Appraisal Scoop

Appraisal Institute: How Landscaping Can Impact Home Values

Source: Posted By susanne On May 19, 2013 @ 1:06 PM In Business Outlook,Real Estate Information,Real Estate News,Real Estate Trends,Today's Top Story

 

The Appraisal Institute recently advised homeowners to properly maintain their landscaping, which can significantly affect property values.

“If a landscaping change is positive, it can often enhance price and reduce a home’s time on the market,” says Appraisal Institute President Richard L. Borges II, MAI, SRA. “But if the change is negative, it can lower the price and lengthen the time a home remains for sale.”

Curb appeal is essential when selling a home, Borges says, noting it’s the homeowner’s opportunity to make a great first impression. A home with lackluster landscaping or an exterior in desperate need of a fresh coat of paint will likely be unappealing to prospective buyers and ultimately could affect the home’s potential resale value, he said.

Landscaping is typically associated with lawns, trees, bushes and flowers. But other items also can be considered part of landscaping, such as fire pits, decks, patios, waterfalls, swimming pools and outdoor lighting … all of which could add to the value of the home.

Borges says homeowners should ask themselves the following questions when it comes to the quality of their home’s green space:

• Is the landscaping attractive enough to make the prospective buyer walk through the front door? Keep the design contemporary and in line with comparable properties in the area.

• Could the landscaping provide cost savings? Landscaping that requires little or no water to maintain could be desirable depending on the geographic area.

• Is the landscaping energy-efficient for the home overall? For example, it’s a good idea to plant trees in a place where they block the sun in locations with year-round hot climates.

• are the trees planted at a safe distance from the home and are they healthy and well maintained? Weak, old or damaged trees planted too close to a home or building could pose dangers to the home’s structure and will need to be removed. Consumers should also be sure that mulching or beds don’t get too close to wood around foundations to avoid wood-destroying organisms.

For more information, visit www.appraisalinstitute.org

Click here for the COMPLETE ARTICLE - How Landscaping Can Impact Home Values

The Reality of Price Per Square Foot

GUEST AUTHOR: Micheal W. Armentrout, VP AM Appraisals, Inc.  Mike has been involved in full time real estate valuation since early 1992 and has experience in numerous Central Ohio markets.

As appraisers, we talk to realtors on a routine basis. Whether it’s to set up an appointment, verifying data or even just shooting the breeze, their insight can be invaluable as we analyze a property and its
market. There are however vastly different concepts between how realtors market properties and how appraisers observe market behavior. One such example is the use of price per square foot.

As an equation, price per square foot ($/SF) is simply the asking or selling price divided by the gross living area. It has become common lingo among many realtors but is it a reliable indicator of market reaction?

Now as an over-simplified reference point, we may not object to its use however it has been a growing rationale for agents, buyers, sellers and homeowners to establish value.  I must admit when I hear the price per square foot argument as a means to value, my inner-appraiser starts to rev up into high gear. Shakes, convulsions and a flushed face are quickly tempered as I remember that we must educate if we
intend to explain the weaknesses of the price per square foot methodology.

The primary fault with $/SF is that it encompasses every feature of the property and not just gross living area. Only calculating the relationship between size and sales price ignores all the considerations a
potential buyer may make. If we were comparing two properties that were identical with the exception of size, then it is rational that the larger of the two may sell for more and thus the $/SF could be an accurate indicator. On the other hand, if we had two identical homes in terms of size but one had a
larger wooded lot and sold for more, the equation would not be as reliable. As properties have more dissimilar amenities and features, the less reliable it becomes as a function of indicating value. This is simply because other factors are not directly related to gross living area.

The same issue exists for price per acre in residential (non-agricultural) sites. While one acre may sell for a specified amount, that does not necessarily mean two acres will sell for twice what the one acre parcel did. There may be a premium for the excess or residual land but not based on a simple multiplier
factor.     

That being said, price per square foot can be a tangible factor in considering cost. Builders and index providers such as Marshall & Swift do utilize $/SF for construction estimating but it is not a strongly supported methodology for market valuation. The grid technique that is commonly utilized in most appraisals (Fannie Mae 1004) as part of the Sales Comparison Approach allows individual analysis of key amenities for the subject and comparable properties. Market derived adjustments can then be made to comparables for superior or inferior features.  The Sale Price/Gross Living Area field that is a part of the grid section is intended to be a general indication of the overall similarity of the subject to the selected comparables and not a basis for value conclusion.

