Appraisal Cost Approach and Highest and Best Use

By on November 16, 2024   /   AI, appraisal, appraisal how to, cost approach, Economic analysis, forecast, future, Highest and Best Use, liability, USPAP, zillow   /   Leave a comment
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Newz: Now What For Appraisers After Election? Generative AI and adjustments?

November 15, 2024

What’s in This Newsletter (In Order, Scroll Down)

  • (LIA ad) Intended Use and User
  • 10 Questions on the Cost Approach and Highest and Best Use
  • A Real-Life ‘Yellowstone’: Historic 52,000-AcreArizona Ranch Hits the Market for $42 Million—Complete With a Private Airstrip and Off-Grid Cabin
  • Now What? On a New Trump Administration
  • Can Generative AI solve the adjustment support paradigm
  • How Deep Fakes Have Burrowed Into Home Finance
  • Murder in the flying saucer: inside The Chemosphere in Los Angeles, CA
  • Mortgage applications increased 0.5 percent from one week earlier
  • So Many Appraisal Cost Approach Questions
  • Appraisal Business Tips 
    Humor for Appraisers


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

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10 Questions on the Cost Approach and Highest and Best Use

By Timothy Andersen

Excerpts: It is clear most appraisers do not like to perform the analytics inherent in the Cost Approach. This may be because most appraisers simply do not appreciate its power. Consider these 10 Cost Approach questions.

10 QUESTIONS TO CONSIDER

Take a look at these 10 questions on the Cost approach (and various items related to it). After you are finished, you will still not like to do it. But you may appreciate its analytical and interpretative powers even more.

1. On the 1004 form is the indication that Fannie Mae does not require the Cost Approach to Value. However, where does the form instruct the appraiser not to complete the analytics of the Cost approach? (Spoiler Alert: It does not.)

2.   Instructions on the form state the appraiser is to “…[p]rovide adequate information to the lender/client to replicate the [herein] cost figures and calculations.” However, where does the typical appraiser provide such replicable information?

3. In addition, the reporting form requires the appraiser to “…[s]upport the opinion of site value [with a] summary of comparable land sales or other methods for estimating site value.” Nevertheless, where does the typical appraiser provide such summary information?…

So, it is clear from these Fannie Mae instructions that the appraisal of a SFR includes an analysis and valuation of the subject site separate from the valuation of the site as improved. Does this mean to conclude a site value as if the subject site were vacant and available to be put to its highest and best use? (Spoiler Alert: Yes, it does.)

To read all 10 Q&As, Click Here

My comments: Of course, for custom home construction the Cost Approach is required to determine the feasibility of construction before building the home. I got some good ideas on using the Cost Approach from this article.

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New URAR For Appraisals

By on November 8, 2024   /   appraisal, appraisal modernization, Economic analysis, GSEs, lender appraisals, liability, New URAR, time adjustments   /   Leave a comment
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Newz: New URAR, GSEs Update Appraisal Market Areas Requirements, Lender Redlining

November 8, 2024

What’s in This Newsletter (In Order, Scroll Down)

  • Claudia Says: Navigating Value Revisions in Appraisals

  • The New URAR: Embracing New Beginnings

  • $19.8 Million Cape Cod Estate Next to Kennedy Family’s Famed Hyannis Port Compound Hits the Market

  • CFPB and Justice Department Take Action Against Fairway for Redlining Black Neighborhoods in Birmingham, Alabama

  • October 2024 Real Estate Market Update: A Balancing Act of Hope and Hurdles

  • What can we expect for the future of the appraisal and the country?

  • GSEs Update Appraisal Market Area Requirements

  • Mortgage applications decreased 10.8 percent from one week earlier

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The New URAR: Embracing New Beginnings

By Jo Traut

Excerpts:

What’s New with the New URAR?

Think of the new URAR like upgrading from a basic flip phone to a modern smartphone. The old flip phone did its job—making calls and sending texts—but the new smartphone offers so much more. It’s customizable, adaptable to various apps and functions, and streamlines your daily tasks.

