cash offers in my decades of appraising. Adjustments are easier now, with more all cash sales.Are you getting too many ad-only emails?

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2024 Annual E and O Insurance Update – Claims, Payment Options, Lawsuits, etc.

Excerpts:

Discrimination claims

To date, no real estate appraiser has lost a case or been found “guilty” in

court relating to appraisal discrimination. The only appraisal discrimination cases resolved thus far have been quietly settled – with the settlement amounts undisclosed to the public.

Discrimination claims are very difficult to prove. Instead, attorneys focus on

errors in the appraisal and appraisal reports, which is much easier to prove.

What if you can’t afford your E&O policy now? Check with your E&O

insurance broker for options

See what you can work out financially, such as monthly payments.

Retirees are eligible for “tail coverage” which covers claims from appraisals

done before they retired.

Appraisers who are not doing appraisals now and drop their insurance for

financial reasons may be able to get a more limited “tail coverage” for a period of time, for example 1, 2 or 5 years. You may be able to start your insurance again and not lose prior acts

coverage.

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If you are a paid subscriber and did not receive the June 2024 issue emailed on Tuesday, June 3, 2024, please email info@appraisaltoday.com, and we will send it to you. You can also hit the reply button. Be sure to include a comment requesting it.

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Seller Concessions Adjustments Revisited

By Brent Bowen

Excerpts: There seems to be continued debate among appraisers, reviewers, and underwriters regarding seller concessions. A particular point of contention in this debate is whether or not it is appropriate to adjust seller concessions on a dollar-for-dollar basis.

To their credit, in the December 2023 Appraiser Update newsletter, Fannie Mae clarified the issue nicely. The newsletter pointed out that the problem is not dollar-for-dollar adjustments, but no adjustments at all. The “great concern” they cite is appraisals where 4.4 million comparable sales with concessions had no adjustment at all. For appraisers who did adjust, their data indicated dollar-for-dollar adjustments in 86% of cases, which they report as a “brighter side” of their findings. The article clarified why they consider these dollar-for-dollar adjustments a good thing.

But what about possible scenarios when the concession might have resulted in a lesser impact than the concession amount? Consider a market where the vast majority of transactions have the seller pay the title fee. What if there is a contract which stipulates that the buyer will pay the title fee, but that the seller will contribute an amount equal to the title fee as a seller concession? In that case, the concession results in a transaction that mirrors the fee structure customary to transactions in the market. A solid argument could be made in that scenario for no adjustment at all.

To read the article, plus appraiser comments, Click Here

My comments: Read this article! This is the best discussion on seller concessions I have read. Brent Bowen is one of my favorite appraiser writers on topics important to residential appraisers, especially those who work for lenders.

I remember back in the late 1970’s at a California Assessor’s office when we were updating all the records in preparation for switching to computers, including sales history. I was amazed at the many concessions included in the sales, such as a boat or RV. Also there were many “Contract for Deed”, a contract for the sale of land which provides that the buyer will acquire possession of the land immediately and pay the purchase price in installments over a period of time, but the seller will retain legal title until all payments are made.

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What’s Happening With Appraisal Fees? New Survey Seeks Answers

Excerpts: To try to gauge where “customary and reasonable” fees are landing and help appraisers strategically adjust pricing within the markets they serve, OREP/Working RE is launching a nationwide survey to collect data straight from the source. The 2024 Appraiser Fee Survey is the fourth such exercise the company has conducted in the last 14 years, offering appraisers across the country the opportunity to anonymously share what they’re experiencing in their markets and then mine the data collected to adjust accordingly.

Knowing what’s occurring on a national scale provides some context and a baseline by way of comparison, but when it comes to actually setting fees, reality rests within the dynamics of every local market. For example, tracking the prevailing appraisal fees in Bend, Oregon, follows the path of expectation through the first three surveys. In 2010/2011, appraisers in Bend were earning a typical fee of $401-$450 for a standard 1004 (single-family detached) order. By 2017, the typical fee in Bend ballooned to $651-$700, and in 2021, the benchmark had pushed past the $751 mark.

By comparison, appraisal fees in the Miami metropolitan market followed a similar path over the same time frame, though not as positively pronounced or well-defined. In 2010/11, the typical fee for a standard 1004 was slotted evenly between $301-$350 and $351-$400. In 2017, it was an even split between $351-$400 and $401-$450, suggesting some modest improvement. In 2021, the typical fee had settled in the $451-$500 range.

