Real Life HVCC Misery

July 29, 2009 at 5:31 pm | Posted in Uncategorized | 2 Comments
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*I’ve noticed that I’ve been complaining a bit more than ususal.  I appologize for this, but when you write, you tend to write about what you’re riled up about- good or bad.  I promise to make the next post one that will make you smile… enjoy.

I got an order to do an appraisal last month.  It was one of my better clients- one whom I have worked with for over four years.  But since May 1st, they like everyone else have had to work through an Appraisal Management Company (AMC)- someone was buying a home- this was in Glendale, Arizona- a suburb of Phoenix.

As usual, I received a copy of the sales contract so I could analyze the details of the transaction.  This is done so that the Appraiser can see if there are any “sales concessions” within the deal.  Good examples of sales concessions are when the seller pays for a home warranty on behalf of the buyer, or if the seller contributes say 3% of the purchase price towards the buyer’s loan expenses.  So if a home is under contract for$200,000 and the seller is contributing 3% towards closing costs, then the buyer is technically only paying $194,000 even though the contract might show $200,000 and when it records it will show $200,000.  So it is very important to analyze the contract for this reason to determine the “real” purchase price.

The problem with purchase appraisals is that too often, the Appraiser sees the contract price and now has a “target” value that he might shoot for.  This is the subtle version of lender pressure- instead of the loan officer saying “I need the appraisal to come in at over$200k”, they let the contract do the talking.

So I appraise the home and unfortunately, despite the $200,000 contract price, the data of comparables only supported a value of around $180,000.  The whole point of the HVCC is to eliminate lender pressure right? Right?  So they can’t fault me for coming in at the true value right?  Right?

About a week later, I get an email via the AMC saying that the contract has been revised per my Appraisal and now the parties have agreed to a contract price of $180,000.  Sound great doesn’t it?  The email asked me to revise the contract section of the appraisal accordingly (perfectly legal) and the email also says that now the seller will not pay any of the buyer’s closing costs.  I look over the new addendum and sure enough it shows the new contract price and it’s dated and signed by both parties.  Cool.

But uncool is the fact that nowhere on the addendum does it mention that the seller isn’t paying closing costs.  The original contract shows that they are, and if they are not doing so anymore, then the contract needs to clearly state that.  So, I can’t revise the report without that information in writing.

As I mentioned, the email I received detailed what they needed, so I can just reply to that email and tell them that I need more info, but no… the AMC is set up to send these automated mail server “emails” that you can’t reply to.  And of course there’s no actual contact person or real email address or phone number to call. (don’t you hate when you reply to an email with a verbiose and well thought out letter and after you send it, it bounces back with a “ha ha!  fooled you.  this isn’t a person’s email address” message?)

So I log onto the AMC website- it looks very nice and there’s an option to send the lender/client a message- cool.  But then I see that the “messages” are simply radio check buttons.  You get to select one of about 20 canned messages like “borrower no show”, “delay of 24 hours, “no power”, etc.  I figure there must be an “other” selection with a text box but no.  I look for an appropriate canned message and the best available is “please send sales contract”.  That’d work… but I already have the sales contract as far as they are concerned.  I need a page of the contract which they haven’t sent.  How are they supposed to know what I mean?

So, unlike most guys, I give in to asking for directions.  I call the AMC and a very courteous person comes on the phone and he explains that I have to use one of those canned messages in order to comply with HVCC.  I explain to him the situation and the fact that this system will now only creat confusion and delays, and he courteously replies with “we are HVCC compliant, I understand the situation, but that’s how it works.”  There’s no use getting mad at this guy and I’m so used to being mad at situations and policies, that I keep my cool and let out a Charlie Brown sigh.

I next call the lender directly whom I’ve worked with for years.  The processor I know is unable to help me.  Long story short, I eventually called the listing agent who promptly sent me the addendum.  Situation resolved.  When all was said and done, between the time they sent the revised request and when I sent it back to them- 3 hours.  No big deal.

But is it a big deal?  Well, it’s been three weeks since I finished that assignment.  The deal is closed, I’ve been paid, and here’s the funny part- I haven’t received another order from that lender since.  This is the lender I’ve worked with for four years averaging about 6 deals a month.  And you know who I can contact to find out why I haven’t received any orders since?  Neither do I.

If you’d like to share your own story of how the HVCC has affected you, let me know.  And if you feel that the HVCC must be stopped, I ask you to do two things- sign the petition at www.hvccpetition.com and contact your congressman about HR 3044 which would put a moratorium on the HVCC www.govtrack.us/congress/bill.xpd?bill=h111-3044.

Visit our website at www.advantageappraisalsllc.com, and if that doesn’t roll off the tongue, just try www.appraiserdude.com. Give me a call at 480-544-1217 if you have any questions. I look forward to working with you.

My Analysis on the HVCC

July 16, 2009 at 12:08 am | Posted in Uncategorized | 2 Comments
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Here’s the layman’s synopsis of the dreaded Home Valuation Code of Conduct and why it’s important to you- regardless of who you are.  I recently gave this presentation to a group of other local professionals, and now I’ve attempted to put it in some sort of written form.  Now that I’ve read it back, it’s downright boring!  But it is important and worth a few minutes of your time.

