adjustments

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Appraising Fixer-Uppers

By Ann O'Rourke on October 15, 2021 / adjustments, appraisal how to, Fannie, real estate market / Leave a comment

Tags: adjustments, appraisal how to, real estate market

What About Those Fixer-Uppers?

Insights from a Seasoned Appraiser

By Steven Vehmeier

Excerpt: We’re all familiar with the term “fixer-upper.” For many different reasons, properties can come on the market in less-than-par condition. The degree and cost to cure become an issue to buyers and sellers, and a challenge for appraisers. At some point, it’s no longer “normal market value minus cost to cure equals as-is value.”

The terms “entrepreneurial incentidddve” and “entrepreneurial profit” are typically discussed in terms of investment property, but the principles involved can also be applied to the many fixer-uppers—whether the buyer is a “purely investor type” or an “owner-occupied investor type.” Maybe a couple of new terms should be discussed: “sweat equity incentive” and “sweat equity profit.”

To read more, click here

My comments: Most of my appraisals are for estates (date of death). I have never appraised a home that was ready for sale when the person died: staged, new paint and floor coverings, yards cleaned up, etc. I very seldom have any repair estimates or structural pest control or home inspection report.

I always assume the home is empty of furniture and “broom clean,” which I learned doing lots of REOs in the past. If a home is cluttered with personal stuff, the price will be lower. But, it can be fixed easily and inexpensively. If it is a mess, I tell the executor to call me when it is cleaned out so I can see what the walls, floors, kitchen countertops, etc. look like. If I can’t see, I disclose this in the appraisal and do my best to figure out a condition estimate.

Very few MLS listings here are not fixed up for sale. I look for “fixer”, “contractor”, “as is”, “handyman”, etc. in the description.

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What is Included in Appraisal GLA (sq.ft.)?

By Ann O'Rourke on October 8, 2021 / adjustments, appraisal business, real estate market, square footage / Leave a comment

Tags: adjustments, appraisal business, real estate market, square footage

Stairway to Confusion – What is Included in GLA?

by C. Brett Bowen

Excerpt: There has been considerable discussion over the years about gross living area (GLA) measurement standards. The ANSI Z765 standard gets the lion’s share of the attention, and is the most widely referenced standard in the industry by far. It can also be the most difficult to interpret, particularly when it comes to stairs. Here’s why.

It is primarily important to recognize two very important facts:

1) a standard is nothing more than the definition of a unit of comparison

2) it is the appraiser’s responsibility to be consistent with that definition.

First, what do I mean when I say that a standard is nothing more than the definition of the unit of comparison? The unit of comparison for something is critical to the understanding of that thing.

Second, as an appraiser, consistency with the definition is actually more important than which definition is chosen.

To read more, click here

My comment: Worth reading. I have seldom used ANSI. The standards were developed for new home construction. I have appraised many homes on hillsides, with often only the garage at street level (or just a driveway). Many historic homes, on level streets, have different types of “basements” converted to living area: above grade, partly below grade, etc. If I worked in suburbia, ANSI would work better. I use what the local market tells me.

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Location, Location, Location In Appraisals

By Ann O'Rourke on September 3, 2021 / adjustments, appraisal, appraisal how to, bias, real estate market, time adjustments / Leave a comment

Tags: adjustments, appraisal, appraisal how to, appraiser shortage, bias, real estate market, time adjustments

What’s Location Got to Do with It?

By Steven W. Vehmeier

Excerpts: We’ve all heard the old mantra that real estate is all about “location, location, location.” A perfect example of the importance of location in appraising can be found in The Villages in central Florida.

The development called “The Villages” has seventy-eight communities, each called a “village,” ranging in size from 100 to around 1,500 homes in each. In total, there are somewhere around 140,000 residents, and the home prices in these individual villages range from the low one-hundred thousand up to a couple million. In some cases, villages located near and/or adjacent to each other can vary significantly in price….

An appraiser not familiar with The Villages could easily over-or under-value a property by mixing villages. For example, let’s say the subject is a 3-bedroom, 2-bath, 2,000 square foot home with a two-car garage on a typical sized lot. It would not be hard to find hundreds of homes with similar physical characteristics nearby; however, some might be located in the “wrong” village…

Can we apply this “village” concept to other areas? Are there typically many villages or neighborhoods in and around most major cities? Do the same principles apply in comparable selection and resultant values? Of course, they do!

