What About Those Fixer-Uppers?
Insights from a Seasoned Appraiser
By Steven Vehmeier
Excerpt: We’re all familiar with the term “fixer-upper.” For many different reasons, properties can come on the market in less-than-par condition. The degree and cost to cure become an issue to buyers and sellers, and a challenge for appraisers. At some point, it’s no longer “normal market value minus cost to cure equals as-is value.”
The terms “entrepreneurial incentidddve” and “entrepreneurial profit” are typically discussed in terms of investment property, but the principles involved can also be applied to the many fixer-uppers—whether the buyer is a “purely investor type” or an “owner-occupied investor type.” Maybe a couple of new terms should be discussed: “sweat equity incentive” and “sweat equity profit.”
My comments: Most of my appraisals are for estates (date of death). I have never appraised a home that was ready for sale when the person died: staged, new paint and floor coverings, yards cleaned up, etc. I very seldom have any repair estimates or structural pest control or home inspection report.
I always assume the home is empty of furniture and “broom clean,” which I learned doing lots of REOs in the past. If a home is cluttered with personal stuff, the price will be lower. But, it can be fixed easily and inexpensively. If it is a mess, I tell the executor to call me when it is cleaned out so I can see what the walls, floors, kitchen countertops, etc. look like. If I can’t see, I disclose this in the appraisal and do my best to figure out a condition estimate.
Very few MLS listings here are not fixed up for sale. I look for “fixer”, “contractor”, “as is”, “handyman”, etc. in the description.
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, mortgage origination stats, Fannie and condos, real estate market, fixer uppers, etc
Glass Pyramid House in Volcano, Hawaii for $120,000
Excerpt: Many of the neighbors are hobby farmers who grow bananas, tea, vegetables, citrus fruits, and bamboo. Tucked into the Royal Hawaiian Estates neighborhood, the area offers a side of Hawaii worlds apart from the tourist-heavy destinations of Waikiki or Lahaina. It is 35 minutes from Hilo.
The listing, outside the pyramid, is a covered dining area and an exterior rock enclosure with a sink, toilet, and bathroom. There’s also a system for off-grid power and dual catchment tanks for water. If you’re wondering about electricity, yes, this pyramid is equipped with LED lighting, so you can see after nightfall.
To read more and see the photos, click here
My comment: I want it! The town’s median price is $75,000. I have always wanted a Hawaiian getaway since I am only 5 miles from the Pacific Ocean ;>
Direction Sign of Main Street and Wall Street
Tech companies & Wall Street targeting residential real estate
By Ryan Lundquist
1) Huge rent growth is propelling big funds: Having lofty rent gains in recent years has caught the attention of big investors and is essentially allowing them to play the market these days. It’s wild to think investors can presumably make the numbers work after ten years of price growth…
3) Profit and Convenience: The iBuyer model is nowhere near a dominant force in the marketplace, but we’ve seen exponential growth over these past three quarters. A dissertation can be written on what these companies are doing, but I want to make a simple point…
To read more, plus a link to Ryan’s previous article and over 40 appraiser comments, click here
Another Related News Item: Zillow buying homes and flipping.
Are they making any money? Some are saying Zillow is paying too much for the homes. To read more, Click here
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CFPB settles with nation’s largest reverse mortgage lender over “deceptive” home estimates
In a lawsuit filed October 8 in the U.S. District Court of California’s Central District, the CFPB alleged that Irvine, California-based American Advisors Group (AAG) sent borrowers deceptive consumers to take out a reverse mortgage. The direct mailers advertised a prominent “estimated home value,” per the court filing, which the CFPB claimed was inflated.
The agency does not explain how it determined the values were inflated, nor does it offer documentation to explain how it calculated the difference between the allegedly inflated values and the accurate values. Per the lawsuit, the midpoint of those values were inflated on average by 18%, while at the high end, the values were an average 28% higher.
My comment: I guess the Primary Appraisal Rule is showing up again: if the appraisal is not the number you want, it is wrong – too high or too low. I just had to include something about high values, since all I hear about are low appraisals.
Their values came from AVMs, maybe with “proprietary” methodology to get higher values? Hmmm…
I did a few reverse mortgage loans for a major lender in low-income neighborhoods many years ago. I quit taking appraisals from them because it included equity splitting. The borrowers I spoke with did not understand what was happening. Reverse mortgages are complicated.
Round Houses – What and Why
10 amazing round houses from around the world – Amazing!!
Birkedal, Isle of Møn, Denmark (PHOTO ABOVE)
Nine cylinders interlock to make up this retreat on the island of Møn in Demark. A wooden home that goes against the grain, architect Jan Henrick Jansen designed and built the property over the course of five years.
To see more photos and info on other very unique homes,click here
Why our ancestors built round houses – and why it still makes sense to build round structures today – Fascinating!!
