Sunday, May 20, 2012

The Top 10 Things to do to Prepare for An Appraisal

by Michael S. Bolton on January 5, 2012

How To Prepare for a Home Appraisal

You’ve just signed all of the paperwork for your refinance, handed the loan officer the check for the appraisal, and now you’re wondering what is going to happen next. Good news-the appraisal inspection is painless, and usually takes anywhere from 30-60 minutes to complete. However, there are a few things that you should do to help the process move along as smooth as possible.


Preparing for the appraisal inspection:

  • Create a detailed list of the recent improvements, which should include the following: when completed, cost of the improvement, before and after pictures if available.
  • Make sure each room is accessible; the appraiser is required to inspect each room.
  • If there is a crawl space, this area will also have to be made accessible for inspection for an FHA appraisal.
  • Give the appraiser room to do their job. Errors are more likely to occur when the appraiser isn’t able to concentrate on their inspection.
  • Keep all pets restrained. I’ve been bitten twice by a dog, and once by a cat; the owners had assured me that their pets were friendly-not so much!
  • If you live within a development that has a homeowners association, have the name and phone number of the contact person available, along with a fee statement.
  • If the appraisal is for an FHA loan, then the area leading to the attic will have to be cleared and made accessible-the appraiser is required to make at least a head and shoulders inspection of the attic area.
  • Walk through each room and straighten up as if you were getting ready for company to visit. Appraisers are objective and can look past many things, however, the underwriter reviewing the appraisal photos may feel differently.
  • Complete any unfinished projects-most appraisals are done “as is”, and any projects that haven’t been completed, will have to be adjusted for within the appraisal report.
  • A copy of any agreements regarding easements (shared driveways and/or garages,etc.) should be made available.

Concerns about value:

For years I’ve been a big proponent of developing a relationship with a Realtor. I’m not talking about a real estate agent who happens to be a relative that lives half way across the state. I’m talking about one that does a lot of work within your neighborhood.

By building a relationship with a professional Realtor (this is all they do and they do it well), they’ll be able to give you great insight as to what’s happening within your neighborhood, and they would be glad to let you know what similar homes are selling for.

Once the appraisal is complete:

You have a right to a copy of your appraisal, so ask for it. If you should find any errors or have any concerns, talk with your loan originator. This is hard for borrowers to understand, being that they paid for the appraisal, but the mortgage company is the appraiser’s client, and they can’t discuss the appraisal with anyone else unless given permission.

Trying to understand an appraisal can be like trying to read the “Dead Sea Scrolls,” so ask questions and get clarification when needed-you paid for it!

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Appraisals and Using Distressed Sales For Comparables

by Michael S. Bolton on December 27, 2011

Choosing Comparable Sales

When choosing comparable sales for an appraisal, often times there is more analysis done than most people realize. The use of distressed properties for an appraisal is sometimes unavoidable, especially if their concentration is more prevalent than non-distressed sales.

Why Distressed Sales May Be Needed

The appraiser should indicate as to why distressed sales were needed within their appraisal report, which is why for every appraisal I estimate the concentration of distressed sales within the subject’s market area.

The chart above is for cities within a certain county; however, I use the same process when appraising a property within a certain neighborhood and/or market. This helps to explain to the client as to why they were needed within the appraisal report.

Adjusting for Stigma

If a decision has been made to use a distressed comparable sales for an appraisal, then there is most likely going to be an adjustment for stigma. Comparison of Median Sales Prices for ForeclosuresAs you can see from the chart above, there is definitely a significant difference between the different median selling prices for the different types of properties. I do a similar analysis for the particular type of property being appraised within it’s neighborhood or market area.

Adjusting for Condition

When using distressed sales for an appraisal, besides making an adjustment for stigma, there is most likely going to have to be an adjustment for condition. This is going to be based on some research done by the appraiser. The following is some examples of ways to assess the condition of comparable sales:

  • Use interior/exterior photos supplied by the MLS
  • The MLS description will often tell if there were major problems
  • Check for prior expired and or cancelled MLS listings
  • Contact the agents involved in the sale for any major issues
  • Get the opinion(s) other Realtors that do a lot of work in the area as to how a particular comparable sale compares to other sales

Comparison of Bank Foreclosure Kitchens

By juxtaposing two pictures of bank foreclosed properties, you can see that there can be a significant difference between the levels of condition. That’s why it’s important to do some investigating, and try to ascertain the condition of the comparable sales being used within an appraisal report.