This type of comparative data is available to all appraisers and industry stakeholders for free at WorkingRE.com. The fourth installment of the fee survey should give appraisers a snapshot of how colleagues and competitors are adjusting to present conditions occurring within the markets they serve, but the value of the data will be dependent on the level of participation.

To read more, Click Here

My comments: The article discusses fees n the past, including Customary and Reasonable. If you do lender appraisals, please take this new survey! The long article has many details and comments from previous surveys and today’s AMC appraisal market.

The worst time I experienced was 1980-1985, when rates were 18%+. Most appraisers were staff appraisers at lenders and almost all were laid off. I purchased my dupex for 15% interest rate in late 1985 and thought it was a bargain. Of course, the price was $120,000 with a low mortgage payment. Worth well over $1,000,000 now.

In my almost 50 years of appraising, lenders never significantly lowered their appraisal fees when business was slow. Then AMCs took over and the race to the bottom started, where we are there now.

Last Friday’s newsletter had the topic “Low Appraisal Fees”, including that CFPB is looking for comments on high lender fees, including appraisal fees. Plus, where and how to submit your comments. Also included was “Appraisal Fees & Value: Lessons from Picasso & Steinmetz” with comments from Cyndi Chance, Appraisal Institute new CEO about AMC low fees.

To read last Friday’s newsletter, Click Here

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A Silo, A Container, or a Wine Barrel? Which One Would You Live In?

Just For Fun.

Take a break and check out this fun blog post.

By Jamie Owen

Excerpts: I’ve seen a fair number of silos while driving through rural areas in Northeast Ohio. I never thought about them being repurposed into a home. But that’s what some clever folks in Idaho are doing! Check out the videos in the blog post. You’ll never look at silos the same.

Other cool buildings are made out of repurposed items. For instance, shipping containers are another way to build homes. This is not a new idea anymore. See the video of one made into a swimming pool.

However, the progress being made in the styles of homes is remarkable! Wine Barrel Home, Swimming pool

By the way, if you’re not ready to buy a shipping container to live in, how about one to swim in? Our friends purchased a shipping container and converted it into an amazing pool! (Scroll down the page to the bottom comments section.

To read more and see many fun videos, Click Here

My comments: I can always count on Cleveland Appraisal Blog to have something I have never thought of before ;> It is very creative and interesting. He also includes local stats as he should. You do a blog to get more non-lender business, especially from real estate agents.

I sometimes put silo homes in this newsletter, mostly rentals from Airbnb.

Few, if any, grain silos are in Northern California, where I live, but there are some interesting converted shipping containers!

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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.

Mortgage applications increased 15.6 percent from one week earlier

WASHINGTON, D.C. (June 12, 2024) — Mortgage applications increased 15.6 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Applications Survey for the week ending June 7, 2024.

The Market Composite Index, a measure of mortgage loan application volume, increased 15.6 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index increased 26 percent compared with the previous week. The Refinance Index increased 28 percent from the previous week and was 28 percent higher than the same week one year ago. The seasonally adjusted Purchase Index increased 9 percent from one week earlier. The unadjusted Purchase Index increased 19 percent compared with the previous week and was 12 percent lower than the same week one year ago.

“Mortgage rates were trending lower over the course of last week until a stronger than anticipated employment report resulted in a bounce back, with the weekly average for the 30- year fixed mortgage rate decreasing to 7.02 percent,” said Mike Fratantoni, MBA’s SVP and Chief Economist. “Lower rates earlier in the week meant a strong increase in refinance activity, particularly for VA borrowers, who jumped on the chance to lower their rates. Overall refinance activity was more than 27 percent above one year ago.”

Added Fratantoni, “On a seasonally adjusted basis and compared to the holiday-adjusted level from the prior week, purchase activity also increased. Multiple data sources are now indicating that home inventory levels, while still historically low, are up significantly from last year at this time. This is good news for many prospective homebuyers who have been frustrated by the lack of homes on the market.”

The refinance share of mortgage activity increased to 35.2 percent of total applications from 31.1 percent the previous week. The adjustable-rate mortgage (ARM) share of activity decreased to 6.3 percent of total applications.