BACKGROUND

In the late 1980’s there was the great Savings and Loan collapse.  “Bad lending practices” is the 2 second synopsis.  And the US Goverment (taxpayers) bailed them out to the tune of $125 billionish.  In the wake of this, among other things, Appraisers were officially required to be licensed, follow universally accepted standard, etc.  In other words, rules and regulations were established.  Those rules included minimum education hours, minimum experience hours, testing standards, licensing procedures, background checks, etc.  Today, that means 2500 hours of experience, 120 hours of initial education, FBI check, nationally established test, a 4 year college degree, errors and omissions insurance, etc.

And every two years, Appraisers are required to repeat one specific class known as USPAP, which basically covers the methodology of appraising- including ETHICS.

Why so much to be an Appraiser?   Well after all, Appraisers are signing a legal document saying what the estimated value of a property is.  And that document is then used by decisionmakers on whether a loan should be given for a particular property.  Basically, the Appraiser is giving the diagnosis on a piece of property, and the bank then decides the course of action.

Every state has an Appraisal Board which consists of a group of professionals who enforce appraisal standards and licensing.  And when someone complains about an Appraiser for competence, ethics, or any other legitimate reason, that board investigates complaints against Appraisers.   The board reprimands Appraisers up to and including revocation of licenses and even pursuit of criminal charges to be carried out by the Attorney General or whomever else would pursue the matter (I’m not a lawyer).

All these things have been mandated or expanded since 1989 by what is known as FIRREA- you can google that on your own if you’d like.

Recent Housing Situation

So as we’ve all seen, over the past several years, the market has seen a significant decline, and by significant, I mean huge.  But rather than accept the fact that it’s normal for markets rise and fall, the tendency is to try and place blame. 

So whose fault was this big mess? 

  • Was it the homeowners- who saw prices going sky high and did whatever they could to buy a house, or two, or ten.  Or maybe they irresponsibly overleveraged themselves to get these homes.  Or maybe they even lied in order to get these loans.
  • Was it the Realtors, who took their clients to homes that were above their price range and “sold” them into going through with a purchase that they really didn’t feel comfortable with.
  • Was it the Appraiser’s fault for falsely estimating values because they were scared that they’d lose clients if they “killed” deals?  Or perhaps they were working in cahoots with lender in some sort of “straw buyer” scheme.
  • Was it the mortgage broker’s fault for putting borrowers in risky loans- or fudged the financials of the borrower to make them fit into a loan? 
  • Was it the lender’s fault for creating these risky loans in the first place- like stated income, no income no job, or negative amortization loans? 
  • Maybe it the politicians- who passed legislation and threatened to sue lenders if they didn’t provide more loans to unqualified borrowers simply for the sake of giving more minorities the chance to own a home.

The answer- it was everyone’s fault and more.

But now that the mess is made, sure we see the news stories of heartache and trashed homes and bankruptcy and divorce.  But the people who we hear and see most now are the politicians who represent us and are able to promote legislation (or mandate it).  But let’s just say that I am cynical and although I believe that many politicians have noble intensions, oftentimes they are only posturing in order to let the masses think that they are doing their job.  The politicians have to look like they care right?

So here’s the deal.  A few years ago, Washington Mutual got in trouble for putting pressure on Appraisers to get deals done.  Turns out that WAMU owned their very own appraisal company subsidiary.  So if you got a loan through WAMU, your appraisal was essentially done by an employee of WAMU.  So ultimately their staff Appraisers were caught inflating values to make deals work- even if they weren’t wise decisions for the bank.  People complained and it was uncovered that the “objective” Appraisers were anything but- and that they were pressured into inflating values.  WAMU is now in the process of being bought by Chase so we know how that worked out for WAMU. 

So about this time, the attorney general of New York- a single person named Anthony Cuomo took it upon himself to dictate that mortgage companies are not allowed to directly contact the Appraiser, but instead use a “neutral” Appraisal Management Company (AMC) who then selects Appraisers at random.  You can read the actual code here if you’d like.  Appraiser independence, no pressure.  Yay!… But does it really provide Appraiser independence and does it really eliminate lender pressure? 

Once the code was announced, these AMCs appeared out of nowhere in droves.  Everyone wanted a piece of the action.  I mean where else can you start a business that mortgage companies have to use?  And did I mention that these AMCs are unregulated?  Did I mention that these AMC’s are unregulated? (yes I meant to repeat myself).  So starting May 1st of 2009, it is now required that for any transaction backed by Fannie Mae or Freddie Mac, safeguards must be in place to eliminate any whiff of guidance by the loan officer on the Appraiser.

