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Posts Tagged ‘Appraisal Process’

In Texas, Privacy Was Not A Pretty Picture

August 31, 2005 | 10:07 pm |

When a number of the 254 Texas tax appraisal districts began to post photos of private homes on their web sites, thats when the trouble began. [Note: Reg.] The practice was designed to help appraisers and better inform homeowners when protesting their taxes. The photos were taken from the public street and were not of the homes interiors. Some districts posted floorplans as well. Effective September 1, 2005, all such content is to be removed.

After much turmoil, the Texas Legislature passed, and the Governor signed, the appraisal photo bill:

SB 541 amends the Texas Tax Code to protect the confidentiality of photographs and floor plans of homes or property. These photographs and floor plans will remain available for the official use of the appraisal district, the state, the comptroller, taxing units and political subdivisions, but will be exempt from Open Records Requests from the public.

This is fascinating because this law showed how far the window on privacy could be pushed. Many of the largest properties in the survey were not revealing because they simply showed the front gate or the trees that blocked the property. Advocates for the bill were concerned that floor plans and photos made it easier for stalkers and burglers.

New York City had done the same thing in the 1980’s but the photos were not in the public domain because the internet was not readily accessible to the public in its present form.


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Behind The Curve: The Appraisal Waiver

August 30, 2005 | 11:23 pm |

In many markets, a financing contingency is simply not accepted by sellers due to the limited supply of inventory [Arizona Republic].

In other markets, there is a modification of a contingency called an “appraisal contingency waiver,” “To get a house, buyers now often have to waive the appraisal contingency on their home contract. That means the buyer agrees to the sales price even if the appraisal comes up short. They no longer have the low appraisal as a way to back out of the contract without losing earnest money.”

It seems to me that a buyer could convince the lender to decline their loan for weak credit so they don’t lose their deposit or earnest money.

This reporter in this article also says something that bothered me: Appraisers take months to catch up to the market, waiting for closed sales from three to six months prior.

If that is the status quo, then those appraisers are not estimating market value, but instead, are just form filling. How can an appraiser not consider current contracts to adjust the dated closed sales to market value? Relying soley on closed sales is simply an incomplete analysis. For this type of contingency to be common place, then this appraisal practice must be widespread in this market.

On the flip side, appraisers are under tremendous pressure to “make the number” from buyers, sellers, brokers, mortgage brokers and lenders. So I am surprised that so many appraisers have no problem killing a sale with all the pressures they face. I suppose thats a good sign.


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Flipping In Secret

August 29, 2005 | 9:36 pm |

A survey of recent condo sales in Miami showed that nearly half the condo owners were LLC’s. It is believed that these are mainly speculators. Corporations and foreigners often create an LLC when purchasing real estate to protect themselves from liability. Speculative flipping appears to be on the rise in metropolitan areas around the country.

If you have been appraising for a while, remember the painful experience the FDIC’s bailouts starting with Vernon Savings and Loan in Vernon, Texas in the late 1980’s? This was often claimed as the straw that broke the camel’s (FDIC’s) back and a flood of bailouts soon followed. One of the reasons for the collapse was the high volume of property flipping, with the same property often transferring several times in the same day. While the stories are different today, flipping is still occuring.

Buyers and sellers are increasingly withholding information that as appraisers, we are bound to verify. According to USPAP, we are supposed to report all prior transfers within the past three years. Our licensing requires us to disclose what we were unable to verify that is needed for the valuation.

It is now even more important than ever to get a copy of the contract and review it. We are stumbling into undisclosed flips more than in prior years. Flipping appears to be one of the reasons Fannie Mae recently redesigned their appraisal forms.

How do we determine if there is a flip? Usually, an experienced appraiser will notice that the sales price, even considering an optimistic appreciation assumption, doesn’t make sense and match the names in the contract with the owner on record. For the appraisal firms that do high volume with trainees, I hope you have good E & O insurance. 😉

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PMI: Going Over Your Limit

August 28, 2005 | 1:00 am |

See previous post on Matrix: PMI Gets You In The House: Now Get Rid Of It.

The Homebuyers Protection Act was passed by Congress in 1998 requiring lenders to notify homeowners when the equity in their home reached a level where PMI was no longer required.

Here is the testimony of Richard J. Roll, Founder and President, American Homeowners Association (AHA) in front of the United States Senate Committee on Banking, Housing and Urban Affairs on February 25, 1997 on PMI. He was speaking about the abuse of PMI overcharges.

