What is an Appraisal “Inspection”?

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.

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

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Humor for Appraisers

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NOTE: Please scroll down to read the other topics in this long blog post on bedroom closets, Updated FHA 4000.1, bias, unusual homes, mortgage origination stats, etc

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$5.5M Florida Keys Home with a 25,000-gallon aquarium

Excerpts: The main house has three bedrooms, 5.5 bathrooms, and 5,300 square feet of space, on nearly an acre. There’s also a one-bedroom apartment above the garage.

The stilted house was built in 1996, and the snorkel aquarium sits under it, near a circular driveway that features a bronze and concrete sculpture.

The tremendous tank was featured a few years ago on National Geographic’s “Fish Tank Kings,” when the home’s previous owner wanted to clean up and repair the enormous aquarium.

The home faces direct west and is directly on the ocean. From most of the rooms in the main home, you have sunset views.”

To read more and see many photos and a few videos, click here

My comment: Adjustment for pool/aquarium. Negative or positive???? I visited Key West and watched the sunset (with lots of other people) a few times. It was fantastic!! I lived for a year in Santa Cruz, CA, 2 blocks from the ocean. I walked to the beach and watched the sunset every evening.

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FHA INFO #21-59 July 20, 2021

FHA Publishes New Handbook 4000.1 Update

Today, the Federal Housing Administration (FHA) published a new update to the Single Family Housing Policy Handbook 4000.1 (Handbook 4000.1). The updates include enhancements and revisions to existing guidance as well as various other technical edits. In most cases, however, this newly added language augments and enhances existing policy. FHA remains committed to making it easier for mortgagees to conduct business by maintaining and enhancing Handbook 4000.1 with regularly scheduled updates to ensure it remains the comprehensive source of policy guidance for single family mortgage originators, servicers, and other stakeholders.

To read the full announcement above with links, click here

To read the new Handbook with redlined changes (yellow highlights), click here

Search for “apprais” to find the relevant changes. 

Note: most changes effective 9/20/21

My comments: Always good to have the latest PDF version of 4000.1 to search for what you need. I used the highlighted version to look for any appraisal changes. Here are a few:

  • Minimum Property Requirements and Minimum Property Standards
  • Development of the Market Value
  • The Mortgagee may use an update of appraisal only if:

I didn’t have time to check the entire document, but there are not many changes overall.

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Most metros in the US have become more segregated since 1990

UC Berkeley project mapped every US census tract to show level and of segregation

Excerpts: More than 80 percent of metropolitan regions in the United States have become more segregated in recent decades despite policy efforts aimed at promoting integration, with the most highly segregated areas located in midwestern and mid atlantic states, according to a new study from UC Berkeley’s Othering & Belonging Institute.

“The Roots of Structural Racism: Twenty-First Century Racial Residential Segregation in the United States,” shows that between 1990 and 2019, 169 out of the 209 metropolitan regions in the United States with populations above 200,000 people have increased in their levels of segregation, which correlated with poorer life outcomes, particularly for people of color, in terms of health, educational attainment, economic mobility, and much more.

Just 40 regions have become less segregated, according to the analysis, which was based on official US Census data.

A central component of this project is an interactive national segregation map which shows the levels of segregation in hundreds of cities and metropolitan areas across the country, and allows users to toggle between different decades to show changes in segregation.

Using the map, users can zoom in on different regions of the country to see how a metropolitan region which may be thought of as diverse is actually highly-segregated when inspected at a city level. This is revealed by the different colors assigned to different cities based on their levels of segregation.

The two paragraphs below were added by me.

Some of the most segregated areas included Chicago, Milwaukee and Detroit in the Midwest and New York, northern New Jersey and Philadelphia in the mid-Atlantic.

Conversely, large metropolitan regions that saw the biggest decrease in segregation included Savannah, Georgia, San Antonio, and Miami.

To read the full press release, click here

To use the Map to Search by address, cities, census tract, etc, click here.

Can adjust by year: 1980, 1990, 2000, 2019. Very interesting! 

Link to original research with lots of detail click here

My comments: Appraisers did not cause this!! This study received much less publicity than the Black homeowners who said their homes were appraised too low, of course.

