Appraisals – Check the Water Source!

Excerpt: We continue to see claims alleging that the rural property appraiser failed to adequately identify or report details surrounding a water source. In one claim, the appraiser correctly noted that the property was serviced by a “private water well.” It was later discovered that the well was not located on the property which was appraised. Unfortunately, the well was actually located on an adjacent lot that, at one time, was part of the subject lot prior to the lots being subdivided.

My comments: An appraiser lost a lawsuit because he said the vacant parcel had public water access. It did not even though many lots nearby were developed. Nearby, I noticed a large water tank. It was shared by four nearby homes. This was not in a rural area. I worked for 4 years in rural areas. Water access was critical. If there was no access, trucks had to bring the water.

Appraisers – check the water source!

10-12-17 Newz//FHA-Appraisers responsible for water quality reporting?, Hybrid appraisal survey)

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My Comments on Market Changes

My inbox is flooded with news emails about opinions on what is happening now and forecasts for the future. (Most of the information in these newsletters comes from emails. I am on many email lists.) It looks like the change is starting because of increasing mortgage interest rates. I have included some of the articles below.

Fannie and Freddie have long said that they want appraisers to tell them about their markets. Include graphs and charts in your appraisal to show your clients what is happening now and why they need human appraisers.  

It is extremely important for appraisers now to closely track changes in your local markets at least once every day and tell your lender clients about it. When will it affect your market? No one knows if there will be foreclosures or when they will start. The number of potential buyers will decrease as rates go up in many markets.

Segments may be very different from the overall stats. A few examples:

  • Different price ranges – first-time homebuyers, high end
  • New homes – what is happening?
  • Detached vs. townhomes and stacked condos.
  • All cash and investors
  • How many offers
  • No inspections or appraisals?

COMPS ARE THE PAST. YOU MUST KNOW YOUR MARKET TRENDS. TRACK AND GRAPH THE NUMBER OF LISTINGS VS. PENDINGS AND EXPIREDS, DAYS ON THE MARKET, PRICE CHANGES, ETC. 

Today is NOT the same as 2008+, with its massive fraudulent loans made to unqualified buyers. Computer modeling did not predict the 2008 crash. Many were in denial that it was coming and refused to listen to appraisers. We have never seen a pandemic real estate market before. Did anyone think in early 2020 that home values all over the country would go off the charts? No one did. Appraisers wrote up long disclaimers about how they did not know the effects. Some still include them in their appraisal reports today.

Watch the excellent 4-minute video with Mark Zandi, “There’s a comeuppance coming in the housing market”. It discusses how today is different from 2008 and what is happening today. Before becoming the chief economist of Moody’s Analytics, he was a real estate economist. I listened to him for many years about real estate economics. He is very savvy. I agree with what he says about real estate. I am unsure about inflation. To watch the video, click here

I have been writing about these upcoming changes in these newsletters for a while now. Ryan Lundquist writes about this almost every week. He has lots more details and examples of graphs that can help you see what is happening in your market. www.sacramentoappraisalblog.com He writes for the Sacramento, CA market but what he writes is relevant for other markets also.

Two days ago the Fed raised rates by 0.75%. Recession? Lower inflation? Real estate market?

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Too many appraisers?

How can we fix the excess of appraisers?

Too many appraisers?

By George Dell, SRA, MAI

Easy — we do what we have always done, each time . . .

Excerpts: 1) We will raise the standards (“cost of entry”). 2) We will make it harder to become an appraiser; 3) Let the lower fees discourage newcomer appraisers.

In past issues of the Analogue Blog, we have considered the “five forces of friction” on the advancement of appraisal. Here we consider how these “frictions” will behave as appraisal demand has dropped, just as each of the five forces have found ways to reduce or “eliminate” the need for valuation expertise. Recall the five forces of friction: practices, standards, education, regulation, and client expectation.

This blog considers how each friction will respond to this “excess” of appraisers.

Practices:

Current practice is still embedded in the concepts of 8 ½ X 14 paper forms, spreadsheets, or narrative explanation of the opinion of the person (appraiser, evaluator) or automation programmer. Practices will continue to evolve toward objective data selection and predictive models. But this evolvement will continue to stay behind the inherent potential of applied data science. Habitual practice of “comparing comps” over “measuring markets” will prevail (in the absence of change in the other “frictions”).

To read more, click here

My comments: Of course, lots of politicians, appraiser organizations, appraisers and others are complaining now about an appraiser shortage and trying to recruit trainees. This is the past. Loan applications are way down, the lowest in 22 years. What was your business like before the pandemic? Not much work probably compared with 2020-2022. The Inevitable Cyclicality of Mortgage Lending. I hope you saved up lots of money over the past few years!