Similarly, the new URAR goes beyond a static, one-size-fits-all approach. It’s dynamic and data-driven, tailored to different property types and appraisal assignments, ultimately allowing us as appraisers to provide clearer and more comprehensive reports .

Why the Change?

The existing URAR has been dependable, much like an old-school flip phone. But as technology advances and standards evolve, the mortgage industry requires a more versatile tool. This redesign addresses current inefficiencies, meeting the rising demand for improved reports, as well as enhancing the experience for both appraisers and report readers.

To read more, Click Here

My comments: Read this blog post! Definitely the best practical appraisal advice I have read on new URAR. Includes links to relevant technical details.

No more 30-40 page appraisal SFR reports that is not what GSEs (and most appraisers) wanted. No more outdate “forms” reports that do not change fast enough to accommodate GSE (and USPAP) changes.

Both URAR and UAD acronyms are used in articles and references I have read. I like that the GSEs kept the same name for the reports (formerly “forms”)

URAR – Uniform Residential Appraisal Report

UAD – Uniform Appraisal Dataset

I will be writing more about the new URAR upcoming changes in future issues of this weekly newsletter and my monthly newsletter.

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$19.8 Million Cape Cod Estate Next to Kennedy Family’s Famed Hyannis Port Compound Hits the Market

Excerpts: 7 bedrooms, 7.5 baths, 9,629 sq.ft. 3 Acre lot, Built in 1914

Adjacent to the famed Kennedy Compound in the exclusive Hyannis Port enclave, the eight-bedroom mansion, known as Port View, has just become available “for the first time in a quarter century,” according to the listing.

The seaside, 9,629-square-foot residence sits right next to the home where President John F. Kennedy and wife Jacqueline Kennedy Onassis famously spent their summers sailing the waters of Nantucket Sound.

Some of the most impressive features found throughout the 26-room estate’s open floor plan include high ceilings, ornate architectural details, an imperial staircase, and six fireplaces.

“The whole interior views to the water,” she said. “It’s like being on a ship with front row ocean views. You are just drawn to it.”

Built in 1914, the Cape Cod mansion has been thoughtfully modernized over the years to retain its historic integrity.

Period details include exposed-beam ceilings and preserved mahogany inlay floors. French doors from the main living and dining areas give way to an enormous patio with waterfront views.

To read more, Click Here

To see the listing, with 28 photos, Click Here

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CFPB and Justice Department Take Action Against Fairway for Redlining Black Neighborhoods in Birmingham, Alabama

Top mortgage lender to pay a $1.9 million penalty and provide $7 million in loan subsidies

Oct. 15, 2024

Excerpts: Today, the Consumer Financial Protection Bureau (CFPB) and the Justice Department (DOJ) took action to end Fairway Independent Mortgage Corporation’s illegal mortgage lending discrimination against majority-Black neighborhoods in the greater Birmingham, Alabama area. The CFPB and DOJ allege that Fairway illegally redlined Black neighborhoods, including through its marketing and sales actions.

Fairway’s actions discouraged people from applying for mortgage loans in the Birmingham metropolitan area’s Black neighborhoods. If entered by the court, the settlement announced today would require Fairway to pay a $1.9 million civil penalty to the CFPB’s victims relief fund. Fairway would also be required to provide $7 million for a loan subsidy program to offer affordable home purchase, refinance, and home improvement loans in majority-Black neighborhoods.

To read more, Click Here

My comments: How much money did Fairway make vs. what an appraiser makes for an appraisal. More lenders in the news vs. “biased” appraisers!