A few years back, I had a call from a buyer who questioned my method for obtaining the gross living area (GLA) of a property he was in the process of purchasing. After explaining my physical measurements, Fannie Mae Seller Guidelines and ANSI standard Z765, he eventually backed out of the contract because the appraisal reflected a smaller GLA than it was marketed as. This seemed to go against all that we typically assume. He was in effect making his decision largely based on perceived GLA and not based on the features and amenities that the property offered. While he was an anomaly, it is true that buyers have varied motivations for their purchasing decisions.

If price per square foot was truly a common buyer consideration, then it is fair to expect that purchase offers would be made in these terms. Rather than a lump sum price, buyers would submit offers based on the square footage of the property and not a flat price that reflects all features.

If properties become widely marketed on the $/SF premise, is it possible that buyer behavior could evolve? It is unlikely that a simplistic math equation will change the diverse motivations of buyers but it could skew initial listing prices and then filter down through purchase offers. In any case, all parties involved in the real estate transaction process should have a basic understanding of motivation and reaction factors and not implement an overly simplistic formula for price determination.       

AUTHOR: Micheal W. Armentrout, VP AM Appraisals, Inc.  Mike has been involved in full time real estate valuation since early 1992 and has experience in numerous Central Ohio markets. He served as a staff appraiser at several local firms before forming AM Appraisals, Inc. with business partner J.M. Massey.

e-mail:[email protected] web address: www.amappraisals.com

Related articles

A Flawed Plan: Squaring up to the obsession with price per square foot

LIA "Claim Alert" Newsletter: Revisiting The Fannie Mae/Freddie Mac 2005 URAR Form Ambiguities and Liabilities

Excerpt from LIA "Claim Alert" Newsletter:

It has been eight years since the URAR form was revised. From 2005 to mid-2008, the real estate market experienced a boom and a bust the likes of which we have never seen before, and we are finally seeing a slow recovery. Also during this period, the economic recession and poor lending practices lead to new regulations in both the appraisal and banking industries. Based on the new regulations, Fannie Mae/Freddie Mac mandated appraisers to add more information to the URAR form.

As of March 2009, the Market Conditions Addendum to the Appraisal Report required appraisers to research and analyze the general market conditions. In September 2011, Fannie Mae mandated that appraisers employ the Uniform Appraisal Dataset (UAD) as part of the URAR form. The goal was to standardize information supplied by the appraisers on the forms, especially as to descriptions of
quality and condition of the subject property and comparable sales. Another directive was that whenever adjustments are made to an appraisal for the year the dwelling was built (actual age) vs. the effective age, the appraiser must provide an explanation for the adjustments. Finally, Fannie Mae also dictated
that the proximity of comparable sales to the subject must be stated in miles and include the "applicable directional indicator". Many of these changes were a result of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act).

These dizzying changes make the appraisal process more difficult than ever. Those appraisers who fail to keep up with these new regulations risk potential liability. We asked our national claims counsel to highlight a few areas of concern for appraisers.

Appraisal Dataset (UAD)

The UAD is a significant change on the URAR form that could create more liability for appraisers. Instead of vaguely stating the property is in "average" condition, appraisers must select the UAD code which reflects the condition of the property as defined by Fannie Mae. By having to select a unique
code with a specific definition, any adjustments made for the selection of a different code for the comparable could be a minefield mainly because of the preciseness of the code.

Let's say, for example, the appraiser decides that the subject property's condition falls under C2, i.e., the improvements feature no deferred maintenance, little or no physical depreciation, and require no repairs. However, the appraiser then notes that Comp 1 condition is C3, i.e., the improvements are well maintained and feature limited physical depreciation due to normal wear and tear. Let's also say the appraiser makes a $50,000 adjustment to reflect these differences. The report should explain this adjustment and the work file should provide support for this adjustment...perhaps paired sales, or
other appraisals reflecting similar adjustments of property in that approximate
location.