Fascinating! Using the map, I first entered my own address, of course. There were changes over time in some parts of my city between 1980 and 2019.

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Does it need a closet to be a bedroom?

By Ryan Lundquist

Master bedroom art deco style. Large closet with sliding doors, white walls and light laminate. 3D render

Excerpts: Real estate folklore: In the real estate community I often hear things like, “Closets are definitely required.” But here’s the thing. Is there really support for that claim? Or is it just real estate folklore passed down?

No closet rule: The truth is there isn’t any formal one-size-fits-all definition of a bedroom that states a closet is necessary. For reference, International Residential Code does NOT mandate a bedroom to have a closet. I find local code is sometimes vague about bedrooms too without a strong emphasis on mandatory closets.

The big issue (the market): Ultimately a bedroom should probably have a closet because that’s what buyers typically expect. In other words, buyers expect for closets to be present, new homes are built with closets, and it’s hands-down normal to have closets. So while a closet might not technically be required by code, the market likely requires one.

To read more, click here

My comments: What is a bedroom is a very controversial and confusing topic to many people. The number of bedrooms is important in many markets. In my city, there are many Victorian homes without closets. Some have added armoires. I count them as bedrooms. The February 2019 issue of the monthly Appraisal Today had “What is a Bedroom” by Doug Smith, SRA, plus my comments. It is a long article about building codes, septic tanks and leach fields, closets, FHA, etc.

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Big News For Refi Rates As Adverse Market Fee is Removed

Excerpt: What Happened? A fee that increased added half a point in upfront cost to most conventional refinances has been removed by FHFA (Fannie and Freddie’s regulator).

What does “half a point upfront” mean?

$1500 on a $300k loan, or 0.125-0.25% in rate.

For what loans? When?

… this only applies to most conventional refinance loans delivered to the agencies on or after August 1st. It would be very hard to close a new refi before then, let alone deliver it to the agencies, so most lenders have already implemented the change for all new loans.

Read more and see good graphs, click here

My comments: Loan volume will definitely pick up, especially for refis. Some AMC appraiser fees are going way up, even to “whatever you want to charge.” I hear $1,000 in local areas. Other appraisers are charging $500. Fees are often high for purchases that are very time sensitive. Who pays the increased fees? Sometimes the borrower. Sometimes the AMC. RAISE YOUR FEES!! AMCs are not loyal and will forget you when business slows down. AMCs are even sending me lots more email solicitations for residential and commercial loans. I delete them.

The difference between VA fees (which have not changed much) and conventional appraisals is getting larger and larger. Commercial appraisals have finally picked up. Hopefully, their fees will go up finally. I quit doing them because of low fees and too much work.

Maybe it’s time for you to refi. I gotta do it myself!!

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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 Note: I publish a graph of this data every month in my paid monthly newsletter, Appraisal Today. I have been tracking this data since 1993. For more information or get a FREE sample issue go to https://www.appraisaltoday.com/products.htm or send an email to info@appraisaltoday.com . Or call 800-839-0227, MTW 7 AM to noon, Pacific time.

Mortgage applications decreased 4.0 percent from one week earlier

WASHINGTON, D.C. (July 21, 2021) – Mortgage applications decreased 4.0 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending July 16, 2021. The previous week’s results included an adjustment for the Fourth of July holiday.

The Market Composite Index, a measure of mortgage loan application volume, decreased 4.0 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index increased 20 percent compared with the previous week. The Refinance Index decreased 3 percent from the previous week and was 18 percent lower than the same week one year ago. The seasonally adjusted Purchase Index decreased 6 percent from one week earlier. The unadjusted Purchase Index increased 17 percent compared with the previous week and was 18 percent lower than the same week one year ago.

