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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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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Three 2022 Residential Appraisal Forecasts

Three 2022 Residential Appraisal Forecasts

The 20 appraisal events that will surface, occur or continue on into 2022
By Tim Andersen, MAI
Excerpt of three of the Events:
6. So far, appraisers have not organized themselves to fight the bogus bias and discrimination charges against them. Despite the need for such pugilistic organization, however, the status quo won’t change.
9. More and more state appraisal and taxing authorities will recognize Fannie Mae’s move to use the ANSI measurement standards by adopting those standards themselves. While this is likely a positive step, it will result in another level of regulation and standards imposed on appraisers.
10. State appraisal boards will continue their migration toward becoming consumer advocacy agencies; thus, their migration away from their original purpose, the credentialing, educating, and disciplining of real estate appraisers.
Warning: some are very controversial!
To read all 20, click here. I posted this on my blog, so you can make comments!

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Appraisal Completion Certifications – be careful!

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ANSI Z765-2021 Information Resources – CLICK LINK BELOW FOR MORE

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Appraisal Errors from Reviewers and State Boards

25 Common Errors in Appraisal Reports

Excerpts: As a real estate appraiser, much of your success relies on your reputation as a competent professional. Unfortunately, certain appraisal violations are quite common—including errors in appraisal reports. Make sure you’re aware of these mistakes so that you can avoid them. Here’s a compilation of the most common errors and deficiencies found in appraisal reports by reviewers, regulators, and appraisal boards.
  • Not stating the report option utilized.
  • Not providing enough analysis for the intended user or reader to understand the report properly.
  • Inconsistencies between the description of the subject property in the improvements section and the photographs, sketch, sales comparison grid, and other areas in the report.
  • Inappropriate use of boilerplate commentary in the appraisal report to describe the neighborhood or to explain the reconciliation of the sales comparison approach.
  • Failure to summarize the support and rationale that supports the highest and best use opinion.
  • Not complying with the most current USPAP.
  • Failure to explain the exclusion of the cost and or income approaches.
To read more, click here
My comments: This was originally published by McKissock in 2019 and updated in 2020. We can always use these reminders. We know them, but sometimes forget to do them, update templates, boilerplate, etc.

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Location, Location, Location In Appraisals

What’s Location Got to Do with It?

By Steven W. Vehmeier

Excerpts: We’ve all heard the old mantra that real estate is all about “location, location, location.” A perfect example of the importance of location in appraising can be found in The Villages in central Florida.

The development called “The Villages” has seventy-eight communities, each called a “village,” ranging in size from 100 to around 1,500 homes in each. In total, there are somewhere around 140,000 residents, and the home prices in these individual villages range from the low one-hundred thousand up to a couple million. In some cases, villages located near and/or adjacent to each other can vary significantly in price….

An appraiser not familiar with The Villages could easily over-or under-value a property by mixing villages. For example, let’s say the subject is a 3-bedroom, 2-bath, 2,000 square foot home with a two-car garage on a typical sized lot. It would not be hard to find hundreds of homes with similar physical characteristics nearby; however, some might be located in the “wrong” village…

Can we apply this “village” concept to other areas? Are there typically many villages or neighborhoods in and around most major cities? Do the same principles apply in comparable selection and resultant values? Of course, they do!

To read more, click here

My comments: Very interesting “case study.” Tim Andersen soon will have two articles on neighborhoods and what USPAP says in Appraisal Today monthly newsletters.

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Why is the Appraisal Under Sales Price?

Top Ways to Defend Your Work When the Appraised Value Comes in Under Sales Price

Excerpt: As a real estate appraiser, you’ve likely encountered assignments in which the purchase price is not supported by the available comps. So, what are the best ways to address complaints and requests in these situations? To find out, we (McKissock) asked appraisers, “What’s your top tip for defending your work when the appraised value comes in under sales price?” Here’s what they said…
How to prevent and prepare for complaints and requests
Many survey respondents emphasized the importance of making sure your work is as detailed and well-supported as possible—by means of careful comparable selection and analysis, thorough documentation, and clear explanation of why the available comps do not support the contract price…
To read more, click here
My comments: Lots of good ideas. Worth reading

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Drainage Problems Can Damage Foundations – Appraisers Check It

Watch out for drainage problems when doing your appraisals!! 

When I first heard about the collapse of the Florida condo tower, I immediately thought about a drainage problem. Previous engineering reports revealed the problems – pool leaks, water not draining properly, etc. The condo building was constructed before building codes were changed to help avoid their problem. No one knows why the building started collapsing. Drainage Problems Can Damage Foundations

Limestone is under all of Florida. In parts of South Florida, the porous limestone is not good for foundations as there is less soil covering the limestone. I have seen many videos of saltwater intrusion flooding streets. The water came up through the limestone, caused by sea-level rise.

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I always check for any drainage problems at homes. They are relatively easy to spot and can cause significant damage. I appraise many hillside homes, which can easily have problems. I look at where the gutter water drains and how it is moved away from the foundation. Sloping floors are another indication of possible foundation problems.

When I go into an unfinished basement, I look for water problems. One good indication is that everything is raised from the floor. Also, water stains on the lower part of the concrete. The water is coming through the foundation. A sump pump can help.

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Properties I have appraised with obvious drainage problems:

– 2 story home on a hillside. Saw radiating cracks inside on both floors in the same corner. At the corner outside of the home was a small round drainage catchment about 1 ft. in diameter, without a way to drain it away from the house. The water came through the rear of the foundation because there was no drainage system.

– Home on a hillside that was moving down the hill. Standing water under the house. Unlevel floors. Big foundation cracks. Known area of problems. Relocation appraisal with two appraisers. The other appraiser did not mention anything.

Note: A good fix for hillside homes is a “french drain” in the ground that takes the water to the sides of the home, with plastic pipe to keep the water from the sides of the foundation.

– Duplex I own on a mostly level site. Tenants mentioned water coming inside the garage on one side. They had moved everything near that side of the garage off the floor. Both units were on level ground with raised foundations. The front garage was on a slight downslope. I replaced the gutters and drains so the water drained away from the foundation. I regularly check for any problems during the winter rains. No foundation damage, fortunately.

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To read an excellent article on how and why concrete fails, Click here.

Modern concrete lifespan is roughly 50-100 years. The Florida condo building is 40 years old. “Concrete is poured around steel rebar, which gives it tensile strength. But tiny cracks — found in all concrete — cause water to start rusting the steel, which then expands, cracking the concrete.”

Photos of the Surfside basement taken before the collapse show steel rebar breaking all the way through the concrete to the point at which it is fully exposed to the salty and humid Florida air.”

We definitely have a significant infrastructure problem. Replacing concrete is very expensive: building foundations, bridges, freeways, etc.

I have watched several documentaries about what happens if there are no humans to maintain buildings, roads, bridges, etc. The roofs fail first, and water comes inside. Concrete and steel are damaged by water. Roads break down. Bridges collapse. When doing appraisals, I always tell the owners to be sure their roof does not leak. When they see stains in the ceilings, the roof has already started leaking.

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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

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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 

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