2012 in Review- An Appraiser’s Personal Perspective

December 24, 2012 at 7:44 pm | Posted in Uncategorized | 1 Comment
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In November 2011, after a long search for our next home, my family was in escrow with plans to close by Christmas.  We told the kids that we wouldn’t decorate our current house but would make that the first priority in the new house- a week before Christmas.  This was a resale home in a neighborhood that we had been eyeing for some time.  It needed minor updates but was ideal for many reasons.  As an appraiser who had been looking to move for the prior two years, this was the end of a long and painful process.  You see, I’m too smart for my own good…

As an appraiser, I’d like to think I have a pretty keen sense of the real estate market (like a financial planner does…).  I can quickly estimate the value range of a home and I know good neighborhoods.  As the real estate market was in its nadir in 2010, we were just looking for the right deal.  On top of that, besides appraising homes all over the valley, I worked for a servicer of Fannie Mae defaulted loans, doing nationwide appraisal fraud investigation- so I knew that the pipeline for distressed homes was endless- think the Sta-Puft Marshmallow man of shadow inventory. staypuft I would not overpay, and it was a buyer’s market.  I have friends who buy houses at auction- fix and flippers.  We weren’t looking to get in that game ourselves, just use those sorts of resources to get a home at auction.  But we don’t have the cash available to buy a houe outright.  We’d need traditional financing.

However, this proved to be more difficult than anticipated.  At first my wife and I were very particular about neighborhoods.  We’d research the homes coming to auction over the next 60 days, check them out and then put in a bid.  However, so many auctions were cancelled or postponed, that the ratio of homes actually going to auction on the dates scheduled was like one in ten.  So despite this arduous research and planning, we were only able to bid on four houses during a year’s span- and in every case, we lost out by just a few thousand dollars.

This process was made worse by the fact that we had previously seen short sale listings- that take forever to close, and they actually closes during the time that we had been searching through our process.  A friend of mine actually put in a bid on short sale and has subsequently moved in.  So with this in mind we decided to expand our search to the Multiple Listing Service.  Through this process, we actually found a home that fit our criteria and placed a full price offer on a home that appeared to be slightly undervalued.  Our good friend loan officer told us that we would have no problem with the loan- despite a HAMP loan mod in 2010- and we didn’t even need to rent out our current house (though we would)!

Well, as my wife worked at a bank, her in-house lender got wind of our move and asked “why don’t you do the loan through the bank?  It will essentially be a free loan since you’re an employee.”  At this we decided to have the in-house lender do our loan.  Our friend told us that he couldn’t beat that deal and we decided that it was the best route to take to save a few bucks…

We un enrolled the kids from their schools, their classmates threw them going away parties and gave them goodbye cards, we met up with some renting friends from the neighborhood for a little celebration, got a carpeting quote and placed a down payment through Home Depot, we had the inspection done and we had the appraisal done.  We even had a tenant lined up with rent several hundred above our mortgage payment.   All was well- until the loan officer told us that loan wouldn’t go through because of our loan modification- despite the fact that they were already aware of it and said it wouldn’t be a problem.  But not to fear she told us, she had another lender who said they could do the deal- it would just take another two weeks.  A week later and now the middle of December- the day after school let out for Christmas, we were told that this second lender had also balked at our loan.  We were devastated and slightly pissed off and we started venting about it with our friends.  Everybody and their brother heard of our plight and assured us that they knew someone who could do our loan- even our friend lender who we were supposed to work with from the get go.  He was astonished that our loan was dead and assured us that his in-house underwriter was already aware of our situation and was ready to fund our loan.

However, this would mean another three weeks minimum as we’d be starting from scratch.  We’d be pushed out to mid January, school would have already started, and still, we had doubts that it would go through.    The president of my wife’s bank actually approached us and offered to give us a private loan for 12 months until we could get conforming financing (they don’t keep residential loans in house).  We respectfully declined.  So after some praying and discussion, and insight from a local real estate expert… my wife and I decided to back out of our deal completely with the notion of starting from scratch in the new year.  Total out of pocket expenses- $250 for the inspection, $400 for the carpet down payment.  But we had already packed our entire house so our garage was filled with stuff- ready for the move.

Christmas was fine with a rush decorating job but we were happy nonetheless.  Kids were a little confused but started up school again in our district at their old schools.

In January, we found a remodeled house in the MLS.  We threw caution to the wind and placed a full price offer the day it was listed (through our original lender) and lost out to a cash bidder who offered less.

At about the same time, I appraised my first home in a brand new tract of a neighborhood that had been heavily depressed over the past several years.  This house was selling for $30,000 more than resales of the same utility!  I was astounded.  I subsequently did about 30 houses in that subdivision and whenever I went there, people were packed in the sales office.  Competitior sales offices were also packed.