Non-lender Appraisals Good fees and few hassles
Purchase vs. refi appraisals

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

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Residential Appraisals and Airbnb Income?

Residential Appraisals and Airbnb Income?

By Julie Friess, SRA, AI-RRS, MA

Don’t get caught like a deer in the headlights! State appraisal boards ARE disciplining appraisers across the country for improperly using the business income (Short term Rental – STR) from Airbnbs on the residential 1007 Fannie Mae form.

Lenders and AMCs want residential appraisers to value these properties as both the real estate and the business values of these properties – Wrong!!

 

Some of the topics:

• USPAP issues

• GRM is an Income Approach that applies to homes with long long-term tenants, not homes with many Short Term Rentals.

• Functional Obsolescence

• External Obsolescence

• Covid-19 Pandemic and Airbnb’s

The photo below has an exterior entrance to a bedroom, typical for an Airbnb remodeling.

To read more, click here

My comments: This mainly applies to cities where many homes are being converted to Airbnbs, including exterior doors for bedrooms (see foto below) and expanding the number of bedrooms. In popular vacation areas, such as Sedona, AZ, where Julie lives, investors purchase homes and do extensive remodels to turn them into Airbnbs with Airbnb management companies handling everything for them (clean up, new furnishing, and renting).

Julie does not include short-term rental income (STR) in her appraisals of homes with Airbnbs. I posted her article on my website so that everyone can read it. I have a few of my comments, of course!! I’m a commercial appraiser and know how hotels and Bed and Breakfasts are appraised. The appraisals include separate values for real estate, fixtures, and Going Concern (business income and expenses).

Julie speaks about this topic regularly on our weekly Clubhouse meetup, Real Estate Appraisal Questions, every Thursday at 2 PM Pacific Time (audio-only social media). All the sessions are recorded. The May 12, 2022 session was “Residential 1004/1007 Form Appraising & AirBnB Income”.

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CubiCasa – Home Measurement From Inside A House

CubiCasa and a Desktop Mess – an appraiser’s experience

By Jamie Owen

Excerpts: I called the listing agent on the property I was to appraise and asked if they knew how an appraiser might go about obtaining a floor plan (for my desktop appraisal). She had no idea and had never heard of this type of thing being needed. I was really at a dead end here. I called the bank and explained the situation. They ended up converting the assignment to a traditional type of appraisal so that I could just make the inspection myself.

I called the chief appraiser of the bank that ordered the appraisal. I know him well and have worked together with him on some complex assignments. He said the whole thing is a mess. Some appraisers are submitting reports where they have the listing agent hand-draw the interior walls on copies of the county auditor’s sketch outline. This is also a no-no. Fannie Mae will accept nothing hand-drawn in terms of the sketch…

I decided to test CubiCasa. I downloaded the software to my iPhone 11… I must tell you that I was very impressed! The scan took 15 minutes to do. By the way, I measured the home also. It took about 15 minutes for me to measure the home. But it would have taken a lot longer if I had to add walls and doors!

In less than a day, the sketch was sent to me via email, and it was awesome! It was professional-looking and had all the data that I needed. Its measurements were within 15 square feet of mine on a home that was just over 2,400 square feet. It also broke down the square footage of each floor and the dimensions of each room and its gross living area calculations.

I have been using it and then comparing my measurements with its measurements. It is consistently within 1-3% of my measurements. The 3% variance is with larger homes with complex angles and tricky areas to measure. In my view, that’s pretty good!

To read more and see a fun video and animated gifs, click here

My comments: Desktop appraisals are a new type of assignment for appraisers. I wrote about CubiCasa and Desktops in recent newsletters. I tested it and spoke with knowledgeable people. I am using it. No more exterior measurements!

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Does A “Crazy” Neighbor Lower Value?

Does A “Crazy” Neighbor Lower Value?

By Jamie Owen
Excerpts: It’s tax appeal season, and I’ve had several homeowners say that they feel their neighbors are negatively impacting the value of their homes for different reasons. Is that the case? Can that be the case?
The homeowners of one property stated that their neighbors are a nuisance. My clients said that one of their neighbors has people coming and going until late in the evening, most evenings. They also complained about there being noisy. Additionally, they claimed that the neighbor directly behind them is not a very nice person and is always causing neighborhood trouble.
Meanwhile, in a different neighborhood, a different homeowner claimed that their home was suffering a loss of value due to their neighbor’s home not being kept up and needing repairs and updates on the exterior. The neighbor’s property is an eye-sore.
The long-winded point I am trying to make is that the appraiser will need to find some evidence to support the claims that a neighboring property is really creating a loss in market value to its neighboring properties.
To read more, and see some fun animated gifs and videos, click here
My comments: As always, Jamie often writes about appraisal topics from a different “angle”! I have a crazy next-door neighbor also, who waits for me to come home to “attack” me with some perceived problem… since 1986 when I purchased the property.