Excerpts: The oldest forms of indigenous shelter were often round in shape. (Think the Southwest USA Hogan, Mongolian Yurt, North American Teepee and the Greek Tenemos, among others.) Why did our ancestors choose to build round? Because the ovid shape — eggs, earth, tree trunks, and stones — is what they saw reflected in the surrounding natural environment. And, as usual, Mother Nature knows best. There is some nifty natural science that makes round buildings more comfortable, more energy-efficient and safer — especially if you combine the ancient shape with modern materials.
Wind and tsunami waves move naturally around a round building rather than getting caught at (and potentially ripping off) corners. A rounded roof avoids ‘air-planing’- a situation where a strong wind lifts the roof structure up and off of the building.
To read more and see lots of photos, click here
My comment: I did not know about the advantages, and history, of round houses. Mostly saw them as houses I would not want to appraise as there are very few here ;>
Fannie News: Appraising and underwriting condo and co-op projects
Excerpt: Lenders and appraisers have interconnected duties when it comes to condo and co-op projects. For loans sold to us that are secured by units in condo and co-op projects, lenders are responsible for determining that the projects meet all applicable Fannie Mae eligibility requirements. Appraisers must document any special assessments or significant deferred maintenance that may impact the unit’s safety and soundness or marketability, or the financial stability or physical safety of the overall project and its amenities.
My comments: For appraisers, Fannie references special assessments, but also includes: “Significant deferred maintenance may be described as a part of the condition of the individual unit or may be a part of the overall project information (condition section) in the report.”
I was not surprised to hear about the recent collapse of part of a condo project in Florida that revealed significant problems that can occur. Homeowners not wanting to increase dues or do special assessments becomes a larger problem as they get older and need work. Florida does not require a reserve study but requires a reserve schedule for the repair and replacement of major components.
In the mid to late 80s, when I started doing lender and FHA appraisals, I was required to review condo documents, reserves, maintenance expenses, etc. In a nearby city, there were several large older townhome projects with significant problems: few reserves, deferred maintenance, etc. I reviewed all the documents and disclosed any problems in my appraisals.
Since then, I have always reviewed the reserves, expenses, etc. If I can get them, I read newsletters from the HOA. Fortunately, in California, reserve studies have been required for a while, every three years. The HOA is responsible. I always write about the reserves, maintenance issues, etc. in every condo appraisal.
Very similar condo projects can vary widely in dues and special assessments. I have seen significant value differences between the projects with different costs.
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Mortgage applications increased 0.2 percent from one week earlier
WASHINGTON, D.C. (October 13, 2021) – Mortgage applications increased 0.2 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending October 8, 2021.
The Market Composite Index, a measure of mortgage loan application volume, increased 0.2 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index increased 0.4 percent compared with the previous week. The Refinance Index decreased 1 percent from the previous week and was 16 percent lower than the same week one year ago. The seasonally adjusted Purchase Index increased 2 percent from one week earlier. The unadjusted Purchase Index increased 2 percent compared with the previous week and was 10 percent lower than the same week one year ago.
“Mortgage rates reached their highest level since June 2021, but application activity changed little this week. An increase in home purchase applications offset a slight decline in refinances,” said Joel Kan, MBA’s Associate Vice President of Economic and Industry Forecasting. “The increase in purchase applications was welcome news, but was primarily driven by a 2 percent gain in conventional purchase applications, which kept the average loan size elevated.”
Added Kan, “The 30-year fixed rate reached 3.18 percent last week and has risen 15 basis points over the past month, resulting in an 11 percent drop in refinance applications during this time. Government refinance applications fell over 3 percent last week, driven by a decline in FHA refinances and an 8-basis-point increase in the average FHA mortgage rate. We continue to expect weakening refinance activity as rates move higher and borrowers see less of a rate incentive.”
The refinance share of mortgage activity decreased to 63.9 percent of total applications from 64.5 percent the previous week. The adjustable-rate mortgage (ARM) share of activity remained unchanged at 3.4 percent of total applications.
The FHA share of total applications decreased to 10.2 percent from 10.5 percent the week prior. The VA share of total applications decreased to 10.2 percent from 10.3 percent the week prior. The USDA share of total applications decreased to 0.4 percent 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 3.18 percent from 3.14 percent, with points increasing to 0.37 from 0.35 (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) increased to 3.22 percent from 3.20 percent, with points increasing to 0.29 from 0.27 (including the origination fee) for 80 percent LTV loans. The effective rate increased from last week.
The average contract interest rate for 30-year fixed-rate mortgages backed by the FHA increased to 3.20 percent from 3.12 percent, with points remaining unchanged at (including the origination fee) for 80 percent LTV loans. The effective rate increased from last week.
The average contract interest rate for 15-year fixed-rate mortgages increased to 2.48 percent from 2.45 percent, with points increasing to 0.29 from 0.24 (including the origination fee) for 80 percent LTV loans. The effective rate increased from last week.
The average contract interest rate for 5/1 ARMs increased to 3.08 percent from 2.54 percent, with points increasing to 0.26 from 0.16 (including the origination fee) for 80 percent LTV loans. The effective rate increased 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.
Ann O’Rourke, MAI, SRA, MBA
Appraiser and Publisher Appraisal Today
1826 Clement Ave. Suite 203 Alameda, CA 94501