In February, the loan officer from my wife’s bank WAS FIRED for INCOMPETENCE!!!!!!

We placed an offer on another MLS house- full price, lost out to a cash buyer.  A friend who fixes and flips and did over 50 deals in 2011 had gone through the first quarter of 2012 wihtout finding a single house.  Investors had started to pay 10 percent over “zestimate” on auction homes- simply to get the homes and in most cases rent them out immediately.  Another fix and flipper had reworked his margins but was having a slower year.  My wife started unpacking boxes in about April.  We discovered clothes that we forgot we had.  I appraised many more homes with increasing prices.  We found none for ourselves.  My work doing Fannie Mae Appraisal Fraud review continued robustly.  There was a never ending supply of bad loans.  Yet the talk of the press was “recovery” and it was legitimate.  Or was it?

Sales were up, but in most cases- at least in Phoenix, it was investors, and they were paying cash.  The common man (AKA me) couldn’t buy a house despite being qualified.  And we couldn’t exactly overbid because of the fear of the appraisal coming in low and not having the funds to make up the difference.

In our favor was the fact that we never had to move in the first place.  Our house is beautiful and big enough for us and more.  We have views of two mountain ranges, are on a golf course and have a beautiful oasis pool that my wife designed herself.  We have a very good (modified) loan and our payment will stay low throughout its duration.  By the way, our renter friends whom we celebrated with a year ago?  They literally justed moved into their new construction home last week.

Am I too cheap?  Am I too conservative?  Am I too “smart” for my own good- despite the countless lost opportunity costs associated with being frugal?  The answer is undoubtedly YES with a little sarcasm around the quoted “smart”.  The house we were in escrow with is now worth 20-percent more.  There are very few homes on the market that we like and now they are listed for 30-percent more than they were a year ago, and quite frankly, we can’t afford that.trend

The good news is that all our moving boxes are out of the garage so we can park our cars there, we painted some rooms that needed it badly, and our home value has also gone up about 30- percent- but we’re still $60k in the hole.  From a personal perspective, we ended up where we started, but from a professional perspective, I can confidently tell you that whatever reasons you use to explain this recovery, it has been legitimate in 2012.  Where will things go in 2013?  If you can’t figure me out already, I have faith that the combination of fiscal cliff, high unemployment, increasing entitlements and lack of “real” buyers will cause things to slow down if not reverse- sort of a dead cat bounce.  But since I’ve made that proclamation, you can rest assured that we’ll continue to go up!  Have a Merry Christmas and Wonderful New Year filled with happiness, and good fortune!

Visit our website at http://www.advantageappraisalsllc.com, and if that doesn’t roll off the tongue, just try http://www.appraiserdude.com. Or now you can follow us on Twitter at @appraiserdude AND we just added a Facebook page for you to “like” at http://www.facebook.com/appraiserdude. Give me a call at 480-544-1217 if you have any questions. I look forward to working with you.

What Can a Homeowner do to Ensure a Better Appraisal?

September 16, 2011 at 6:11 am | Posted in Uncategorized | 4 Comments
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For the last few years, a divider really has been put in place that supposedly improves transparency in the appraisal process. And while it may have some supposed benefits that help to eliminate fraud and inflated values, it really has screwed things up for the consumer. Now don’t get me wrong, a home is worth what it’s worth and “better comps” are typically not “more appropriate” comps. So when the borrower truly doesn’t know his house’s worth and he relies on one of the popular real estate websites that magically estimates the value sight unseen, then a certain dollar amount is planted in that borrower’s head. Well, when they start the loan process and pay $400, or $450, or $500 for an appraisal that used to only cost $350, now they’ve gone down a road that resembles a casino in Vegas.

Why is it a gamble? Because you really never know what kind of appraisal you are going to get. First of all, most lenders utilize Appraisal Management Companies (I shudder at the idea of capitalizing that), which means a middleman who serves as the barrier between the lender and the appraiser. That appraisal fee is then paid to that AMC who then looks for the cheapest and fastest appraiser they can find. And I’m not kidding when I say that some of these AMCs would offer as little as $120 to an appraiser to do the job. So let’s estimate low on the consumer fee of $400, subtract $120 and that leaves the AMC with $280 for essentially being the barrier. Now I’m not saying that these AMCs shouldn’t make money; they do have staff and overhead and sales people. But the actual appraiser doing the work gets 30 percent of the total fee? Does that seem fair?

Well an HVAC company may charge like $60 per hour to work on your air conditioner and the technician may only get $20 per hour. So that’s a good parallel right? Actually, no, because if your AC causes a fire and burns your house down, you don’t sue the technician- you sue the company. The appraisal is still signed by the appraiser who has his state issued license and his mandatory errors and omission insurance. If you have an issue with your appraisal, the AMC doesn’t care about it at all.

