Appraisal Scoop

"What if" ... Oh the Possibilities!

AUTHOR:  Patrick Egger is a Certified General Appraiser located in Las Vegas, NV. He teaches continuing education classes on the housing market, appraisal issues for real estate agents and appraisers. Click on Outside The Boxes for a collection of Patrick's articles on Appraisal Scoop!

In the The Right Start I talked about a few "what ifs" and my grand scheme to change things. The real questions for many appraisers was "is this doable" and if so "why should I as an individual get involved"? Essentially, what’s in it for me since it will take a lot of "collective effort" to get it going along with perseverance and patience.

It doesn’t take much of an imagination to conjure up a "few perks" that "the association" may yield but to satisfy idle curiosities, here are a few things to think about.

Data and Map Sharing

While we have public non-disclosure rules, what are the rules for a shared database via a professional association?

• Could key data from appraisals be shared among members of the association?
• Would verified data in non-disclosure and disclosure states make a difference in your everyday work?
• What other information could be shared such as market graphs, map mash-ups (see Windows Live Maps) with data overlays for neighborhoods where members could link and share map data, builder brochures, hazard locations, etc.?

Does a national level database make sense?

If say, 25,000 appraisers join "the association" and contribute data, maps, etc., are there users outside of the association for parts of these products?

• Verified sales data base.
• Shared graphs on neighborhoods trends, etc.
• Market reports sold to real estate agents.
• Real estate maps with hazard layers, neighborhood information, graphed trends, etc.

There are many websites providing market data that is misleading. Does a "realty reality" based website make more sense to those looking to finance purchase or sell a home?

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The "Right Start" - Step 5 - Touchstones

AUTHOR:  Patrick Egger is a Certified General Appraiser located in Las Vegas, NV. He teaches continuing education classes on the housing market, appraisal issues for real estate agents and appraisers. Click on Outside The Boxes for a collection of Patrick's articles on Appraisal Scoop!

From Merriam-Webster, "Touchstone is a noun that can be a test or criterion for determining the quality or genuineness of a thing, a fundamental or quintessential part or feature.

From Wikipedia, "the metaphorical use of touchstone means any physical or intellectual measure by which the validity of a concept can be tested, akin to "acid test, litmus test, etc."

I like both of these because they embody "testing and fundamentals", something many appraisers never learned because their mentors never taught or stressed them. From my viewpoint, touchstones are benchmarks and "benchmarks are fundamental to appraising".

In my "grand scheme" of things, no plan would be perfect without a series benchmarks to measure where we have been, where we are and project, where we could be, in the market and our profession. Touchstones serve as "road signs", forming a map that all can read and understand. 

What "touchstones" should we have?

In part one, I referred to touchstones in the form of standards and I believe that would be a good place to start. Other areas would include providing "market measures" in a uniform format (the Housing Market Addendum) or what we did in the form of a "Clarification to the Scope of Work" addendum, that provides the client and readers with a reference, common to all appraisal reports.

What should we mandate for all residential appraisal reports (that would provide the "actions of our peers" and define "generally accepted appraisal practice"), to impart a new standard of care? Wachovia and RELS have "Housing Market Conditions" addendum's. Are they adequate, too much, too little? Could we improve them and in doing so, better communicate with clients?   

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Runt Rants - Back Talk Looks At the Sub Prime Crisis

AUTHOR: Ken Verrett is the owner of Acorn Appraisal Associates, a 22 year old firm offering a wide range of quality appraisal services to the Financial and Business Communities in the greater Houston SMSA

Runt Rants has written several times on the Sub Prime Crisis. Its an old story now, winding down through the system, taking its toll on the various parties, some deserving, some simply caught up in the market adjustment.

We've talked about the folks that were the worst players in my view; the Investment Banking Firms. (Wow! Such a moniker! No wonder they changed it from Snake Oil Salesmen. Much better ring to that new title. However, something about a tiger not being able to change it's stripes comes to mind.)

Investment Bankers either knew what they were selling was junk and didn't care, or they didn't know what they were selling was junk and didn't care.  Same result: disaster for the buyer, disaster for the market.

Now, one of my favorite blogs, Back Talk, has taken on the Sub Prime Story and decided to research it.

I couldn't wait to read his thoughts and conclusions! I mentioned last week that I have been reading Back Talk for a number of months, and I have been impressed with his research skills, his relatively balanced assessments, his ability to back his conclusions with facts, often presented in easy to decipher charts.