So… how do these AMC’s make money?  Well, it used to be that the borrower would pay the Appraiser- around $350 for a typical home appraisal.  Good lenders would insist that borrowers pay the Appraiser directly- that way, even if the deal fell through, the Appraiser got paid for services rendered.  So if the Appraiser gets $350, then  how does the AMC make money?  Two choices- charge more for the appraisal so the Appraiser can still get paid the same amount, or find an Appraiser who will do the work for less than $350.  Oh wait, three choices- charge more for the appraisal AND find an Appraiser who will do the work for less than $350.  So it’s now common for borrowers to get charged $500 for an appraisal and the Appraiser gets paid $250, $200, or even less- depending on how much the AMC is willing to pay and how desperate the Appraiser is.  And since lenders must now use AMC’s, Appraiser must now work with AMC’s.  So in a given market- say Phoenix, a single AMC might have 30 Appraisers to choose from to do an assignment.  And one AMC in particular will simply email an opportunity to all local Appraisers and the one who quotes the best combination of cheap and fast, gets the work.  Or the “better” AMCs will broadcast an assignment and the first one to reply will get the work.  Sounds sort of like a feeding frenzy eh?

Now before you start saying that Appraiser’s are sharks, please remember the sharks aren’t filming the video, and the sharks aren’t providing the fish.  These sharks are hanging around waiting for food because they are starving to death.  Meanwhile the smart shark has been out on his own, doing his own fishing- but now he’s not allowed to do so and he has to join in with the others or starve to death.  Sounds a bit like socialism doesn’t it?  And who are the starving Appraisers who are doing the work for very little compensation?  It’s the freshest and greenest Appraisers who aren’t necessarily the best at what they do.  Why do high end cancer specialists and baseball players and singers get paid so much?  Because they have proven themselves and their work speaks for itself.   What if you wanted to see a concert and when you got there it wasn’t someone you’ve heard of, and it was rock when you are a country fan and they weren’t very good?  Not very good for the consumer is it?

And what happens if the appraisal is bad and the lender isn’t happy?  Who can they take it out on?  Sure the Appraiser’s name is on the report.  It’s the Appraiser’s errors and ommissions insurance and license and phone number on the report.  But with a dead deal, what’s the simplest solution for the lender?  Go to a different AMC who will provide appraisals that make value.  So the “pressure” was perhaps on the Appraiser from the lender, but now the pressure is on the AMC who now puts pressure on the Appraiser- another layer of beauracracy.  So if an Appraiser comes in at a value that isn’t good enough, he might stop getting orders from the AMC- again, the unregulated AMC.

Who is benefitting from the HVCC?  It’s not the Appraiser.  It’s not the borrower.  In actuality it’s the lender and the AMCs that are benefitting most.  The lender can now charge a strange fee of say $500 that covers the appraisal.  The lender can pay the AMC $350, who then pays the Appraiser $200.  And even if the appraisal kills the deal, the lender makes $150.  So instead of the Appraiser charging a simple $350, two other entities make money out of the same transaction.  Now I know that this scenario is very simplistic, but it’s a perfect example of how some are taking advantage of the HVCC.

This rant has gone on pretty long so if you’ve even made it this far, I thank you and I will try to wrap it up.  I’ll actually give real examples later down the road.

What Can Be Done by YOU

Don’t get me wrong, clients come and go, so I still appreciate referrals of mortgage professionals, management companies, lawyers, Realtors and even homeowners.  But my request for you today is to take action against this legislation.  And here’s why it’s not a futile attempt.

  1. The appraisal industry has the weakest lobbying group in DC.  So it was easy for the HVCC to get crammed into action.
  2. The National Association of Realtors (NAR) has one of the biggest lobbying groups in DC and while they let this go into effect, the impact has been enormous in just two months.  Realtors and mortgage brokers are seeing their deals getting killed by inexperienced Appraisers and borrowers are seeing very high Appraisal fees and even second Appraisal fees for deals that go nowhere.
  3. So the president of the NAR is finally taking action against the HVCC and has met with Anthony Cuomo.
  4. Go to this website and watch the video which is very well done and explains much of what I have done in this blog.  (and sorry if you read it first and are now saying “you mean I could have watched the movie instead of reading this poorly written crap?!)
  5. Sign the petition on that same website.  Last I checked it had 52,000 signatures so far.
  6. Share that website with everyone you know.
  7. There is a bill in the US House of Representatives right now- HR 3044.  It already has 19 cosponsors.  Please contact your congressman and voice your support for this bill.  Hopefully he or she will want to cosponsor the bill.

Visit our website at www.advantageappraisalsllc.com, and if that doesn’t roll off the tongue, just try www.appraiserdude.com. Give me a call at 480-544-1217 if you have any questions. I look forward to working with you. Now serving the San Tan Valley community.

Faith in Humanity- Restored (for now)

July 3, 2009 at 6:19 pm | Posted in Uncategorized | 2 Comments
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Get ready for a long story and rant.  But there’s a lesson to be learned…

Ever since moving to Arizona, I’ve worked with a particular Realtor who has fed me all his appraisal deals- I golfed with him, we went to each others kids’ birthday parties and I considered him a friend.  As a business owner, you have to make executive decisions on getting paid and although sometimes slow, I’d always get paid for the appraisals I did for him.  He had his go to loan officer whom I never got along with, but it was a relationship with the Realtor that precluded anything else.  The loan officer (she) would often call me in a huff- either to whine about the value I came in at or otherwise second guessing my work.  I have confidence in my work so I always found it annoying that after 3 years she never lightened up.