Now I’m not complaining about this process except in spirit- you see the “good” appraisers don’t play this silly game. They won’t drive from one corner of a metropolitan area to the other corner simply to get some work. These good appraisers have a little more pride. They have branched out into non-lender appraisals like bankruptcies, divorce or estate settlement. They only work with small lenders who are exempt from the AMC process and thus can still get full fees. They only work with the reputable AMCs (yes there actually are reputable ones) who value the work of an appraiser. These AMCs collect $400 from the client and pay $325 to the appraiser.

But what about the (let’s not say “bad” because they’re not necessarily bad) inexperienced, desperate, low self-esteem appraisers who will do this work for less than full fee? Well, in many cases, these are the appraisers who come to appraise YOUR house… yes it’s true- not always, but often.

So if you’re buying a home, the appraiser will get a copy of the contract and will find the listing in MLS (if it’s available) At least that way he will have an idea of what value is “needed”. Now before you jump on me about hitting a value, let me explain… if your house is in a newer tract neighborhood where every other house is the same floor plan and there are lots of sales and there are no foreclosures or short sales and the economy is stable, etc. etc. then there’s an efficient market. But it’s not like that. Today you may have several sales that sell on the exact same day- a short sale that is immaculate and sells for $200,000, a bank owned plain Jane model that sells for $205,000, an investor flip that sells for $225,000 another short sale that sells for $180,000 and a fixer bank owned that also sells for $205,000. So how much is YOUR house worth? The point of knowing the contract price is to at least have a number to check your work against.

There have been PLENTY of times when I came in lower than the purchase price and guess what- a few days later, I get a revised contract with the purchase price now matching my appraised value. On the other hand I’ve also come in low and had angry Realtors, AMC underwriters and $10 per hour AMC processors getting all up in my Shiite for killing their deal- and this is AFTER HVCC which was built to eliminate pressure. Again, knowing the contract price is a good check for your work.

But with a refinance, it’s completely different. You don’t see an estimated value or loan amount- it’s just an appraisal request- it’s actually a little daunting at times because the appraiser is actually being asked to do his job without guidance. What a strange concept- I don’t mean hand holding, but actual free reign to appraise a home for what it’s worth. It’s sort of refreshing. However, I just had one last week- a refinance where the owner lived in another state so they were having their rental property appraised for refinance. The last loan amount was $250,000 and the house is now worth $180,000. Do I think that they will get their refinance? It’s none of my concern… I’m helping the bank make a decision by providing them with data. If they shouldn’t do the loan, then they shouldn’t do the loan. But then again, I do wonder what might go through that borrower’s head. How much did they pay (in this case, they paid $350 and I got $350), what gave them the idea that their home was worth more?

But refinances are such a rare bird nowadays and they make up a very small portion of my volume- I’d say less than 3 percent in 2011. So this is where I come to giving some advice to people looking to refinance.

First of all, I gave you the background on the appraisal ordering process to prove a point- you have no control over who appraises your house. However there are some precautions you can take.

  1. Check your home value on one of the popular websites. You can actually put in your address and they will give you a value based on their own proprietary system- whether or not it’s accurate, it’s a start.
  2. Get some perspective of your own house.  EVERYONE thinks their house is the nicest one around.  After all, they did pay for the lot premium and upgraded carpet padding, and upgraded vinyl flooring and they’ve got 2 extra feet in their garage and they have a soft water loop… WAKE UP!!!  You’ve been sold on BS!  You bought your house from a SALESperson.  So if you come down from you attitude that your house is awesome:
    1. Look at the sales in your neighborhood.  See what features they have.  If there is a rare open house, take a look- and then track if and when it sells and for how much.
    2. Make friends with your neighbors- only for the sake of getting into their house so you can compare it to yours.
    3. Find the close by neighborhoods that have homes similar to yours and see what they look like.  Are the common areas nicer?  Are the lots bigger?  Is the builder better?
  3. Are you ready for my pitch?  Are you ready for my angle and reason for writing this blog entry in the first place?  Here it is… Get some real data that an appraiser would use to appraise your house.