Back Talk doesn't trust the media. He preaches that we shouldn't either, that it is our responsibility to do our own research, look at all sides of an issue, and decide for ourselves. That's my view of the appraisal profession, and my goal in Runt Rants. Present some facts, perhaps alternate views, and let you conclude what you will, which will then allow you to make the best decisions for your business.

I wasn't disappointed in Back Talk's assessment. Its worth your time. Here are some excerpts.

"Economic growth in the United States is expected to slow to a crawl of just 0.5 percent this year, which would mark the worst pace in 17 years, the global finance body said. The United States won't fare much better next year; the IMF projected the U.S. economy will grow by a feeble 0.6 percent in 2009, when measured by an annual average."

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Outside the Boxes: Part 9 - Exposing Yourself . . . The URAR & Liability Issues

AUTHOR:  Patrick Egger is a Certified General Appraiser located in Las Vegas, NV. He teaches continuing education classes on the housing market, appraisal issues for real estate agents and appraisers. He can be reached at lvreqa@cox.net 

See Patrick Egger's latest TV interview - Poised For Recovery?  Click Here   

Also - Look for the new Outside The Boxes category for a collection of Patrick's articles on Appraisal Scoop!

One of the most overlooked sections of the URAR is the standard Assumptions, Limiting Conditions and Certifications. This is an area the appraiser should be very concerned with since many of the statements and terms contained on those pages are subject to different and broad interpretations and thereby increase the appraiser's liability.

Under FNMA Guidelines and as stated within the URAR form itself, you cannot add certifications (unless they area required by law or professional memberships) nor can any be removed, however nothing precludes you from clarifying your understanding of the certifications and citing what your actions were with respect to the scope of work, assumptions, certifications, etc.

Making sure you are "Crystal Clear"

We follow orders or people die, it's that simple. Are we clear? Yes, sir. ARE WE CLEAR! Crystal!  From the movie "A Few Good Men"

Communication is the key to an effective appraisal report. In my opinion, the URAR and its Scope of Work, Assumptions, Limiting Conditions and Certifications don't adequately clarify the extend of the appraisal process or the steps taken by the appraiser to meet the requirements of the assignment.

Consider key statements on pages 4-6 of the URAR, show in "italics" below.

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Outside the Boxes: Part 8 - Segmentation & Conclusions - Sample Housing Market Analysis Addendum

In Part 8, Patrick Egger will wrap up this series with a presentation of his three-page Housing Market Anayisis addendum and a discussion of "Contrasting the Market to the Subject".  Click here: Download HMA_scoopsample.xls

Analysis of supply and demand provides the client with perspective of general market conditions. However, how does the overall supply and demand, relate to and impact the subject property? To answer that question, you need to segment supply and demand to those properties that are “competitive to the subject”. 

While the overall market may have excess supply, or prices may be declining (as indicated by the Case-Shiller or OFHEO indexes) the neighborhood and or properties directly competitive to the subject may be performing differently. As such, segmenting supply and demand is critical to understanding the market and supporting your value opinion.

From Fannie Mae:

• Provide an objective assessment of the primary indicators of market conditions in a given neighborhood whether they are increasing, stable, or declining …
• Describe the reasons for these trends and indicate what, if any, impacts these trends have on the opinion of the market value for the subject property. It is unacceptable for the appraiser to ignore these issues and not report the factual property value trends and market conditions.

Supply, Demand and Segmentation … 

Identifying the overall and directly competitive supply is easy using the MLS. Estimating demand is a different story. There isn't an accurate way to quantify demand, though recent sales activity does provide a point of reference.

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Author's Note: At a la mode's Regional Convention in Las Vegas (April 12-14, 2008) I will be presenting a Housing Market Analysis class that will cover market analysis and development of the HMA addendum. The class will include a workbook and CD with samples and worksheets. Hope to see you there.

Runt Rants - Foreclosure Blight

I suspect most of my Runt Rants this year will be spin offs from the Sub Prime Meltdown of 2007. The crisis will reveal many weaknesses in our country, and opportunities to correct them. Today's Rant deals with an article by Michael Orey in Business week. Click here read the article.

Mr. Orey talks about those properties which have been abandoned by the owner, foreclosed upon by the lender, then left to deteriorate. He describes what certain communities are doing to address the problem. Lenders in that situation do have legal control over those properties. Lenders are and should be responsible for them.

