Appraisal Scoop

What is a "Tribe" and how would it impact real estate appraisers? FREE Audiobook!

A tribe is any group of people, large or small, who are connected to one another, a leader, and an idea. For millions of years, humans have been seeking out tribes, be they religious, ethnic, economic, political, or even musical (think of the Deadheads). It's our nature.

Now the Internet has eliminated the barriers of geography, cost, and time. Blogs like Appraisal Scoop and social networking sites like the Appraiser's Water Coolerare helping existing tribes get bigger. But more important, they're enabling countless new tribes to be born - groups of ten or ten thousand who care about AMC regulation, the HVCC, or creating Uniform Residential Appraisal Reporting Standards (URARS).

You've probably read here and on other forums the suggestion that appraisers need a "Union"! Isn't a union just another form of "Tribe"? And so the key question: Who is going to lead us on all of the important issues facing appraisers?

The Web can do amazing things, but it can't provide leadership. That still has to come from individuals - people just like YOU who have a passion about the appraisal industry. The explosion in tribes means that anyone who wants to make a difference now has the tools at there fingertips.

Want to learn more?!Seth Godin's book - Tribes - We Need You To Lead Us is being offered for FREE from Audible.com Click Here! This book is a MUST READ (or listen) for 2008! If you're one of those that still want to read from a paper book (wink) click here for the Amazon.com link.

If you ignore this opportunity, you risk turning into a "sheepwalker" - someone who fights to protect the status quo at all costs, never asking if obedience is doing you (or your organization) any good. Sheepwalkers don't do very well these days.

Tribes will make you think (really think) about the opportunities in leading your fellow appraisers, clients, forum members, or readers....It's not easy, but it's easier than you think

Watch the Appraiser's Water Cooler Tribes Group for more stories and ideas!

Please . . . share yours!!

Back To Basics - How Do We Make Appraisals More Reliable?

In the wake of the mortgage meltdown, new policies and requlations aimed at enhancing the reliability of appraisal reports, are being leveled primarily at real estate appraisers. Some of the changes that are being suggested are:

• Creating a so called “middleman” or "firewall" between the appraiser and the mortgage broker that will eliminate pressure and fraud. Hence the HVCC
• I have heard some talk that HUD will increase the licensing requirements for appraisers that want to provide FHA appraisals.
• Increase on the so called education level of the appraiser.
• Increasing license requirements

I would like to remind everyone that appraisers have been around longer than there have been licensing requirements and USPAP. Although there has always been pressure on the appraiser to come to a predetermined value we had this level of a problem before now.

So the question is: How do we make an appraisal more reliable?

Some of the more seasoned appraisers can look at the changes over the years and see that two things have been happening.

• We are getting about the same fee we got 20 years ago
• We are doing less work than we did 20 years ago

What has happen? Have we changed our priorities from being concerned with determining an accurate fair market value to meeting the minimal requirements of USPAP?

Meeting minimal USPAP requirements is just that, meeting minimal requirements.

For this discussion, I propose extending our analysis beyond these minimal requirements, which will increase the reliability and there for the final conclusion.

There are several other factors that I feel are important to recognize and justify this statement.

1. I believe that appraisers that have obtained their license over the 10 years are getting less and less training before they go out on their own. The grapevine mythology of teaching you pupil less than you know continues to escalate the lack of knowledge each proceeding appraiser gets.
2. Meeting minimal standards for providing an appraisal is fine for ethical appraisers but fraudulent appraisers can take advantage of these minimal requirements.
3. The industry has been consumed by fast and cheap services.
4. Appraisal organizations have not stepped up to the plate to substantiate what they teach actually has merit.
5. Politics got involved in something politian’s know nothing about.

Click here to continue reading . . . .

Calculating the Gross Square Footage of Living Area: Simple, Right?!

As appraisers we analyze everything, including how the square footage of a property is measured and calculated.   In most cases, we’re providing an appraisal to meet secondary market guidelines, and most commonly Fannie Mae and Freddie Mac.

So let’s look at how Fannie Mae guidelines define GLA, or Gross Living Area.

XI, 405.05: Gross Living Area (11/01/05)

Then there is Gross Building Area or GBA: Gross Building Area sometimes can be the same as GLA (Gross Living Area) and is especially true for single family homes. However, in a multi-family residence there maybe common areas that would not be considered living areas, but part of the size of the structure.

Fannie Mae Guidelines define GBA or Gross Building Area as:

XI, 405.06: Gross Building Area (11/01/05)

The major difference between single-family GLA and GBA in a multi-family is what is actually used as living space (or rented out GLA) and how big the building is (or GBA).

So that is pretty simple, not tough at all.

Click here to continue reading . . .

