Appraisal Scoop

Home Sellers Sweeten Deals

To attract buyers, 75% of builders are now offering some kind of incentive, up from 50% last year, according to NAHB. “These builder-developers understand the solution to the slowdown to the market is to quickly liquidate their inventory,” says Ron Peltier, CEO of HomeServices of America.

Builders prefer free upgrades over cutting prices, which can hurt resale values for their customers who bought in the same communities, and they are offering everything from free swimming pools to granite kitchen counters to vacations.

Promotions are the highest they have been in seven years. In Las Vegas, builders are offering commissions to buyers’ agents far above the typical 3%. And home owners are finding that they have to follow suit, offering commissions of 4% and even 5%.

A couple in Woodbridge, Va. is trying to move their home, which has been listed since March for $449,000, by sprucing up the interior and landscaping, shaving $10,000 off the sales price and parking a 2006 Corolla in the driveway that is included in the deal.

Click here for the full story: USATODAY.com - Home sellers sweeten deals.

Cheated Out of House and Home - Don't let these scams happen to you!

The July 2006 issue of Reader's Digest has a great article on mortgage fraud [ Cheated Out of House and Home - by Max Alexander ]

The term mortgage fraud encompasses a grab bag of cons and tricks, perpetrated on victims ranging from average homeowners to novice real estate investors to savvy bankers and the banks they represent. It is, according to FBI Special Agent Ronda Heilig, "one of the fastest-growing white-collar crimes in the United States."   

Scams Made Easy - Mortgage fraud has been around as long as home loans, but recent trends have made it easier -- and far more lucrative -- to game the system. Here's what's driving the crime spree:

• Money. Inflated housing prices are luring the bad guys.
• Technological advances. Inexpensive scanners and color printers make forgery and identity theft a cinch.
• A depersonalized application process. Time was when mortgages were approved by a local bank officer who met with homeowners in person, applying common sense and professional judgment to loan decisions. Crooks stood out like a purple house. Today, lending companies approve loans using computer systems; as long as the paperwork seems in order, it's hard to notice the bad apples.
• Inundated loan officers. Mortgage applications have surged in recent years, forcing lending institutions to hire hordes of new loan officers to handle the workload. Consumer advocates charge that some lenders have cut corners on due diligence to hasten approvals.

How does it work? - In a typical scenario, a scammer -- let's call him Joe --

1. assumes a false or stolen identity to buy a $100,000 property. He puts 20 percent down and assumes an $80,000 mortgage.
2. Joe then forges documents to make it look as though he's taken out a building loan for $50,000 to make renovations.
3. Next, his appraiser, also a crook, values the property at $200,000, pointing to "comparable" sales in a nicer neighborhood just up the road.
4. Now Joe can use the home as collateral for a $150,000 consolidation loan; he pays off the original $80,000 mortgage, keeps the remaining $70,000 and skips town -- defaulting on the loan and abandoning the house.

For the complete July 2006 Reader's Digest article, click here: [ Cheated Out of House and Home - by Max Alexander ]

Identity Theft, Forgery & Other "Altered" States

Liability Insurance Administrators, along with their national real estate appraiser E&O claims counsel, analyzes appraiser claim files to identify litigation trends and effective defenses. Their findings are published in periodic Claim Alert bulletins. 

In an earlier blog post on Appraisal Scoop we covered several of the scenerios that appraisers could find themselves involved in that could lead to the theft of their identity.

The Identity Theft, Forgery & Other "Altered" States. Claim Alert looks at this topic from the viewpoint of an Errors & Omissions insurer and provides some tips on how to stay out of trouble and what to do if you GET into trouble!

Here are a few highlights:

• The majority of identity theft claims reported to us arise from instances of forgery committed by someone the appraiser knows – usually a current or former employee.
• Unless required by your state`s licensing regulations, do not display your license number on websites, business cards, stationery, etc.
• Claims against appraisers based on altered appraisals are often the most difficult to defend. The appraiser has to show that the report in the hands of the claimant is not the same work product that left his or her office.
• Besides guarding your license number, appraisers must be extremely protective of their digital signature. The signature must be password protected and should never be shared, no matter what the urgency.
• If you are obligated to give someone else access to your signature, you should have a written agreement which outlines the situations where they may use your signature and those situations where they may change your original work product.
• Consider being consistent in the way in which you prepare all of your appraisals. Some appraisers have begun to use a particular phrase in every report they prepare.