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Appraising Kitchens

By on November 1, 2024   /   AMCs, appraisal, appraisal modernization, liability, UAD, waivers   /   Leave a comment
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Newz: FHFA Waiver Expansion, AMC Appraisal Fees, Appraising Kitchens

November 1, 2024

What’s in This Newsletter (In Order, Scroll Down)

  • Construction Progress Inspection Reports: Claims Involving ADUs and Remodels
  • Appraising Kitchens: Understanding Trends, Functionality, and Market Expectations
  • Lake Tahoe Ranch Hits the Market for $188 Million, Making It One of the Priciest Listings in the U.S.
  • FHFA’s Appraisal Waivers Expansion
  • The Great Debate on Appraisal Fees
  • Updated UAD redesign timeline with specific implementation dates
  • Mortgage applications decreased 0.1 percent from one week earlier

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Appraising Kitchens: Understanding Trends, Functionality, and Market Expectations

Excerpts: When it comes to real estate appraising, kitchens often play a pivotal role in determining a home’s value. A well-appointed kitchen can significantly enhance a property’s appeal and marketability. As an appraiser, understanding the nuances of kitchens is essential to providing credible and insightful valuations. Let’s dive into appraising kitchens and how the room impacts market value.

Functional Obsolescence and Price Point

If a back corner kitchen or a galley kitchen does not align with current market preferences for homes of a similar age, it might be considered outdated and impact marketability. However, this does not necessarily rise to the level of functional obsolescence that must be remedied. An outdated but functional kitchen might not be a major concern in lower price ranges.

Conversely, in high-end homes, buyers expect the latest designs, features and finishes; and therefore, an outdated kitchen may be considered as functional obsolescence.

Appeal & Functionality Count when Appraising Kitchens

In conclusion, appraising kitchens requires a thoughtful, balanced analysis of market trends, quality, and functionality. While it’s important to understand current design preferences, the value of a kitchen is ultimately determined by how well it meets the expectations of buyers in a particular market.

A homeowner may have invested heavily in a kitchen renovation, but it is the appraiser’s responsibility to carefully consider factors such as conformity, local market preferences, and house style and price range when valuing the subject property. Remember, ultimately a kitchen’s value lies in its ability to enhance the overall appeal and functionality of the home, not its initial cost or the cost of renovation.

To read more, Click Here

My comments: This is the best analysis I have read on kitchens. Worth reading. Kitchens are a very important factor when buying a home. What is popular changes over time. Of course, appraisers see all types of kitchens.

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Lake Tahoe Ranch Hits the Market for $188 Million, Making It One of the Priciest Listings in the U.S.

Excerpts: sprawling Lake Tahoe estate known as Shakespeare Ranch hit the market on Monday for $188 million.

Not only is that a price tag that makes it the most expensive property on the market in Nevada, it’s also one of the priciest in the entire U.S., bested only by a small handful of homes in Los Angeles and South Florida.

Named after the nearby Shakespeare Rock, a nearby outcropping that is said to resemble the playwright, the property spans 130 acres on the eastern shores of Lake Tahoe and includes a colossal selection of amenities, from multiple properties and a historic barn to its own rodeo ground and private pier.

The ranch dates to the late 1800s, and its multiple properties include a 4,980-square-foot lakefront home with a waterside cabana, an under-construction 7,713-square-foot architect-designed residence and a number of cabins.

he historic barn on the property was built in 1873 and is currently outfitted with a commercial kitchen, a game center and a wine room.

The property also has a pool house with an indoor pool and spa, a gym, lawns, gardens, an office suite, a staging kitchen for catering, two boat lifts, 14 buoys and a boat house.

To read more, Click Here

For video, photos, and more information and to see the listing, Click Here

My comments: I live within driving distance to Lake Tahoe and have been there many times. A beach with a dock and a boat house is a premium feature.

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Waterfront Property Appraisals

By on September 27, 2024   /   appraisal how to, appraisal modernization, Economic analysis, liability, Mortgage interest rates   /   Leave a comment
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Newz: Rate Drops and Appraisers, UAD Overhaul, Avoiding Court

September, 30 2024

What’s in This Newsletter (In Order, Scroll Down)

  • Avoiding Court: A Common Sentiment Among Appraisers (LIA ad below)

  • Making Waves: Appraising Waterfront Property

  • $850K Nantucket ‘Shack’ That Looks Set To Plunge Into the Sea

  • New UAD Overhaul: What Appraisers Can Expect in 2025 & Beyond

  • Sticky Prices

  • The Fed is finally lowering interest rates. What does it mean for appraisers?

