Appraising Fixer-Uppers

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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NOTE: Please scroll down to read the other topics in this long blog post on unusual homes, mortgage origination stats, Fannie and condos, real estate market, fixer uppers, etc

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Glass Pyramid House in Volcano, Hawaii for $120,000

Excerpt: Many of the neighbors are hobby farmers who grow bananas, tea, vegetables, citrus fruits, and bamboo. Tucked into the Royal Hawaiian Estates neighborhood, the area offers a side of Hawaii worlds apart from the tourist-heavy destinations of Waikiki or Lahaina. It is 35 minutes from Hilo.
The listing, outside the pyramid, is a covered dining area and an exterior rock enclosure with a sink, toilet, and bathroom. There’s also a system for off-grid power and dual catchment tanks for water. If you’re wondering about electricity, yes, this pyramid is equipped with LED lighting, so you can see after nightfall.
To read more and see the photos, click here
My comment: I want it! The town’s median price is $75,000. I have always wanted a Hawaiian getaway since I am only 5 miles from the Pacific Ocean ;>
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Direction Sign of Main Street and Wall Street

Tech companies & Wall Street targeting residential real estate

By Ryan Lundquist
Excerpts: Factors:
1) Huge rent growth is propelling big funds: Having lofty rent gains in recent years has caught the attention of big investors and is essentially allowing them to play the market these days. It’s wild to think investors can presumably make the numbers work after ten years of price growth…
3) Profit and Convenience: The iBuyer model is nowhere near a dominant force in the marketplace, but we’ve seen exponential growth over these past three quarters. A dissertation can be written on what these companies are doing, but I want to make a simple point…
To read more, plus a link to Ryan’s previous article and over 40 appraiser comments, click here
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Another Related News Item: Zillow buying homes and flipping. Are they making any money? Some are saying Zillow is paying too much for the homes. To read more, Click here
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How to get more appraisals done without working longer or harder!

  • Top 10 Appraiser Time Wasters And What to do About Them By Doug Smith, SRA
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CFPB settles with nation’s largest reverse mortgage lender over “deceptive” home estimates

In a lawsuit filed October 8 in the U.S. District Court of California’s Central District, the CFPB alleged that Irvine, California-based American Advisors Group (AAG) sent borrowers deceptive consumers to take out a reverse mortgage. The direct mailers advertised a prominent “estimated home value,” per the court filing, which the CFPB claimed was inflated.
The agency does not explain how it determined the values were inflated, nor does it offer documentation to explain how it calculated the difference between the allegedly inflated values and the accurate values. Per the lawsuit, the midpoint of those values were inflated on average by 18%, while at the high end, the values were an average 28% higher.
To read more, click here
My comment: I guess the Primary Appraisal Rule is showing up again: if the appraisal is not the number you want, it is wrong – too high or too low. I just had to include something about high values, since all I hear about are low appraisals.
Their values came from AVMs, maybe with “proprietary” methodology to get higher values? Hmmm…
I did a few reverse mortgage loans for a major lender in low-income neighborhoods many years ago. I quit taking appraisals from them because it included equity splitting. The borrowers I spoke with did not understand what was happening. Reverse mortgages are complicated.
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Round Houses – What and Why

10 amazing round houses from around the world – Amazing!!
Birkedal, Isle of Møn, Denmark (PHOTO ABOVE)
Nine cylinders interlock to make up this retreat on the island of Møn in Demark. A wooden home that goes against the grain, architect Jan Henrick Jansen designed and built the property over the course of five years.
To see more photos and info on other very unique homes,click here
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Why our ancestors built round houses – and why it still makes sense to build round structures today – Fascinating!!
Excerpts: The oldest forms of indigenous shelter were often round in shape. (Think the Southwest USA Hogan, Mongolian Yurt, North American Teepee and the Greek Tenemos, among others.) Why did our ancestors choose to build round? Because the ovid shape — eggs, earth, tree trunks, and stones — is what they saw reflected in the surrounding natural environment. And, as usual, Mother Nature knows best. There is some nifty natural science that makes round buildings more comfortable, more energy-efficient and safer — especially if you combine the ancient shape with modern materials.
Wind and tsunami waves move naturally around a round building rather than getting caught at (and potentially ripping off) corners. A rounded roof avoids ‘air-planing’- a situation where a strong wind lifts the roof structure up and off of the building.
To read more and see lots of photos, click here
My comment: I did not know about the advantages, and history, of round houses. Mostly saw them as houses I would not want to appraise as there are very few here ;>
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Fannie News: Appraising and underwriting condo and co-op projects

