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.

Required Repairs and Inspections for an FHA Appraisal

October 20, 2008 at 3:46 pm | Posted in Uncategorized | Leave a comment
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With the popularity of FHA loans recently come a lot of questions from my clients. Basically, they want to know what home issues are cause for further inspection or repairs. Since the appraisal is what it is, I can’t help if the house has an issue that needs to be repaired or addressed. In cases like these, I do what HUD tells me to do. But even with their guidelines, I’ve encountered plenty of other situations that are not or may not be as clear cut.

There are a ton of reasons why a loan could be rejected by HUD, and an Appraiser might disclose any number of those issues, but that decision is not up to the Appraiser. His job is to simply state the facts and observations so that HUD can make that decision. BUT, the Appraiser is required to call for additional repairs or inspections for certain observations.

From a 10,000 foot level, an FHA appraisal is done in a very similar way to non-FHA ones. But there is definitely a lot more attention paid to the home and a lot more judgment placed by the Appraiser. As an example, for a non-FHA loan, I might find that there is a broken window. I would mention the broken window and in my appraisal I would put an estimated cost to fix that window. Adjustments are made accordingly and that’s that.

But with FHA appraisals things that require an added inspection or repair typically fall into three categories that are known commonly as the “Three S’s”

Safety– Is the home going to preserve the safety and health of its occupants?
Security– Are there conditions of the home that will preserve the continued marketability of the property?
Soundness– Is the home structurally sound?

Now with this simple guideline come a ton of “what about” questions because no two properties are the same, but here are some no-brainer required repairs:

Inadequate access/egress from each bedroom directly to the exterior- so security bars on the windows, or no window at all on a bedroom are definitely bad things. If it’s 2AM and there’s a fire- can people get out of the house quickly?- Automatic repair required

Leaking or Worn out Roof- roof leaks cause water damage, cause structural integrity issues, cause mold, cause termite infestation, etc. If the roof is leaking, it needs to be repaired. Also, if the roof already has three layers of asphalt shingles and has problems, then the old roof needs to be removed instead of patched. If the roof has less than 2 more years of life left, then don’t be surprised if the Appraiser calls this out too

Evidence of Structural Problems- is the foundation lifting because of a nearby avocado tree’s roots? That’s a perfect example of evidence. The Appraiser would call for a structural engineer or home inspector to determine if it’s really an issue.

Defective Paint Surfaces when home was constructed prior to 1978. We’re talking lead based paint. If the tax records show that the home was built prior to 1978 and there is flaking, peeling or other signs, then it will be called out for repair. Of course the next question is- “What exactly needs to be done? Does the whole house need to be painted?” The quick and dirty answer is NO. But the repairs must be good enough where the Appraiser will not see any signs of defects.

Pretty simple stuff so far, but what about all the “What About” questions. Here’s a list of some that I’ve encountered and the course of action:

Swimming Pool is empty, or green or otherwise not up to swimmable condition- We’re talking about a safety issue here on several fronts- a green pool is a breeding ground for mosquitoes. A green pool is a place where people can fall in and not be seen. An empty pool is one where a person can fall in and break their neck. The swimming pool must be filled and functional or it will be called out to be repaired or otherwise rectified. But what is “otherwise rectified”? They can fill it with dirt.

What about a pool barrier? That’s more of a city code requirement. If it’s required locally, then it’s required by HUD. The Appraiser should know if it is required and report it accordingly and require necessary repair.

Fence missing or broken between neighbors when a pool is present? Wow, now we’re getting complex. Two issues here- most importantly is that the subject home isn’t very secure if someone can go through the neighbor’s backyard to get into the subject’s backyard. Also, despite the pool barrier, the missing fence is simply another step a person would have to take in order to get into the subject yard, get in the pool and drown. Sounds depressing, but drowning is a bad thing and HUD doesn’t like the idea of homes being potential death traps.

Possible Termite Damage- We’re talking about Soundness here. Any signs of termite damage require a termite inspection. If any structure on the subject property have wood that is touching the ground, then that requires a termite inspection. Or if the site isn’t graded properly and water can pool by the base of the house, that’s another obvious structural consideration.

Power is Not on in a Vacant Home- Well if it’s not on, then that’s a pretty significant system that can’t be tested. So either way, the home needs to be inspected when it’s on. That’s basically going to be something that the Appraiser can check himself.

Broken Windows or Exterior Doors- Security and Safety concern here for obvious reasons.

The Biggie- With so many foreclosed homes, it’s not uncommon to find a home with no kitchen… I mean yes, there’s a kitchen room, but the room has been gutted- cabinets, countertops, sink, appliances- just flat out gone. Well this falls into the whole Security blanket as marketability. You expect a kitchen in a house so it needs to be there. But what is required? The rule of thumb is “market standards”. You basically have to fill the space with what is typically found in a kitchen- which includes sink, countertops and cabinets. Same goes with the bathroom. If you have a 2 bathroom home and one is completely non-functional, then the appraiser would be “As Is”, but if you have no functional bathroom, then the house is not livable as you need a bathroom.

Hopefully this exercise has cleared things up a bit, but we all know that it probably only opens the door to more questions. Remember, each locality is different, so this is by no means a definitive list, nor does it mean that there is only one solution to each of these situations. Check with your underwriter to see what they specifically require as it may be very different from state to state.

Give us a call at 480-544-1217 with your unique FHA question or visit our website at http://www.advantageappraisalsllc.com/. I look forward to working with you.

Sincerely,

George

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