To read more, click here

My comments: Very interesting “case study.” Tim Andersen soon will have two articles on neighborhoods and what USPAP says in Appraisal Today monthly newsletters.

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Revised FHA Handbook 4000.1 effective 9/14/15. Are you ready for the changes? Get the facts!!

What is an Appraisal “Inspection”?

By Ann O'Rourke on July 23, 2021 / adjustments, appraisal business, Appraisal fees, bias, FHA / 2 Comments

Tags: adjustments, bias, FHA

Appraisal Inspection Vs. Home Inspection

Excerpts: Why are these roles often confused? What is an Appraisal “Inspection”?

The root of many misconceptions about the appraisal inspection is the word “inspection” itself. It is true that as part of the appraisal process, the appraiser might perform some sort of onsite quality, condition, and functional utility survey of the property to determine its relevant characteristics and if it meets certain standards. For example, to the general public, the FHA requirements that an appraiser must operate certain systems in the home (plumbing, electrical, HVAC) seems similar to what a licensed home inspector does.

The Oxford Online Dictionary defines inspection as: “Careful examination or scrutiny”

Merriam-Webster’s Online Dictionary defines inspection as:

“The act of looking at something closely in order to learn more about it, to find problems, etc.; the act of inspecting something”

It’s somewhat of a benign definition, is it not? There’s nothing really scary there, yet many appraisers attempt to avoid confusion, and (potentially) limit their liability, by avoiding use of the word “inspection” entirely. Many appraisers use euphemisms for this term in their appraisal reports, such as “property visit” or “viewing.”

Even FHA got into the euphemism game with the publication of Handbook 4000.1, which went into effect in 2015. The words “inspect” or “inspection” generally do not appear in reference to an appraiser’s obligations. Instead, the words “observe” and “observation” are used.

To read more, click here

My comments: USPAP has never required an inspection. USPAP defines “Personal Inspection” as the following: a physical observation performed to assist in identifying relevant property characteristics in a valuation service.”

The word “inspection” is used in various locations, such as Advisory opinion A02, including Minimal level of Inspection.

The fourth exposure draft for the 2023 version has Section 1: “Review of Requirements about Disclosing a Personal Inspection.” Final comments deadline is today, July 23, 2021.

What are Pass through Bedrooms for Appraisals

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What to Do When Your Appraisal Is Under Review

What AMCs Say to Appraisers and How to Respond

By Ann O'Rourke on July 9, 2021 / adjustments, AMCs, appraisal how to, E&O, Fannie, FHA, george dell, square footage / Leave a comment

Tags: AMC, appraisal how to, appraisal management company, Fannie, FHA, George Dell, square footage

What AMCs say to appraisers and How to Respond

By Steven W. Vehmeier

Excerpts: A student contacted me with the following dilemma concerning an Appraisal Management Company (AMC) request: “I told the Management Company that I cannot mark the Zoning Compliance as ‘Legal’ if the report is marked “as-is,” because this would not be true for the current “as-is” condition of the subject on the effective date of the appraisal. The AMC insists that as long as I disclose in the addendum that the zoning is currently ‘illegal,’ then I can mark on the first page as ‘Legal.’”

Taking the matter to the source can be accomplished by: 1) personal research of the appropriate documents, which is sometimes faster, or 2) emailing the controlling entity for their official answer. Notice I didn’t say to phone them. I want the answer in writing to pass on to the client/AMC.

To read more, click here

My comment: Some Most Excellent and practical tips!! My bottom-line advice: Fire the AMC! We all know there is always another AMC that is desperate for appraisers today. Now is a good time to shop for one that is easy to work for. You could check in appraisal online groups to see what they say. If they are not competitors, hopefully, you can get some good ideas. Be sure to post your location.

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Using home’s previous sales in appraisals

What Types of Sales For Appraisals

By Ann O'Rourke on May 28, 2021 / adjustments, appraisal business, FHA, george dell, USPAP / Leave a comment

Tags: adjustments, appraisal business, FHA, state appraiser regulators, USPAP

Arm’s Length or Another Type of Sale? The 7 Sale Types Explained

What types of sales for appraisals

Excerpts: As a real estate appraiser, whether you’re considering the current terms of sale or analyzing previous sales of the subject property or comparable sales, it is imperative to know whether a sale is an arms-length transaction or a different type of sale. Sales due to a job relocation, estate settlement, foreclosure, or divorce may sell for less than the property’s market value.

