Posts About Appraisal and Appraisers written by the staff of The Robinson Real Estate Appraiser Group, Maryland.

Fannie Mae Easing their Standards

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.

Listing Shortage!!!

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.

The New Home Dilemma

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.

The In-Law Suite

We all want to live the “suite” life….but this one involves a change in your life to include your aging parents moving in with you. As the Baby Boomer generation is getting older we see more multi generational families living under the same roof. With more Americans living well beyond their 70s, more adult children are now left in a position where they have to be caregivers for their aging parents.
There are more than 50 million American families having multiple generations under one roof and the real estate market is reacting to this trend. Homes with in-law suite, extra kitchens, multiple master suites, a guest house and/or an accessory unit are offering flexibility when it comes to aging family members. With the rising cost of nursing homes, this multi generational living could be beneficial to all parties.
The restrictions for either adding onto an existing home, modifications within the existing home or building an additional structure (guest house/accessory unit) vary in each jurisdiction. Baltimore County Zoning and Harford County Zoning were contacted to compare restrictions, limits and the overall process. Harford County refers to the addition of the in-law suite (second kitchen being added) as “Cottage Housing” and Baltimore County refers to the addition as an “Accessory Apartment”. The process is overall very similar, the only real difference noted was that Harford County requires at least 2 acres of land to build a separate building not attached to the main dwelling: Baltimore County has no minimum. Both offices note that plans need to be approved regarding the layout/changes and there also needs to be a plan of action to remove the kitchen and return the home to a single kitchen residence. Once the declared person(s) will no longer be using the apartment, guest house, accessory unit the pre approved plan for removal needs to be executed.  For instance, if a separate manufactured home, mobile home or guest house is placed on a property and the declared person/relative is no longer residing in the dwelling the structure needs to be converted into a storage unit or possibly a garage. This check and balance system is maintained by a 2 year renewal process for the in-law quarters. Additional information can be obtained from www.baltimorecounty.gov and www.harfordcounty.gov. If you are planning to build onto your existing home every town (and in most cases every neighborhood) have different rules when it comes to adding on to a property. Find out what is possible through a meeting with the building inspector or planning department in your town and they will be able to say what is allowed when building an in-law suite on your property.
Another sector of the aging population prefer to preserve their independence and choose a manageable home for future years. A ranch style home where everything is accessible on one floor and allows opportunity for independence for years to come.  For the “active adult” there are also age-restricted communities , generally for people 55 and over where maintenance is generally provided and residents live among their peers. Most are rich with attractions to include pools, golf courses and a spa.
So, if you end up being the “suite” child that every parent desires offering multiple generations to live under one roof (or multiple roofs) or taking care of them out of necessity check with local planning and zoning because this multi step process is a bit more involved than a typical addition.

Relocation Appraisal vs. Mortgage Appraisal

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.

Housing Trends in Baltimore

We have all watched the programs on HGTV to see the transformation of an old space revamped, renovated or remodeled into a new modern space that reflects the current housing trends that yield the highest payoff or return. Awe struck by the change that the properties undergo in a seemingly short time span (in TV world) is inspiring and makes us come back for more. Trends vary depending on the location of the home and the demographics of the area: the choices made after determination of demand in the market would allow the potential to maximize the return on investment and/or appraised value. For instance, Baltimore City and Baltimore County buyers share some popular housing trends but there are trends that are specific to the opposing areas. The two following trends will be highlighted to reflect the differences in the trends and demographics.

Housing Trends in Baltimore

The Rooftop Deck

Where most homes downtown have very small to no backyards, the rooftop deck is a great solution for enjoying the outdoors. Outdoor spaces are essential to most buyers regardless of age. Baltimore City does rank fourth in the nation among cities that are attracting young adults. The combination of a growing job market and relatively low prices compared to other major cities is leading many young professionals to purchase their first homes in Baltimore. One of the leading amenities requested in a Baltimore City townhome/rowhome is a rooftop deck. A popular tradition with Baltimoreans is watching the fireworks over the Inner Harbor from a rooftop deck on July 4th. The rooftop deck can offer water views of the harbor and spectacular panoramic views of the city skyline. The Millennials are flooding Baltimore City for opportunity and their young legs are conducive to flights of stairs leading to the roof. On the flip side Baby Boomers, another demographic with huge purchasing power, are shying away from flights of stairs due to bad knees, bad hips ailing joints and overall aging physiques….getting older is not for the faint at heart.

The In-Law Suite

While the Baby Boomer generation is getting older we see more multi generational families living under the same roof. There are more than 50 million American families having multiple generations under one roof and Baltimore County is tapping into this trend. Homes with “in-law suites“, extra kitchens, multiple master suites, a guest house and/or an accessory unit are offering flexibility when it comes to aging family members. With the rising cost of nursing homes, this multi generational living could be beneficial to all parties. If you are planning to build onto your existing home every town (and in most cases,every neighborhood)have different rules when it comes to adding on to a property. Find out what is possible through a meeting with the building inspector or planning department in your town and they will be able to say what is allowed when building onto your property. Another sector of the aging population prefer to preserve their independence and choose a manageable home for future years. A ranch style home where everything is accessible on one floor and allows opportunity for independence for years to come.  For the “active adult” there are also age-restricted communities , generally for people 55 and over where maintenance is generally provided and residents live among their peers. Most are rich with attractions to include pools, golf courses and a spa.

Baltimore City trends are typically geared to a younger buyer while Baltimore County buyers have a wider range of demographics and demands regarding trends. Among the many trends, the two trends noted above were used to reflect the differences in trends and demographics in Baltimore City and Baltimore County. Now, let’s take a look at some other housing trends that buyers are looking for in the current marketplace:

The Open Concept Floor Plan

The main attraction of an open floor plan is the great room, which combines the living and dining rooms into a larger area that is still in view of the kitchen. Whereas traditional floor plans are divided by interior walls, the lack of walls in open designs creates a visually larger space, and more of it can be used at any given time because it is very flexible.

Quartzite

While granite still appeals, quartzite is becoming the new hot contender, thanks to its reputation as a natural stone that’s virtually indestructible. It also more closely resembles the most luxurious classic—marble—without the drawbacks of staining easily. Quartzite is moving ahead of last year’s favorite, quartz, which is also tough but is man made.

Return to Human Scale

During the McMansion craze, kitchens and homes got so big they almost required skates to get around. The trend is to scale back and return to a more human, comfortable size. Buyers now seem to prefer efficiency and location over square footage.

Smart Homes

There is no escaping technology, it looks to be at your doorstep ready to take over! Touch screen appliances, thermostats controlled by your smart phone from any location, automated lighting system, ismart alarms and vehicle detection are just a few of the trends in this exponentially growing industry of tech products made available to the consumer.

 

Drooling over current trends splattered all over mainstream television is eye catching and tempting. Keep in mind your budget, restrictions and future goals before any project. If you are debating an addition or a move to another residence Robinson Appraisal Group can help with your current value or the market value of a possible new residence. We would love the opportunity to assist you.

FANNIE MAE 2016

What does Fannie Mae have in store for 2016? Fannie Mae is a billion dollar entity that does not directly offer mortgage loans but instead buy the mortgages from banks, credit unions, and other financial institutions so that they, in … read more