  • Experts Predict Where Mortgage Rates Are Headed in 2025 as the Fed Cuts Rates

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Making Waves: Appraising Waterfront Property

Excerpts: Appraising waterfront properties involves a comprehensive evaluation of various factors that go beyond typical residential appraisals. By considering the unique aspects of water frontage, local regulations, environmental factors, and property-specific amenities, you can provide credible and comprehensive valuations that reflect the worth of these highly sought-after properties.

Understanding the depth, quality of the water, and type of shoreline is crucial, as these elements directly influence the property’s usability, aesthetics, and long-term stability. The importance of these factors cannot be overstated, and they deserve careful consideration in every waterfront property appraisal.

1. Water Frontage and Access

One of the most critical elements in appraising waterfront properties is the type and extent of water frontage. The value can vary significantly depending on whether the property is adjacent to a lake, river, ocean, or pond.

5. Depth of the Water

The depth of a water body significantly affects its usability, particularly for recreational activities like boating, fishing, and swimming. Shallow water might limit boating and can lead to stagnant water, which may contribute to unpleasant odors and an increase in insects like mosquitoes.

Conversely, deeper water is often clearer, supports a healthier ecosystem, and is more desirable for recreational use, thereby enhancing property value.

To read the details on all 8 factors, Click Here

My comments: Excellent article. Worth reading. The best I have read on this topic. Even if you never appraise a waterfront home, most people have been to a lake or other type of waterfront property on vacation. I live on an island in San Francisco Bay with water on all sides plus a small area on a nearby peninsula with 3 sides waterfront. I moved here in 1980 and appraised hundreds of waterfront properties including condos plus semi-detached and detached homes.

I lived for 25 years in three waterfront homes with boat docks in my city and am very familiar with with the issues above. I have appraised waterfront homes with 7 of the 8 factors in the blog post, except utilities as all were public utilities with no problems).

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Are Appraisers Professionals?

By on July 12, 2024   /   ADUs, Appraisal Qualifications Board, liability   /   Leave a comment
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Valuing Appraiser Professionalism: A Blueprint for Survival

By Jo Traut, McKissock Learning

Excerpts: Having spent nearly three decades in the field of real estate appraisal, I’ve witnessed firsthand the evolution of our profession, particularly with respect to technological advancements. However, alongside these positive changes, I’ve also observed a troubling trend toward increased unprofessionalism. This phenomenon isn’t unique to our discipline. It’s permeated other careers, from medical professionals to teachers to business managers.

What professionalism means in the appraisal profession and how we can all work toward achieving it.

Integrity

Remain steadfast in your commitments, stay true to your word, and uphold your principles, even if this requires declining an appraisal assignment or future work with a client or their agent. By staying honest and true to your values, others are more likely to trust and collaborate with you or recommend you and your business.

Expertise

Professionals strive for proficiency in their field, continually enhancing their knowledge through education, webinars and personal development efforts. It’s not just about acquiring designations but staying informed about market dynamics, industry changes and emerging trends.

Commitment to Excellence

True professionals are prepared, which entails advance planning, dedicating sufficient time and giving proper attention to tasks. Before delivering work to clients, conduct a thorough review to mitigate potential errors. Acknowledge and address any skill gaps or lack of competency promptly and transparently, ensuring a commitment to excellence in every endeavor.

To read more, Click Here

My comments: I have always done “Remain steadfast in your commitments, stay true to your word, and uphold your principles.” I was first trained as a scientist, starting with my high school biology class. After graduation, I worked in labs for 7 years.

I have always been a professional appraiser since I started in 1975, trained at an assessor’s office to do what is in this article. I hate the word “industry” when applied to appraisers. I try to avoid using the word “industry”. Since licensing, residential appraising has become more of a “trade” than a professional career. I quit residential lender appraising in 2005. I know about the conflicts, which have been getting worse.

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NOTE: Please scroll down to read the other topics in this long blog post on Easement Liability, college degree requirement AQB, Fannie June Update, ADUs, unusual homes, mortgage origination stats, etc

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Value of a Pool

By on July 5, 2024   /   adjustments, appraisal, appraisal business, appraisal how to, forecast, real estate market, zillow   /   Leave a comment
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What is a pool worth? It depends.