What to do when you discover you are a victim of identity theft

If you suspect you may be a victim of identity theft, take it seriously.

• Investigate suspicious calls and do not get discouraged if your messages are not returned or promised documents are never sent.
• Identity theft and forgery are criminal offenses; report incidents to local law enforcement. If you are sued months or years later you will have a police report to submit as part of your defense.
• If you know for a fact that another appraiser has signed your name to an appraisal report without your permission, report him to the appropriate real estate appraiser regulatory board.
• Contact your clients or at least the lender whose name appears on the forged appraisal and advise them that someone may be signing your name to appraisals and discuss a simple way for them to confirm that you prepared a report they receive; confirm these conversations in writing.

For the complete Liability Insurance Administrator's Claim Alert click here:Link: Liability Insurance Administrators.

'Flippers’ face 18 counts for scheme gone awry - Philadelphia FBI

Ten individuals on the East Coast were indicted on 18 counts in a mortgage fraud and identity fraud scheme allegedly involving 180 properties in Philadelphia, the majority of which will fall into foreclosure.

The 18-count indictment charging 10 individuals in a massive mortgage fraud and identity fraud scheme. The fraud involved nearly 180 properties in Philadelphia, the vast majority of which will fall into foreclosure. The government and private mortgage lenders are at risk of losing over $11,000,000 because of the fraud.

Self-described real estate investor, Mahn Huu Doan, a/k/a “Bruce Doan,” hit on a scheme to try to make money. He and his associates would purchase houses using false or borrowed identities. Doan managed to buy these houses with government insured loans.

With the help of Trung Tam Dang, Doan made up false paper work – including false bank records, false W-2 forms, and false pay stubs – which he used to apply for these mortgages. Most of the mortgages came from a company called Encore Mortgage Services, Inc., which was owned by Vincent Sirolli.

Participating in and profiting from the fraud, Sirolli and his employees – Dana Siciliano, a loan officer; June Kodiak, a loan originator; and Keith Lyon, the company’s Chief Operating Officer – processed the applications and got Doan the money he needed.

The scheme worked, in part, because Ciriaco Gatta, a/k/a “Jack Gatta,” an appraiser, fraudulently inflated the appraisals on the houses. Those fraudulent appraisals allowed Doan, Sirolli, and the others to wring excess profits from the deals, profits the schemers used to keep the fraud going and to line their own pockets.

At the closings on the deals, settlement agents Mary Diantonio and Anthony Giampietro prepared paperwork that falsely described the flow of money in the deals, thereby hiding the fraud from mortgage lenders and the government. Zu-Yun Kim, a/k/a “Andy Kim,” an associate of Doan’s, often posed as a buyer or seller at the closings, signing paper work using a false identity.

The defendants planned to hold on to the houses they purchased for a short time, and then re-sell or “flip” them for a profit. They were unable. Still, they had to pay the mortgages on the houses. They failed. As a result, nearly all of the houses will go into foreclosure.

“Foreclosures affect everyone in Philadelphia,” Meehan stated. “A recent study by The Reinvestment Fund estimates that, for every foreclosure within a block of your house and within a year, your house will lose 1% of its value.” Meehan went on, “You can therefore imagine the impact that 180 foreclosures will have on our neighborhoods. If we are to keep our neighbor­hoods intact, we must stop the kind of fraud that happened here.”

Link: Federal Bureau of Investigation - Philadelphia Field Division - Department of Justice - Press Release - July 26, 2006.

Many Homes Are on the Market and Sales Numbers Are Declining

The slowdown in housing took a measurable bite out of the economy this past quarter, helping bring down growth from 5.6% to a more modest 2.5%. The slowdown is perhaps the clearest sign yet that the Fed's two-year campaign to tap the brakes on the economy by raising rates is working.