So how do you get real data that an appraiser would use to appraise your house?  Simple.  Call a local appraiser.  That’s right, go to Google or Bing and do a search for “your city appraiser” and you just might find a good appraiser.  Try it now.  Click this link and you’ll see what I’m talking about (and no it doesn’t go to porn!)  And when you get there, click on Advantage Appraisals- which of course is my company.  The point is that when you find that local appraiser in Cicero, Illinois or Hollywood, Florida or wherever you are, give him a call.  And be honest with him.  Let them know that you plan on refinancing and you want to know if you should proceed.  Here’s the possible outcomes:

  1. no answer (most common)- he’s out of business, which is an unfortunate reality of what HVCC did to my fellow appraisers across the country
  2. reply of “I can’t do that”- he’s clueless and is one of those $120 appraisers
  3. reply of “That’s illegal”- he thinks he knows what he’s talking about but he doesn’t.  Remember, you’re asking for data, not analysis
  4. reply of “I’d love to help you, but you’ve got to realize that regardless of what I provide for you, when you do get the actual appraisal, you might get some schmo who doesn’t know your neighborhood, drove 100 miles to get to your house and is only getting $120 to do all that work because he’s a loser appraiser”  That’s probably a good appraiser 😉 because that’s the exact conversation I had today.

The homeowner told me his situation and I told him “I will pull comparable sales based on what public records shows for your home.  Assuming that I am appraising your house today, I will pull comparable sales that a reasonable appraiser should find given your characteristics and typical lender guidelines for appraisal requirements (recent sales, similar style, similar age, actives, pendings, etc.  How the actual  appraiser (because it sure heck won’t be me) analyzes that information is up to him.  If you don’t get your appraisal for another 90 days then this information will be essentially worthless.  I won’t provide you with a report- just sales and listings.  But with that data, you can make a more informed decision on if you should proceed with your refinance.  Total cost- $55.”  To which he replied “Sounds like an easy decision and you should market this service to others”  After the call, the process was complete in an hour and the guy was ecstatic.  Guess what, I technically did an appraisal.  I created a workfile and I will keep it for the requisite number of years.

But here’s the next point of advice. The homeowner asked me if when the appraiser calls to set up the inspection appointment whether he should tell him that he has comparable sales for him.  My reply was “Heck no!  We appraisers are a proud bunch and if you happen to get a good appraiser and pull that line, you’ve immediately touched a nerve.  The “I know how to do your job” Realtor, borrower or loan officer is considered a douchebag to an appraiser.  As unprofessional as it may sound, and perhaps a generalization that is exaggerated, you don’t want to run the risk of offending an appraiser.  I told him that the best course of action is this.  When the appraiser calls to make the appointment, find out where he’s coming from- that’s it.  If he’s within 30 miles you should be ok.  But if he’s over 30 miles away, that’s a huge red flag.  You might want to google his name and look him up on the state licensing website to see if his license is in good standing.  Again, this applies to our world of cheap and fast appraisals.  If you’ve got a bad feeling, call your lender and tell him that the appraiser gave off bad vibes and you want another who is closer, or Certified, or designated or whatever it takes to put your mind at ease.  But you must do this before the appraiser actually comes to your house.  Once the inspection is done, if you get that vibe, you will probably have to pay extra for a second inspection.  I personally will drive over 30 miles for a full fee good client.  And if I don’t know the area well enough, I will get to know it (as I am legally required to do) before I appraise that home on the opposite side of Maricopa county.  Secondly, when he gets there, be cool.  Make small talk, and then you can present the data that you received from your local appraiser for only $50.  Stroke him first with “I don’t know how to do your job, but I’ve got some sales that you probably already have.  Just figured I could save you some paper by printing it out for you.  Some appraisers might refuse it, but again, the “good” appraisers will at least courteously thank you and  take the information.  Sure you might find it strewn across the community park later that afternoon, but the “good” appraiser will at the very least compare it to the data he already has.  Chances are he has the exact same sales, but he just might realize that you provided him with one or two good ones that he missed because the Realtor input it wrong in MLS.

Besides that, it really is a gamble.  But I’d sure as heck like to play a game with better odds- like Baccarat or Blackjack, than slot machines or Roulette.  Unfortunately, we live in a world with a lot of one-armed bandits- so watch out!

Visit our website at http://www.advantageappraisalsllc.com, and if that doesn’t roll off the tongue, just try http://www.appraiserdude.com. Or now you can follow us on Twitter at @appraiserdude AND we just added a Facebook page for you to “like” at http://www.facebook.com/appraiserdude. Give me a call at 480-544-1217 if you have any questions. I look forward to working with you.

Appraisal Nightmare

March 14, 2011 at 7:07 pm | Posted in Uncategorized | Leave a comment
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So I got an appraisal request a few months back. I don’t recall the exact date, but let’s just say that it got lost in the shuffle. I’m writing about it because the client called to check on the status about 10 days later, at which point my reaction was “ummmmm”. This is totally out of character for me as despite my “organized chaos” system, I never misplace a file in process.

Here’s a little background on this particular order. It was for an older home on the west side of town- so like 55 miles away. That’s way out of my preferred coverage area, but back in 2006 I appraised that same house for the same borrower and out of state small bank. Back then it was worth a decent amount. Large lot, nice home, horse property, well kept. Turned out that the borrower was going to cash out some of his equity to start a business- back then.

