Interest rates play a crucial role in the housing market. Lower rates typically promote an increase in demand for properties, this in turn drives up pricing, while on the flip side of that, higher interest rates reduce the demand since the costs of a mortgage increase deterring prospective home buyers. We have been in a special situation in the past few years with respect to the pandemic. The Covid-19 pandemic caused so much chaos and instability regarding jobs, economic growth, recession and so many unknowns it left Americans and the world with our heads spinning. In an effort to stimulate and grow the economy the rates were lowered to record lows in past years in hopes to aid economic growth and stability in a very unstable time.The Federal Reserve pumped money into the economy, spending trillions of dollars on mortgage-backed securities to hinder another financial crisis. This move allowed lenders to offer rock-bottom interest rates, tumbling to the mid-2% range by the summer of 2021. With the low mortgage rates prices continued to increase since buyers could borrow more money for less than ever before. The low rates coupled with the available housing supply being low caused even further price increases in home values. With buyers fighting over the homes that were on the market, bidding wars were not that uncommon in portions of 2021 and 2022.
In March of this year the interest rates began to rise in an effort to combat inflation and curb the continual rise of home prices across the country. So far, the Fed’s six hikes in 2022 have increased rates by a combined 3 percentage points . Generally, interest rate hikes will raise costs for homeowners and reduce buying power. As mortgage rates increase, houses become less affordable. An increase of 1% interest rate can have a significant impact on mortgage costs. You can expect monthly payments to increase by an average of 10-15% . Buying power decreases and homes become less attractive for purchase thereby reducing the demand for homes. Sellers are then forced with the question of whether to reduce their price to have their home be more attractive and affordable for purchase. The area, supply, demand, location, home type, condition and income are a few things that need to be considered before putting your house on the market and/or lowering your current price. Interest rates have continued to have a major influence in the overall market.
Investors do not necessarily share in the despair of rising interest rates compared to the typical buyer. Rising rates means fewer people can qualify for loans and will choose to rent rather than buy. Rents are at an all time high due to the demand for housing. There is more possibility for higher rates of return on investments during times of high interest rates and overall demand for rentals. The investors that pay cash for bartering reasons or the ability not to use a bank for the purchase of a home can receive a hefty stream of cash flow without the imposed rate variation from a conventional bank. But as we all know…it is easier to make money when you have money!
In conclusion, real estate pricing and interest rates are in a relationship with one another that can not be broken, they are like a married couple, always trying to find the best balance for both parts to work smoothly for a greater benefit.
Along with the rest of the world appraisers have had to adapt to all things Covid. Being in an industry where you are entering into homes, being in one another’s personal space and typical interaction has become alarmingly apparent of risks and uncertainty.
Appraisers from the beginning of our national lock down were considered essential to continue the momentum of an economy that looked to be headed toward very unstable ground with the shock of the unprecedented closings and shut downs.
The banking industry was quick to adapt and move forward with business as “usual”. Masks and gloves were required upon entry, social distancing applied to all inhabitants within the home and due diligence for keeping everyone healthy and safe. There were often people apprehensive and/or had compromised health issues that would not allow entry into the home, the lending institutions, in some cases, allowed an exterior only inspection with the aid of the real estate agent or borrower’s input/information coupled with interior photos of each room in order to ascertain an appraisal of the property. While there is nothing else better than an interior inspection to help determine the value, this was the best alternative considering the circumstances.
In order to ensure the economy would stay on track the Federal Reserve lowered the rates to record breaking lows and generated quite the frenzy! The areas that we cover in Harford County, Baltimore County, Baltimore City, Howard County, Anne Arundel County, Carroll County and Cecil County have all seen values rise since the onset of the pandemic because of the lower rates and/or low inventory which also plays a part in this uptick in prices.
There is never a dull moment being an appraiser! There is a continual effort to balance and adapt to new hurdles, market changes, lender requirements, methodology, report types, software changes and maintaining your sanity through a global pandemic. This virus has affected every person in every industry globally in some way or another, until this crazy ride is over Robinson Appraisal Group hopes you remain healthy and that 2021 can bring us back some joy and normalcy.
Could this be true? Is Fannie Mae trying to
recruit new appraisers to enter the field? It seems as though over the
past decade Fannie Mae has been trying to minimize and reduce the role
of the appraiser with proposed changes by moving toward appraisal
waivers, hybrid appraisals (also known as bifurcated appraisals)
and automated valuation models. Well, it now seems that Fannie Mae has
launched a new initiative to help recruit professionals into the real
estate appraisal industry. In late 2018, Fannie Mae and Altisource
combined forces to establish the Appraiser Diversity Pipeline Initiative
(ADPI). The reason for this was to encourage career opportunities for
new professionals interested in the real estate appraisal field.
way of raising awareness is the providing of information through
community events about how to become an appraiser, different career
paths, what appraisers do in the field and real life experiences of an
appraiser. These hosted events started in Baltimore and Philadelphia by
the local Urban League Entrepreneurship Centers. In August of 2019 the
Appraisal Institute (AI) became a part of this movement and will aid in
expanding appraisal career workshops and facilitating incentives for new
recruits that would include: appraisal software, scholarships for their
appraisal education and other resources during the training process.
