Posts About Appraisal and Appraisers written by the staff of The Robinson Real Estate Appraiser Group, Maryland.
As appraisers are dropping out and retiring from the appraisal field due to strict guidelines on qualifications and education requirements the AQB (Appraiser Qualifications Board) has been rethinking the current set of standards applied to Licensed and Certified Appraisers. The … Read More..
Fannie Mae has a new automated underwriting system called the “enhanced property inspection waiver” program. Fannie Mae’s no appraisal offer applies to refinance loans on single family homes or condos up to $1 million and Fannie Mae must have a physical appraisal for the same property with the same borrower in its database.
So where is the data or valuation coming from? Oddly enough it is our own reports that we send in through the Uniform Collateral Data Portal. This is a database where lenders enter appraisals for mortgages submitted to Fannie Mae or Freddie Mac; this was implemented just over 4 years ago. Imagine the large pool of data gathered by appraisers fed into this database that can now be used for developing automated appraisals. It is unnerving to think our industry has required us to give information to aid in our own possible extinction.
An argument is made to the effect that an additional program was needed to expedite the appraisal process due to the lack of appraisers in the industry and turn around time on reports are longer than expected. There are less appraisers in the workplace due to a large amount of appraisers hitting the retirement age and the minimal influx of new appraisers coming into the industry. This minimal influx is mainly due to current license and/or certification requirements. The Appraisal
Institute noted that the number of active appraisers has fallen approximately 9% since 2012 and expected a continuation in decline in the future. There has been lobbying toward the Appraiser Qualifications Board for a reduction on some of its college level education requirements in an effort to attract more people to the field.
Under the “enhanced property inspection waiver” program the loan applications that come through its automated underwriting system could increase to 10% for qualifying loans: formerly this was 3%.
This new program would be for “limited cash-out refis”. Fannie Mae’s director of credit risk, Zach Dawson, estimates that 25% of limited-cash-out refis could qualify for the new program. Loan amounts vary by region and the loan- to- value ratio cannot exceed certain limits.
As an appraiser in the field everyday I realize the importance of entering into a home and seeing with my own eyes the condition, the improvements, the deferred maintenance, working systems, presence of mold and/or recent dampness within a property. These are just a few items that could never be seen by dated data that was entered through an electronic portal years ago.
Everything is not always black and white or cookie cutter. Homes are like people, no two homes could ever be the exact same. Our current world is driven by technology without the need for interpersonal skills being admired or even needed due to programs assembling the most advantageous bottom dollar for big business. As appraisers we collectively enter and report on billions of dollars worth of of “big business” property, we state our findings, give valuations and provide support for the structure and integrity of this industry. Replacing our inspections/appraisals with a streamline program in an effort to save a few hundred dollars in a multi-billion industry in my opinion is like shooting yourself in the foot….you may inadvertently undermine your own interests.
LOAN NOT APPROVED! This is the last thing a potential buyer wants to hear from a bank when trying to purchase a home, but now with Fannie Mae easing the financial standards of the debt to income (DTI) ratio. The DTI will be raised from 45% to 50% on July 29. What determines your DTI ratio? DTI is a ratio that compares your gross monthly income to your monthly payment on all of debt accounts. Included in this is your monthly credit card bills, auto loan payment, student loan payments, etc., and the monthly projected payments on the new mortgage. A $6,000 household monthly income and $2,500 in monthly debt payments, your DTI is 42 percent. Lenders use this ratio to evaluate your current debt load and to see how much you can responsibly afford to borrow. Less debt equals more borrowing power. If you are loaded down with monthly debts, you’re at a higher risk of falling behind on your mortgage payments…this is not rocket science.
Researching data that spanned nearly 15 years, Fannie Mae’s researchers analyzed borrowers with DTIs in the 45 percent to 50 percent range and found that a significant number of them actually have decent credit and are unlikely to default on their home loans. Significant enough to raise the ceiling and stick their neck out just a little bit more for buyers. Lenders are excited about the policy change giving those buyers just over the 45% threshold a chance in the marketplace. All applicants still need to jump through the multitude of hurdles when it comes to Fannie Mae’s underwriting criteria. The criteria entails down payment, credit history, income, loan-to-value ratio and a mountain of other financial criteria.