By Ryan Lundquist June 26, 2024

Excerpts: With and Without Pools (Big Difference)

There’s a huge difference in the stats when we compare homes with and without pools. The properties with pools are larger in square footage and lot size, higher in price, and they’ve taken slightly less time to sell too.

In short, the higher the price, the greater chance there is a pool. This likely has to do with the cost of building a pool, cost of maintaining a pool, and even larger parcels at higher ranges – not to mention buyers at higher price points expecting a pool more often.

The rhythm of pool sales basically follows the pattern we see in the entire market. More sales as the year unfolds, and they typically peak around June. Some smaller areas could be slightly different.

Seriously though, What is a pool worth?

It depends. Different price points and locations come with different expectations. There isn’t a one-size-fits-all answer for the value of a pool. In other words, we can’t just apply one figure to a property because that number isn’t going to make sense everywhere. This is where we have to study the comps. With that said, my observation is pool adjustments have generally gone up since the pandemic as buyers are more in tune with the importance of a backyard. Have you seen that also?

To read more, Click Here

My comments: Check out Ryan’s tables to see his data analysis, which is not difficult to set up.

When I first started appraising in suburban Bay Area cities in the mid-1980s, homes with pools sold for more in some neighborhoods with higher-priced homes. MLS always said a pool was there, which is a good way to check it out. At that time, MLS data analysis was much more limited than it is today. I saw this in a particular neighborhood with very hot summers. This is still the same now.

In contrast, where I live, about 15 miles west, on an island on San Francisco Bay, pools have never been a plus or a minus. Weather is “Mediterranean” weather without hot summers. Often sellers said they would remove the pool, but the buyers never requested it.

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NOTE: Please scroll down to read the other topics in this long blog post on HOA Horror Stories, Zillow and Redfin lawsuits Videos and Privacy, Residential to commercial transition, real estate market, unusual homes, mortgage origination stats, etc

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Tools To Support Appraisal Adjustments

By on May 17, 2024   /   data, liability, real estate market, state appraiser regulators   /   Leave a comment
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What Tools Do You Use to Support Your Appraisal Adjustments?

By McKissock

As part of our monthly survey series, we asked our community of real estate appraisers, “What tool(s) do you use to support your appraisal adjustments?” Respondents were allowed to make multiple selections and write in their own answers as well.

Popular tools include Synapse by Spark, Solomon Adjustment Calculator, and Redstone by Bradford Technologies. The majority of respondents said they use a combination of various tools and methods, such as paired sales analysis.

We’ve included “paired sales/matched pair analysis” in the list as well, even though it’s a method rather than a digital or appraisal software tool, because it was mentioned by so many appraisers.

A few sample appraiser comments:

“I am capable of determining the adjustments without any software. I look at the MLS data and am able to determine appropriate adjustments. I would need to know all of the assumptions the software takes into consideration before I would trust the adjustment with my signature.”

“I use Synapse by Spark for typical property adjustments and Solomon for more complex properties.”

In addition to the top answers, we received many other write-in responses. Sample responses:

Allocation method

Depreciation

Cost to build

Sample appraiser comments

“Due to rural location, there are no algorithmic tools to be utilized for adjustment data. I utilize paired and grouped data analysis and experience and knowledge.”

To read more, Click Here

My comments: Short, well written, and Very Interesting, especially the appraiser’s comments! I quit doing adjustments a while ago. I always do market conditions adjustments (or explain why not) and for views and other factors that significantly add to value.

I have never used any of the appraisal software listed above. I use Excel and MLS data. I often go back in time for comps with views, etc. I also interview agents to see what they say. Not for a number, but about marketability.

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NOTE: Please scroll down to read the other topics in this long blog post on Geographic Data and Comps, effect of renovation on value, very low foreclosures now, current real estate market, unusual homes, mortgage origination stats, etc.