The FHA share of total applications decreased to 13.1 percent from 13.2 percent the week prior. The VA share of total applications increased to 14.7 percent from 12.1 percent the week prior. The USDA share of total applications increased to 0.4 percent from 0.3 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 7.02 percent from 7.07 percent, with points unchanged at 0.65 (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 7.18 percent from 7.21 percent, with points increasing to 0.54 from 0.41 (including the origination fee) for 80 percent LTV loans. The effective rate remained unchanged from last week.

The average contract interest rate for 30-year fixed-rate mortgages backed by the FHA remaining unchanged at 6.87 percent, with points decreasing to 0.92 from 0.96 (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 6.60 percent from 6.75 percent, with points decreasing to 0.55 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 increased to 6.45 percent from 6.37 percent, with points increasing to 0.81 from 0.63 (including the origination fee) for 80 percent LTV loans. The effective rate increased 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

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

Basement Issues and Values

Understanding Basement Contributory Value

By Jo Traut

Excerpts: Determining how a basement contributes to a residential property’s value requires an appraiser to determine what type of basement the home has, its level of finishing, and take into account common concerns, like evidence of mold or signs of structural concern.

By following best practices, including separating the basement from the above-grade finished area, understanding the intended use of the space, and completing comprehensive research, you can evaluate the basement’s contributory value more accurately.

Topics

  • Know your basic basement types
  • How is the basement finished? Determining levels
  • Best practices when appraising a basement
  • Know the intended use and client requirements
  • Common problems in basements
  • Environmental hazards: One of the most significant issues appraisers run into is mold.

To read more, Click Here

My comments: This is one of the best discussions of basements I have read. It is worth reading. In my area, there are few fully underground basements, as we have a mild climate. Most homes were built prior to 1930, and there are many types of “basements.” They are not easy to determine added value, if any. I research, check with agents, check permit histories, try to get comps with the same type of basement, etc. The type and level of finish are critical.

Appraisal Business Tips 

Humor for Appraisers

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

NOTE: Please scroll down to read the other topics in this long blog post on non-lender appraisals and diversification of your appraisal business, home insurance problems affecting values, unusual homes, mortgage origination stats, etc.

Read more!!

Desktop Appraisals: Who, When, and Why

Desktop Appraisals: Who, When, and Why

Excerpts: The ability to identify property characteristics without a personal inspection is not a new concept. Retrospective appraisals, drive-by (exterior inspection) appraisals, and valuations from plans and specifications, are all valuation assignments where an appraiser develops an appraisal opinion without personally inspecting the property.

Similarly, while not identical, appraisers generally use the cited sources above to identify the physical characteristics of comparable sales in their appraisals. Thus, it’s fair to say that identifying the physical characteristics of the subject property in a desktop appraisal is a similar process to verifying comparable sales.

While they won’t replace a full appraisal for a majority of property transactions, desktop appraisals can offer a more efficient and cost-saving alternative for all involved parties and are often used in low-risk scenarios and non-GSE appraisal assignments, such as:

  • Helping sellers determine a price: A desktop appraisal provides sellers with valuable insights into their property’s market value, helping them make informed decisions when determining an appropriate listing price.
  • Home equity lines of credit (HELOCs): When homeowners apply for HELOCs, lenders may request desktop appraisals to ascertain the property’s value and determine the credit limit without requiring a full appraisal.
  • Tax Appeal Support: When there is a challenge to a tax assessment, a desktop appraisal may be used to provide a current market value.
  • Insurance purposes: Lenders or other clients may order desktop appraisals for insurance purposes to determine the property’s replacement cost or insurable value.
  • Managing Investments: For investors who own multiple properties, desktop appraisals provide rapid updates on property values.

To read more, Click Here

My comments: Although the web page title includes “for new appraisers,” this post has ideas for all appraisers. The list of non-lender uses is very good. I have done drivebys for estate appraisals when the home had been sold and I had no access.

Desktop appraisals okay for some Fannie Loans March 2022

Fannie Wants Desktop Appraisals

Appraisal Business Tips 

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NOTE: Please scroll down to read the other topics in this long blog post on non-lender appraisals, using new construction comps for existing homes, master planned communities, unusual homes, mortgage origination stats, etc.