The largest population rejected because of high DTI ratios are the Millennials, who often stretch to pay their rent early in their careers. Millennials are the generation born between 1980-2000, which means that the bulk of Millennials are entering the prime home-buying age. They are a new targeted demographic with a lot of marketing being angled toward them in an attempt to attain their buying power: could this expanded ratio correlate with the Millennial?
Millennials are the demographic group helping Baltimore City gain population for the first time in a half century. Harford County is having a more difficult time attracting this market sector: Millennials are looking for mixed use communities, transportation, dining and shopping opportunities. Baltimore County also has tried to cater their communities around this sector of the population.
Regardless of what age or demographic you may lie in, Fannie Mae may not be your only option if your DTI is above 45% or even 50%. As of 2016 FHA (Federal Housing Administration) guidelines maximum debt to income ratio of approximately 55% with compensating factors. FHA does have a major drawback, it requires the borrower to keep paying mortgage insurance premiums for the life of the loan, well after the risk of financial loss to FHA has disappeared.
Having a hefty amount of debt, whether it be from student loans or shopping sprees, may not deter you from being a homeowner with the added help of Fannie Mae increasing the DTI ratio. With the decision of easing the financial standards of the DTI ratio to increase a broader base of buyers I hope it comes with an increased amount of caution for the future of the housing market. As an appraiser for properties in Baltimore County, Baltimore City, Harford County, Howard County, Cecil County, Carroll County and Howard County during the housing crash when the easing of requirements regarding lending money did not bode well I remain watchful on the recent decision for the broadening DTI. The housing market crash, which started in 2007 should be a constant reminder and lesson for the easing of standards and what sort of repercussions it could bring.
Already this year we have seen a shortage in the supply of homes on the market. With the beginning of the spring season upon us buyers are waiting with bated breath ready to pounce on the purchase of their new home. Comparing active listings from last March (2016) to this March (2017) in the Baltimore Metro Area housing market (which includes the City of Baltimore, Anne Arundel County, Baltimore County, Carroll County, Harford County and Howard County) the results are undeniable. The number of active listings declined by 15.8% to 9,453, the 19th consecutive month of declining year-over-year inventory levels and the lowest March levels in a decade.
Although this listing shortage seems to be problematic for buyers, there is an upside for the sellers. The basics of supply and demand states that when the demand for real estate is high, prices rise. When the number of available properties increases, prices usually drop. With anxious buyers waiting in the winds, a beneficial opportunity presents itself for the sellers.
With a shortage of homes in the market the homes typically spend less time on the open market with sellers receiving quick offers close to the list price and some even higher to ensure the offer is accepted. The average percentage of original list price received at sale in March was 95.1%, the highest March level in a decade, exceeding the previous high set in March 2014 and 2013 of 93.2%. The median days-on-market was 42 days, down from 63 days last year, and at the lowest level in a decade.
Due to listing shortage, the homes that are available on the market are getting scooped up. Sales across the Baltimore Metro area was up 21.7% from last year to $923.8 million. March closed sales of 3,288 were up 16.8% compared to last year and set a record high for the decade.
This data was compiled by the Multiple Listing Service (MLS) data in MarketStats by ShowingTime’s database based on listing activity from MRIS (Metropolitan Regional Information Systems, Inc.).The Baltimore Metro Area housing market includes the City of Baltimore, Anne Arundel County, Baltimore County, Carroll County, Harford County and Howard County in Maryland.
Low inventory, a strong demand for homes and springtime are a wonderful combination for a seller’s market. This is coupled with the fact the homes are typically on the market for less time than past years and the increase in sales makes this one of the best times to sell…in almost a decade! Listing inventory has not been this low in the peak spring season in quite a long time, if you are a seller or thinking about selling, this may be the best time to put your home on the market.