Excerpt: Lenders and appraisers have interconnected duties when it comes to condo and co-op projects. For loans sold to us that are secured by units in condo and co-op projects, lenders are responsible for determining that the projects meet all applicable Fannie Mae eligibility requirements. Appraisers must document any special assessments or significant deferred maintenance that may impact the unit’s safety and soundness or marketability, or the financial stability or physical safety of the overall project and its amenities.
My comments: For appraisers, Fannie references special assessments, but also includes: “Significant deferred maintenance may be described as a part of the condition of the individual unit or may be a part of the overall project information (condition section) in the report.”
I was not surprised to hear about the recent collapse of part of a condo project in Florida that revealed significant problems that can occur. Homeowners not wanting to increase dues or do special assessments becomes a larger problem as they get older and need work. Florida does not require a reserve study but requires a reserve schedule for the repair and replacement of major components.
In the mid to late 80s, when I started doing lender and FHA appraisals, I was required to review condo documents, reserves, maintenance expenses, etc. In a nearby city, there were several large older townhome projects with significant problems: few reserves, deferred maintenance, etc. I reviewed all the documents and disclosed any problems in my appraisals.
Since then, I have always reviewed the reserves, expenses, etc. If I can get them, I read newsletters from the HOA. Fortunately, in California, reserve studies have been required for a while, every three years. The HOA is responsible. I always write about the reserves, maintenance issues, etc. in every condo appraisal.
Very similar condo projects can vary widely in dues and special assessments. I have seen significant value differences between the projects with different costs.
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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, go to www.mbaa.org
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Mortgage applications increased 0.2 percent from one week earlier

WASHINGTON, D.C. (October 13, 2021) – Mortgage applications increased 0.2 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending October 8, 2021.
The Market Composite Index, a measure of mortgage loan application volume, increased 0.2 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index increased 0.4 percent compared with the previous week. The Refinance Index decreased 1 percent from the previous week and was 16 percent lower than the same week one year ago. The seasonally adjusted Purchase Index increased 2 percent from one week earlier. The unadjusted Purchase Index increased 2 percent compared with the previous week and was 10 percent lower than the same week one year ago.
“Mortgage rates reached their highest level since June 2021, but application activity changed little this week. An increase in home purchase applications offset a slight decline in refinances,” said Joel Kan, MBA’s Associate Vice President of Economic and Industry Forecasting. “The increase in purchase applications was welcome news, but was primarily driven by a 2 percent gain in conventional purchase applications, which kept the average loan size elevated.”
Added Kan, “The 30-year fixed rate reached 3.18 percent last week and has risen 15 basis points over the past month, resulting in an 11 percent drop in refinance applications during this time. Government refinance applications fell over 3 percent last week, driven by a decline in FHA refinances and an 8-basis-point increase in the average FHA mortgage rate. We continue to expect weakening refinance activity as rates move higher and borrowers see less of a rate incentive.”
The refinance share of mortgage activity decreased to 63.9 percent of total applications from 64.5 percent the previous week. The adjustable-rate mortgage (ARM) share of activity remained unchanged at 3.4 percent of total applications.
The FHA share of total applications decreased to 10.2 percent from 10.5 percent the week prior. The VA share of total applications decreased to 10.2 percent from 10.3 percent the week prior. The USDA share of total applications decreased to 0.4 percent from 0.5 percent the week prior.
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($548,250 or less) increased to 3.18 percent from 3.14 percent, with points increasing to 0.37 from 0.35 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans. The effective rate increased from last week.
The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $548,250) increased to 3.22 percent from 3.20 percent, with points increasing to 0.29 from 0.27 (including the origination fee) for 80 percent LTV loans. The effective rate increased from last week.
The average contract interest rate for 30-year fixed-rate mortgages backed by the FHA increased to 3.20 percent from 3.12 percent, with points remaining unchanged at (including the origination fee) for 80 percent LTV loans. The effective rate increased from last week.
The average contract interest rate for 15-year fixed-rate mortgages increased to 2.48 percent from 2.45 percent, with points increasing to 0.29 from 0.24 (including the origination fee) for 80 percent LTV loans. The effective rate increased from last week.
The average contract interest rate for 5/1 ARMs increased to 3.08 percent from 2.54 percent, with points increasing to 0.26 from 0.16 (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

Location, Location, Location In Appraisals

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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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 bedrooms, bias, time adjustments, unusual homes, mortgage origination stats, etc.

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What should appraisers look for in a sales contract?

What should appraisers look for in a sales contract?

By Steven W. Vehmeier

Excerpt: When should we analyze the contract?

Looking at the sales contract early on allows the appraiser to identify any “subject to” items or other conditions that could influence the value conclusion.

However, reviewing the contract early might also put the sales price in the back of the appraiser’s mind. And although it shouldn’t, it may unintentionally influence the appraiser’s comparable selection and eventually impact a direction in value.

Maybe looking at the sales contract only after developing the appraiser’s opinion of value would help avoid the above concern?

To read more, click here

My comment: Some interesting, and maybe controversial, ideas. Short and worth reading.

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NOTE: Please scroll down to read the other topics in this long blog post on unusual homes, AMCs, appraiser survey on the future, real estate market, waivers, turn times,mortgage origination stats, etc.

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Subjective Language in Appraisals

Appraisal Business Tips 

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What AMCs Say to Appraisers and How to Respond

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.