"Housing is going from being far and away the most important contributor to growth to being a measurable drag, and it's happening gracefully so far," said the chief economist of Moody's Economy.com.

Meanwhile, "Off The Charts" gave the numbers on the housing downturn, and they aren't pretty. Sales of single-family homes are down 4.4%, the biggest dip in over a decade, while the number of homes on the market rose 33% -- the largest hike on record for the National Association of Realtors. (Sunday.)

Link: Many Homes Are on the Market and Sales Numbers Are Declining - New York Times.

Mortgage Fraud "Universal Truths" - Part 3 - Identity Fraud

In my recent blog post - Mortgage Fraud - "Universal Truths" - Part 1 -  I listed Brad Geary's, “Universal Truths of Mortgage Fraud”. According to Mr. Geary "Virtually all mortgage fraud combines at least two of these "Universal Truths" of mortgage fraud.

• Appraiser Fraud
• SSN / Identity Fraud
• Fraudulent Credit Reports / Letters of Explanation
• Fraudulent Ernest Money & Closing Costs
• Fraudulent Verification of Employment
• Fraudulent Verification of Bank Statement (Deposits)
• Fraudulent Verification of Landord

In Mortgage Fraud "Universal Truths" - Part 2 I examined some of the issues with the first of these items - Appraiser Fraud.

In this post we'll take a look at the next item - Identify Fraud. According to a recent NAR article on Identity Theft (click here) "Current estimates by the Federal Trade Commission indicate that there may be as many as 10 million victims of identity theft each year." "Studies estimate that victims of identity theft spend $5 billion to undo its harm, while businesses lose nearly $50 billion in revenue annually. The FTC has received thousands of real estate-related identity theft complaints."

"Many consumers first learn they are victims of identity theft when they are in the process of renting or buying a home, derailing their real estate dreams while they work to rebuild their good name and destroyed credit. Identity thieves may also rent or purchase a home fraudulently. Clearly, identity theft is an important issue impacting both home buyers and real estate professionals across the nation."

Appraiser identity theft usually develops under three main scenarios :

1. First, is the appraiser-trainee who decides to forge their mentor’s name and license number to reports without their mentor’s knowledge or permission.
2. Second, there are unlicensed appraisers (trainees) who go phishing for license numbers and state licenses of certified appraisers.
3. The third and most disturbing trend involves persons who never were licensed appraisers and prepare bogus reports.Some steps that appraisers can take to prevent identity theft can be found here The National Association of Realtors is working with the FTC on a new nationwide campaign to educate consumers on how to minimize risk of identity theft and quickly fight back if they become a victim: AvoID Theft: Deter, Detect, Defend . Click here: http://tinyurl.com/eg9qt

• Deter Identity Theft : Consumers can deter identity thieves by safeguarding their personal information. Read more >
• Detect Identity Theft: Consumers can detect suspicious activity by routinely monitoring their financial accounts and billing statements. Many consumers learn that their identity has been stolen after the damage has been done. The faster consumers detect the theft, the more they can limit the damage. Read more >
• Defend Against Identity Theft: Consumers should defend against identity theft as soon as they suspect a problem. It’s important to act quickly to minimize the damage. Read more >

Mortgage Fraud "Universal Truths" - Part 2 - Appraiser Fraud

In my recent blog post - Mortgage Fraud - "Universal Truths" - Part 1 - I listed Brad Geary's, Assistant Special Agent in Charge from HUD - Chicago, OIG Universal Truths of Mortgage Fraud listed below. According to Mr. Geary "Virtually all mortgage fraud combines at least two of these items."

• Appraiser Fraud
• SSN / Identity Fraud
• Credit Reports / Letters of Explanation
• Ernest Money & Closing Costs
• Verification of Employment
• Verification of Bank Statement (Deposits)
• Verification of LandordIn a recent blog post

Today's Realty Times article "Appraisals Part of All Fraud Loans" by Lew Sichelman takes the "Universal Truth" statement above a step further and says . . .:

"A faulty or even fake appraisal is said to be at the basis of every fraudulent mortgage transaction. But not every appraiser is at fault, or at least willingly so."