When I got the call to reappraise the home now, I instinctively accepted the work- not because I mind the drive, but because I had established a rapport with the contact at the bank- despite the fact that I never received any other business from them. Also, my business has changed since 2006. Back then I was doing triple the volume of work for a fee split. So when I’d drive across town to do an appraisal, I’d have at least 1 or maybe up to 3 others that I could knock out the same day. Today I only do full fee work and since there is no split, I actually turn down most work that is outside of a “convenient” coverage area. However, with this case, I accepted the assignment…

So when I got the call from the client, I went to look up the prior order so that I could print out the prior sketch. This is great for “redos” as you really don’t have to remeasure the property or re-enter a lot of the basic information like the neighborhood description, legal information, address, construction materials, etc.. I just bring a copy of that sketch and make notes about any changes since the last time. First problem was that sometime over the prior 4 years, I changed computers and I had to retrieve the old file. I had the work file of the property of course, but I really needed that electronic copy of the appraisal. I then pulled comparables based on the basic property characteristics and considering where the market is today, that was like pulling teeth as volume of sales has gone way down. So i got some good sales and made the trek out to the home…

When I got there I was in shock at what I saw. The house had been modified, and when I say modified, I mean the floorplan had changed. So I had to remeasure the home from scratch. No problem- I’ve got my trusty Disto laser tape measure. But of course, instead of being 1,600 square feet, now the house was 2,700 square feet. So now the comparables I brought with me are bad. I always pull comparables based on the property characteristics before I visit the home- BASED ON WHAT I THOUGHT WAS THE HOME! As a small shop, I make hay while the sun’s shining and in this case, I had no trusty internet access and no way to pull different comps. I have subsequently purchased a Droid, so that won’t happen again. I called an AMC that I’ve worked with for years so that maybe they could help- no joy as they were all out of the office. Meanwhile I’m thinking “I do not want to drive back out here! I do not want to drive back out here!”

Finally, I called up my old mentor in California- heck he’s an appraiser so he walks the walk. I have to give him the MLS website URL from memory, give him an over the phone lesson on how our MLS works and then give him what I think are good search criteria. It took half an hour but by gosh, we did it. He was able to provide me with 4 closed sales and a few pendings and actives that would help me out. I drove those homes, snapped my photos and headed on back- to the East side.

Now some apprasiers would simply leave and then pull data on their own later. Then they’d copy photos from the MLS and use those for their reports. And some better apprasiers would do that and then go back out and take photos of the comps. But I’m too lazy to make that second trip. And I’m an appraiser who recognizes that you need to physically see each sale in order to compare it to the subject. I’m not trying to brag too much here- just show how a little knowhow can make up for not being as prepared as you think you are.

Visit our website at http://www.advantageappraisalsllc.com, and if that doesn’t roll off the tongue, just try http://www.appraiserdude.com. Or now you can follow us on Twitter at @appraiserdude AND we just added a Facebook page at http://www.facebook.com/appraiserdude. Give me a call at 480-544-1217 if you have any questions. I look forward to working with you.

How to Prevent a Realtor-Appraiser Breakdown

July 31, 2010 at 3:36 pm | Posted in Uncategorized | Leave a comment
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It never ceases to amaze me that the various parties involved in a real estate transaction can have such little knowledge of what each other does and have the audacity to pull attitude with each other.  I can tell you stories of Realtors who refused to unlock a home for me because it was half an hour from their office. Or how about the loan officer who told me to trim my report size- not the file size but the number of pages- and when asked which part, they said “I don’t know, it’s just too much to read- remove like 8 pages”.  But today I’m not going to share war stories, but instead offer some constructive advice to my Realtor “friends”

The Home Valuation Code of Conduct (HVCC) was created to help eliminate pressure between appraisers and anyone who might try to influence them.  Yay!  But that’s like saying condoms protect you from pregnancy or venereal disease.  I can’t tell you how many times that in the heat of passion I’ve incorrectly tried to put on a… oh wait, where was I?  Ah yes, the HVCC creates more of a letter of the law vs. spirit of the law dilemma which has caused overreaction.  Should Realtors interact with appraisers?  If an appraisal’s value is below the contract price, should the Realtor try to fight it?  And if so, what is the right way to do it?  That’s what I’d like to help you with today.

When I want to inspect a home for purchase, I always call the listing agent- not to meet with them, but to ensure them that I am on task and to confirm accessibility to the home.  Plus, if it’s an FHA loan, I need to make sure that utilities are on.  And get ready for my taxicab confession- I do not own an electronic SUPRA key! 