What to Do When Your Appraisal Is Under Review

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 unusual homes, FHA, Fannie, E&O, liability, time adjustments, price per sq.ft. mortgage origination stats, etc.

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Appraisers and The Psycho Kitty

Favorite Crazy Appraisal Stories – The Psycho Kitty

Excerpt: Psycho Kitty

I had an appointment at a home in the country out in the woods. The access instructions said the cat MIGHT be caged. Got to the home and the cat was at the front door and hissed at me as I went in. I tried to make friends with the cat, but it didn’t work, so I ignored the cat and started my inspection.

As I came out of the first-floor master, he was waiting. He stood on his hind legs, teeth showing, hissing, and came at me. Once again, I used my clipboard and ran to the laundry room where I was able to shut the door. I was safe…

To read more strange and/or funny appraisal stories, click here

My comment: We all have appraisal stories, of course!! In my 45 years of appraising I have never been attacked by a cat. My creepiest cat encounter was appraising the home of a cat foster parent for a local animal shelter. Large outside cat enclosure full of cats, multiple cats on top of dressers and other places, looking at me (looked like they were hungry). I wish I could forget about all the cat eyes looking at me :<

Appraisal Business Tips 

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NOTE: Please scroll down to read the other topics in this long blog post on psycho kitty, waivers, value vs. price, hot market, unusual homes, mortgage origination stats, etc.

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What are Pass through Bedrooms for Appraisals

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”.

Read more!!

New sewer line increases value for appraisals?

My new sewer line adds huge value, right?

January 19, 2021, By Ryan Lundquist

Excerpt: A new sewer line. That’s what 2020 gave my family as a parting gift before the year closed. Yep, just before Christmas, we had to replace our entire line at a whopping $13,688. I know that sounds crazy expensive, but we had four separate bids and went with the most reasonable one. In part it was so pricey because we had one hundred feet of the line under eighty feet of concrete.

The good news is my house is worth $13,688 more now, right?

To read more plus lots of appraiser comments click here

What to Do When Your Appraisal Is Under Review(Opens in a new browser tab)

Appraisal Business Tips 

Humor for Appraisers

Covid-19 Residential Appraisers Tips on Staying Safe

For Covid Updates, go to my Covid Science blog at covidscienceblog.com

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NOTE: Please scroll down to read the other topics in this long blog post on fees, house settling, unusual homes, mortgage origination stats, Covid tips for appraisers, etc.

 

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Surplus vs. Excess Land for Appraisals

How Surplus & Excess Land Works

By Jamie Owen

Excerpts: It can be easy to over-simplify value because the value is not always as clear cut as it appears. For example, if a one-acre lot is selling for $10,000, does that mean that a two acre lot is worth $20,000? Not necessarily. The value of something usually changes depending on its size.

Excess land is land that is larger than what is typical for the neighborhood and capable of a separate use. Excess land is land that could be split-off and resold as a buildable lot. In the example below, the zoning required a minimum lot size of one and a half acres to be buildable.

To read lots more and see fun animated gifs, click here

My comment: Definitely worth reading!

2-16-17 Newz .Land surveys in 1784 .Common appraisal errors (Opens in a new browser tab)

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Appraisal Business Tips 

Humor for Appraisers

Covid-19 Residential Appraisers Tips on Staying Safe

For Covid Updates, go to my Covid Science blog at covidscienceblog.com

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 vaccines and housing, waivers, appraiser skills, surveys, mortgage origination stats, Covid tips for appraisers, etc.

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Crazy Appraiser Stories

Crazy Appraiser Stories

 

You’ve all got them… The crazy car chases, the surprising living conditions, the exotic assignments, and the unique collectors….

What we all need… Here is one brief humorous escape!!

The photo above is the Crazee Appraiser writing up his appraisal!

Here is one story:

This was a beautiful 3,200 sq ft home with all the extras. After measuring, I was standing by the fireplace, taking an interior photo, being careful not to step on the expensive rug next to the hearth. The lady of the house looked a little alarmed, so I had to ask, “Is everything okay?” “Oh yes, it’s just that the camera will have a click.” I’ve heard weirder things, so after assuring her it was a very quiet click, the button went down, the picture was taken, and the excitement started.

Something hit the back of my head, a soft, but very strong hit. The equivalent of a 10 mile an hour wind passed over my left shoulder, and a shadow landed on the other side of the sofa, which was 14’ in front of me. It seems that the fluffy 6’ rug was a once wild, African Savannah cat, stretching 6’ long as it napped on its belly. It looked like a leopard rug! With teeth longer than some fork tines, I was happy to let it hide in the bedroom, but she coaxed it out of hiding to demonstrate that it could easily jump 10’ high for a kitty treat.

– Carolyn S. Richards

For more stories, click here

My comment: We all need some appraiser fun to start the New Year!!

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Humor for appraisers

FREE appraisal business articles

Covid-19 Residential Appraisers Tips on Staying Safe

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Read more!!