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What is a “good” appraiser?

8 Characteristics of a Successful Real Estate Appraiser

Excerpt: Here are two:
Unbiased
The ability to form an unbiased, objective opinion of value is absolutely essential in this line of work. According to this survey, many appraisers agree that this is the single-most-important trait you need to have as a real estate appraiser. In order to provide trustworthy results and uphold the integrity of the appraisal profession, you must be unbiased. Otherwise, you risk losing your professional reputation.
Analytical
It’s important for appraisers to be analytical, as each appraisal assignment will require thorough analysis and critical thinking.
To read more, click here
My comments: I was hooked on science in my first science class: high school biology. I studied biology and chemistry in college. I learned to be objective and unbiased, analytical, and open to almost any possibility. I have used these skills in appraising. I have always been curious, which keeps me up on what is new and other ways of looking at appraising a property. As far as I know, relatively few appraisers have science degrees.

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Appraisers – The Past and The Future

Appraisers – The Past and The Future

The Path that Brought Us Here

by Richard Hagar, SRA

Excerpts: A wise man by the name of Jim Irish, former chief appraiser for the Federal Reserve Bank out of Topeka, Kansas, once told me something very profound: “The government is rarely proactive but always reactive.” Translation: laws, rules, and guidelines are usually developed after a problem smacks us upside the head. Since hearing this, I have found that it also applies to large enterprises.

Appraisers continued to tell lenders that they drove by each of the comparables used in the report. Years later, when lenders, Fannie Mae, Freddie Mac, FHA, and the VA spot-checked reports, they found out that the condition or location of many comparables didn’t match what was reported. So, the reactive response was to require the appraiser to affirm, under penalty of perjury (which stands to this day), and provide original photographs of each comparable.

Failure to inspect triggered client engagement letters stating the absolute requirement to personally inspect each of the comparables, provide original photographs, and create a system that inspects the photographs and can tell when a photograph is used twice or sourced from the MLS or county—clients know who’s lying to them and fees are lower because of it.

To read more, click here

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Prepare for Change

by Richard Hagar, SRA

Excerpts: In my career, I’ve been through four major changes in the market and our business, so what’s about to happen isn’t my first rodeo. I’m going to point out some things that will make a few people angry. However, I’m trying to help by pointing out how you can become better and profit from the change.

Waivers

Both Fannie Mae and Freddie Mac allow “appraisal waivers” (loans where no appraisal is required), and in the past, waivers were limited to fewer than 5% of the loans they purchased from lenders. However, their waivers have increased to 48% of their loan purchases over the past year. Imagine that 48% of the loans no longer require an inspection or appraisal.

Prior to 2022, Fannie Mae’s UAD system reviewed approximately 20,000 appraisals a day produced by approximately 40,000 appraisers. This indicates that appraisers were providing one appraisal every other day. Now, consider that waivers reduce the rate to an appraisal once every 4 days. Ouch.

To read more, click here

My comments: I have known Richard Hagar for a long time. He can sometimes be negative or even harsh but has good ideas

The future of residential appraising(Opens in a new browser tab)

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1004MC or 1004 ANSI

1004MC or 1004 ANSI

By George Dell, MAI

Excerpt: The 1004MC “market conditions” appraisal addendum was created by Fannie Mae and Freddie Mac to require a form-based market analysis. This added to the traditional practice to collect a handful of ‘comps’ to opine and foretell market price. There are problems and unintended consequences.

The ANSI requirement is that residential appraisers measure houses according to the ANSI (American National Standards Institute) method. This constraint can have good long-term results for consistency, if it is adopted by the full universe of participants. The requirement would have to include tax assessors, building permit agencies, real estate agents, investors, insurance companies, architects, contractors, and unlicensed appraisers. This part might take years, if ever.

We can take a quick look at some similarities, some differences, and where things may go…

To read more, click here

My comments: George and I talked about this and agreed to disagree. He is not the only one with doubts about ANSI. Most are appraisers, like George, who have never used it. I finally found a somewhat negative post about ANSI, instead of social media rants ;>

My opinion: This Standard is better than no standard. Appraisers have been using ANSI since 1996. I did not hear about problems with using it or with lender clients. Change is hard.