Now you can criticize me for that little ditty, but when the industry slowed down a few years back, I simply couldn’t justify keeping it- 90% of the homes I appraised were either on combo box, were retrospective drive by assignments or by golly, the Realtor would be more than happy to meet me at the property to let me in.  My attitude was that Realtors involved in a transaction would be more than happy to help in the process.  And guess what- in two years I had a total of two Realtors actually give me attitude about me not having a SUPRA key.  I could have lied and said mine was broken, but I just say that I don’t have one.  In fact recently, I had an assignment where the Realtor just flat out said that she couldn’t drive the 15 minutes to the home- (I hadn’t even suggested an appointment time)- and she didn’t offer an alternate solution.  I could feel her “holier than thou” attitude through the phone, so when she asked why I didn’t have a SUPRA key, I was in a rare mood where I said “I’ve found that the better Realtors who care about their transaction will meet me at the property”.  Too bad that she wasn’t so dense to not get what I was saying, and when she said that the assignment would have to be reassigned, I was busy enough where I simply said “ok, have a nice day”.

But let’s move on to something else.  Should Realtors provide comparable sales for the appraiser?  Absolutely!  Print out a list, put your own notes on each one- not opinions but facts based on YOUR honest observations like “mold problem”, “similar upgrades”, etc.  But please, don’t lie.  Appraisers aren’t dumb.  But here is why you should do this.  Appraisers cover a region- for instance, I cover the Phoenix metropolitan area even though I’m based out of the Southeast Valley.  That’s a pretty big area to be an expert on.  I can honestly say that I have done a majority of neighborhoods in the region, but I don’t do them regularly.  The Realtor is supposed to be the local expert.  Also, as the local expert what about sales that were incorrectly input in MLS or were For Sale by Owner?  I’ve seen plenty of sales that don’t show up in a regular search because perhaps the Realtor misspelled the city name or the mapping software doesn’t plot it properly.  If the Realtor knows about relevant sales like this, they should be provided to the appraiser.  And put a note on the list that says “Hi George, I’m sure you already have data on all these comps, but I figured I could save you some paper and extra phone calls to Realtors”.  Worst case scenario- he throws them away.

WHAT ARE GOOD COMPS?

Now the key to understanding what “good” comps are is rooted in understanding the appraisal guidelines as set forth by Fannie Mae, HUD or specific lending institutions.  How old can comps be?  How far away can they be?  How much different can they be?  There are no definitive answers to any of these questions.  Sure you might have heard “one mile” or “six months”, but it all depends on the data available.  If the subject is a tract home built in 2000 and the Realtor thinks value should be based on 7 month old sales that are in a different neighborhood- but there are ten sales from a month ago in the subdivision, then that Realtor is in for a rude awakening.

But what about when the appraisal is already completed and the value is “killed”.  Well first of all, a Realtor needs to take on the attitude that the appraisal is now evidence that the home might be overpriced.  Perhaps the best course of action would be to try to negotiate a lower contract price- after all, you can now confidently say “an appraiser expert has proven that the home is overpriced, so you’ll never sell it for that much.” 

However, if the deal is potentially lost, then of course the Realtor might be upset but how should it be handled?  First and foremost, one must know what they are talking about so if you can see a copy of the appraisal, then look at the sales used and the property details.  Did the appraiser forget anything that significantly adds to value?  Maybe they forgot to mention the in-ground swimming pool, or maybe they didn’t notice the upgraded padding.  Now of course the pool is a glaring thing but let’s talk real quick about “upgrades”.  We’ve all seen the articles that tell you what home improvements add the most value to a home and guess what- most of them, don’t add dollar for dollar value.  So sunscreens, extended garages, updated carpet padding, 2 inch blinds, etc. don’t really matter in the grand scheme of things.  When Realtors tell their clients to make business decisions instead of emotional decisions, oftentimes they are just as guilty of thinking too much of their own listing.

Next, look at the comparable sales used.  Are they really similar properties?  Are they recent sales?  If you have three “better” sales but they’re older sales, or further away, or newer homes, then you’re fighting a losing battle.  Now put yourself in the shoes of an underwriter who sits in a cube in some high rise in Chicago.  When that decision maker looks at the data (whether it’s the appraiser’s or the Realtor’s), what will make more sense to them?  Remember, this isn’t 2005 anymore.  Some lenders are actually looking to make good business decisions instead of simply rubber stamping loans.

