Posts Tagged ‘real estate appraisals’

Property appraisals are on many people’s minds lately, especially with the recent revaluation for tax purposes in Iredell and Mecklenburg Counties.  They are more difficult to accomplish with good accuracy nowadays because the volume of sales is down so finding enough comparable sales is more difficult than ever.  Below is a great article provided by a service of the National Association of Realtors through their HouseLogic site.  If you’re thinking of selling a property, buying a property or just have a need to establish a value like an estate situation, the article below provides some great info and links.

What You Must Know About Home Appraisals

By: G. M. Filisko

Published: March 12, 2010

Understanding how appraisals work will help you achieve a quick and profitable refinance or sale.

1. An appraisal isn’t an exact science

When appraisers evaluate a home’s value, they’re giving their best opinion based on how the home’s features stack up against those of similar homes recently sold nearby. One appraiser may factor in a recent sale, but another may consider that sale too long ago, or the home too different, or too far away to be a fair comparison. The result can be differences in the values two separate appraisers set for your home.

2. Appraisals have different purposes

If the appraisal is being used by a lender giving a loan on the home, the appraised value will be the lower of market value (what it would sell for on the open market today) and the price you paid for the house if you recently bought it.

An appraisal being used to figure out how much to insure your home for or to determine your property taxes may rely on other factors and arrive at different values. For example, though an appraisal for a home loan evaluates today’s market value, an appraisal for insurance purposes calculates what it would cost to rebuild your home at today’s building material and labor rates, which can result in two different numbers.

Appraisals are also different from CMAs, or competitive market analyses. In a CMA, a real estate agent relies on market expertise to estimate how much your home will sell for in a specific time period. The price your home will sell for in 30 days may be different than the price your home will sell for in 120 days. Because real estate agents don’t follow the rules appraisers do, there can be variations between CMAs and appraisals on the same home.

3. An appraisal is a snapshot

Home prices shift, and appraised values will shift with those market changes. Your home may be appraised at $150,000 today, but in two months when you refinance or list it for sale, the appraised value could be lower or higher depending on how your market has performed.

4. Appraisals don’t factor in your personal issues

You may have a reason you must sell immediately, such as a job loss or transfer, which can affect the amount of money you’ll accept to complete the transaction in your time frame. An appraisal doesn’t consider those personal factors.

5. You can ask for a second opinion

If your home appraisal comes back at a value you believe is too low, you can request that a second appraisal be performed by a different appraiser. You, or potential buyers, if they’ve requested the appraisal, will have to pay for the second appraisal. But it may be worth it to keep the sale from collapsing from a faulty appraisal. On the other hand, the appraisal may be accurate, and it may be a sign that you need to adjust your pricing or the size of the loan you’re refinancing.

More from HouseLogic

How to use an appraisal to eliminate private mortgage insurance

Understanding the assessed value of your home for tax purposes

Understanding the amount at which to insure your home

Other web resources

More information on appraisals

How to improve the appraised value of your home

G.M. Filisko is an attorney and award-winning writer who’s had more than 10 appraisals performed on her properties in the past 20 years. A frequent contributor to many national publications including Bankrate.com, REALTOR® Magazine, and the American Bar Association Journal, she specializes in real estate, business, personal finance, and legal topics.

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A recent article on the website GreenBuildingAdvisor.com points out an unexpected consequence of our economic times.  It talks about their findings that many people applying for a construction loan or mortgage on a re-sale home like the idea of having substantial investment in “green” features that will save them money on utilities and scratch their itch to do something good for the environment.  Trouble is, when the lender sends their appraiser to determine a value for the property, the appraiser doesn’t note any extra value in those energy conservation features.  This often means that the buyer can’t get a loan that will allow them to buy the home they want.  On the surface of it, you might wonder why, since the buyer’s expenses will be lower, and thus help them make the higher payment for the larger loan.  The problem is that appraisers work on the basis of comparable properties that have sold recently and are similar to the property in question.  With a slower market, there are fewer sales, which make finding “comps” more difficult in any case, and when you add a unique quality like high energy efficiency features, there are even fewer of them.  Lenders are much more conservative now, too, so they don’t want to take a chance on a mortgage going bad, then find there’s no one out there who’ll buy the house for anywhere near it’s value based on dollars invested vs comps.

Our Multiple Listing Service now has a description field for properties that allows the agent to note a variety of energy efficiency certifications.  However looking today, there were only 37 residential properties on the market in Iredell County that showed one of those certifications.  For comparison, from January to end of August this year in Iredell County, 36 properties out of a total of 968 sold had some type of green certification.  That makes it tough on the appraisers.

So, if you’re thinking of building or buying a home that will cost substantially more than the average home because of investment in energy efficiency, keep this situation in mind.  The article says sometimes you can get local lenders to recognize the value in energy-efficient investment, but it would be best to have that conversation early in the process.