“Your home falls under this act if you purchased, constructed, or refinanced your single-family home after July 29, 1999, and your loan is not a government-insured FHA or VA loan. If you purchased your home before July 29, 1999, your lender is not required to cancel your PMI when you reach 20 or 22% equity, but many lenders will do so if you ask.

Here is an article on the costs associated with PMI insurance to homeowners.

There is significant incentive for a homeowner to get PMI removed from their loan payment. In order to do this you need the services of a certified real estate appraiser to provide a value estimate. If the home has appreciated enough to where the equity is at least 20% of the overall value, then the odds are relatively good that you can get the lender to remove the PMI.


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Crackling and Buzzing: Power Lines/EMF Valuation

August 25, 2005 | 1:25 pm |

The National Association of Realtors has created a resource area called Field Guide to Power Lines. Part of the problem with this issue is that there has been a battle of competing health studies that of course, are on the opposite side of the sprectrum.

Position: Power lines don’t affect property values
This party claims that since there is no definitive proof of a health risk, no loss in value should occur to property owners. The key driver of this movement has been the powerline industry.
[Links]
American Transmission Co.
American Trails From an operational perspective, EMF is not much of an issue for trail activities…
Colgate Univ Term Paper Just a term paper and not a scientific study but it concludes that there is more evidence that says there are limited health risks and on that basis, possibly not detrimental to value.

Position: Power lines affect property values
This party claims that since there is evidence that there is a health risk, a loss in value to property owners should be recognized. The key driver of this movement has been the environmental groups.
[Links]
University of Missouri-Kansas School of Law A review of a case where “…that a tax assessor’s opinion that the proposed power line would not change the assessed value of the property for tax purposes was incompetent and prejudicial…”
Wave-Group An exerpt of the correspondence: “Late last year, New York’s highest court, the Court of Appeals, ruled that the owner of property adjacent to a utility’s high-power electrical transmission lines could seek damages for a decrease in the market value of the property caused by the fear that the power lines might cause cancer, even if such a fear was not medically or scientifically reasonable. That decision has already begun to change the outlook on electromagnetic field (EMF) litigation for utilities.”

Valuation Links
Power Lines and Property Values: The Good, the Bad, and the Ugly An incredibly detailed discussion on valuation approaches for powerline properties.
Realty Times Columns Concludes that homeowners would probably pay less for a property near a powerline just because of the uncertainty.

Common Sense Application for Appraisers
In a valuation matter, where an appraiser is asked to value the effect of power lines on property values, wouldn’t it come down to how the typical homebuyer in a market felt about the uncertainty of risk? In other words, if two properties are identical, but one is located under or near a powerline and one is not and the former sells for less, isn’t that indicative of the effect on value? Whether or not EMF causes cancer or not, if a buyer pays less, it would seem to me that the difference before and after is a quantifiable measure of effect.

What do you think?

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In Bad Form

August 25, 2005 | 9:15 am |

For some reason, Fannie Mae was inspired to change ALL the appraisal forms they use, effective November 1, 2005.

This will be a painful conversion process for most appraisers and will generally be met with skepticism for a few reasons:

  • Cost – The new FNMA forms seem to be written to prevent other traditional uses such as appraisals for estate, trust, litigation, divorce and other purposes. The Appraisal Institute, in good faith and possible anticipating a revenue stream, has created AI Reportsâ„¢ Residential Summary Appraisal Report Form. The press release sounds interesting, but Letter Sized formatting for a professional versus legal look? Commercial appraisers generally write letter sized narratives and residential appraisers do not. Think of the thousands of appraisers out there all set up to use legal documents. Once again, the orientation of the AI remains for commercial appraisers. This new form is being developed by all the major software vendors.

Here’s a radical idea. Keep using the old FNMA 1004, 1073, 1075 and other appraisal forms for non-lending use. They are USPAP compliant and appraisers already have the software. I want to see how this shakes out before I consider using the AI form.

  • Liability – The new forms hard code pages and pages of liability pitched back to the appraisers. I call these the silent killers. The text is not that well written creating more confusion to the reader.

  • More data to present – The forms harp on days on market type stats for all of the comps and lots of other detail. In a perfect world, this is great stuff, but the reality is that many markets do not have this level of detail. The added time spent to collect this data warrants a fee increase, yet that likely won’t happen. As a result, we will all get used to inserting Not Available in many of the fields. Again, good intentions by FNMA to catch “flipping” but unrealistic implementation. Bad appraisers will remain bad.