what happened? Why does it seem now as if Fannie Mae wants more
appraisers, instead of limiting us? In recent years appraisers have been
concerned about our elimination by the hands of an Automated Valuation
Model (AVMs), hybrid model appraisals and by increasing the amounts of
education and field work needed to become a licensed or certified
few things are happening. The majority of appraisers are over 55 years
old and will be retiring in a few years. This will cause a shortage of
professionals in the field and the increased work load on the remaining
appraisers will cause appraisal turn around times to lengthen: this is
an ever growing problem with the current demands for quick turnovers
from the lenders and management companies. The other possible
explanation for the recent need for more appraisal is that FHFA (Federal
Housing Finance Agency) confirmed that it asked Fannie Mae to pause any
bifurcated valuation process that doesn’t result in an appraisal. This
bifurcated valuation or hybrid appraisal includes an exterior
observation of the property, sometimes including an interior inspection
by a third-party: this third party inspection could be done by a real
estate agent, a property inspector or even another real estate
appraiser. The use of this type of bifurcated valuation process for
lenders boils down to reducing turn-times for appraisals and lowering
fees. Fortunately, the pitfalls of this valuation were recognized and
are being reconsidered.
only practical solution to the lessening amount of appraisers without
compromising the relevancy or quality of appraisal reports are to
encourage new entrants into the profession to replace the wavering
supply of real estate appraisers.
the ups and downs and all the talk of our profession being replaced by
computer data, technology and automated options the news that the
traditional role of an appraiser can not be expendable is a wonderful
way to bring in the new year. May we all have a bright and prosperous
A hybrid appraisal is a valuation completed by a Licensed/Certified appraiser that is very similar to a desktop appraisal. It is a shorter appraisal form than the traditional appraisal and is performed by an appraiser who typically never visits the property. However, a hybrid appraisal includes an exterior observation of the property, sometimes including an interior inspection by a third-party: this third party inspection could be done by a real estate agent, a property inspector or even another real estate appraiser.
The use of this type of “hybrid” appraisal for lenders boils down to reducing turn-times for appraisals and lowering fees. Fast and cheap….doesn’t sound too reliable when you break it into simple terms. Appraisers typically earn an average of $50–$100 per assignment, which is substantially less than the average fee for a typical full appraisal. The hybrid appraisal is designed so the appraiser can complete the valuation in 30–60 minutes. An alarming aspect to me as an appraiser is that another person is involved in the valuation and/or outcome of the report. There is a reliance on third party data that is very concerning, the data that has been compiled by another person could be inaccurate and/or misleading.
A major concern regarding the hybrid appraisal would be the level of risk and liability. Performing an exterior inspection is not new to the appraisal field, the 2055 form has been used in past years, the main difference is the hybrid appraisal is when a third-party inspector does an external or interior inspection on which the appraiser relies on the data. A variety of companies offer hybrid valuation products, they have their own forms, statement of assumptions and limiting conditions, certifications and additional information that is provided to the appraiser and/or included in the report. Some hybrid appraisals have an exterior only inspection, while others include an interior inspection. With all of these different factors regarding the hybrid appraisal the levels of risk and liability are heightened. Typically, anything that receives value would be the responsibility of the appraiser. It seems as though appraisers continue to be asked to adapt to changes in forms and regulations but any change should strive to enhance and produce a credible product for lending purposes.
If this form does gain momentum and used more in our field, this would be an advantage for the aging demographic of real estate appraisers. This form may be a possible solution and benefit for appraisers who still want to continue appraising into their “golden” years, but due to health and/or limited mobility are no longer able to physically inspect homes. In these instances, hybrid appraisals allow experienced appraisers to continue to apply their expertise without leaving the house.
Personally, I do not feel this appraisal alternative is a viable replacement for a credible appraisal assignment. Change and adaptation is a constant in the appraisal business, whatever the direction the hybrid appraisal may lead to, all of the appraisers at Robinson Appraisal Group will continue to perform credible appraisals to achieve market value on properties within our area of Baltimore City, Baltimore County, Cecil County, Carroll County, Anne Arundel County and Howard County. We look forward to providing you with reliable appraisal assignments.
An Estate Sale Appraisal Process
After 25 years of handling estate sale appraisal in the Baltimore Metropolitan area I have seen my fair share of estate sales. But what is an estate sale? An estate sale means a person has died and the party/parties that inherited the property are selling it. Estate properties usually are priced well to reflect that fact that they need work. Another possible issue is that if there are multiple parties involved, they may not always agree on what price or terms they’ll accept and there may be delays due to the need to negotiate among each other, though hopefully that is not the case.
As an appraiser there are multiple ways to appraise a property that belongs to an estate. One method is the traditional appraisal process of determining the most recent and appropriate comparables in the market area surrounding the property.
Many times we are asked to evalauate the property’s value as of the date of death of the deceased owner(s). This is typically a private appraisal for an attorney or for one of the parties who will be part of the estate looking for the market value. When establishing the value on the date of death the sales comparables must have occurred prior to the date of passing, so if I was doing an appraisal on a house where the deceased passed 12 months ago, the sales would had to have sold prior to that date, say 13 or 14 months ago. You cannot use sales that occurred after the date of passing: this is called a retroactive appraisal.
The appraiser can not be biased or allow recent circumstances in the market to affect the value after the retroactive date…say the market plummets or prices have increased substantially due to high demand… the estate appraisal should reflect what the market was on the date of the passing, not anytime after.
A big part of maximizing what you leave behind is minimizing taxes. Federal taxes on gifts and estates can be among the highest assessed on any financial transaction. In addition, some states levy their own estate or inheritance taxes.
An appraiser, an attorney and a tax advisor can aid in the process of estate issues. As an appraisal company we can provide one of the services needed in regards to your estate and real estate valuation. Robinson Appraisal Group covers the areas of Baltimore County, Baltimore City, Harford County, Cecil County, Carroll County, Anne Arundel County and Howard County. Having a professional appraisal gives the parties involved a reputable report to work with in meeting IRS and state agency requirements. It would be our pleasure to work with you during this arduous process.