In May 2008, I got an appraisal request for a property purchase.  The order- as always, said “COD” but all orders in this arrangement say COD.  As a small business, I always err on the side of COD if I am at all leary of whether I’ll get paid or not.  I’ll bill orders through escrow only if I have an established professional relationship.

So I finish the appraisal, the deal looks like it will work handily based on value and I submit the report.  Well about three weeks later I get a call from the loan officer.  She tells me that she’s changed companies midstream and needs the appraisal changed to show the new client (who is the company that is actually doing the loan).  I ask her to send that request via email so that I can have a record of it and then she asks for me to show the invoice as Paid.  I tell her that I can’t do that since I haven’t received payment yet and she said, “well the deal is closing this week, so just change it to Bill Through Escrow and everything will be fine.  Again, my own personal accounting practices are just that- my own.  I feel confident that if I don’t get paid through escrow, my Realtor friend will cut me the check, so I oblige the loan officer.

Fast forward another three weeks.  I notice a few unpaid appraisals and shoot an email to the loan officer asking for status.  She says that the loan closed and that she already got paid and that I should have as well.  I ask her to look into it for me and instead of doing so, she sends me the phone number for the escrow company- so now it’s my job to check up on my payment (typically, a loan officer will look out for their Appraiser and do this for them).  I give in and call the escrow officer who very nicely says that everything’s been distributed.  She shows that the appraisal fee was paid to the mortgage company as part of a lump sum.  I ask for documentation and she happily sends me a copy as well as what is known as a Disbursement Recap which shows my fee which is supposed to go to my company.  Here’s where the situation turns bad.

I call the loan officer back who sais that she doesn’t know what happened, and like the escrow officer, she gives me the main phone number of the mortgage company- no contact, no introduction, just a worthless level of help.  I call the office and speak with the “branch manager” who says that she will look into it and get back to me later that day.  Fast forward another call like this with no call back and I ask for her boss.  I leave him a voice mail, follow it up with an email and get no reply.  So now I’m getting a little bit upset (ok, I got upset a few days prior).  In the meantime, I had called my Realtor friend, the loan officer and even the borrower.  The borrower gladly sent me a copy of his settlement statement which clearly shows that he was charged for an appraisal fee.  He even offered to go down to the mortgage company and “kick someones ass” on my behalf.  I tell him to lay low.

In all this time, the owner of the mortgage company never called me back but then I got an email from him- that’s right, a saveable and printable conversation where he basically accuses me of trying to steal from their company and he even threatens to blacklist me for even trying to collect my fee.  I know my own integrity, and after googling his name I see that he’s at the other end of the spectrum.  I research and then find that I should file a complaint with the Arizona Board of Financial Institutions.  I’m skeptical of government beuracracy but I reply that I will file a complaint unless he sends me payment.  He then replies with an offer to pay me half my fee!

So about August of 2008, I print out numerous emails, copies of everything (the appraisal, the order, HUD-1 statement, etc), and send it all to the Arizona Board of Financial Institutions.  Within a month, I get a letter back- apparently they quickly sent the complaint to the mortgage company who had to reply rather quickly.  The response was that I was trying to double bill for the appraisal.  By this time, my energy level for this situation has been more than completely depleted, but I reply via another certified letter.

Fast forward to October of 2008.  I’m measuring a house and get a phone call from someone at the Arizona Board of Financial Institutions.  The gentleman is not some robotic turd, but instead he aks me to explain the situation (I guess they want to get a feel for my legitimacy) and he says that he will personally put this one at the top of his pile (of over 100 cases).  I sarcastically joke about beauracracy and he agrees completely.  Then he explains that his already short staff will be cut in half in November, so he might not even have a job.  Great guy, but I’m not feeling very confident in any resolution.

So the holidays pass, a new year begins, I do my taxes and see that this is the only outstanding bill for all of 2008 but I’m so far past caring that it’s no big deal.  I probably spent 20 hours “working” on this to no avail.

But in April of 2009 a call comes in.  A pleasant lady who says she works for the mortgage company in question.  She says she’s calling because of the complaint and tells me that.  She then tells me that the “owner” isn’t the owner and that he no longer works there.  In fact nobody still works there that did a year prior.  She asks me to confirm the details of the loan and then tells me… “we have no record of that loan”.  Now I’m not upset, because I couldn’t care less about what sort of Nixonesque mass shreading might have taken place when the prior regime left, but I got a little ill just thinking about all the other Appraisers who might have been ripped off here, or all the homeowners who might have done business with this company, or the fact that this company’s practices is NOT an isolated situation.  Yet it’s the lowly Appraiser and other professionals and homeowners who get hosed.  How many people do not take action and simply accept that they’ve been ripped off?

So, after sending copies of the appraisal, order, HUD-1, loan number, escrow number and more, what arrived in my mailbox literally 365 days after the inspection?  That’s right, my fee.  Was it worth it?  Well monetarily it absolutely was not worth it.  But coming from a cynical person like myself, the exercize served the purpose of giving me just a little bit of confidence in government entities, the power of documentation, the power of persistence, the power of knowing when you’re right, the power of foregiveness.