“The 10-year Treasury yield dropped sharply last week, in part due to investors becoming more concerned about the spread of COVID variants and their impact on global economic growth. There were mixed changes in mortgage rates as a result, with the 30-year fixed rate increasing slightly to 3.11 percent after two weeks of declines. Other surveyed rates moved lower, with the 15-year fixed rate loan, used by around 20 percent of refinance borrowers, decreasing to 2.46 percent – the lowest level since January 2021,” said Joel Kan, MBA’s Associate Vice President of Economic and Industry Forecasting. “On a seasonally adjusted basis compared to the July 4th holiday week, mortgage applications were lower across the board, with purchase applications back to near their lowest levels since May 2020. Limited inventory and higher prices are keeping some prospective homebuyers out of the market. Refinance activity fell over the week, but because rates have stayed relatively low, the pace of applications was close to its highest level since early May.”   

The refinance share of mortgage activity increased to 64.9 percent of total applications from 64.1 percent the previous week. The adjustable-rate mortgage (ARM) share of activity decreased to 3.3 percent of total applications.

The FHA share of total applications increased to 9.6 percent from 9.5 percent the week prior. The VA share of total applications increased to 10.5 percent from 10.3 percent the week prior. The USDA share of total applications remained unchanged 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 3.11 percent from 3.09 percent, with points increasing to 0.43 from 0.37 (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) decreased to 3.13 percent from 3.16 percent, with points increasing to 0.32 from 0.27 (including the origination fee) for 80 percent LTV loans. The effective rate decreased from last week.

The average contract interest rate for 30-year fixed-rate mortgages backed by the FHA decreased to 3.08 percent from 3.15 percent, with points increasing to 0.31 from 0.29 (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 2.46 percent from 2.48 percent, with points decreasing to 0.30 from 0.32 (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 decreased to 2.74 percent from 3.02 percent, with points decreasing to 0.19 from 0.32 (including the origination fee) for 80 percent LTV loans. The effective rate decreased 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 

www.appraisaltoday.com

Appraiser Client Relationships are Very Important

Relationships… The Lost Art

Mark Skapinetz

Excerpts: Relationships. It’s a lost art of business when it comes to the appraiser profession…

From 2009 to about 2019, I was doing Lender appraisals, and deep down, something was missing. I would only be talking to customer service reps, people overseas that the AMCs subcontracted out to review work, and I had no one to go to with my issues and ideas. I know nothing about these people, and they don’t know anything about me.

Building this referral or relationship business wasn’t going to be easy, and it most certainly wouldn’t include any lenders that used AMCs for their ordering process. I needed to look elsewhere for this to happen. Where did I go? I went to the Realtor Facebook groups, Investor groups, and recently, I went to the new platform called clubhouse.

To read more, click here

My comments: I started my business in 1986 and mostly worked for lenders, but also worked for a wide variety of other clients: relocation companies, attorneys, private sales, estates, title companies, etc.

I quit doing residential lender appraising in 2005, before the crash. I had personal relationships with all my local and non-local, lender clients. Very few revision requests (wrong address, missing value, etc.) and no competitive bidding, etc.

Most of my referrals have been from local real estate agents or my website. I went on our weekly broker open house tours almost every week since 1990 and was active in the local association of Realtors.

I have been writing about non-lender appraisals since I started my paid newsletter in 1992 and have spoken to appraisers all over the U.S. and Canada about appraisal marketing.

Appraisal Business Tips including Marketing 

Humor for Appraisers

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

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Interracial Etiquette for Appraisers

Interracial Etiquette for Appraisers

By David Braun, MAI, SRA

A spotlight has been shined on the appraisal profession’s propensity towards racial bias.  There are at least two environments to contemplate.  One is the legal aspect, and the second is more of a personal nature.

The practicing appraiser will need to understand the existing and proposed laws relating to racial bias, especially in the context of “Fair Housing” laws.

This short article presents five steps to achieve practical interracial etiquette on a more personal level.  These steps apply to any combination of races.  If an appraiser cannot follow these proposed steps, there may be no need to study the legal aspects as it is not acceptable to say, “I hate (whichever) people, but I always treat them fair and professionally in business.  Sorry, you are in our prayers, but you cannot be in our profession.

Read more!!