Adjustments now must be precise and must be fully supported by specific numbers to avoid USPAP violations. If the subject report ends up in a lawsuit, testifying that the $50,000 adjustment between the
subject's C2 condition and Comp 1's C3 condition is based on your "experience" or on vague "market conditions" will likely not be enough to convince a judge or jury. The definition of each UAD code is too precise; your adjustments have to be just as precise and have to be consistent within that neighborhood and for similar housing.

Finally, because of UAD, it is now more important than ever for you to review your report before transmitting it. Be sure that the UAD codes you selected were correct... was that really a water view or did you mistakenly select that code when you meant to say no view? If you selected C2 and your comps are all C3, have you made adjustments that can be supported? Or, did you select the same condition for your subject and your comps to avoid making adjustments?

Reliance issues

Although it was a hard fought battle before the 2005 URAR form was finalized, no one could convince Fannie Mae that Certification #23 was a Pandora's Box. As we suspected, and as was stated in our
claim alert of November 2005, Certification #23 has indeed increased liability for the appraiser. No matter how many times in the appraisal the "intended user and use" is stated, the claimant will argue that the wording in Certification #23 creates a duty to and allows reliance by the borrower. The question then comes down to, "for what purpose may the borrower rely on the appraisal?" We argue that if the court decides Certification #23 takes precedence over the intended use/intended user language then it should be decided that reliance can only be as to value. It is not reasonable to assert that a borrower can rely upon the appraisal for information about the property's condition because that is not the purpose for which the appraisal was prepared. In order to strengthen that argument it is still recommended that the appraiser continue to include language in the report that states...

"...the appraiser is not a home inspector and the appraisal report is not a home inspection. The appraiser only performed a visual observation of accessible areas and the appraisal report cannot be relied upon to disclose conditions and/or defects in the property."

The reliance issue is still complicated because of certain software problems. Some appraisers continue to use software that indicates the appraisal is for "Client/Borrower". If your software still shows this on the top of many of the addenda (photo pages, maps, etc), contact your software dealer and demand they change the program or switch to a software program that does not have that misleading information. Due to this problem many courts have sided with plaintiffs who argue that this language proves the appraisal is prepared for the client/borrower, so the borrower can rely on the report, for any purpose.

Misuse of URAR Forms

Another issue that we often see is some appraisers are still using Fannie Mae/Freddie Mac URAR forms for private party work. The 2005 URAR form is only to be used for federally-related financial transactions. The untouchable boilerplate language set forth in the limiting conditions, assumptions and
certifications refers specifically to "the lender". The appraiser using this form for other purposes such as divorce, tax reductions, estate appraisals, etc., is risking liability for creating a report that is misleading to the reader. This is especially important if your report is submitted to your state licensing board in conjunction with a complaint, and we have seen discipline imposed as a result.

Conclusion

It is the continuing responsibility of every appraiser to keep current as to new developments, including which forms to use in connection with which assignments and how to best convey all necessary information about the property that is being appraised so as to assist the client with whatever decision is
being made. You should check with your software company or your state licensing board for residential forms for non-federally related transactions. Ignorance is not bliss; ignorance leads to missteps, which lead to liability.

Click Here for the complete LIA "Claim Alert Newsletter"

Appraisal Institute’s New Guidance Helps Real Estate Appraisers Analyze Exposure Time

CHICAGO (Feb. 12, 2013) – The Appraisal Institute, the nation’s largest professional association of real estate appraisers, published guidance today to help appraisers understand exposure time and how to incorporate its analysis into an appraisal.

The Appraisal Institute’s “Guide Note 14: Concept of Exposure Time” addresses how appraisers should link exposure time to their value opinion and comply with the Uniform Standards of Professional Appraisal Practice. Exposure time refers to the time a property remains on the market.

The Guide Note states, “An analysis and opinion of Exposure Time is required for appraisals where the definition of value is tied to a reasonable or stipulated exposure time. A discussion of Exposure Time
allows the intended user(s) to put the appraiser’s value opinion into context.  It also serves as the foundation on which appraisers describe market conditions, analyze comparable sales, and reconcile an opinion of value to the actual sale price.”