Lesson learned?  Always collect COD!

Sample Work- The Visuals

May 6, 2009 at 4:01 pm | Posted in Uncategorized | Leave a comment

I figured I’d try and put a face with a name, in other words, show you some of the properties I’ve done.  I’ve uploaded about 4 months worth of homes for simple viewing on Flickr.  If you want to learn more about any particular one, post a comment or let me know.  I’ll disclose what I can.

Circle G Tempe

To learn more about the Appraisal process, give me a call at 480-544-1217 or visit our website at www.advantageappraisalsllc.com. We look forward to helping you when the need arises.

Changing the Marketing Focus

April 29, 2009 at 7:51 am | Posted in Uncategorized | Leave a comment
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It used to be that Appraisers wouldn’t market directly to homeowners. After all, when you purchase your house or get it refinanced, the loan officer orders the appraisal. Every year I’d get calls from the high school to sponsor the basketball team, or from the town asking if I wanted a booth at one of the town festivals, and I used to confidently say that my audience was not the individual homeowners.

But times have changed, and the Home Valuation Code of Conduct (HVCC) has eliminated the communication between Appraiser and loan officer (don’t get me started on that one). Quite coincidentally, the individual homeowner is finding out more frequently that they require an Appraisal for non-lender related issues. These situations include:

  • Bankruptcy
  • Divorce
  • Death in the family
  • Loan modification
  • Home equity line of credit line decrease
  • or various other reasons
  • If you find yourself in one of these situations, of course I’ll blatantly ask you to call me, but I’ll try and be a little more diplomatic about it. First off, call your Realtor because he or she should be able to recommend a good Appraiser. In fact, any good Realtor understands the importance of knowing a reliable team of professionals, which includes handymen, painters, lawyers, home inspectors and of course Appraisers. And find out if your Realtor really knows the person or is simply passing you a business card. If a Realtor wants to continue their relationship with you, they will make sure that they provide you with quality business referrals that will help you with your situation.

    To learn more about the Appraisal process, give me a call at 480-544-1217 or visit our website at www.advantageappraisalsllc.com. We look forward to helping you when the need arises.

    But the Bathwater is so Dirty!

    April 28, 2009 at 3:32 am | Posted in Uncategorized | Leave a comment
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    …or is it?  Short post here simply because I know that I have loyal readers.  And I’m actually plaigerizing this one sforgive me.  It’s more of a “spread the information” sort of post:

    The National Association of Mortgage Brokers (NAMB) Friday called on its members to contact their Senators and/or Representatives to stop or halt the Home Valuation Code of Conduct, which is set to be implemented May 1.

    After recently dumping its lawsuit against the FHFA over the proposed changes, the NAMB stepped up its political fight against the key appraisal changes.

    The agreement eliminates mortgage broker-ordered appraisals, prohibits appraiser coercion, and reduces the use of in-house appraisals and captive appraisal management companies.

    It was the result of a 2007 lawsuit in which Attorney General Andrew Cuomo sued First American Corp. and its eAppraiseIt unit for falsely inflating home values tied to Washington Mutual home loans.

    But NAMB argues that the proposal will hurt consumers and small businesses, and could violate certain procedural and compliance laws.

    Instead of relying on independent appraisers, HVCC will require the use of “unregulated” Appraisal Management Companies (AMCs), which are often located thousands of miles away from the subject properties.

    NAMB believes independent appraisers with in-depth knowledge of local market conditions will be sacrificed for large AMCs, despite the fact that an AMC was the focus of the lawsuit that led to the creation of the HVCC.

    The brokers also believe the changes will negatively impact the consumer, who will incur higher costs, limited choice, and longer processing times at a time when lending is already quite backed up.

    Additionally, they feel the HVCC breaks procedural law and is a potential violation of RESPA (confusion that could push mortgage brokers out of the picture), while arguing that appraisal standards already exist.

    Unfortunately, their pleas may fall on deaf ears, as reports like this from the Center of Public Integrity found tons of fraud on both the lender and appraiser end, making it pretty clear that big changes are necessary.

    Please visit the NAMB website for more information.

    Visit our website at www.advantageappraisalsllc.com, and if that doesn’t roll off the tongue, just try www.appraiserdude.com. Give me a call at 480-544-1217 if you have any questions. I look forward to working with you.

    Sincerely,

    George

    What’s a Room?

    April 10, 2009 at 6:55 pm | Posted in Uncategorized | Leave a comment
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    I’m not going to bore you with explaining what a room is like you’re 5 years old- Harry Potter had a room under the stairs- and perhaps Appraisers watching the movie gasped with this inaccuracy.  If you’re in real estate, you want to know what counts as a room and what doesn’t.  So in a nutshell here we go:

    You’ve got a home with 4 bedrooms, 2 bathroom with a washroom, living room with adjacent dining room, kitchen, nook, family room, den, laundry room upstairs, master walk in closet, retreat and a loft.

    Anyone want to guess how many rooms you have?  It could be as high as 17- but it’s not.

    Here’s the breakdown.  4 bedrooms, living room, kitchen, family room, den and loft- that’s 9 rooms.