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Read more!!

Functional Obsolescence in Appraisals

Functional Obsolescence Can Be Challenging

By McKissock

Excerpts: For appraisers, functional obsolescence can be a challenging concept because the elements that influence property values may not be obvious or immediately apparent. To help you better understand what it means and how to pinpoint it, we’re exploring some examples, the different types of functional obsolescence, and how it can influence property values.

Additionally, we’re sharing insights from appraisers who answered our survey question, “When dealing with functional obsolescence in real property appraisal, what aspect do you find most challenging?”

Topics include:

  • Types of functional obsolescence
  • Curable obsolescence
  • Incurable obsolescence
  • Superadequacy

What aspects of functional obsolescence do appraisers find most challenging? We asked our appraisal community, “When dealing with functional obsolescence in real property appraisal, what aspect do you find most challenging?”

The top two answers were “supporting adjustments for it” and “finding comparable properties with similar obsolescence.” Here are the full survey results, followed by comments from appraisers who shared further insights into these two common challenges related to functional obsolescence:

Supporting adjustments: 46%

Finding comps: 33%

Sample appraiser comments:

“Functional obsolescence is not a searchable criterion in any MLS database I’ve found. The ability to find a credible impact on other homes repeatedly is an anomaly. So, I may be able to generate a factor or dollar difference but having only one comp to determine with leaves you deciding on credibility or making no deduction if you don’t feel it’s a credible adjustment.”

To read more, Click Here

My comments: We all encounter Functional Obsolescence when appraising. The blog post is well-written and understandable. It is worth reading the full blog post and the appraisers’ comments. Plus, the explanations about functional obsolescence are good reminders.

Functional Obsolescence for Appraisers

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 home gets 147 offers, cutting costs, manufactured homes, appraisal analysis, unusual homes, mortgage origination stats, etc.

Read more!!

Remove all bathtubs from home?

Is it a problem to remove all bathtubs in a house?

By Ryan Lundquist

Excerpts: I’ve been asked this question twice this week. Is it a problem to remove the tubs from each bathroom? People planning a remodel asked if it was a big deal or not to only have a walk-in shower in each bathroom. Here are my thoughts, and I really want to hear from you too. Anything to add?

It’s not a black and white answer: There’s not one black-and-white answer that applies to every house, price range, location, or market. Bottom line. But backing up, part of the fun of working in real estate is figuring out how to answer questions like this in a way that is balanced and hopefully reflective of the sentiment in the marketplace.

Other topics include:

  • It’s never just about resale value
  • 55+ communities
  • Splitting hairs to prove an adjustment

To read more, including Ryan’s many comments, fun images and graphics, his Twitter X and Instagram surveys, plus 50+ comments, Click Here

My comments: This is the only analysis I have ever seen about this appraisal topic and it is great! I started appraising in 1975 and this was an issue then, continuing today.

Appraisal Business Tips 

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NOTE: Please scroll down to read the other topics in this long blog post on property data collectors, economic analysis, managing your email inbox,  unusual homes, mortgage origination stats, etc.

Read more!!

Appraising Historical Homes

Historical Properties and Their Unique Appraisal Approaches

Excerpts: Appraising historical properties involves a complex interplay of factors, making it a specialized field within real estate valuation. This article provides an insight into the appraisal process of historical properties, emphasizing the role of market data, potential buyers, specialized databases, appraisal methods, and the significant impact of preservation restrictions.

The appraisal process begins with a thorough analysis of market data, focusing on sales of properties that share historical or antique characteristics. This comparative market analysis extends beyond standard parameters like size and location to include age, architectural style, and historical significance. The scarcity of historical properties often requires appraisers to expand their search to find comparable sales, both geographically and over longer time frames.

The distinction between a historic property with preservation restrictions and an old house without them is crucial in the appraisal process. Preservation restrictions, often governed by the National Register or local historical commissions, can add value by ensuring the property’s integrity. However, these restrictions may also limit modifications, potentially affecting the property’s market appeal.

To read more, Click Here

My comments: If you don’t want to appraise a historic property, be sure to check it out before accepting the assignment!

Worth reading. A good summary. I suspect that a company based in Boston, MA sees lots of historic homes!