By knowing the type of sale, you are better able to reconcile a current opinion of market value that falls above or below a current or recent transaction for the subject property.

Here are the seven valid sale types, explained in detail below:

REO sale
Short sale
Court ordered sale
Estate sale
Relocation sale
Non-arm’s length sale
Arm’s length sale

To read more, click here

My comment: Worth reviewing. Some good tips, especially for today’s crazy sales market!

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What Should Appraisers Wear?

By Ann O'Rourke on May 21, 2021 / adjustments, appraisal business, bias, Fannie, real estate market / Leave a comment

What Should Appraisers Wear?

Excerpt:

Professional Dress

When we are observing properties, it is important that we dress professionally. If we are doing an appraisal for lending, we are a representative of our client. Although we are not an employee of the client, we do represent them. Often, we are the only person actually seen by participants in the transaction.

Photo above by BBH Singapore on Unsplash

Also, we represent ourselves, our business, so we want to dress professionally. We are professional licensed appraisers performing our work and should look as such. That said, what works for walking around properties, in between bushes, in the mud, etc.?

To read more and add your comments click here

My comments: Very interesting. From a female appraiser perspective, but applies to guys also.

Over my 45 years of appraising, I had differences in what I wear, from very professional (commercial) to casual for protection from bushes, dogs, etc. For residential appraisals, I prefer to keep my clothes from being damaged (heavy pants, strong jacket, collared polo shirts, and very sturdy shoes) from gravel, unknown stuff under weeds in the back yard, etc.). I live in a mild Mediterranean climate, so I don’t do much else except raincoats and a heavier jacket. I don’t even want to think about snow, slush, and mud!!

Wearing shoes in a house for appraisal(Opens in a new browser tab)

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Tips on doing appraisals for AMCs

By Ann O'Rourke on May 14, 2021 / adjustments, AMCs, appraisal waivers, george dell, hybrid appraisals, real estate market / Leave a comment

Top 10 Tips for Working with AMCs

Excerpt: 6. Make appointments quickly

Schedule appraisal assignments as you receive them, within 24–48 hours. Many AMCs will score you on this task. If you’re working in a small area, and you get two assignments in one day that are close together, make the appointments. Get them on the books and schedule them as quickly as possible.

7. Update the AMC with any delays

Be sure to update the client if any delays or problems come up during the appraisal process. See item #2 above: Update your order statuses. This will preserve your SLAs with AMCs.

To read all the tips, click here

My comment: Nothing new, but some good reminders. Of course, you may not agree…

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Do tandem bedrooms count as bedrooms in appraisals?

What are Pass through Bedrooms for Appraisals

By Ann O'Rourke on April 16, 2021 / adjustments, appraisal business, appraisal how to, forecast, Mortgage applications, mortgage loan volume / Leave a comment

Tags: adjustments, appraisal how to, forecast

Pass-through Bedrooms

Excerpts: This may not be a major problem if the house has sufficient bedrooms to match what is typical and expected in the neighborhood. It can have a negative impact on the marketability of the home if this arrangement reduces the number of usable bedrooms from what is typical.

The floor plan layout of a home can have an impact on its market value: The impact on value is determined from market data and how buyers perceive it. Did the home sell for less because it has a different floor plan than what is typical and expected?

The cost to fix can vary: Depending on the current floor plan configuration and the location of the bedroom in relation to other rooms the cost can vary widely and this should be taken into consideration when comparing it to the value added by fixing the problem.

Written for home owners with a good discussion of cost to cure vs. value added.

To read more, click here

For more analysis by Ryan Lundquist (from 2016) of what I often see, click here The image above is from Ryan’s article.

My comments: I have had many discussions with real estate agents and home owners about this issue. The number of bedrooms in a house can be a significant factor in many markets. In my market most homes were built prior to 1940 and have modifications, such as additions, over time. The pass through bedrooms can seldom be fixed. I usually call them “dens”.

Does a Bedroom Need a Window for Appraisals?