    Bedrooms, living room, kitchen and family room are obvious, den should be pretty obvious too.

    The den is typically bedroom sized so that counts.  The loft is typically bedroom sized so that counts.  But if it’s like a big computer station area, then that’s NOT a room.  Can you put up a wall and a door and make the loft a room?  Then it’s a room.

    Many tract homes have the dining “room” adjacent to the living room with the hanging light being the item that makes it look like a dining room.  But picture this- can you put up a wall between the living room and that dining “room” and have both feel like their own room?  In many cases, it would look and feel ridiculous.  Here’s three examples (and yes, you can click on each to see a bigger version of it)- the first is NOT a dining room, the second is probably a dining room and the third is definitely a dining room – hence- a room.

    Not a dining roomProbably a RoomDefinately a Room

    Bathrooms don’t count as rooms- but from as an aside from an appraiser you have 2 1/2 bathrooms.  If that half bath had a standing shower but no bathtub- what many call a 3/4 bath, then it would be considered a full third bathroom- Appraiser’s typically don’t go by quarters- we round up to the nearest half.

    A nook is not a room- it’s sort of like an annex- same goes with the master retreat.  Both of these are similar rationale as dining room.  But if you have a giant master retreat, then it could be considered a room.

    Laundry room is not a room- period.

    Closets- no matter how big- are not rooms.

    Visit our website at www.advantageappraisalsllc.com, and if that doesn’t roll off the tongue, just try www.appraiserdude.com. Give me a call at 480-544-1217 if you have any questions. I look forward to working with you.

    Sincerely,

    George

    The Trouble with Free Online Home Valuation

    January 2, 2009 at 10:40 pm | Posted in Uncategorized | 1 Comment
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    Everyone is cost conscious nowadays.  And with the Internet, I myself do my best to find whatever data I can for free.  As an Appraiser, I pay a little extra so that my software identifies floodmaps for the homes I appraise (I can get it for free online if I really wanted to).  I pay for a sketching program so that I can quickly draw the floorplans of homes I inspect.  It then integrates with my appraisal software automatically (I could do this for free using any art program).  Onc I’ve put all my comparable sales in my report, I click a button and the software quickly gives me attractive maps of where the subject home is and where the comparables are (I could do this for free using an online mapping service).

    Outside of appraising and on a personal level, I always want to get stuff for free and many people are the same way- people download music rather than drive to the store, you can call an 800 “information” phone number which sure beats paying a quarter each time you’re looking something up.  And there are tremendous tools which allow us to learn more about finance- whether it be stocks, commodities or yes, real estate.

    But there are products (websites in particular) that will tell you how much your house is worth- for free.  Now as a person who makes a living by doing just that, of course I can see this as the competition and in some ways it is.  If you as a homeowner think your house is worth $500,000 and one of these sites says it’s worth $350,000 then you’d probably be angry and try to find a more credible opinion (Appraiser) to tell you that you’re right.  But if the tables are turned and one of these websites says $500,000 and an Appraiser says $350,000, then you now have an individual Appraiser to be upset with whether you are justified or not.

    Now don’t get me wrong, I’ll be the first to point out that there are a lot of bad Appraisers out there- ones who have tarnished the image of the industry and who have been a part of the problem that has led to our housing crisis.  But I’d say there are more good Appraisers who have been lumped in with the bad ones.  And once someone in the mass media (financial reporting shows, politicians) generalizes about an industry, well that could be the kiss of death.

    But getting back to the point of this entry- these free online home valuation tools, here’s what I’d like to discuss:

    The most popular of these sites came available several years ago during the very steep climb in real estate prices.  What they do is pull data from county records within a certain proximity of your home and which sold within the past year.  This is some very basic appraisal theory in itself, and when there are a lot of sales- especially homes that are similar size, age and style to yours, then perhaps it can be a pretty accurate gauge.

    But when the market was rising so rapidly, the service was actually a little behind on the true value of homes.  You’d have a house sell for $200,000 and then 2 weeks later the same exact model would sell for $210,000, and then another would sell for $225,000 only a few weeks after that.  So these models sort of learned to project out values based on the rate of appreciation that was going on.  And when I say “learned” I mean that someone programmed this into the results- based on whatever multiplier “they” decided was appropriate.  Hopefully they at least pulled their data from a reputable and unbiased source such as Case-Schiller or the National Association of Realtors.

    The inherent problem was when our real estate markets started to peak and decline in 2006 and 2007.  That’s right, it’s been declining for two full years now despite what the mass media is telling everyone every night.  So as the market stopped going up, how were values determined by these sorts of websites?  Human Appraisers could see recent sales of homes say in the $350-$355k range but then there might be 3 current listings of the same home for $335k.  So what’s the true value of the house?  And how were these websites determining value?  This is a rhetorical question, because the market has now gone beyond decline…

    Today, we are in such a declining market that in many areas it’s sort of a “catch the falling knife” mentality.  Just when I personally see prices so low that it looks like a great entry point, it goes lower, and lower.  So I supposed that logically, these websites can adjust their models to project out based on recent sales and whatever the decreasing percentage might be- but have they?