As defined in The Dictionary of Real Estate, 5th Edition (Appraisal Institute, 2009), exposure time is “the estimated length of time the property interest being appraised would have been offered on the market prior to the hypothetical consummation of a sale at market value on the effective date of the appraisal; a retrospective estimate based on an analysis of past events assuming a competitive and open market.”

According to the Appraisal Institute’s Guide Note, USPAP requires that “when an opinion of reasonable exposure time has been developed in compliance with Standards Rule 1-2(c), the opinion must be stated in the report.”

The Guide Note states that exposure time is not a fixed period and can differ for various types of property and under diverse market conditions. It is a function of price, market conditions and property characteristics, and the basis for an opinion of exposure time should include one or more of the following:

• statistical information about days on market for similar types of property;
• information gathered through sales verification;
• interviews of market participants;
• market information from data collection services.

 

Click here to download the Appraisal Institute’s seven-page “Guide Note 14: Concept of Exposure Time.”

Subscribe to the Appraisal Institute’s RSS feed  to stay connected with the latest news from the Appraisal Institute, and follow us on Facebook, Twitter, LinkedIn, YouTube and our blog, Opinions of
Value.

The Appraisal Institute is a global professional association of real estate appraisers, with nearly 23,000
professionals in almost 60 countries throughout the world. Its mission is to advance professionalism and ethics, global standards, methodologies, and practices through the professional development of property economics worldwide. Organized in 1932, the Appraisal Institute advocates equal opportunity and nondiscrimination in the appraisal profession and conducts its activities in accordance with applicable federal, state and local laws. Individuals of the Appraisal Institute benefit from an array of professional education and advocacy programs, and may hold the prestigious MAI, SRPA and SRA designations.
Learn more at www.appraisalinstitute.org.

Finding Value in a Green Home Appraisal – Lenders & Appraisers – Part I

GUEST BLOG: Roger Normand of http://edgewaterhaus.com has graciously given his permission to re-blog his article on appraising "Green Homes". 

 

If you have read my previous blog entitled “Seeing Red on a Green Appraisal – the Challenge,” you know that the appraisar failed to list or value any of the green/energy efficient aspects of EdgewaterHaus.  Does it matter?

ABSOLUTELY!

Most borrowers include the cost of the green enhancements as part of the overall construction cost.  They then get a loan to cover some or all of the up front construction cost.  If the appraisal doesn’t value the green enhancements, the lender will likely reduce the value of the loan accordingly, particularly if the borrower is already at the maximum loan to value amount.  It’s the “no tickee, no laundry” syndrome.  Without the money to finance the up-front cost of green enhancements, the borrower may be forced to decide among competing priorities.  What to give up: Upgraded kitchen cabinets?  Imported granite countertops?  Back yard deck?  Garage?  Thicker walls for higher R-value insulation?  Triple-pane windows for double-pane?  Geothermal HVAC?  Solar voltaic or solar thermal systems?

That’s a tough call for many people, even for those who want to go green. Green enhancements are often invisible – you can’t see the extra insulation; a window is a window. Yet’s it’s easy to fall in love with very visible upscale kitchen appliances, custom draperies, or the lovely landscaping. These amenities provides an immediate, visceral connection of quality and beauty, while the former is invisible to the casual observer. Some green enhancements like a tighter building envelop or solar systems provide an economic benefit, but the pay back period extends over a period of years. I’m not a sociologist, but I think most Americans prefer immediate vs delayed gratification. So they opt for the lovely imported tile floors, and so what if they spend $100 a month or more on utilities.

I should also clarify shades of “green” here. Good for you if you are going to replace incandescent bulbs with CFL bulbs, or use energy star appliances. Just don’t expect the appraiser to note or value that. These are “typical” upgrades. I am talking about more substantial improvements, like additional wall, ceiling or sub-slab insulation beyond code minimums requirements. And while use of sustainable materials is noble for the environment, I suspect somewhere between few and not many individuals would be willing to pay more for a home that includes sustainable materials. Perhaps more importantly, there is really no way for the appraiser to objectively quantify its marginal market value. So go for sustainable materials; just don’t expect it to be valued in the appraisal.

In my web research I found many articles written about the failure of property appraisers to equitably value green construction, but few suggestions on how to increase your chances of getting an appraisal that equitably values “green,” or how to challenge one that failed to do so.