The article points out some of the ways an appraiser can "fudge a valuation":

• appraisers can ignore the best comparables,
• appraisers can use properties in better neighborhoods as comps
• appraisers can mis-describe a property.
• appraisers can fail to mention physical problems.

For the complete Realty Times article : Published: June 7, 2006 - Click here.

The article also points out that appraisers aren't the only ones who commit such flagrant fouls.

Loan brokers have been known to

• alter values by changing the values (adjustments) of each comparable
• delete noted physical issues or other undesirable influencesin the appraisal
• or even forging their own appraisal reports.

Make fraud cost, not pay - A Countrywide spoksman was quoted as suggesting the installation of "an independent hotline so appraisers can report pressure and keeping an internal "Do Not Use" list of suspected bad actors."

"Emblematic of the scope of the mortgage fraud problem throughout the country is what's going on in Illinois, where three out of ten appraisals are found to be forged, according to Robert Gorman, an East Hazel Crest, Ill., appraiser. "That's a significant number," he told the meeting. "And that's only the ones we know of. Who knows what we don't know?"

Mortgage Fraud - "Universal Truths" - Part 1

I attended the Illinois Coalition of Appraisal Professionals (ICAP) sponsored 2006 Illinois Appraisers Update Seminar on 6/1/2006. Representatives from Fannie Mae, HUD, and the IL Appraisal Division of the Dept. of Professional Requlation spoke on a variety of topics including:

• Common Appraisal Errors
• Mortgage and Appraisal Fraud
• Appraisal Forgery
• Identity Theft

Brad Geary, Assistant Special Agent in Charge from HUD - Chicago, OIG - provided some insights from the perspective of a field agent. Mr. Geary, in his self-deprecating fashion, claims that he's only an expert in the "obvious"! He feels that most fraud becomes apparent once a pattern is recognized. To become aware, we have to understand the Universal Truths of Mortgage Fraud listed below:

• Appraiser Fraud
• SSN / Identity Fraud
• Credit Reports / Letters of Explanation
• Ernest Money & Closing Costs
• Verification of Employment
• Verification of Bank Statement (Deposits)
• Verification of Landord

According to Mr. Geary, virtually all mortgage fraud combines at least two of the items above.

An example of this is the case of Wanda Morgan Tyler, 60, of Duluth, Georgia. She was sentenced June 2006 by U.S. District Judge Thrash on charges of mail fraud, relating to a scheme to defraud the Dept. Veterans’ Affairs (“VA”). Tyler was sentenced to 33 months in prison to be followed by 3 years of supervised release, and found liable for approximately $900,000 in criminal restitution.

• In over a dozen cases, Tyler created and submitted to the VA false wage statements, bank records, and other financial documents in the names of the purchasers that she represented, often without the purchasers’ knowledge. She did this to mislead the VA as to the credit-worthiness of the purchasers, thereby ensuring that the transactions would be approved and that Tyler would receive substantial commissions.
• In some cases, Tyler submitted bids under false identities that she created.
• As part of her scheme, Tyler used several aliases and different companies, all to conceal from the VA that Tyler was behind the scheme.

The VA lost over $900,000 as a result. This includes over $180,000 that the VA paid to Tyler in commissions from these fraudulent transactions, as well as over $720,000 in foreclosure losses, as almost all of the purchasers or purported purchasers defaulted on their mortgages.

All of us know that the 3/2005 Fannie Mae appraisal forms (Eff. 11/2005) had significant changes in the amount of information that appraisers need to research and verify. Looking that the list above, it's clear to me that many of the items on the new forms are designed to address the list of "Mortgage Fraud Universal Truths" above

ABO - Appraised By Owner: Tips For Pricing Your Own Home

Professional appraisers sum it up in three words - buyers make value. Ultimately, the value of your home is what a reasonable buyer is willing to pay within a reasonable time.