Quick Turn-Around Times Will Be Essential When the HVCC Agreement Becomes Active

Author: Aaron O. Thomas, Certified Residential Appraiser.  Aaron is owner of San Diego Appraisers,  a real estate appraisal service provider specializing in residential properties located in the greater San Diego County area. San Diego Appraisers service mortgage brokers, CPAs, lawyers, businesses and homeowners.

The HVCC has been forestalled by numerous months, but it looks as though the agreement will never the less become active. If the agreement goes through and if the emphasis is still focused on appraisal management companies, are you prepared? I am sure that you have read numerous "scare tactic" articles about HVCC, but I assure you this one is helpful.

This will undoubtedly have some implications; the biggest one that I might point out is that we might actually have to deal with the much-despised appraisal management companies. For many of us, there are issues that need to be resolved before putting our energy towards a fruitless venture such as making half as much income by working for AMC's. The first issue obviously is that we would get paid less.

This means we would need to produce more appraisals (faster) in order to make-up for the lost income we are accustomed to making.

Understandably, it seems like most appraisers are not willing to do this; mostly because there is a general belief in the industry that the quality of the appraisal product would diminish from cutting the corners needed in order to close the gap on the turn-around times. Such as: not driving by the comps or calling real estate agents to confirm sales (or simply sitting down and thinking).

First, let me explain that I already felt competition becoming tougher and the fees were declining, almost similar to that of getting financially strangled. Well, that was until I learned about this new little thing called HVCC, and then I felt like I was getting stabbed (yes, in the back).

I initially panicked and then came to my senses and realized that in life, there are always solutions (and no, it is not always fair). I challenged myself to test common beliefs and I have come to other solutions. These solutions may not always be in the form that may be perfect, but in most cases they are solutions that do in fact work.

"I think we can all agree that we need to cut corners in order to survive, but we need to first solve the ethical issue of cutting the wrong corners by not doing the required work needed to provide credible results. And why not consider cutting other corners that would not be so unethical?"

Click here to continue reading . . .

Adventures in Reviewing New Construction Appraisals

AUTHOR: Anthony Blackburn is a Certified Residential Appraiser in Martinez, CA and one of the co-owners of Apple Appraisal, Inc. -  811A Ferry Street, Martinez, CA 94553 - Apple Appraisal, Inc. does Appraisals and Reviews Throughout California.

So many times, when I am reviewing an appraisal of proposed new residential construction, I find that appraisers don’t put the necessary information in the appraisal for me to make a good judgement about the quality of their work.

There are several key pieces of information in an appraisal of a new home in a tract, that must be included in the report.

1.       Base price of the subject and comparables.

Being able to compare the base price of the subject and sales of the same model, is the best way to track prices over time, discounts and incentives notwithstanding. For example, with all else being equal, if the subject’s base price is $200,000 and the same model, with a different contract date has a base price of $190,000, then the difference in base price of -$10,000 is a time adjustment.

2.       Lot Premiums.

Because buyers in new subdivisions pay for difference between properties on a dollar for dollar basis, the lot premiums paid for things like views, large lots, cul-de-sac locations, etc., become the site size or location adjustments. If your subject has a $2,000 lot premium for it’s larger lot, as compared to a comparable in the same tract with no lot premium, then your lot size adjustment to your comparable would be $2,000. Remember, that $2,000 is exactly what the buyer paid for that larger lot. By definition, the adjustment is $2,000. What could be easier?

3.       Upgrades.

Here again, the adjustments, or differences between the subject and comparables in the same tract are on a dollar for dollar basis. I usually make this adjustment at the bottom of the grid, where I can put my own line title of “Upgrades”, but putting it in the “Quality of Construction” field works too, as long as you explain that the adjustment is for upgrades and not the overall quality of the home.

4.       Incentives

This is the most difficult item in a new home appraisal to quantify. IF you can get the builder to fully and accurately disclose all the incentives, sometimes it can take some work to see where they fit in the appraisal. Incentives can be loan related, like rate buy-downs, prepaid payments, closing costs and more. Other incentives can be a little easier to quantify, like free upgrades. Sometimes an incentive is just a discount on the total package. The best way to handle adjusting for these is to find out the total incentive, what it was made up of, like free upgrades or discount points being paid, and split them up into their proper places in the adjustment grid.

5.       Prices of different models in the same tract.

The difference in base price, in the same time period, of one model, vs. another, is generally related to size. If you have model A in a tract that is a 3/2 and 1,200 sf, base price of $200,000 and Model B, which is a 4/2 and 16,00 sf, base price of $215,000, then your total “Size” adjustment is $15,000.

There are other pitfalls to watch out for. Sometimes a builder will have homes in “Standing Inventory” and need to move them. These can be great deals for home buyers, but tricky for an appraiser, as many of the options are pre-decided by the builder and the incentives or discounts can be greater than on other homes.

What does FNMA say about appraising new construction?

Click here to continue reading. . .