So here are my suggestions freshly culled from the school of hard knocks.  I wish I knew then what I have now learned through experience and research.

1. Work with a lending institution that sees real value in “green.”  Lenders who value green construction may be just as scarce as green appraisers.   It will likely be an easier case if you will be building or substantially remodeling a home to a nationally recognized LEED, Energy Star, Passive House green standard.  Talk to the lender about whether they will support your green efforts before applying for the loan.  If not, walk!  You want the lender on your side if your wanna-be green appraisal turns you red, like it did with us.  Our lender was extremely supportive, agreeing to discard at no cost to us an appraisal that valued our Passive House/LEED Platinum home as “typical” for energy efficiency.  The bank then agreed to engage another recognized green qualified appraiser.

2. Work with the lender to find an appraiser with green credentials.  This can be tricky on many fronts.  Lenders typically have a list of approved appraisers that they work with, and may be uncomfortable using an unfamiliar appraiser.  Under new federal loan standards, neither you or the loan officer has any say in which of the approved appraisers will be selected.  But you can suggest to the lender individuals from nationally recognized appraisal organizations that have demonstrated green skills.  One such organization is the Appraisal Institute(AI), a global membership association of professional real estate appraisers with more than 24,000 member throughout the world.  AI launched a Green Valuation Program in January 2011 to “educate appraisers on the intricacies of valuing high-performance residential and commercial buildings.”

AI maintains a registry of individuals who have completed courses in residential and/or commercial courses in its Valuation of Sustainable Buildings program.  Find out which appraisers in your region have completed these courses and suggest to the bank that they select one of these individuals.  Fortunately for us, our bank agreed to employ one of the two AI member in our area with green credentials, even though they had never used him before.

3. Make sure the appraiser is properly armed with all the green features in the home.  Don’t let the appraiser guess or assume he/she will realize all the features.  Lead the horse to water and hope he will drink it!  Be sure the architectural drawings fully identify the green features.  Ditto with the list of construction specifications.  The appraiser should have access to all the drawings and specifications, and be suspicious if none are requested.  Provide the appraiser with a summary, brochure, web link or other reference material that explains the green construction standards you plan to meet.  Offer to discuss the green specifics with the appraisers.  Even better is to have the builder or architect discuss the green features with the appraiser.  Be specific, polite, and professional.  And remember that the appraiser’s job is assess the VALUE on the property based on what other individuals are likely to willing to pay.  So emphasize the economic benefits of energy efficient aspects.

4.  Take a deep breath and wait for the appraiser to prepare the appraisal.

My next blog will discuss how the appraiser should recognize the green features of the home, and different approaches on valuing green. 

Finding Value in a Green Appraisal – Tools are out there – Part II

GUEST BLOG: Roger Normand of http://edgewaterhaus.com has graciously given his permission to re-blog his article on appraising "Green Homes". 

Do Energy Upgrades Add Value to Existing Homes?

GUEST AUTHOR: Debra Little was selected to direct this study because of her combined expertise in home performance and residential appraising. She led a team of senior appraisers who were on site in Los Angeles. See Debra at the ACI national conference in Baltimore this March where she’ll be presenting twice on this study

Results of a valuation study of three existing homes located in Los Angeles indicate the energy upgrades in these cases, added 6-9% to their current market value. In query of proof that energy upgrades contribute value, the study determined appraised market values of the before and after upgrade conditions.

The question is how much, in today’s market? Debra Little, a home performance consultant with an appraising background, directed the study, “Most would agree that it’s rational to expect a knowledgeable buyer to perceive added value. A text book scenario is when we have a shopper looking at two houses with prime assets that are similar in location, size, age and amenities, and the only differentiation is that one house has energy upgrades and the other does not. We would expect the house with the upgrades to sell first. The question is, will it earn a premium?”

The challenge for appraisers is in finding direct market evidence, comparables, required to make a strong enough case with a level of support acceptable by underwriters. It’s particularly challenging when valuing upgraded existing homes, which represent the majority of the market focus of the emerging home performance industry. There is more evidence for new energy efficient homes than is discoverable in the existing home sector.