For many years I appraised in the nearby city of Berkeley, CA. There were definitely adjustments for homes built by famous, widely known, architects. Fortunately, their names were listed in the MLS.

In my small city, there are a few homes by famous architects. One was sold about 20 years ago by a famous architect, Julia Morgan. She designed more than 700 buildings in California during a long and prolific career. She is best known for her work on Hearst Castle in San Simeon, California. No effect on value. I was surprised. If it was in Berkeley, there would be a substantial adjustment.

Some cities have large historic buildings, such as the City Hall in my city, built in 1895, twenty years after the city charter in 1872. The Gold Rush in California started in 1848, which brought many people to Northern California.

But, in my city, there are many restrictions on what can be done with older homes, such as Victorians. For example, window replacements must replicate the original windows, plus some other restrictions on exterior modifications. Restrictions are from the city, the county, and the state. In my city of 78,000 population, there are over 10,000 buildings constructed prior to 1930, including many classic Victorians.

Many downtown mixed-use buildings (retail and apartments) are in my city. I appraised many of them, but never noticed any effect, plus or minus, for historic designation.

Knowing what modifications are allowed is very important for the appraiser. Many people don’t like them. You need to know the market. Sometimes buyers like them and sometimes not.

See how many historic homes and buildings are where you do appraisals and where you live. You may be surprised!

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Appraisal Business Tips 

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NOTE: Please scroll down to read the other topics in this long blog post on appraiser fights back against bias accusation, ok behavior when taking Zoom CE classes, estate appraisal liability issues, unusual homes, mortgage origination stats, etc.

Read more!!

Appraisal Time Adjustments Underutized

FHFA Report: Underutilization of Appraisal Time Adjustments

Published: 1/8/2024

Excerpts: Fannie Mae, Freddie Mac, and Federal Housing Administration appraisal guidelines require such adjustments whenever market conditions have been changing. However, this blog shows that appraisers frequently do not make time adjustments, even when they are likely to impact the appraised value substantially. This analysis also finds that the adjustments appraisers do make are typically substantially smaller than house price indexes would suggest.

The main dataset used in this blog is a 5 percent sample of single-family housing in the Uniform Appraisal Dataset (UAD) that Fannie Mae and Freddie Mac (the Enterprises) collect.5 The time period covered, the third quarter of 2018 through the fourth quarter of 2021, includes all the UAD data available to FHFA when the analysis began.

…monthly house price indexes for ZIP codes are used to walk forward the comparable sales amounts. For each comparable in the data, the price indexes are used to calculate a predicted time adjustment corresponding to the age of the comparable and local price trends.

To read more, Click Here

My comments: Check out the very good graphs. Maybe the indexes were not as reliable as actual appraisal adjustments, but overall adjustments were lower by appraisers.

When I started my business in 1986, several very experienced local appraisers said don’t make time adjustments for lender appraisals. In a significant drop in prices, in the 1990s, some appraisers who made negative adjustments lost their businesses. I always made them and never had any complaints from my lender clients. I worked for an assessor’s office in the late 1970s where we were making 2% per month time adjustments upward. Since Fannie started focusing on UAD analysis around 2015, losing business because of negative market conditions has almost stopped. They are one of the easiest adjustments to make.

My market is very volatile. The only dollar adjustments on non-lender appraisals that I make on homes are market conditions unless it has a valuable feature, such as an excellent view, that needs an adjustment.

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Online comments by a very experienced and savvy appraiser:

This (price indexing) is one thing that AVMs do quite well.

I’ve seen thousands of appraisals over the years where appraisers made no Positive or Negative Market Conditions adjustments, as though the market is always in balance and prices are always stable, even during periods of rapidly changing prices.

Ignoring market conditions adjustments makes us look incompetent to buyers, sellers, lenders, Realtors, and the general public. I purposely omitted AMCs from this group as they are order takers. It’s not good for Residential Fee Appraisers when FHFA tells the public how poorly we’re performing with regards to what most call “time adjustments”.

 

Appraisal Adjustments Yes, No, Maybe

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NOTE: Please scroll down to read the other topics in this long blog post on 2024 forecasts for mortgage rates and originations, Private Money lending,  unusual homes, mortgage origination stats, etc.

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Superadequacy Adjustments for Appraisals

How to Account for a Superadequacy

By: McKissock

Excerpts: What is superadequacy?