Making the Adjustment When Using a Distressed Sale

There is no magic formula for determining how much of an adjustment should be made to comparable sales when using distressed sales (short sales, bank REO’s, divorce properties, estates, or relocation) for an appraisal; however, by doing an some analysis of the different median sales prices, and by confirming the condition of the comparable properties, the appraiser will be able to come up with a very defensible adjustment, or why one wasn’t used.

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Homes Sales Less Than Thought-NAR Uses Fuzzy Math

by Michael S. Bolton on December 14, 2011

For many months now CoreLogic has been stating that the National Association of Realtors (NAR) have been overstating the number of sales by as much as 20%. Reuters is reporting that the NAR has indicated that they are going to go back 5 years and correct the data due to “double counting.”

“All the sales and inventory data that have been reported since January 2007 are being downwardly revised. Sales were weaker than people thought,” NAR spokesman Walter Malony told Reuters.

But don’t fear, they’ve developed a new model to help avoid any further FUZZY MATH!

Malony said the Realtors group had developed a new model that would allow frequent benchmarking instead of waiting 10 years for the population Census data to revise their figures.

You wonder how much play this story will get in the media; what great timing in getting the story out during the holiday season, which I’m sure it’s just coincidence.

For a counter perspective Craig Kamman, a Realtor for Edina Realty, has an excellent post and is worth reading.

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Fees,Fees, and More Fees!

by Michael S. Bolton on December 14, 2011

Let me see, what’s the best way to pay for the payroll-tax cut? I know, let’s boost the fees that Fannie Mae and Freddie Mac charges lenders. I’m no fan of Frannie and Freddie, but who do you think is going to end up paying for these fees-THE BUYERS! The lenders, as with any company, just pass the higher cost onto the buyer(s).

The “Taxpayers” have already bailed out the GSE’s to the tune of over $160 billion dollars, so wouldn’t you think that money would be used to pay “Taxpayers” back. No, it’s just going to the treasury to use as they see fit.

The real estate market is struggling to pull itself out of one worst downturns, and now our fearless leaders in Washington want to increase the cost to borrowers to purchase a home. This reminds me of the movie Ground Hog Day, they just keep coming up with one lame-brain idea after another. Their answer is that rates are so low that it wouldn’t have a significant effect on demand. Right now the real estate market doesn’t need any effect on demand.

Democrats have never seen a fee or tax that they didn’t like, Republicans pretend that fees aren’t a tax and want to punish Fannie and Freddie, so who suffers-the real estate market. One of the unintended consequences will be to push more buyers to FHA for financing, which is the last thing we want.

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The End of Fannie & Freddie Is Near?

December 12, 2011

Is The End of Fannie & Freddie Near? Ever since Fannie Mae and Freddie Mac were put into receivership, the big question has been what to do with them. The real question should be how to put them out of their misery! The U.S. Government (US taxpayers) has spent over a $169 billion dollars bailing [...]

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FHA Appraisals and Shared Driveways

December 9, 2011

FHA Appraisals and Shared Driveways Something as simple as a shared driveway can turn-out to be a huge challenge. One of the things appraisers are required to check for when doing an FHA appraisal is for any adverse easements and/or encroachments. For this appraisal the subject property is situated on a site that was divided [...]

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Is FHA Going To Run Out of Money

December 7, 2011

FHA’s reserves have fallen to just .24%, which is supposed to cover the future losses of the $1.1 trillion in mortgages they’ve insured. That’s less than half of what they had last year, and significantly less than the 2% mandated by Federal law. There is a 50% chance that FHA is going to need a [...]

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FDIC Sues 29 Appraisers!

December 3, 2011

FDIC is Suing Appraisers! I’ve written a prior post about how appraisers aren’t necessarily going to be sued over their appraised values, but how they’ve completed their reports. It’s widely known in appraisal circles that the biggest current threat for appraisers is being sued by the FDIC. The Appraiser Law Blog has a great article [...]

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Is It Time to Become a Real Estate Mogul?

December 1, 2011

With falling real estate prices, and more importantly the increasing number of renters, one would think this would be the opportunity of a lifetime to become a real estate investor, and for some it is. However, if there is one thing that this real estate malaise has taught us, being a landlord isn’t for the [...]

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They Stole My Fence!

November 25, 2011

My Fence is Gone!   When measuring the outside of an REO property I was accosted by the neighbor, he wanted to know if I knew where the past owner had moved to. I told him I didn’t have clue, and then he asked me if I could find out for him. I’m not sure [...]

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