Data affirmation that energy upgrades add value to existing homes may be a long time coming. Along with energy upgraded homes, the numbers of happy home owners continues to climb. How can happy home owners be a problem for valuation affirmation?

Two reasons why evidence is tough to find in the existing home sector:

1- Happy owners of energy upgraded homes don’t often sell. This is a compelling part of the story as we witness market transition. As home performance contractors are out there doing good work, they are creating a segment of occupants who are so comfortable in their homes that now cost less to live in, they are looking to stay, not sell. These homes don’t often turn over. What is the value of a home that is so treasured by its owners, they say they will never sell?

2- The second reason is the need for accurate, accessible, sales data of green homes. By now, many of us have heard the call for “greening the MLS”. More data may actually exist but goes unreported. To get there, training is needed for real estate agents, appraisers and lenders. And, we need to get 800+ MLS systems up to speed, or create another information solution. Is it realistic to hope this will happen any time soon?

When there are no comparables what methods can appraisers use to read the local market? Debra Little continued, “Our mission going into this assignment was to turn every stone in search of evidence. We knew that after we exhausted our typical sources, we would need to dig deeper.”

There are approved methods available to appraisers when challenged with valuing a unique property or a variety of other factors that can make market evidence scarce. Several approaches may be employed, and then reconciled with the others for a resulting range of value. A white paper will be published later this year that will describe the approaches employed in this study.

Energy and non-energy benefits. Energy efficiency, as it reduces operating expenses, produces numbers appraisers can work with. Proof of performance as evidenced by utility records will be one of the foremost considerations. Non-energy benefits such as improved durability and indoor air quality are also important but more difficult to quantify. The control of heat, air and moisture of a house envelope should significantly extend its effective life. Effective life is a question appraisers raise, not only about the house being valued but each comparable researched.

Appraisers may include further support of their conclusions by citing what they term as secondary evidence.

Secondary evidence is in accelerating growth mode. We know that energy efficiency awareness is increasing and home owners are responding by talking with their dollars as they invest in their homes. Incentive programs and home performance contractors are driving the business of energy focused remodeling. Build It Green, California’s premier green certification program surpassed the 10,000 mark in 2011 for number of certified new homes. Shoppers are asking about operating costs. Financing for energy upgrades is a hot topic as the market spurs new opportunities and innovative loan products, some of which require valuation of the home “as improved”.

We see these market shifts, but appraisers must ask how they translate locally.

A look at the effects of upgrades on two of the study’s homes. Family “A” opted for extensive upgrades as summarized: envelope, mechanicals, interior and exterior water fixtures and a 2.5 kWh solar PV system. Attic and crawl space were air sealed and can lights replaced to reduce infiltration. New insulation was installed to crawl space walls and ceiling, and to attic. A new heating/AC/ducts system and variable speed pool pump completed the improvements for a total cost of $44,500 after their $8,000 rebate.

The appraisers were able to obtain 3 months of utility records subsequent to the completion of work which they measured against the contractor’s modeling projections. This house appears to be on track for total annual savings of 73% or more.

This family is enthusiastic about the results. Mr. “A” boasted that their recent bill was $19 as compared to $110 for the same month last year. “My wife and I have discussed the possibility of moving in the future but have concluded that we are not willing to compromise in living without the benefits of energy upgrades we have become accustomed to. If we were to put a number on it, we would definitely be willing to spend 5-10% more for a house with upgrades that are at minimum, equal to or better than what our home now has.”

The second family, with a smaller budget, chose a similar but less extensive scope without solar. Their case is interesting in two ways.

1. The result they’re most excited about is the notably improved indoor air quality. Their sons suffer from asthma. The significant reduction of asthmatic symptoms they experienced immediately after the upgrade work was an unexpected benefit. They are thrilled!

2. The second, and an interesting twist for the appraisers, was the home office over the detached garage with literally loads of electronic equipment. A disaggregation of the electric bill indicated a large plug load. This required the appraisers to differentiate the effects of upgrades to the house as separate from the office, in effort to derive relatively accurate numbers to account for energy savings.

This case underscores the need for appraisers with green expertise to have the skills to analyze utility records and understand how a house uses its energy, as well as the recognition that energy upgrade scopes of work often produce important non-energy benefits, such as healthier indoor air.