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Basement Issues and Values

By on May 3, 2024   /   adjustments, appraisal how to, non-lender appraisals, real estate market   /   Leave a comment
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Understanding Basement Contributory Value

By Jo Traut

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

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

Topics

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

To read more, Click Here

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

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

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Non-Arms Length Sales for Appraisers

By on April 26, 2024   /   appraisal business, bias, GSEs, lender appraisals   /   Leave a comment
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What Does Arm’s Length Mean in Real Estate?

The 7 Sale Types Explained

Excerpts: An arm’s length sale – a sale in which the buyers and sellers act independently and in their own self-interest is the most common type of real estate transaction. However, there are six other types of real estate transactions that you need to know about so you can specify these sale types in your appraisal report as they can affect the market value of the property.

A non-arm’s length sale in real estate is a transaction between a seller and buyer who have a connection by marriage, family, work, etc. Because of their relationship, each party may not be acting in their own best interests. Therefore, the final price may not reflect the market value of the property.

The type of sale can provide some clarity into whether the transaction was (or currently is) an arm’s length transaction, whether a comparable sale should be used, or whether an adjustment is warranted for the terms of sale for a comparable. 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.

For appraisals required to be Uniform Appraisal Dataset (UAD) compliant, you must indicate the type of sale for the transaction. You may report any other relevant information regarding the sale type in the appraisal report, including whether more than one sale type applies.

Non-arms length sales include: REO, Foreclosure, short sale, court ordered sale, estate sale and relocation sale.

To read more, Click Here

My comments: We all see comps that seem to sell below market. This post’s information can be very helpful in explaining why. It’s a good discussion of this topic.

I have done a lot of estate appraisals. Some estate sales occur when the beneficiaries just want to get rid of the property and don’t want to fix it up for sale. I always tell them that the sales price will be reduced.

I have also done many relocation appraisals, done before the home is listed. You are “graded” on how close you come to the sales price. I sometimes see low sales for various reasons.

What should appraisers look for in a sales contract?

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NOTE: Please scroll down to read the other topics in this long blog post on agent concessions, History of appraisal bias back to 1930s, “one mile” rule and bias, unusual homes, mortgage origination stats, etc.

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How To Appraise Rural Properties

By on March 15, 2024   /   appraisal business, appraisal how to, modernization, Uncategorized, USPAP   /   Leave a comment
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How To Appraise Rural Properties

Excerpts: Appraising residential properties in rural areas can be both challenging and rewarding. Unlike the standardized expectations of urban and suburban properties, rural properties often present unique characteristics that require a nuanced approach to valuation. Whether you’re a seasoned appraiser or new to the field, having a better understanding of rural properties is essential for providing credible appraisals. In this guide, we’ll explore what defines a rural property, the challenges appraisers face, reasons for conducting rural appraisals, strategies for finding comparables, and tips for writing a compliant appraisal report.

  • Defining rural properties – USDA and GSEs
  • Challenges of appraising rural properties
  • Appraising rural properties presents unique challenges due to their diverse characteristics and market dynamics.

Topics include:

  • Diverse property types and uses
  • Unique property characteristics
  • Limited market activity and more
  • Writing your rural property appraisal report – good ideas

To read more, click here

My comments: Worth reading, if only to find out about rural appraising. Well written. There are relatively few residential lender appraisals available now. This is an excellent diversification opportunity, with little competition from other appraisers or the GSEs use of other ways to get a value without human appraisers.

What if there are few rural areas near you?

You can expand your area to include rural appraisals to get more business.

When I worked for a northern California assessor’s office with rural areas I learned a lot about almond growing (the main crop) and other ag topics. It is not hard to learn the valuation factors. I had niece who had several horses for many years where she lived. There are equestrian facilities within 5 miles from my house in Oakland hills and in farther out Bay Area cities with larger lots. You may have some similar rural experience now!

The American Society of Farm Managers and Rural Appraisers www.asfmra.org has a specialty in Rural Appraising, but it requires a Certified General. There may be seminars available. Another reason for upgrading!

Urban, Suburban, Rural in Appraisals

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NOTE: Please scroll down to read the other topics in this long blog post on USPAP and Personal Inspection, GSE Appraisal Modernization, Transaction costs and values including real estate commissions, unusual homes, mortgage origination stats, etc.

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