Appraiser Capacity During the Pandemic

Spotlight: Appraiser Capacity During the Pandemic

June 16, 2021 

By Danny Wiley, Senior Director of valuation for Single-Family Credit Risk Management

Excerpt: 2020 – and the early part of 2021 – have shone a bright light on a topic that’s been a growing concern – appraiser capacity. While the scope of that concern has been different throughout the country in recent years, it’s now been brought to the forefront for every state. The pandemic fueled regulation which lowered already-low interest rates and, for a portion of homeowners, home-improvement-related refinances combined with additional factors to create a perfect storm for record appraisal volume – without a corresponding increase in the number of licensed appraisers.

The majority of the states comprising the list of the top 10 highest average GSE appraisals per appraiser were often situated in the western part of the country – and also, not surprisingly, included some of the more populated states, including California, Texas, Michigan, Arizona and Colorado. This group ranged from Ohio (165 average appraisals per appraiser), Illinois (171) and New Jersey (174) at the low end to Utah (233) and Texas (207) at the top end. Overall, the appraisers on this list were averaging about 14-19 appraisal per month from 2012-2019.

As you can see, the workload quickly escalates at this end of the spectrum – and, as you’ll find out below, 2020 showed us that a perfect storm of factors can make the situation much worse.

To see more graphs and read more, click here

My comments: Maybe someday lenders will allow trainees to sign. The Very Best Way to solve the appraiser shortage. The significant AMC hassles mean appraisals take more time.

A subscriber called me recently. She got a request for an appraisal of a home with a subsidized purchase price (Low-moderate income). The AMC appraisal request did not disclose this. She left messages to 5 of the AMC reviewers and did not get a callback. I suggested telling the AMC to get another appraiser. The easiest reason is usually to say she is not competent as the reason.

I have appraised them before. They are complicated. Typical restrictions on price if sold, etc. I was working for a local lender and contacted the very experienced chief appraiser to see what they needed and if they want to lend on these types of properties. Many appraisers are giving up on working for AMCs and quitting or retiring.

 

Appraisal Business Tips 

Humor for Appraisers

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Zoning and Appraisals

The Infamous History of Zoning in the Housing Industry (Video)

Excerpts: History of zoning in the housing industry and how past practices shape the problems we are currently experienced today.

What was the purpose of zoning in the very beginning? How exactly were these practices harmful to people of color? What are some of the problems we see today because of this? These questions and much more will be answered.

To watch the video, click here

My comment: A controversial topic. Today this often involves “downzoning,” allowing for properties to have more than one unit or more density – apartments, condos and townhomes.

Experts Say Zoning Changes Are Most Effective Path to Boost Housing Supply for a More-Balanced Market

Excerpt: A Zillow survey of economists and other real estate experts finds high costs are expected to slow construction and may lower homeownership among today’s 30-somethings. Relaxing zoning rules is what the panel says would be most productive to increase new housing supply.

Other ways include:

  • Ease the land subdivision process for landowners
  • Relax local review regulations for projects of a certain size
  • Accelerate adoption of new construction technologies (e.g., modular building, 3D printing of certain components)

To read more, including details and the full list of survey suggestions, click here

Zoning in the Appraisal Process

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, slowing market?, appraisal business, mortgage origination stats, etc.

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Appraising vs. the Public Good?

Has Appraising Failed the Public Good?

by Steven R. Smith, MSREA, MAI, SRA

Excerpts: The term Public Good is in the opening paragraph of the Uniform Standards of Professional Appraisal Practice (USPAP). An appraiser friend once wrote that our regulations and guidelines are intentionally ambiguous—and that may be. But what is crystal clear to me is that the industry has put the interests of its clients before the public good.

The Public Trust statement and the Ethics Rule have been largely ignored over the years with loan production put first…

What can an individual appraiser do to support the public good, even before they start an assignment? For me, the answer always has been to appraise the client and the appraisal assignment. There are some clients and assignments that simply should be avoided because of the wants, needs and desires of the client, with respect to the assignment results.

To read more, click here

My comments: I have known Steve Smith for a long time. To read more comments from Steve and other savvy appraisers, join the National Appraisers Forum, an email discussion group. I have been a member since it started. It is my “go-to” resource for appraisal topics. Moderated. Very different from Facebook and other appraiser online discussion groups where filling out forms and dealing with AMCs are discussed.

The future of residential appraising

Appraisal Business Tips 

Humor for Appraisers

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What Should Appraisers Wear?

