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5 Tips for Appraising Green HomesBy McKissock
Excerpts:
1. Consider each home on a case-by-case basis
You must independently determine whether there is sufficient information available to develop a reliable opinion of market value for each individual property. That will depend on the extent of the differences between the green home and other types of houses in the neighborhood. It will also depend on the number of such properties that have already been sold in the neighborhood.
5. Compare improvements to those in the neighborhood
Any improvements should conform to the neighborhood in terms of age, type, design, and materials used for their construction. If there is market resistance to a green home property because its improvements are not compatible with the neighborhood or with the requirements of the competitive market because of adequacy of plumbing, heating, or electrical services; design; quality; size; condition; or any other reason directly related to market demand, address the impact to the value and marketability of the subject property.
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My comments: I have “Mediterranean” (mild) weather, without much solar. If you live in an area with high summer and/or low winter temperatures, there are probably more solar installations. Many classes are offered by various appraisal CE providers. Check with education providers, such as McKissock, the Appraisal Institute, and local offerings.
What are Pass through Bedrooms for Appraisals
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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.
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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.
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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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Different colorful shapes wooden blocks on beige background, flat lay. Geometric shapes in different colors, top view. Concept of creative, logical thinking or problem solving.
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By Ryan Lundquist
Excerpts: Photo used with permission (thanks, Vicky).
Sometimes, crossing the street can make all the difference for value. In short, if we don’t understand where a neighborhood starts and ends, we might choose the wrong comps.
Q&A #3 How do we know neighborhood boundaries?
Okay, this is a big question, and it could easily be a dissertation. For starters, let’s consider what Fannie Mae says about neighborhoods:
Fannie Mae: “The appraiser should provide an outline of the neighborhood boundaries, which should be clearly delineated using ‘North,’ ‘South’, ‘East,’ and ‘West’. These boundaries may include but are not limited to streets, legally recognized neighborhood boundaries, waterways, or other natural boundaries that define the separation of one neighborhood from another. Appraisers should not reference a map or other addendum as the only example of the neighborhood boundaries.”
Other thoughts (mine): I think sometimes we focus only on major streets, but let’s also consider school boundaries and even how neighborhood associations or city websites define areas. But also, where would residents themselves draw the lines? And where would buyers be hunting for a home before shopping somewhere else? All these things could be clues.
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My comments: Excellent analysis of specific neighborhood boundaries with maps and graphs, of course. Worth reading. The Jan. and Feb issues of the monthly Appraisal Today has this article: Does my neighborhood really need to be analyzed? Parts I II By Tim Andersen, MAI. The best neighborhood explanations I have ever read!!
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Beginning in March 2022, desktop appraisals will be an option for some loan transactions. This fact sheet provides high-level information on Fannie Mae’s requirements for desktop appraisals and answers some frequently asked questions. We’ll be adding information to the fact sheet, such as additional FAQs as needed.
Excerpts:
To read the fact sheet, click here
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Desktop Appraisal to Become the New Norm
by Isaac Peck, Editor, WorkingRe
Note: This article was written before the Fannie announcement above.
Excerpts: A number of questions remain regarding how the GSEs will establish the eligibility criteria for what types of loans, transactions, and loan-to-value (LTV) ratios will qualify for these desktop valuations. For example, Thompson’s comments that such a move will provide relief on rural appraisals runs contrary to most conventional appraisal experience in the industry where appraisal waivers, hybrid appraisals, and other “alternative” valuation products have primarily been used in cookie-cutter, tract home neighborhoods where model-match comps are more readily available.
In fact, over the years many senior executives at the GSEs and at major lending institutions have acknowledged the need for traditional appraisals on rural properties—which are much more likely to have unique features and require more complex analysis.
There is also the question of whether the introduction of desktop appraisals will potentially lead to a broader range of alternative appraisal products into the mix. Given that some senior executives at Fannie Mae were predicting that hybrid appraisals would become mainstream by 2022, it is actually a little surprising that desktop appraisal assignments are the first alternative product to get a permanent place on the GSE’s valuation roster. Appraisers will just have to wait to see what the future holds!
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My comment: Interesting and worth reading about the background of Fannie’s change
Appraisal Completion Certifications – be careful
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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!
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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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