Folks who own a residence in a residential neighborhood enter into a social contract with the other property owners when they acquire the property. The value of that property is in part created by the appearance and condition of the surrounding properties. Its a gift to the new owner bestowed upon him by the surrounding owners.

The social contract in part accepts responsibility for not doing harm to the newly acquired property which will negatively affect the rights and enjoyment created by the surrounding owners. If the contract is not fulfilled, the sum of the damage done to the neighbors far outweighs the cost the new owner avoided by exercising benign neglect.

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Runt Rants - Sub Prime and Alt-A - A Beautiful Development

Reason is rearing it's head in the Sub Prime and Alt - A crisis, and it's a beautiful thing!  Work has been progressing under the radar to get lenders and borrowers to sit down and renegotiate some bad deals.  See this article in Business Week on line. 

Now that's a smart move!  When bad deals become apparent, it's time for responsible parties to admit  the deal is not supportable and act in the best interests of both both....the market at work!

Not to toot Appraisal Scoop's horn....well, that's not true...it's time to toot Appraisal Scoop's horn!  The first column written about the Sub Prime crisis suggested this very solution for many of the potential problem loans.

This isn't the first suggestion we've made which ultimately surfaces in policy or industry initiatives.  We'll be discussing Black Lists again soon, and the insightful study done by the Mortgage Bankers Association subcommittee, which closely matches many of the suggestions Appraisal Scoop made this summer in it's Black Listing Series.

No, Appraisal Scoop is not claiming to be smart.  What we are is simple business folks experienced in the Appraisal Profession, experienced in business, filled with common sense beat into us by the real world.

What we do modestly claim is that Appraisal Scoop should be on your daily reading list.  Not for the latest headlines, (we do offer that) but for the experience and common sense that is sometimes offered here....

The old saying  "A blind squirrel occasionally finds an acorn." seems relevant.  Our modest goal is to exceed the success rate of a blind squirrel.  So far, we think Appraisal Scoop is succeeding!  We hope our readers agree!

The author is the owner of Acorn Appraisal Associates, a 22 year old firm offering a wide range of quality appraisal services to the Financial and Business Communities. kverrett@oak-acorn.com

I have the right to remain silent. Anything I say will be misquoted and used against me

Runt Rants - Managing your business in challenging times

The summer of 2007 has been a little ragged from a volume perspective hasn't it?

The sub prime and Alt-A problems started showing up in Acorn by mid May. Prior to that we were up nineteen percent compared to last year....after that we started falling behind in order volume.....the period May 16th to the end of August we were down fifteen percent. The sub prime and Alt-A crisis is part of the reason.

But it's only part of the reason in Acorn.  The other part is particular to our market....after the hurricanes Katrina and Rita devastated the Gulf Coast in the fall of 2005, HUD placed a moratorium on foreclosure actions along the Gulf Coast. HUD lifted that ban in the Summer of 2006 and a back log of REO work began to move through the pipe line. That bulge continued through the end of the year.

That REO bulge from HUD is no longer there. That drop accounts for one third of the order volume loss...so the real impact of sub prime and Alt-A has been a drop of ten percent in our order volume. Acorn will likely be behind through the end of the year as a result of the REO factor.

Interesting, don't you agree? Do you know what impacts effect your volume of last year compared to this year? No? Maybe you should! 

I'll bet you are thinking..."Well, Ken is just more on top of the accounting stuff than I....I can't do that." 

Sure you can!  And you should!  Heck, I didn't even consider the REO factor in my looking at this year compared to last until Robert Dieudonne, one of Acorn's Bright Horses brought it up in a conversation with an out of state visitor to our offices last week. Dieu brought the point up when explaining our operations to the visiting appraiser. I just happened to over hear the comment, and that caused me to go back and push a few buttons in Quick Books.

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Swimming Pool Maintenance Takes Time & Money

Scott Hubbard of Homewerx, Inc, a family-owned Home Inspection firm, recently posted some great information about swimming pools to their company blog.  With Scott's permission I'm re-blogging his complete article here.  To read the article from his site - click here.

Also Read: Swimming Pools: Do They Increase or Decrease a Home's Value?