Interest rates, global events, inflation and tax reform are just a few economic variables that could help or hinder the future of the real estate market. The real estate market is constantly changing but the current storm of circumstances puts the seller in an advantageous position, one that may not last very long.
Buying new construction has decision making every step of the way…what floor plan to choose, what options, what trends will last and should I wait and upgrade that myself rather than paying the builder such a premium? From an appraisal perspective the viewpoint is a bit different: our job is to prove that the price of the newly constructed home is supported by the neighborhood and area. The largest hurdle in appraising a newly constructed property is when the dwelling is the smallest in the neighborhood with the most amount of upgrades. Typically there is an average amount of options the typical purchaser chooses within the dwelling (upgraded cabinets, flooring, sunroom, luxury master bathroom, etc.) and then there are the buyers that want ever bell, whistle and customization that the model home has and then some. Couple the vast amount (and large price tag) for all of these options and the fact it is within the smallest floor plan available….this is not a good combination. A property like this one runs the risk of being over improved for the neighborhood and has a good probability of having difficulty with the appraisal. The contract price needs to be supported by other homes of similar design and SIZE with the presence of upgrades: keep in mind that not all upgrades will give you a return on your investment. There is a ceiling to the amount of upgrades that the typical buyer will pay, diminishing returns is how we express that there will be a limited return on the additional improvement cost beyond what is typical. As the upgrades go beyond the typical amount the return on the added investment will continue to decline.
So, keep in mind, don’t over-customize. Of course, new home buyers want their homes to reflect their personal style and taste. But, it’s important to consider the resale value, as well. While it’s important to make your house satisfy your needs and tastes, just realize not all upgrades will give you a return on your investment.
Some features that are good investments are upgrades that will make your kitchen the star of the show. These upgrades include: large center islands with seating and storage, under counter lighting, backsplash, stainless steel appliances and granite countertops (though these have now become standard in many new kitchens). Another suggestion from an appraisal standpoint is you can never go wrong by adding square footage: it is more effective to pay the builder to make the home larger (bump outs, sun room or great room) while the property is being erected verses being remorseful at a later date wishing you had that extra square footage.
Industry experts suggest not putting your upgrade dollars toward these options: specialty driveways, high-end plumbing features and jetted soaking tubs. Cosmetic features in particular, such as paint, landscaping, lighting fixtures, epoxy garage flooring, crown molding, chair rails, window treatments and even certain appliance upgrades can often be made after the closing, particularly by homeowners who have a budget.
Remember that the model home you fell in love with may have thousands of dollars of options and that the base home may look very different. With so many upgrades and options available, it’s hard to stay focused on building your dream home. Stay on track to satisfy your needs and tastes but remember a lot of the upgrades can be added to your home after it is purchased. This delayed gratification could be good for your budget and your overall future return on your investment.
A relocation report is very different from the traditional mortgage appraisal. Appraising a property for a relocation company is a specialized field for appraisers. Appraisers that are willing to broaden their traditional methodology of appraising real estate could benefit by diversifying their accepted assignments and expanding their client list. Many certified and licensed appraisers have never completed a relocation appraisal. Other appraisers have completed a few relocation assignments here and there, and have varying levels of comfort with these assignments.
As a relocation appraiser, your clients will include large and small corporations, government agencies, the military, and nonprofit entities. The major industry-specific player is Worldwide ERC (formerly known as Employee Relocation Council). When there is a discrepancy between the available human resources and the needs of an organization, organizations must cost effectively move human resources to meet their needs. A major impediment to bringing the right person to the right location is the cost and time of the move (relocation). Generally, a significant part of the relocation is the disposition of the employee’s (transferee’s) personal residence. Companies and organizations regularly transfer employees across town, across the state, across the country and across the planet.