    The newest monkey wrench in their estimates is still related to what they find in county records and it’s the Trustees Deed Upon Sale.  With all these foreclosures, homes are being “bought” by the mortgagee- so if your loan was through ABC Bank and you got foreclosed upon because you missed payments, then ABC Bank would officially be on the deed of your home.  But at least in Arizona, the bank would actually record a transaction dollar amount on what’s called a Trustees Deed Upon Sale- and this dollar amount was a privately negotiated amount with no relevance to the original loan amount and oftentimes, no relationship to current market value.  So now these “sales” prices are recorded in county records and then pulled by those free websites as sales.

    Well first off, any human Appraiser who uses one of these transactions to help detemine market value of another property is flat out negligent and technically committing a fraud.  Now that I’ve libelled a certain type of individual, I will take that one step further and say that I have seen these automated valuation websites doing the same exact thing- is that good for you as a homeowner to believe your home is worth something based on faulty data?

    Here’s an example of a home I just appraised.  The home is about 2900 square feet and is located in a neighborhood called San Tan Ranch- in Gilbert, Arizona.  You go to one of these sites and type in the address, and the estimate is that the home is worth $274,000.  By using the lending standards that Appraisers must adhere to, I search for similar properties that sold in the last 90 days as well as active listings of similar homes.  Once my analysis is complete- I have located a slightly larger home that sold for $249,000, one that sold for $240,000 and one that sold for $242,000.  I then find three listings of the same model for $225,000, $215,000 and $189,900.

    So based on that simple data alone, do you believe that the house is worth $274,000?  Even if you’re not an Appraiser, you can easily see that it’s worth at the very most $249,000- that’s $24,000 LESS than their estimate- that’s a car, that’s an annual salary for a college graduate, that’s just flat out wrong.  So how did they come up with $274,000?  Now what if I told you that the subject house had no pool and one of the sale I used had a pool?  And one of those sites backed up to a busy street.  I’ll tell you right now that those sites do NOT take those sort of factors into consideration.

    Well, first off what they did was use two sales from July and June of 2008- that’s 6 months ago. And even then, one of those sales was for $266,000- hardly $274,000.  And are they saying that home values haven’t declined in the past 6 months?  According to the National Association of Realtors, in the zip code of the property, home values have declined by 24% from Q3 2007 to Q3 2008.  On top of those two sales that they used, they had about 5 very recent sales for over $300,000- great.  But they are from totally different neighborhoods and they are  brand new homes on larger lots, and they’re one story homes (subject is 2).  Sure they’re closeby, but not really appropriate sales.  And then there were two recent sales that were of the aforementioned “Trustees Deed Upon Sale Variety” so not sales at all.  And as I mentioned earlier, I found 3 listings between $189,000 and $225,000.  Don’t those listings have any bearing on the value?  If a potential buyer in today’s market sees 3 sales for under $250,000 and 3 listings for under $225,000, then why in the world would they pay $274,000 for a similar home?  It just doesn’t make sense.

    So in today’s market of cutting costs, technology still hasn’t eliminated the necessity of an Appraiser in providing accurate estimates of value- plus, you actually have recourse if you feel that the appraisal was bad.  What sort of recourse do you get with a free valuation from the internet?  I hate to sound cliche, but you get what you pay for.

    Visit our website at www.advantageappraisalsllc.com, and if that doesn’t roll off the tongue, just try www.appraiserdude.com. Give me a call at 480-544-1217 if you have any questions. I look forward to working with you.

    Sincerely,

    George

    Happy Holidays from Advantage Appraisals

    December 21, 2008 at 6:01 am | Posted in Uncategorized | Leave a comment
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    Whenever I take on a good idea, I get all excited about it. After all, I wanted to start sharing some of my knowledge and experience as an Appraiser. Good for critical thinking from real life experience, and who knows, perhaps someone will like what they read and want to work with me. Well, when I get busy with other obligations, then the fun marketing stuff takes a back burner and that’s just not cool. My resolution in 2009 is to provide more interesting articles on a more frequent schedule. Keep your words of encouragement coming and I’m more likely to “drop everything” and spend a few hours blogging. But I’ve been blessed with a pretty busy fourth quarter of 2008.

    I wish everyone a happy holiday. We celebrate Christmas on our end so we’ll be doing a fun Christmas eve service at church complete with snow and “sleigh” rides. Whatever your faith, I wish you a safe end to 2009.

    George

    What’s in a Foreclosed Home?

    October 20, 2008 at 3:46 pm | Posted in Uncategorized | Leave a comment
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    That’s a weird question. i’d like to think that a Foreclosed home has the same stuff as a non-foreclosed home. You know, doors, windows, toilets, carpeting, kitchen, lights. Well in most of the ones I’ve appraised, everything’s there. And everything is in decent shape- no different than any other house that’s sold. But we live in an age with a lot of foreclosed homes that are so because of the screw financial situation we’re experiencing. And with that comes a lot of anger. And with anger has come some very vengeful and destructive behavior that’s downright shameful.