These cases are two examples of happy home owners who now have experiential knowledge. Having lived in their upgraded homes for a few months, they now value the improved comfort, indoor air quality, reduced costs and other aesthetics so much, they say they would not want to move. They stated to effect, that if they were shopping today, they would want a house that has, at minimum, similar energy efficient elements and they would spend more to get it.

Knowledgeable buyers. The definition of market value incorporates the concepts that buyers and sellers be willing, able and knowledgeable. Home shoppers who could be defined as “quite knowledgeable” about energy efficiency today are ahead of the curve. They represent a minor percentage of the collective market. A few examples were found where shopper education is occurring with focused intent. The study looked at two businesses that are extraordinarily proactive in informing their buyers; Green Earth Equities in Fresno, CA and Green Canopy Homes in Seattle. Their model is to buy distressed properties, improve with deep energy upgrades and resell with fast turn times. Their effort to educate not only the individual buyers but also their local communities is a key to their success.

Home owners and buyers will drive the market. Real estate professionals with green expertise may be pivotal catalysts as they are on the front lines, working face to face with these decision makers. Agents can help guide to ask important questions about utility costs, longer term operating and maintenance considerations as well as cost and availability of energy. Appraisers are called to define and report the actions of buyers, while they recognize the complexities of new building methodologies, standards, products, terms, trades and sources. Lenders need the knowledge base to understand all these.

Proof of value of energy efficiency upgrades. Until more energy upgraded homes actually sell, the task to find proof as expressed in dollars will be a tough job for valuation analysts. Appraisers will need to look beyond their typical sources to find what evidence they can. It may not be 100% proof, it may not be undoubtedly clear, but they are called to understand the current state of their local market. As more real estate professionals gain green expertise they will be key contributors to the awareness building of home owners as well as the affirmation of their green-informed buying decisions.

A white paper on this study will soon be published and look for Part 2 later this year, the study of four sold energy upgraded homes.

________________

GUEST AUTHOR: Debra Little was selected to direct this study because of her combined expertise in home performance and residential appraising. She led a team of senior appraisers who were on site in Los Angeles. See Debra at the ACI national conference in Baltimore this March where she’ll be presenting twice on this study. Contact Debra Little, [email protected] , 530 320-2107, PO Box 2183, Nevada City, CA 95959

UPDATE 2/15/12: Video - QuickenLoans "Appraisal Advice" - Good? or Bad? Let us know your thoughts!

UPDATE!  A NEW video (with comments from Quicken) has been posted to the bottom of the original post dated 2/12/2012). 

The following is from the QuickenLoans Zing! blog:

"Appraisals seem to be a hot topic as of late, and given the fact that we happen to have a gentleman that loves to talk about appraisals, we figured it would make a good Watch-It Wednesday."

"Dan Friedberg is back with another insightful three minutes of appraisal advice. Take a look at the video to see

• what should be fixed up before an appraiser swings by,
• what appraisers are not necessarily interested in seeing, as well as
• where appraisers get their information."

"This is guaranteed to be the most informative three minutes of your day.

Informative? Maybe . . . but are all tips correct?

Here are a couple of quotes:

"FHA appraisals are much more strict . . . .If you have things like a missing handrail, a crack in the sidwalk, you know uhhhh . . .if the carpet is screwed up, or if there's water damage . . . that's ALWAYS going to need to be fixed on an FHA. They're really nit pickey about stuff."

 

On landscaping that cost $15,000. . . . "While it may [increase value] in terms of a "sale", when it comes to an appraiser that makes no difference. All they're looking at is the square footage of the home, the way that it's built, the amount of rooms that it has, in comparison to homes that have sold in the neighborhood." "So they really don't care about how nice your appliances are, or the nice fixtures that you have, or the paint, or the Man Cave in the basement, and things like that. It's really just square footage and recent sales."

Let us know YOUR thoughts after watching the video!

 

 

             UPDATE!!      UPDATE!!       UPDATE!!

From Eric Mally of QuickenLoans - 2/15/2012:

Hi Brian. The other day, you posted a video from Quicken Loans with less-than-perfect information regarding the appraisal process. That video was shot with one of our bankers, not a certified appraiser.