In a relocation appraisal assignment:
-The client is looking at selling the house within a defined period of time after acquisition, generally 120 days or less
-The client needs to know what must be done to the property right now to make it marketable within the identified marketing period
-The appraiser’s estimate is used, with other information, to develop an offer or a “buyout” offer to the transferee
-The analysis for an ERC assignment relies solely on the sales comparison approach and requires forecasting as part of the analysis
-The client plans to own and market the property within the near future
-The appraiser is charged with developing an opinion of anticipated sales price, not market value
There are a number of differences between an appraisal assignment completed for an employee relocation and one completed for a mortgage lending transaction. The three most significant differences relate to include: the presence of an imposed assignment marketing period, the requirement for the appraiser to use forecasting and arriving at an anticipated sales price– NOT the market value.
The relocation appraisal assignment develops an opinion of anticipated sales price. A client will expect you to use their imposed marketing time, which is usually client-specified (typically not more than 120 days). This time period begins on the date of the appraiser’s value opinion, and looks out into the future. I have done numerous assignments with varying assigned marketing periods. For example the typical assignment marketing period is 120 days: the client expects the appraiser to derive an anticipated sales price that would facilitate a contract within 120 days commencing on the date of inspection. Now, imagine the subject property was imposed with a 30 day assignment marketing period and the typical days on the market for this area is 100 days….this is one of the factors that the property’s sale price would be “discounted” to ensure the property will sell within the short assigned marketing period. This “discount” is linked to the forecasting adjustment. A standard addendum I use in my reports to help clarify a negative forecasting adjustment is as follows: The forecasting adjustment is noted as being a discount that will facilitate the sale of a property within the imposed marketing period. With the application of the assignment marketing period and a forecasting adjustment it would be unlikely that the market value of a property and the anticipated sales price would be the same.
An appraiser’s understanding of the fundamental factors of supply and demand is key to a successful forecast. In order to make a forecasting adjustment, an appraiser must have a good understanding of local inventory patterns, days on the market, supply and demand and seasonal factors which affect the market. The forecasting adjustment is a combination of the expected increase or decrease in the property’s sale price over the marketing period due increases or decreases in the market and also any discounts necessary to sell the property within the specified market period of 120 days or fewer.
In the development of an opinion of anticipated sales price, the appraiser is developing an opinion of the price at which the subject will sell within the reasonable marketing period after the date of the opinion of the anticipated sales price. In a relocation appraisal assignment, the appraiser is taking historical data and projecting that data out into the future over the time period identified as the reasonable marketing period imposed by the client. Typically 2 relocation assignments are ordered for the same property and then reviewed. Once the appraisals are completed, if the values are within a specified range (usually 5%), the relocation consultant prepares and presents a “buyout offer” to the transferee. If the results of two assignments are in excess of the desired percentage, the appraisals are termed “out of spread.” The relocation professional will first work with the original appraisers to attempt to resolve the issues. If the relocation professional is unable to resolve the difference, then a third appraisal is ordered.
I have done relocation assignments in Baltimore County, Baltimore City, Harford County, Cecil County, Howard County and Anne Arundel County. No relocation assignment is the same: there are differing assigned marketing times, varying conditions within the dwellings, the property owners are in various stages of the process and the amount of the forecasting adjustment changes due to circumstances within the market and/or the subject property. The complexity of these specialized reports can be overwhelming and time consuming but broadening your methods and perspective on appraising real estate will only strengthen your current skill set as a real estate appraiser. Robinson Appraisal Group has been doing relocation appraisal assignments for over 10 years and would be privileged to become part of your relocation experience.
Appraising a Manufactured Home…or is it a Mobile??…maybe it’s a Modular?? Manufactured homes, mobile homes and modular homes are homes that terms that people (sometimes appraisers) incorrectly use interchangeably. Hopefully the following information will help differentiate the varying types of … read more
Where have all the appraisers gone? The Appraisal Institute has performed a demographic survey of the population of real estate appraisers. The trend showed a continued 3% decline per year for the past 5 years. Younger workers are not choosing the … read more