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I had a conversation with an appraiser today about the value of a pricing adjustment I needed to make while helping a client set a listing price.  We real estate agents work with real estate appraisers to get general ideas of how they value things like brick versus vinyl siding, additional square feet of space, pools, outbuildings, and various other things that we come across in working with clients.  We use this information to make adjustments when recommending listing and offer prices.  It’s important for us to be on the same page with appraisers since once we have a contract on a property that requires a mortgage, the lender will hire one of these appraisers to help the lender decide if they agree on the price.  It’s only logical since in most cases, the lender will actually own the largest share of the property for quite a while.  If the appraiser and lender think the buyer has agreed to pay too much for the property, then the lender will not agree to the loan.  That makes everybody sad!  So, there’s no point in pricing a property too high in the first place since foolish cash buyers would be the only ones who can buy it at a too-high price.

Unfortunately, we don’t see many foolish cash buyers running around loose these days. 

My appraiser friend volunteered a comment about something agents have been seeing.  That is that the lenders are telling the appraisers to be very conservative in their valuations.  This can have a significant effect on the number of contracts that don’t go to close because the buyer can’t get the loan at the agreed price.  So, sellers should keep this in mind when pricing property and negotiating offers.  Like I said, a contract that doesn’t go to close because the loan didn’t happen makes everyone sad!

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Talking recently to Andrea Kindley of Starkey Mortgage (704.902.6371)about the slowdowns in loan processing due to the Home Valuation Code of Conduct that went into place on May 1, 2009, she said that some loans require the lender to go through a third party, called an Appraisal Management Company, to select an appraiser, and others do not.  “We lenders are required to use the HVCC Appraisal Desk on Conventional Loans but can still use FHA and VA Appraisers for Govt Loans, and we can also choose our own Appraisers on all Jumbo Loans,” she said.  The Home Valuation Code of Conduct was put into place to ensure that for covered loans, the appraiser will be totally objective in placing a value on the home.  HERE is a link to the Freddie Mac site that describes the HVCC.

In the meantime, due to continued complaints from REALTORS and others about the effect the HVCC has on getting our business done, the National Association of Realtors on July 23 issued this statement: 

“NAR and our 1.2 million members are pleased that the Federal Housing Finance Agency has instructed Fannie Mae and Freddie Mac to take action to clarify confusion over the new Home Valuation Code of Conduct for home appraisers implemented this past May.

“Our members were experiencing delayed and lost sales because of poor appraisals conducted often by inexperienced appraisers who were not familiar with the area. The ramifications were so great to our members and to the housing industry that I personally met with the New York Attorney General’s office and with the head of the FHFA to share our concerns.

“In those meetings I shared an NAR survey that found 76 percent of our members, representing both buyers and sellers, had experienced an increase in appraisal time since the new HVCC rules were enacted. Similarly, 71 percent of Realtors® noted an increase in the use of appraisers who were not from the local area. These factors often adversely affected the sale or the sales process, which occasionally resulted in the loss of a sale or a homeowner’s inability to refinance into today’s lower rates. I expressed our serious concern in the meetings.

“We took this information, and our concerns, to those organizations responsible for the changes and we are pleased that they listened. Today Fannie Mae and Freddie Mac issued clear guidance on two very important points that we raised in our meetings. First, the guidance states that lenders should use appraisers who have clear experience in the geographic area. Second, it clarifies that appraisers are not prohibited from talking to real estate agents.

“NAR has asked Congress and the FHFA to immediately implement an 18-month moratorium on the new HVCC rules to further address unintended consequences of this new rule. We will continue to push for this, but are pleased that this first step was taken today.”

Stay tuned to see if we can get things moving along a bit better.

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I was talking to a Realtor friend of mine the other day about what she referred to as “the closing from Hell”  that she recently survived.  Of course, from a Realtor’s standpoint, any closing is a good closing, especially now that the market is slow.  Still, I asked her what made the closing so bad.  She said that things were going along well, and the lender for the new mortgage had said that the appraisal was fine for the loan, and all was set for a successful closing.  Then, a day before the closing, the company that was to provide the PMI (Private Mortgage Insurance required if the loan is for more than 80% of the cost of the home) decided that they wanted to have their own appraisal done based on concerns about the specific market activity in the neighborhood.  Needless to say, the closing was delayed, and the buyer and seller both were stressed by this.  My friend, the agent, had never heard of it, and neither had I.  I asked a couple of experienced lender reps I happened to be talking to later if they’d seen this happen, and their weary response was that they’ve come to expect most anything from lenders lately.

I guess the lesson here is that since mortgage lending had gone way toward too loose in their underwriting requirements, it is reasonable to expect that the reaction will be too far in the other direction for awhile.  We’ll eventually come back toward a middle ground, but it will be some time before we get there.  In the meantime, home selling and mortgage lending will have to have some frustrating closings like my friend’s closing from hell.

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