Even in Arizona, you may not use a swimming pool very much in the winter time.  But if you're considering adding a pool to your home, winter is the slow season for Arizona swimming pool companies and therefore, you may be able to negotiate a better price on a new pool.  Whether you add a pool to your existing home or buy a house that already has a pool, below is some information to consider about swimming pool maintenance.

Maintaining a swimming pool takes time and money.  Pools consist of many systems; the structure itself, as well as electrical, plumbing & mechanical systems.  So there's alot to maintain including pumps, filters, lights, valves, sometimes a heater and other features.  Each pool is different, therefore the exact cost of maintaining your pool will depend on many factors such as the pool's age, surface area, type of finish, water capacity, type of pump & cleaning system, etc.

STRUCTURE & FINISH: The pool's structure will usually last many years provided that it's built right and the finish is properly maintained.  The pool's finish may be plaster, pebble-tec or fiberglass.  All three types will require regular brushing, cleaning and chemicals.  Algae is a bigger concern with a plaster finish.  This is because algae can actually etch the plaster finish, or pit the surface and make it rough.  Also, the type of pool matters...a diving pool usually holds a lot more water than a play pool, and therefore it will probably cost more to maintain.

COST OF CHEMICALS, ETC. : Properly maintaining the chemical balance of the water is important.  If you aren't sure what to add, you can take a sample of your pool water to the local swimming pool supply store for help.  They will test it and tell you what chemicals you need and how much to add.  Pool water generally requires more chemical maintenance when the weather gets hotter and the pool is used more frequently.

For a pool that does NOT have a chlorinating or soft water system, you'll have to buy chlorine, acid and other chemicals.  The chlorine is by far the most expensive of these chemicals, which will probably cost $200 or more per year (depending on the size of the pool, the amount of water it holds, etc.).

If the pool does have a chlorinating or soft water system, you won't need to buy the chlorine but you'll need to buy salt and other chemicals.  Also, this type of system is more complex and requires more maintenance.

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Runt's Rants - Dichotomy of The Appraisal Profession - Brand vs Generic

The last two weeks we’ve talked about generic versus brand products. We discussed the changes that have occurred over the last few decades in the lending industry including the consolidation of ownership of local and regional institutions into money center conglomerates on the east and west coasts [The World Is Flat! ].

One off shoot of that consolidation was the loss of the personal banking relationships which helped move lending from a brand product to a generic product, where consumers could shop for a loan among many faceless institutions, irrespective of where they were located. That development, concurrent with the development of the Information Revolution, resulted in the creation of a generic product - single family first mortgages, packaged and sold in the secondary markets as Collateralized Mortgage Obligations or CMOs (aka MBSs).

I mentioned in the introduction of this series that those specific developments created a dichotomy in the appraisal profession, not the dichotomy of commercial and residential, but between brand and generic product markets. Today we’ll try to define that dichotomy.

Those readers who do both residential and commercial appraisal work will understand when I refer to the different rhythms that result from a residential and a commercial assignment.

Typically, commercial has a longer time frame from when the order is accepted until it is to be delivered. There is more negotiation between the appraiser and the lender before the order is placed, a clear scope of work is determined...unique to that assignment. There is quite often more discussions between the appraiser and the borrower about the property, leases, etc. Phone calls are placed, the file is set aside until the call is returned, and when returned the file must be recalled and the needed discussion held. The appraiser in a commercial assignment is really not in control of the daily activity progress on a commercial assignment.

In contrast, residential first and second mortgage appraisal assignments have a much shorter time frame between acceptance and delivery, often three to five days. Generally the orders are sent out electronically over the Internet and accepted in that same medium. Multiple orders are received and multiple appraisals are often delivered each day. The scope of work, even the fee, is generally agreed upon at the initiation of the relationship, and each order is treated the same. The emphasis in residential first and second mortgage appraisal is on quick and accurate. In order to achieve those objectives the appraiser in a residential assignment must be in control of the daily, even hourly activity progress if he/she is to serve the clients needs.

But wait you might say......not all commercial and not all residential assignments fit into those two neat descriptions. I agree. Small commercial assignments....those owner occupied, or single tenant buildings are often on a shorter deadline, and resemble more and more the single family first mortgage transactions in terms of the rhythms I mentioned. Single family residential assignments for divorce purposes, or to support other litigation matters fit more into that commercial rhythm mold.

That’s why I stated at the beginning of this series that a better way to look at the appraisal profession is not in the commercial/residential distinction, but in the generic versus brand product lines.

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