Setting an asking price for your home requires that you anticipate what most buyers would be willing to pay. This requires a close look at comparable home sales in your area, as well as making an assessment of the state of the real estate market itself. Pricing correctly is fundamental to the successful outcome in the sale of your home.

Market Analysis Homes listed for sale and recent closed sales in your area will usually provide relevant comparable data for pricing your home. Closed sales show market confirmed prices, while listing prices indicate the current trend in pricing. Later, when your home is appraised for the buyer's loan, the appraiser will [predominantly] consider recent closed sales. Asking prices [may] be considered. A sales price that is solidly based on recent sales of similar homes will not have a problem when the price is later reviewed by an appraiser. If your home is superior or inferior to most homes in the neighborhood, or if there are few or no nearby sales, then anticipating the responses of potential buyers will be more difficult. In this case, a trial and error strategy may be necessary. This is a sensitive area and requires a realistic assessment of your home and its market. For example, one very nice home was continually rejected because it had the master bedroom upstairs, and it was located in an area where most buyers were over the age of 45, with older children.

Real Estate Market An important aspect of pricing is an assessment of the state of the real estate market. The market may favor buyers or sellers, or be in balance. An indicator of the quality of the market is the number of months of standing inventory in your market and price range. Consider your market area to be all neighborhoods that offer competing choices for your potential buyer. Here is how to do that:

• Count the number of sales in your market area and price range for the past 12 months.
• Divide the number of sales by 12, to get the number of sales per month (sales rate).
• Count the number of homes on the market now.
• Divide the number of homes on the market by the number of sales per month (sales rate).

This will show you the number of months it will take to clear the current inventory.

Seller's Market Less than 6 months of standing inventory is considered a seller's market. In a seller's market the number of buyers is large in proportion to the number of homes for sale. The demand for homes is greater than the supply. Buyers must compete with each other for the available inventory. There may be multiple offers received shortly after a property goes on the market. Buyers will submit the highest possible price and terms that the market will support. Prices will trend upward. In a climbing market, pricing slightly above recent sales is appropriate.

Buyer's Market More than 8 months of inventory is considered a buyer's market. In a buyer's market the number of buyers is small in proportion to the number of homes for sale. This situation can be created by high interest rates, employment decline and excessive building. A low number of buyers equals a lower price. Sellers must compete with each other for available buyers. Prices trend downward. In a falling market, prices should be set at the lower end of the range, because time works against you. In six months prices may be lower. This may be difficult to do, especially if your home was purchased at a higher price.

Price Per Square Foot Dollars per square foot is often used as tool for comparing homes of varying sizes to determine a list price. When price per square foot is used, it is important to keep in mind that you must make a sliding scale adjustment from larger to smaller homes. In other words, the larger the house, the lower the price per square foot for comparable homes. This is because the core square footage of a home has a higher value than the peripheral area. For example, the price per sq. ft. on a 1,000 sf home will be much higher than a 5,000 sf home, with other things being equal. We usually graph the neighborhood prices per sq. ft. to get a visual picture of the market in the neighborhood, as well to see how much the price per square foot declines from smaller to mid-sized to larger homes.

Should you price high, and hope for an offer? Houses should not be priced over the market. This is not the best way to position your home for several reasons:

• Your home will be shown to the wrong group of buyers, from whom you need an aggressive negotiator - someone who will make a low offer.
• You will inadvertently help to sell the competition. Your high price will convince buyers that another home is a good value.
• Your days on the market is evident to buyers, and is a subtle but important factor in their decisions. Your best leverage occurs during the early marketing period.

How will you know if the price is correct? The best affirmation of correct pricing is second looks from buyers. This indicates that your home appeals to buyers in your price range. There may be a few nibbles before a buyer comes forward who is ready to act. It helps to get feedback from Realtors and potential buyers. Keep in mind that they will often be reluctant to say negative things. The summary of feedback is more important than what they say. Are you getting nice rejections or are you getting second looks?