  • More headaches for lenders using OCR software – Some national lenders fought the introduction of these forms, an unprecendented quantity at one time, because all their OCR scanning software and back office systems have to be re-designed to input this information.


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Just Get – R – Done

August 23, 2005 | 11:54 pm |

The danger of appraisal inflation is not apparent to many consumers.

The consumer begins to believe the inflated value as valid and it is validated each time the property is over-appraised. When its time to cash out, the fall from the clouds can be unforgiving.

But problems arise when the appraisal is higher than the home’s actual value. Such overvaluation can lead homeowners to overborrow. And later, when they resell, they could learn that the till they thought was full of money contains much less — or nothing at all.

At the end of the day, the homeowner just wants the job done. Herein lies the problem.

Its called “detached from reality.” The mortgage is not being done for the homeowner at all. Its being done on the lender’s behalf to assess the collateral. However, the typical lender sees the report only after it has been through the food chain.

See: The beginning of the end, or how this mess got started


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Outsourcing Codeword: AMC

August 22, 2005 | 11:41 pm |

Ever notice how the only people who seem to be espousing outsourcing are those who gain financially? appraisal management companies themselves

As a self-proclaimed technology maven, I wonder if technology is the answer to all our problems within the appraisal process? In many ways, it can dumb it down, causing the process to drift away from its original intention. The AMC process seems to be an automated paper handling compliance machine.

Another AMC took outsourcing abroad to perform appraisal reviews.

How is it humanly possible to perform a review appraisal from another country unless the report is nothing but a compliance document and not a basis of risk analysis?

AMC’s are here to stay. Where is there middle ground between form-filling compliance automation and hand done reviews?



[Webmaster Note: This post has the highest number of “?” in any posts in this blog ;-)]


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Appraisers, Brokers And Buyers: Do Your Homework

August 19, 2005 | 8:35 am |

Unusual properties require added homework to all parties. [Note: Subscription] Its a good idea for homeowners (or their brokers) with unique properties to do research on similar properties. With the time pressure placed on appraisers these days, they may not have time to look under every rock…of course, unscrupulous clients may not want them too anyway. 😉

Portfolio lenders are less likely to feel comfortable with atypical properties requiring the presentation of a lot more data.

According to USPAP, appraisers are compelled to disclose their competency on a property type they are not familiar with. Here is an article that discusses competency.

One of the most common violations of the competency rule is when appraisers travel to other areas where they don’t understand the nuances of the local market or local neighborhoods. Appraisers who get out-of-area assignments should refer the jobs to local appraisers, get local appraisers to help them select comps or decline the assignment.

It always amazes me how we get calls from appraisers from another market, who ask for comps. More specifically, they ask for three comps (presumably because thats all that is required on the Fannie Mae forms). Thats the extent of their research. And then, they somehow seem to turn around their assignment in 48 hours. Needless to say, we do not share data with appraisers outside of our market.

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Apparently, We’re Flush

August 17, 2005 | 1:08 pm |

CNN just ran a story on incomes of appraisers. This survey stikes me as a bit overstated. Specialization is key, especially if the focus is on complex properties.

IMHO, I think the appraisers on the residential side that are generating a lot of income, own very large operations with a lot of trainees and are tied in tight with wholesale lending channels. Its going to be interesting to see how these firms do when or if refi or sales business drops off significantly. On the commercial side, its the firms tied in with conduits. With capital in abundance these days, demand for these appraisers is high.

A study on appraiser incomes [Note: Abstract], done in 1999 at Washington State University, was reported to be the first of its kind.

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Selling a house they didn’t own

August 10, 2005 | 9:17 am |

2 sentenced for real estate scheme

In this case, its sounds like the appraiser was duped, but it is a scary thought. It makes for a good argument to get the sales contract on your transactions (besides other obvious reasons, like understanding the terms of the sale). We match up the seller with public record.

I am amazed how many real estate brokers have said to us that we are the first firm to actually ask for a copy of the contract.

Its a USPAP standard as part of the appraisal licensing requirement [i-2e(iv)]

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Picture Perfect

August 9, 2005 | 2:02 pm |

As seen in Valuation Review When are comps picture perfect? [Note: Subscription]

Call me old fashioned but we always take photos of the interior unless we are forbidden by the occupant…then we inform the client and note it in the report.

I am amazed how many times a real estate broker has mentioned to one of my staff, “You take photos? I have never seen an appraiser take photos before (as well as “You actually take measurements? I have never…”)” You get the idea 😉

The photos are more for our use – to review the property if a question comes up, to prove we were there, to protect us, etc.

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