So if you really feel that the appraiser did something wrong, or ignored more appropriate comparables, how do you proceed?  I’ll tell you right now, that we appraisers are a proud race and we don’t like to be told that we are wrong, so you need to present this information in a loving, caring manner – I’m totally serious.  Write a letter- thank the appraiser for all his hard work, and mention that it was a pleasure meeting him.  Pat his back for his integrity and quality and admit that what you’re asking is not normal.  And then present your comparable sales.  Ask him if he wouldn’t mind helping you be a better Realtor so that you can do better on your next transaction.  Literally ask him to explain why he didn’t consider your “better” sales.  Maybe you’ll paint him into corner and he’ll understand that he screwed up- and that you know it.  But don’t get all accusatory.  Make it clear that you are not trying to influence value but that you want to make sure he has the necessary data.  You might even want to ask him what he’d recommend you do at this point- “should I request a second appraisal?”.  Thank him for his consideration and respect his response, and CC the loan officer as well…  What you’re doing is planting seeds of doubt in the appraiser’s head. 

Now remember, I’M an appraiser!!!  So why am I trying to teach you how to get your way with an appraiser?  Well that’s a perception issue.  I’m not trying to teach you to influence, I’m trying to explain how you can tactfully and ethically present your case and perhaps get an appraiser to reconsider his value.  There’s nothing wrong with that as long as your argument is based on fact.  But guess what?  He probably won’t do anything… but he might if you present a strong case.  If he ignores your letter, then you really have no recourse.  If you really do know that the appraiser was completely negligent or that he lied about something, then of course you can file a complaint with the state appraiser board.  But unless the complaint is about fraud, it’ll get dismissed.  Remember, above all else an appraisal is an opinion of value and it should be rooted in factual data, and if the appraiser presented his data clearly and accurately, you can’t dispute an opinion- you can only dispute facts.

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

What’s the Typical Appraisal Workload Nowadays?

October 1, 2009 at 5:27 pm | Posted in Uncategorized | Leave a comment
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As times change, lines of appraisal work shift.  Back in 2003-2004, my work was about 47% rate and term refinances, 47% purchases, 6% “other” which included review work, estate settlement, bankruptcy, divorce, and hard money (like the guy who needed to refinance so that he could raise enough money to post bail for his son)

When I moved to Phoenix in 2005, the chunk of purchases jumped up to about 60% and then starting around 3rd quarter of 2007, that ratio shifted to a lot fewer purchases and actually volume so low that I can now admit was too small to gague statistics.

But today, I can actually measure my work volume and it has shifted significantly.  I went back 90 days to itemize the work I’ve done and here’s the approximate rundown:

 

My Trailing 90 Days Volume Breakdown

What, were you expecting actual numbers? 

Anyway, keep in mind that of the refinances, a lot (I assume) ended up below what they “needed” to make their deal work, but at least now I don’t feel the lender pressure to hit some sort of value with the unspoken threat of losing future work.  How do I know this?  Let’s just say that if they bought the home in 2006 for $350k with a $320k first mortgage and now the home is worth $160k, I surmise that they didn’t pay down their mortgage by over $160k over those 3 years.

As you can see, I now do a lot of Review appraisals.  Back in the day, these would be reviews of recently completed appraisals.  I rarely get those now.  What these reviews are is typically foreclosed homes that were appraised in the 2005-2007 era back when values were very high.  Someone wants to know if that appraisal was inflated.  And for the sake of privacy, I’ll just leave it at that.  And of those that I review, I’d say 95% of them WERE inflated.  At first I was a little confused on the purpose of these assignments because I would assume that some of these Appraisers are now out of business with little or no possible recourse.  But in actuality, these are not for the purpose of hunting down bad Appraisers, but instead to determine the big picture of the original transaction.  These assignments are pretty low stress in that I never enter the home being appraised, but it’s pretty glum work as that’s a lot of assignments where I never step out of the car.  And as an aside, I often see the original appraisal from say 2006, which shows a beautiful home, and when I see it (from the street and perhaps a newer listing now that it’s foreclosed), it’s a completely thrashed home- complete with holes everywhere, nasty carpets, overgrown yards and green pools.

REO work is Real Estate Owned assignments.  These are an example of how appraisal volume has increased over recent years.  These assignments are essentially pre-listing reports requested by the bank that now owns a foreclosed home.  Take for example the bank based in South Dakota that now owns a foreclosed home in Arizona.  They don’t know the market out here.  They KNOW that these free online home valuation sites are a complete waste and completely unreliable.  So among other things, they order what is known as an REO appraisal.  Basically, they want to know the appraised value based on closed sales, but they are very interested in what it would take to make the property truly competitive with other homes for sale, so a very detailed list of things wrong with the home is required.  Also, the other available listings are paid very close attention to.  Basically, the bank wants to get rid of these non-performing assets so they want to know what it will take to get these homes sold in a relatively fast time.

Estate work is on the rise.   People are always dying and the estate needs assets valued.  But when you add in a bad economy, you unfortunately get a lot of personal issues that require appraisals.  Bankruptcy and divorce are prime reasons why homes are appraised, so that the parties know how to proceed.  It’s sad but reality.