Per The Dictionary of Real Estate Appraisal, 6th Ed., superadequacy is defined as “an excess in the capacity or quality of a structure or structural component; determined by market standards.” It’s a type of functional obsolescence in which the structure or one of its components is overly improved to a capacity or quality than a prudent buyer or owner would build or pay.

While we provide more detailed illustrations below, a simple example would be a 5,000 square foot luxury home built in a neighborhood comprised of two and three-bedroom mid-century ranch homes.

Example #1: Superadequate custom fireplace

Example #2: Superadequate 12-car garage

To read more, Click Here

My comments: Although the blog post references luxury homes, this can occur anywhere. Have you ever driven closer and closer to your subject and noticed that the homes are much smaller or have standard designs? You keep getting closer, hoping it is not your subject. It Is! This definitely has happened to me. Large unusual additions, two large kitchens, very extensive landscaping, etc.

Maybe you were busy and forgot to check it out in public records, MLS or speaking with the owner or agent (if a sale) when scheduling the appointment.

Market Your Appraisal Services: 59 Ways to Get More Business Now

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Appraisals: Using Comps Across a Freeway?

Pulling comps from the other side of the freeway

By Ryan Lundquist

Excerpts: It can be a REALLY bad idea to pull comps from the other side of the freeway, but not always. Today I have some thoughts about location, comp selection, and lenders freaking out when schools are mentioned in appraisal reports.

I don’t normally pull comps across a highway

In so many cases it’s an awful idea to cross a major road or highway to pull comps because a highway sometimes separates markets that are far different in age, square footage, lot size, architecture, price point, school district, etc….

But, crossing the highway does work here

With that said, I want to show you an example of a local neighborhood where I have zero hesitation about pulling comps from both sides of the highway. The areas north and south of Highway 50 below represent the College-Glen area…

Why it’s no biggie to pull comps like this

A) Prices are similar: Prices are similar on each side of the highway. I’ve found this when pulling comps through the years, and I’ve also shown this when making graphs. I will say the north side tends to have a slightly larger square footage than the south side (same with west vs east), which is something to consider when we compare stats. But it’s still not a major difference.

B) Buyer Behavior …

C) School System …

To read lots more, plus maps and many appraiser comments, Click Here

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Why Comp Photos in Appraisals?

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Strange Properties Appraisers Have Seen

Strange Encounters in Property Appraisal

By: McKissock

Excerpts: Property appraisal is not typically thought of as a “dangerous” profession per se. However, you may encounter some strange—or even spooky—properties from time to time. Recently we asked our appraisal community, “What’s the weirdest property you’ve appraised recently?” While some appraisers discussed atypical and challenging properties, others shared stories of strange encounters ranging from surprising to creepy to downright scary.

We’ve organized the strange and spooky properties described by our survey participants into the following categories:

  •  Vacant and secluded homes
  •   Spooky historic properties
  •   Properties in horrible condition
  •   Other surprising and strange site visits

“Vacant house that neighbors told me had not been occupied for almost 3 years. They were concerned that the electric was still on and could pose a danger as you could hear an electrical buzzing sound. Once I entered the house, the sound was evident and I looked for the source, probably a light fixture with a bad ballast or short-circuit. However what I found was a massive wasp nest that was approx 4′-5′ tall in one of the bedrooms.

When I opened the door, it clearly agitated them and I got out quickly and advised the lender to send in an exterminator ASAP. They were far too aggressive for me to even snap a photo. The AMC rep wanted to know if I could simply hit the nest with a can of wasp spray! Is this the actuality of ‘walking into a hornet’s nest’?”

To read more, click here

My comments: We have all encountered strange homes. I worked for an assessor’s office for 5 years in my first appraisal job. I appraised everything in a specific geographic area. I saw a lot of weird homes, especially in the more rural hillside areas. Lenders would have never loaned on them!

An appraiser I have known for many years saw a ghost in a haunted B&B he stayed in when traveling in Montana. He is about the last person you would think who saw an apparition of a woman. The owner and other visitors had seen her also.

Haunted House Appraisal Adjustments

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NOTE: Please scroll down to read the other topics in this long blog post, appraisers with increased income, ADUs in California can be Condos , unusual homes, mortgage origination and more!

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