How will you know if the price is incorrect? You may have steady showings, but lukewarm responses. This indicates that are buyers, but they have other choices with more competitive prices. Or, you may have very few showings. In this case, the buyer pool for your area, or for the style or condition of your home is small. This will require a strategy of more competitive pricing and a longer marketing time. Remember that a small buyer pool, for any reason, is a "buyer's market" and requires more aggressive pricing.

How long should you market a home at a given price? There is no uniform time frame for marketing at set price. I think about 8-10 showings is a reasonable number for feedback regarding the price. This usually corresponds to about 2 - 6 weeks for an average home in a balanced market. About 30 days marketing time for a given price could be good a rule of thumb. However, this may be too short for your home if you have an unusual or very high end home for which there is a small market. Or, 30 days may be too long for your home if you need to move fast.

What happens if your home does not sell in a reasonable time? If your home has been on the market for months with no offers, you have been given a clear message that the price is set too high. This is particularly true if showings have slowed down and there are few prospects coming to see it. What you do at this point depends on whether you really need to sell. If you're not really motivated to move soon, you can always wait for the market to catch up to the price you want. It would be best to take your home off the market and wait for better conditions. Buyers become suspicious of a house that's been for sale for a long time. If you need to sell, consider a schedule for dropping your price until it reaches a level that attracts buyers. There's no reason to say, We simply can't sell our house. Houses will sell if the price is right.

How can you get top dollar for your home? Although buyers will not pay more than market value, they will pay a premium for homes that are in excellent condition and well presented. With good condition and presentation, you can reach the high end of the price range achievable for your house. We will work with you to "create value" before your house goes on the market. When it goes on the market, we will make sure that your home is show beautifully to a wide audience.

Article Source: The Sideroad Blog Author: Roselind Hejl, CRS, is a Realtor with Coldwell Banker United in Austin, Texas. Her website: Roselind Hejl's Austin Texas Real Estate Guide offers a wealth of knowledge about the City of Austin, homes for sale, real estate market trends and buying and selling tips.

Price Your Home Right To Help Speed a Sale

The Wall Street Journal's Real Estate Journal published a somewhat simplistic but positive article [ Price Your Home RightTo Help Speed a Sale ] on the importance of getting one's home appraised by a professional appraiser prior to putting it on the market . . . .

With home sales slumping and inventories on the rise, experts say getting your home sold depends a lot on pricing it correctly. One tool sellers can fall back on when the market is shifting is a home appraisal.

You can have an appraisal done before you contact a broker or if you're just curious what your home would be worth. They cost, on average, from $250 to $400 for a single-family home, slightly more for multiple-family dwellings.

An appraiser will physically inspect your house for shoddy workmanship or needed repairs, measure its dimensions and takes notes on the floor plan, utilities and other factors that affect pricing. He or she should also look at three or four "comps" -- comparable homes in your neighborhood that have sold within the past six months -- and analyze how homes currently on the market are faring, says William J. Doka, owner and president of Erickson Appraisal Company in Fair Lawn, NJ.

That's a more comprehensive assessment of market conditions than the free comparative market analysis, or CMA, that a broker will give you, says Doka. He cautions that brokers want to earn your listing and can be tempted to paint an overly rosy picture of how your home will sell while appraisers, although sometimes subject to similar pressure from mortgage brokers, strive to be objective.

The results of the appraisal will be presented to you in a report that can run from five pages, for a simple summary that suits most lenders and homeowners, to 50 pages or more for a "narrative" that banks might demand before financing the purchase of a multimillion-dollar home. Homes are typically listed for sale at a price several percent above the appraised value.

Predictably, most of Doka's business comes from lenders, who typically require an outside appraisal before making a loan. But homeowners are also hiring him before contacting a broker. He charges from $350 to $400 to appraise a single-family home. Some things to remember when looking for an appraiser:

• Make sure the appraiser is licensed by your state.
• Ask how long the business has been around,
• what professional education the appraiser has had and
• what organizations (snip) the appraiser belongs to.

Other related articles in Appraisal News for Real Estate Professionals:

ABO - Appraised By Owner: Tips For Pricing Your Own Home

Tips For Selling Your Home - FSBO

How Much Is My House Worth?