    Over the past 5 years or so, the housing market has been booming- particularly in places like Phoenix- where I appraise. The ridiculous rise in home prices wa fueled by cheap money, relatively inexpensive homes and the mindset that homes were ATMs. Couple those factors with the phenomenon of multiple investment homes for oftentimes out of state owners, and the “demand” was more a demand for investments- not the need for
    owner occupied homes.As an appraiser, I can do a little research and have done so for an example. I live in a master planned community of about 1700 homes- surrounding a golf course, with a community pool, clubhouse, parks, school, etc. On my street alone of 34 homes- built in 2005, we have “investment” homes which are owned by people who don’t live there, and “owner” homes which are owned by the occupants.  I can break it down to the following:
    • 9 bought as owner occupied and still owned and occupied by those original owners
    • 2 investment homes subsequently sold to owners who still live there
    • 13 investment homes that are still investment homes
    • 1 investment home that was sold to an owner that was then foreclosed and was bought by another investor
    • 1 investor home that was sold to an owner that was then foreclosed and was bought by another owner
    • 4 investment homes subsequently sold to other investors.
    • 1 investment home sold to an owner which is currently in foreclosure
    • 3 that I categorize as unknown since tax records show that the mailing address is the same as the physical address.
    I won’t even go into analysis of their mortgage amounts compared to market values. It’s quite depressing. So the point of my breakdown hopefully demonstrates exactly what the situation is in many neighborhoods- not just mine.But getting back to the topic at hand, as you can see, there are a lot of investment homes out there and a majority of those homes are used as rental properties. Now I don’t want to knock on renters as a group- after all, we’ve had a few great renter neighbors who were good people, took care of their rental and cleaned up when they left so they could get their security deposit back. But there are a LOT of renters who really don’t care that much.When renters pay their rent on time that’s great for the owner, but what happens when the rental income doesn’t cover the mortgage? And what if the mortgage payment is increasing each month because they got an adjustable mortgage- and the rent amount is the same? Well, you get an owner who stops making his mortgage payments, and unbeknownst to the renter, the house goes into foreclosure and then all of a sudden the tenant gets evicted because the bank now owns the home- the tenant who has been faithfully paying his rent each month. Sucks for him doesn’t it?

    Well some of these upset tenants, and sometimes owner occupied residents all of a sudden lose their home, then it becomes a scene from The Jerk, where Steve Martin leaves his mansion with an armful of stuff. And how they leave varies depending on the type of person we’re talking about.

    Neglect: The obvious is letting things go. Pools evaporate (after they turn green), weeds grow, black widows breed. Typically nothing intentional here. One extreme version is when a leak occurs and nobody knows about it til it’s too late. I had one of those recently where a toilet leak at the supply line seeped out into the bedroom and then you get what you see below- a virtual forest of mold:

    Rapture: These are the sad ones. Toys in the backyard, clothes in the closet, food in the pantry, DVDs on the floor, pictures on the wall. Incidentally, I’ve always wondered what happens to all this stuff that is left behind. I recently did a house where some guys were putting in a pool pump and it was a company who does foreclosure home cleanup. According to them, they take that stuff to the Salvation Army as directed by the bank. So actually that’s reassuring. I’ve always wondered if these companies simply take whatever they want. (but I wouldn’t be surprised if some of that happens)

    Messy: Everyone has different definitions of cleanliness. I’ve been in plenty of non-foreclosure homes that feel, look and smell like model homes. And I’ve been in plenty where I wished that I had a gas mask and some booties. so this is by no means a foreclosure phenomenom. But the most prominent thing I see is carpet that is covered with pet stains- and sometimes ones with actual pet droppings still there. You see that in a house, and you know you’ll see plenty on the outside as well. How about a shopping bag full of feces? Not sure what happened there “we’ll collect it, but we won’t put it in the trash can”

    Removal: You buy a house, you add some stuff to it like ceiling fans. Well the foreclosure consensus is that those are yours to take. Technically those sort of thing are fixtures once attached just like over the range microwaves and garage door openers. But once they are gone then who’s to say they weren’t there in the first place? After all, garage door openers aren’t standard on many new homes. About 90% of the foreclosed homes I do have the exposed wires from where the ceiling fans were.

    Destruction: Ahh, the good stuff. Some of it could be accidental, some of it could be intentional and in most cases I simply assume that it was due to a rushed exodus from the premises. We’re talking drywall holes, maybe a broken window or a stair rail that’s not mounted anymore. I’ll let you be the judge on the cause of these things.

    But then there’s the obvious intentional destruction, and destruction doesn’t just mean damage. As you’ll see in the following photos, I’m talking about water heater taken, air conditioning system taken, kitchen cabinets, faucets and countertops taken. I’ve even seen examples of homes with graffitti inside the house.

    So yes, these situations happen, and they happen in nice looking houses, in nice neighborhoods. It’s a shame.

    Here’s the next question, which I’ll save for another article: Where does this stuff go?

    Visit our website at www.advantageappraisalsllc.com, and if that doesn’t roll off the tongue, just try www.appraiserdude.com. Give me a call at 480-544-1217 if you have any questions. I look forward to working with you.

    Sincerely,

    George

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