Are YOU licensed to appraise that property?

As someone that does a lot of reviews, I see some interesting appraisals come across my desk. Some give me pause to wonder. And some just give me pause.

One issue that has come up more and more of late, is appraisers not being licensed to appraise the property in question.  Specifically, I’m speaking to the license limitations of a “Licensed” or “Residential” appraiser.

Here in California, we have 4 licensing levels. Other states have similar licensing, however, the designations may differ.

• AT-Trainee Appraiser - Can appraise any property the supervising appraiser is licensed to appraise.
• AL-Residential Appraiser - Can appraise any “NON-COMPLEX” 1-4 family property with a transaction value up to $1,000,000
• AR-Certified Residential - Can appraise any 1-4 family property without regard to transaction value
• AG-Certified General - Can appraise all real estate without regard to transaction value or complexity.

The sticking point that I see is the “NON-COMPLEX” issue.  Many AL or Residential Appraisers here in CA appraise complex properties as a part of their regular business. I talked to a few about this issue and the consensus is that they feel they are capable of appraising “complex” properties with a transaction value under $1,000,000 and that the definition of “complex” is so vague, that they feel they can justifiably do it. They may be right. Federal Reserve Regulations, from which USPAP was born and which state define a “Complex” appraisal as “…one in which the property to be appraised, the form of ownership, or market conditions are atypical.”

Can you say “Vague”?  I called my state office of real estate appraisers and spoke to an investigator about this issue.   While I didn’t ask them to go on record or put it in writing, I was told the CA OREA considers examples of “complex” to be anything that has

• Functional Obsolescence
• External Obsolescence
• Acreage
• Views

That takes a whole lot of properties out of the pool of homes a residential appraiser, or AL level appraiser, here in CA, can appraise.

I recently did a field review of an appraisal on a home that was a lakefront property, on a few acres of steeply sloping property, in an area where there are very few similar sales and the few that there are, were up to 26 miles away, by road.

OK, now that is definitely complex by anyone’s standard. Even the appraiser admitted it was very complex when I called her. The problem I had with the appraisal is that she is an AL or residential appraisal, as is her supervisor, that signed on the URAR.

When I asked her why she completed an admittedly complex appraisal that is outside the scope of her license, she had a few reasons.

Click Here To Continue Reading . . . .

Making the Most of Your Appraisal Continuing Ed Dollars

The following article is by Steven R. Smith, MSREA, MAI, SRA, Smith Realty Advisors,  The opinions expressed are the author's and do not necessarily represent those of the Appraisal Scoop blog.

Somewhere along my path, it dawned on me that if I was going to have to spend money taking classes or seminars to keep a license in force; that it would make sense to spend the money on the ones with the most legs. That is, to spend the money on courses that count for something, like a degree, designation or certification.

Dollar for dollar, the 1-day continuing education (CE) seminar is the most expensive way to accumulate credits. And, for the most part, they do not have legs. That is, they only count for one thing, renewing an appraisal license. Those I see offered in my area range from about $125 to $175 per seven-hour seminar. This translates into $17.86 to $25 per hour of CE credit.

After licensing, I began taking courses, not seminars, courses that counted either for a professional appraisal designation or a degree. Since 1989 when the license law was passed, using my system, I completed two college degrees and two appraisal designations. All for less money than most have spent on CE seminars that did not count except to renew their license.

In my State, a related college course can be approved with a copy of the course description and syllabus. Some of the courses I have taken since finishing my degrees have included Environmental Site Inspections, Subdivision Law, and Environmental Takings. All were approved for 40 hours. Each cost $395 or $9.87 per CE hour.

My most expensive college courses were at a private university graduate school, and cost $1,200 each or $30 per CE hour. More expensive, yes, but in the end, they added up to an MS in Real Estate Appraisal, which lasts forever.

My most expensive appraisal course through the AI was $500 for 40 hours or $12.50 per CE hour.

As this non-recession we are in, continues and housing issues remain in the forefront; it is my notion that those with more skills, and yes, credentials will better survive the next three years.

Click here to continue reading . . .

Most Common FHA Appraisal Report Compliance Issues

Anthony Blackburn, of Apple Appraisal, Inc., in Martinez, CA responded recently to a WinTOTAL Users Group forum question about common errors with FHA appraisals. The following was his response.  At the bottom of this blog post is a "bookmarked" pdf highlighting the references to his list.

"I'm reviewing a batch of about 25 reverse mortgage appraisals, post funding. Not a single one complies will all of HUD's guidelines!"