We have since reshot the video with a certified general appraiser with 25+ years of experience. We would appreciate if you would please post this video as well, seeing that it is more informative and correct.

Land Valuation: Extraction Has No Traction

ARTICLE SOURCE: Vol. 4, Issue 1, January 2012 of the Illinois Appraiser newsletter from the Illinois Department of Financial and Professional Regulation.

“Land values were based upon the extraction method.” Look familiar?

If I had a nickel for every phoned‐in Cost Approach that had this sentence or one like it, I’d be Warren Buffet

The Dictionary of Real Estate Appraisal defines [the Extraction Method] as:

A method of estimating land value in which the depreciated cost of the improvements on the improved property is estimated and deducted from the total sale price to arrive at an estimated sale price for the land; most effective when the improvements contribute little to the total sale price of the property.

The underscored portion says it all. Usually this technique is used in rural settings. Perhaps when appraising some hunting shack on a couple of hundred acres of scrub.

But no, we see it in the middle of suburban Hinsdale, Belleville, Taylorville, and other places where the residence is easily a significant portion of the total value.

By definition, extraction doesn’t really work in cities and suburbs where improvements tend to drive value.

Also, some Cost Approaches are so poorly cobbled together that we seriously doubt the appraiser’s ability to extract anything.

Don’t just toss extraction into a report.

If you cannot demonstrate an ability to depreciate reasonably, then you certainly won’t be able to support an extraction application.

The board strongly suggests that you find a course that teaches a more reliable technique.

ARTICLE SOURCE: Vol. 4, Issue 1, January 2012 of the Illinois Appraiser newsletter from the Illinois Department of Financial and Professional Regulation.

 

APB: Exposure Draft: Adjusting Comparable Sales for Seller Concessions - 10/3/2011

The Appraisal Practices Board (APB) is seeking public comment in response to this exposure draft and based on the comments received, may make revisions to the guidance and issue subsequent exposure drafts. Once the Board believes it has received all relevant comment on this topic, it may vote to adopt the material as official guidance from the APB.

Download Adjusting Comparable Sales for Seller Concessions Exposure Draft Final

The Draft includes comments and detailed examples on:

• Verifying Concessions
• When Does an Appraiser Adjust for Concessions
• Methodology
• Concessions and Non-residential Property (other than 1-4 unit properties)
• Impact and Application of Concessions in the Cost and Income Approach

All interested parties are encouraged to comment in writing to the APB before the deadline of December 2, 2011. Respondents should be assured that each member of the APB will thoroughly read and consider all comments. Comments are also invited at the APB public meeting on December 12, 2011, in Atlanta, Georgia.

Written comments on this exposure draft can be submitted by mail, email and facsimile.

When commenting on various aspects of this exposure draft, it is very helpful to reference the line numbers, fully explain the reasons for concern or support, provide examples or illustrations, and suggest any alternatives or additional issues that the APB should consider.

Mail: Appraisal Practices Board The Appraisal Foundation 1155 15th Street, NW, Suite 1111 Washington, DC 20005

Email: [email protected]  

Facsimile: (202) 347-7727

If you have any questions regarding the attached exposure draft, please contact Staci Steward, Practices Administrator at The Appraisal Foundation, via e-mail at [email protected]  or by calling (202) 624-3052.

 

NAR Calls for Implementation of Independent Valuation Protection Institute (IVPI)

On April 6, 2010, the National Association of REALTORS (NAR)^® President Vicki Cox Golder sent a letter to Federal Housing Finance Agency (FHFA) Interim Director Edward J. DeMarco asking that the government sponsored enterprises (GSEs), Fannie Mae and Freddie Mac, implement the Independent Valuation Protection Institute (IVPI).

 

"Stating that the IVPI is a critical part of the HVCC, NAR said that it would complement already existing appraisal regulatory bodies at the state and federal levels.  The IVPI should be implemented to fulfill the implementation of HVCC and to help address unintended consequences created by the Code.  Further, the IVPI will be positioned to work with appraisal organizations and state regulatory agencies to ensure the independence of appraisers and the integrity of the appraisal process."

Source: NAR Appraisal Insight Blog