So, let me paint an image of the volume of appraisal work that I’m seeing or that can affect a single property over a relatively short period.

  1. Family buys a home in early 2006- conventional appraisal
  2. Family refinances their home in late 2006 to take out money for improvements- FHA appraisal
  3. Family decides to sell home in 2008- listing appraisal (not required but often done)
  4. Family can’t sell home by late 2008 and lowers price to point to breakeven point, spouse loses job, couple decides to divorce- estate appraisal
  5. Owner negotiates with bank for a short sale- bank gets an offer below asking price in early 2009 and questions if it’s a good offer- REO appraisal
  6. Short offer falls through, home is foreclosed in March 2009, bank wants to relist it- REO appraisal
  7. Third party questions original refinance appraisal August 2009- Retrospective review appraisal
  8. New buyer comes in and buys home September 2009- FHA appraisal

That’s right, we’re talking 8 separate appraisals on the same home within a very short period, all for different reasons or for different parties.  That’s a lot of potential work for Appraisers nowadays.

Now don’t get me wrong, I don’t want anyone to get the idea that I’ve got more work than I can handle- after all, I just spent the past few hours writing this blog!  More on the socialization of the appraisal industry some other time.  Don’t even get me started on the 20 year veteran getting the same pay/volume as the newbie.  (I’m somewhere in between- just a squirrel trying to get a nut)

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

Get Me a Good Appraisal

October 20, 2008 at 3:43 pm | Posted in Uncategorized | Leave a comment
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So you have a client that needs their home appraised. You can’t exactly have them remodel their kitchen within the next week- or move their home away from the highway, so what advice can you give them before we go inspect the home? Of course presentation is a big factor. But unlike when trying to sell a home, the appraiser isn’t making a yes/no decision. He’s assessing the market value of the home- regardless of if he likes it or not. So here’s my newly created “Vowels” of a smooth inspection.

Accessibility- nothing is more frustrating than an inspection that doesn’t go smoothly due to: the homeowner not being there, vicious dogs, locked gates, bougainvillea covering half the house, blocked doors, etc. Make sure that the home is ready to have free and clear access to all parts of the building- inside and out.

Energy- a home is meant to be lived in, but some homes are too lived in. I’d say that one out of every fifty homes we visit are immaculate, model home knockouts. Of course many of those stand out in my mind, but don’t be on the other end of the spectrum where the home stands out for the wrong reasons. Specifically, I don’t like inspecting dark homes. When it’s too dark inside, it just plain feels spooky. Is it too much to ask the homeowner to open the blinds and perhaps turn on some lights before I arrive? And especially in the summer in Arizona. If they have A/C, is it too much to ask for them to turn it on? I’ll still do the same quality work if it’s not on, but you should know that I’m thinking about my air conditioned car the whole time I’m in a house like that.

Improvements- it’s my job to observe the improvements on a home, but remember that I can only note what I see. Stuff like new carpeting, ceiling fans and cabinets are obvious, but especially with a home that has a lot of improvements, have the homeowner prepare a written list of improvements done in the past 5 years. I’ll cross reference his list with my inspection notes and maybe I’ve missed something. It’s always better to have too much information rather than not enough.

Olfactory- lets face it, smell is very important. It’s how we determine the foods we like, the people we like and the flowers we like. Is your homeowner a smoker, an owner of an unpotty trained animal… or child, a gym rat? It’s really not that hard to spend a few bucks on some air fresheners and open the doors a few hours before I arrive. Plus, after being in so many homes, I can smell “musty”- and that’s a big warning sign that might affect the appraisal.

Underwear- working off the Energy theme above, an appraiser is appraising the house, not the owners stuff. But our stuff tends to define who we are. Some homeowner stuff just doesn’t need to be out in the open. Why? Because it’s too distracting and can make the appraiser feel a little uncomfortable- hence breaking the rhythm of the appraisal. Call me conservative if you want, but here’s some examples of “stuff” that I’ve personally seen out in the open during inspections: hash pipes, bloody underwear on the ground, unflushed toilets, a layer of cat poo on the carpet, a gun on a nightstand, pig head on a countertop, a closet full of porn on the walls. Have your homeowner put all that stuff away before I get there.

Now please remember, if ignored, this list of tips do not necessarily affect the value of the home, but they typically give me an indication on pride of ownership, which sometimes reflects on the condition of the home.

If you’d like to discuss how to better educate homeowners on preparing for the appraisal, give us a call and we’ll be happy to work with you on what’s really important for the inspection.

Visit our website at http://www.advantageappraisalsllc.com/, and if that doesn’t roll off the tongue, just try http://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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