Most commonly, the reports that I review fail to:

1. Include patios, porches, garages, breezeways and other offsets on the sketch. Failure to state "covered" or "uncovered" to indicate a roof or no roof (such as over a patio).
2. Have the street scene photo include a portion of the subject site.
3. Enter a legal description of the property.
4. To state that the use of the appraisal is to support FHA's decision to provide mortgage insurance on the real property that is the subject of the appraisal; and intended users include the lender/client and FHA.
5. Clearly define the boundaries - north, south, east and west - of the subject's neighborhood. Providing a description of neighborhood boundaries by physical features such as streets, rail lines, other man-made barriers or well defined natural barriers (i.e. rivers, lakes, etc.) details the make up and understanding regarding neighborhood composition.
6. To adequately and accurately describe current market conditions in the subject's neighborhood.
7. List all dimensions of the site beginning with the frontage. If the shape of the site is irregular, show the boundary dimensions (85' X 150' X 195' X 250')
8. Describe the view from the property (None is not an acceptable response).
9. Include the CORRECT zoning
10. To correctly report the number of COMPARABLE sales in the past 12 months and active listings on page 2.
11. To correctly calculate time adjustments from the contract date of the sale, and report both the contract and closing dates when time adjustments are made.
12. Enter the name of the subdivision or PUD in the location field of the sales comparison approach.
13. Describe the view from the site on the sales comparison approach, i.e. similar homes, commercial area, water view, scenic view, etc. Such terms as "Average" or "Good" are only to be used as adjuncts, i.e. "Residential/Average", "Water view/Good".
14. To enter ONLY the actual age of the subject in the age field of the sales comparison approach.
15. To accurately report the subject's condition as "Fair" when it is indeed "Fair".
16. Research prior sales or transfers of comparable sales
17. To analyze and report the analysis of the subject's prior sales

Download 41502appdHSGH.pdf - This appendix to HUD's 4150.2 has been bookmarked to correspond to the list above.

Thanks to Anthony Blackburn, of Apple Appraisal, Inc., of Martinez, CA for compiling and sharing this list!

Runt Rants - AMC "Additional Comp" Request - Pressure or Good Business?

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.  Read all Runt Rants on Appraisal Scoop.

I had an interesting discussion with an appraiser in last week regarding AMCs. I thought we'd all benefit from his situation his view of the market, and his business decisions. Robert D. Mims IV owns 30-A Appraisal group, Inc. in Florida. He sent me the following email.

Ken -

I've read your articles and actually submitted to you an email last year from a broker that was pretty nasty. I subsequently passed it along to New York District Attorney. I was mentored by an MAI, I do commercial with an MAI, and take my SRA designation class in September.

Below is an email I received from an XXX rep when I asked for an additional $50 to consider two additional sales - after gridding 3 sales, 1 pending, and 2 actives for a total of 6 comps.

What alarms me is not that XXX is willing to pay additional $$$ for the additional scope of work, but that she said SSS will pretty much request additional consideration of sales whenever the purchase price is not met. So regardless of the quality, the number of comparables, Certification #7, etc. there will be an automatic request to consider additional sales to try and meet the purchase price?

Before I respond to XXX, I want your take. Am I overreacting here by interpreting this email as pressure to influence value? And a subtle threat that if I don't they'll will simply assign the work to other appraisers?

Here's XXX's response to the fee increase request I sent. What say you?

Click here for the REST of the story . . .

Geek's Corner: Use Microsoft's SharedView to put your heads together and collaborate!

Microsoft SharedView is a fast, easy way to share documents and screen views with small groups of friends or coworkers; anytime, anywhere. Use SharedView to put your heads together and collaborate - create, convey, and communicate…across physical boundaries, through firewalls, and down to the smallest details.

Here are 3 simple but powerful SharedView actions:

• CONNECT - Connect with up to 15 people in different locations and invite them to share with you.
• SHOW - Share, review, and update documents with multiple people in real-time.
• SHARE - with up to 15 people in a session. Anyone can share, and the person sharing can give control to anyone else.

Effective collaboration requires getting everyone’s ideas and input, and doing it in a way that is clear, easy to follow, and produces usable results. With Microsoft SharedView, it’s never been easier to put your heads together and see results instantly:

Using SharedView, you (or anyone else in the session) can share your Desktop or an application.

The sharer has initial control of a shared application or desktop, but any session participant can request control at any time so everyone can actively contribute. The sharer can immediately take control back by simply clicking the mouse or pressing a key on the keyboard.

Not in control? Relax! Even if you are not in control, you still have a voice. Each participant has a personalized pointer to use to point out specific items or highlight an area--perfect for keeping everyone involved and making sure details aren’t missed.

You want to track results and contributions? Easy! When working in a Word document with SharedView tracked changes, each change is clearly marked and identified with the name and a custom color of the user making the change.

Here is yet another cool feature - any participant can provide handouts that other participants can download. No email required. Great, isn't it?

Effective collaboration has never been easier! You can share a new plan, get feedback on your latest innovation, or work through a new program--all in real time. No travel required.

FREE DOWNLOAD - You can install the latest SharedView application sharing software for free!