See the end of this newsletter for info on Appraisal Institute’s New 4 hour online ANSI class and an excellent ANSI webinar this Monday with Lyle Radke from Fannie being grilled by three appraisers! Two of them had negative comments.

ANSI Z765-2021 Resources for Appraisers

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Fannie Requiring Appraisal Floor Plans Coming?

Are Floor Plans in Your Future?

By Dave Towne
Excerpts: In the Selling/Servicer Guides of FNMA and Freddie Mac, both GSE’s identify a ‘sketch’ to be a diagram of the subject as measured by the appraiser which shows exterior walls, and includes the dimensions. That’s it. They don’t even say that room labels are needed, but most appraisers include those.
Including a ‘sketch’ in reports as an exhibit is an additional Assignment Condition, beyond what USPAP requires in Standard 2, per the Assumption and Limiting Conditions on the residential forms. Both GSE’s require a more detailed diagram including interior wall locations when interior design abnormalities are discovered, and reported – which they call a “Floor Plan”.
I’ve talked with representatives from both GSE’s recently. Their line of thinking, at the present time, is a “Floor Plan” should be provided as an exhibit in the appraisal report even though the report signing appraiser was not physically present at the subject property when data was gathered. Their line of thinking is also slanted to having third parties provide the subject property data, believing appraisers are more valuable as ‘analysts instead of as observers and detailers of the property characteristics.
Thus the evolution to the new 1004 (Desktop) and 1004 (Hybrid) report forms, with different Scope of Work and Assumption and Limiting Condition statements in each version. (These forms are in your software forms package now.)
To read more and watch the video, click here
My comments: Read this post, watch Danny Wiley’s remarks in a video, and read many appraiser comments. Quite a while ago, Fannie started requiring detailed floor plans. This did not last very long, but I continued doing rough floor plans manually. I still do them but do not include the floor plans in the appraisal sketch. It keeps me from missing a small room, bathroom, etc. Of course, when there are floor plan functional problems, I put the details in the appraisal sketch. In my area, tandem rooms are common (usually from additions). They cannot be included as bedrooms.
When I used to do relocation appraisals, I always included a full interior floor plan with walls and doors. This was standard practice in my area. Doing an interior floor plan with walls and doors takes a lot of time, both measuring and using my sketch software.

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Appraiser Retirement?

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Appraiser Retirement?

By An Anonymous Appraiser
Excerpt: …retired 2 months ago, and I am SO GLAD I did. I’ve had enough. I decided on an appraisal career because I found real estate, and especially the valuation of homes to be extremely fascinating and challenging, and although I had heard that the appraisal profession was making changes back 30+ years ago, I “assumed” it was becoming a more upstanding, professional occupation, in the eyes of the lenders, politicians and general public, similar in stature to doctors, lawyers and accountants. In other words, they would would hold the appraiser’s opinion via “trust in the professionals opinion”.
What we got, was 30+ years of complaints from the lenders and politicians who blamed appraisers for all of the lenders and political wrong doings. And the public believed them! Why? Because appraisers NEVER got together as an organization to support other residential appraisers! Oh yes, there was the Appraisal Society and the Appraisal Institute, of which I became a candidate, but when I realized that they catered to commercial appraisers, and recently to their own needs, I decided there was no reason for me to join. Besides when licensing came along, the license was the main criteria for selecting the appraiser.
To read more plus many appraiser comments, click here
My comments: Many appraisers are getting older and retiring now for various reasons.
I am 78 years old and have been appraising for 45 years. I love appraising!! (I have not done any lender res appraisals since 2005.) I have friends near my age who are still appraising and like it. They work for direct lenders mostly and do little AMC work.
What is “retirement” for fee appraisers? One of the great reasons to be a fee appraiser is choosing when, where, what you appraise, and whom you work for. In the past, I worked long hours 7 days a week on properties in a wide geographic area. It has been many years since I worked that hard. Many of us just fade away gradually ;>
I recently spoke with two 55-year-old female appraisers. They had both invested in real estate and were retiring early. I have known appraisers over the years who did this. Why aren’t there more? Risk avoidance, I guess. I invested in a duplex in 1986 ($120,000 purchase price). I am living there now after selling my large home. My tenants pay mortgage, insurance, and taxes.  I shoulda bought more when the prices were way down here!
I have written about appraiser retirement in my monthly newsletter many times over the years. Be sure you have “tail” insurance to cover any e&O claims after you retire. Mine is free from my E&O company. My most recent article is from May 2021, “Retirement: To Stay or Not to Stay. That is the question!!” Lots of issues to consider. Tip: don’t start taking Social Security until you are 70. I get $3,235 per month now, before the cost of living coming increases. The maximum is $3,985 per month.

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