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!!

Appraisal Business Tips 

Humor for Appraisers

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

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The UAD and Appraisers – Past, Present, and Future

The UAD and Appraisers – Past, Present, and Future

30 minute video

Speakers: Sean Murphy and Danny Wiley of Freddie Mac

Excerpt: They offer some insightful looks into the process and delve into the specifics that appraisers need to know.

What are some of the key updates for 2021? What can appraisers expect with these changes in the UAD? How will these changes impact the appraisal industry? These questions and much more will be answered between Sean, Danny, and Joan (moderator) as they dive into more about the UAD and Freddie Mac.

 

If it does not display, to watch the video, click here

My comments: Danny Wiley is an excellent speaker (starts after the first speaker). Worth listening to. Wiley is Freddie Mac’s Senior Director of valuation for Single-Family Credit Risk Management. Sean Murphy is the Credit Policy Risk Analytics Manager. Danny has been around for a long time, starting as a fee appraiser. He knows what is happening and what it means for you.>

Appraisal Business Tips 

Humor for Appraisers

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How to Fight Real Estate Agents’ Appraiser Blacklisting

How to Fight Real Estate Agents’ Appraiser Blacklisting

Excerpts: When a real estate agent “blacklists” an appraiser, the result is often that the agent’s lender/AMC contacts will stop using the appraiser completely (at the agent’s request), or occasionally, the lender will continue to use the appraiser but not assign the appraiser any of the transactions that that particular agent works on. In the case of the latter, sometimes the appraiser will be assigned an order only to have it canceled later that day once the real estate agent sees the appraiser on the order and calls the lender or mortgage broker to complain. I’ve talked to appraisers who have this happen several times a year with the same agent…

Having an order canceled and reassigned is sometimes the first and only indication to the appraiser that something fishy is going on, but some appraisers who abruptly stop receiving work from a client often don’t have to look far to figure out why. While “blacklisting” is sometimes more discreet, some appraisers actually have the real estate agent call them and tell them explicitly that they are going to actively prevent the appraiser from ever working on one of their transactions.

To read more, click here

My comments: Lender blacklisting has been around for decades. I remember when the blacklists were shared among lenders. Some appraisers said it was good to be on the blacklist of the not-so-ethical lenders.

Savvy AMCs (and lenders) often just don’t give the appraiser any more work. Putting an appraiser on a blacklist can be a big issue.

Good article with practical tips from Richard Hagar and the author.

Appraisal Business Tips 

Humor for Appraisers

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Complex Residential Properties for Appraisers

How to Identify a Residential Complex Property

Excerpts: A complex one-to-four family residential property is defined as a property that meets at least one of the following criteria:

  • The property to be appraised is atypical
  • The form of ownership is atypical
  • The market conditions are atypical

“Below we dig a little deeper into each type of complex property outlined above, providing detailed descriptions and examples of properties that would fall under each of the three categories.”

To read more, click here

My comments: This is the best explanation I have read about this issue. All appraisers encounter complex properties. You may or may not decide to accept the assignment. Always check the info you have on the property before accepting the assignment. Or, you find out after starting on the appraisal that it is more complex than you thought. I regularly turn down assignments because it will require more time, or I don’t want to “reinvent the wheel,” as I may never do another like it, etc.

Mortgage lending appraisals are very, very cyclical. When you are very busy, I recommend turning down these assignments to make more money. You will have lots of time during the slow period to accept these assignments.

In ancient history, before AMCs, I often did the tough ones for loyal clients as a favor. AMCs will go down the list, sometimes for days, trying to find an appraiser. One called me yesterday about a mixed-use property that their lender client said was residential. From online information, it looked like commercial on first floor. The issue was highest and best use, of course. I told them I did not know any commercial appraisers who work for AMCs, plus the fee would be over $2,000. You have to know that city’s local zoning regulations, requiring local expertise to determine the highest and best use.

The Bottom Line: Don’t Risk Your Appraisal License if it is too complicated for you!! I get many calls from appraisers having problems. This is always my answer. I have returned fees up to $2,000 after spending lots of hours on the assignment.

Appraisal Business Tips 

Humor for Appraisers

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