Inside the Mind of the Appraiser


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Inside the mind of the appraiser. What appraisers look for in a home.

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Inside the Mind of the Appraiser

  1. 1. Access National & Coester VMS Relationship
  2. 2. Communicating with the Appraisers
  3. 3. What we will cover •What Appraiser Look for in a Home •How Lender’s Guidelines Effect Appraisals •What They are required to report back •How the Inspection Process takes place •FHA Guidelines and Tips •How to communicate with an appraiser •What to do . •What not to do. •What to never, ever do. •Valuing Green Improvements •Q&A
  4. 4. It’s still up for debate….
  5. 5. To Become an Appraiser •4 Year College Degree from Accredited University •300 Hours of Tested Education Classes (an entire month of 9 hours a day) •3,000 “Logged Field Experience Hours” •Pass a Criminal Background Check •Become an apprentice for 2 years •Take a 200 question test and score an 80% or above •Take an FHA test ….then you become an appraiser that doesn’t know anything…
  6. 6. Communicating with the Appraisers WHAT YOU CAN DO…. • You can talk with an appraiser • You can have normal conversations about the property • You can question the work completed as well as provide information. WHAT YOU CAN’T DO….. • What you can not do is try to influence or change the value • You can not select the specific appraiser you want for a particular assignment. • You can not threaten them or threaten to withhold future work if they don’t hit a value.
  7. 7. What Appraisers Really Look for in a Home • There's really two appraisals, there's the appraisal of "I define the market value of what this house will sell for" vs "Fannie Mae Defines the market value“ • The specifics aren't as important as the location the market, location and other unchangeable factors. Anything that can be changed with relative easy is not as much of a factor. • The biggest single factor is the neighborhood, style of home, and the overall renovations. • Appraisers look for similar "use" that would appeal to a broader audience.
  8. 8. Map of US
  9. 9. How Lenders See the US Guidelines are written to fit these areas.
  10. 10. What Appraisers Really Look for in a Home • Typical Home • $273,900 • 2,700 sq ft • Lot Size 14,680 sq ft • 3 Bedrooms • 2 Baths • Heated by Gas
  11. 11. What Appraisers Really Look for in a Home
  12. 12. What Appraisers Really Look for in a Home
  13. 13. What Appraisers Really Look for in a Home
  14. 14. What Appraisers Really Look for in a Home
  15. 15. What Appraisers Really Look for in a Home
  16. 16. What Appraisers Really Look for in a Home
  17. 17. What Appraisers Really Look for in a Home
  18. 18. What Appraisers Really Look for in a Home
  19. 19. What Appraisers Really Look for in a Home
  20. 20. The forms The Creation of the appraisal form was to try and standardize the way things are reported back to the lender in an easily understandable format.
  21. 21. URAR History The Appraisal Form’s
  22. 22. URAR History • Revised March 2005 • Grew from 2 pages to 6 pages • Incorporated former addendum 1004B • Assumptions and Limiting Conditions – 10 to 6 • Appraiser Certifications - 9 to 25
  23. 23. URAR History To report an appraisal of: • One-unit property • One-unit property • with an accessory unit • Unit in a PUD • Requires interior inspection • Requires 1004MC Addendum
  24. 24. What’s Required In the Report? • Exterior building sketch with dimensions • Interior dimensions for condo or co-op • Floor plan if atypical or functionally obsolete • Gross Living Area (GLA) calculations • Street map – subject and comps
  25. 25. What’s Required In the Report? • Photos – Subject property front, rear and street – Interior photos of certain areas (details below) • Operating Income Statement – Form 216 for 2-4 unit investment property • Single-Family Comparable Rent Schedule – Form 1007 for one unit investment property – Form 216 when applicable
  26. 26. Home Sketch
  27. 27. Condo Sketch
  28. 28. How Accurate? • It’s not 100% accurate and not designed to be 100% accurate, it’s designed to be a reflection of the general layout of the property.
  29. 29. Who’s going behind the bush?
  30. 30. GLA What?
  31. 31. Street Map With Comps
  32. 32. Subject Photos
  33. 33. Subject Photos
  34. 34. Comparable Photos
  35. 35. Reports • Comps • Adjustments • Grids • Addendums • Reconciliation • Value
  36. 36. Reports
  37. 37. Inspection and appraisal process So what's the purpose of the form? To gather all the information needed for the lender in an organized format, this is not the appraisal.
  38. 38. Reports The appraisal is the value and certification by the appraiser, anything else is a lender requirement.
  39. 39. Fannie Mae Guidelines
  40. 40. FNMA Announcement 8-30 Provide Sales Contract to the Appraiser • The lender must provide the appraiser will all financing data and sales concessions for the subject • The lender must provide the appraiser with the sale contract and all addenda • If the sales contract is amended, the amendments must be provided to the appraiser
  41. 41. FNMA Announcement 8-30 Selection of Comparable Sales • Appraiser to provide an explanation as to why specific comparables were used in the appraisal report when… • 4 Comparables total • 2 Comparables within 90 Days • 2 Listings or Contracts • Urban – 1 mile • Suburban – 2 miles • Rural – 10 miles
  42. 42. FNMA Announcement 8-30 Repair Escrow – Existing Construction • Appraisers reporting the existence of minor conditions or deferred maintenance items NOT affecting livability, soundness, or structural integrity of the property may complete the appraisal with an “as is” status • Minor conditions or deferred maintenance items to be remedied or completed after closing may be escrowed by the lender • Property must be appraised subject to completion of the specific alterations or repairs when there are incomplete items or conditions affecting livability, soundness, or structural integrity
  43. 43. FNMA Announcement 8-30 Appraising the Entire Site of a Property Clarification – the appraisal must include the actual size of the site and not a hypothetical portion of the site Example: An appraiser may not appraise only 5 acres 40 acres of an unsubdivided 40-acre parcel. The appraised value must 5 acres reflect the entire 40- acre parcel.
  44. 44. FNMA Announcement 8-30 Repair Escrow – Existing Construction • Requires the appraiser to verify data with a party that does NOT have a financial interest in transaction • When appraising new construction, the appraiser may need to rely solely on the builder of the property they are appraising to provide comparable sales data – This data may not yet be available through typical data sources such as public records or multiple listing services – Verify the transaction of the comparable sale by viewing a copy of the HUD-1 Settlement Statement from the builder’s file
  45. 45. FNMA Announcement 8-30 Neighborhood Boundaries • Preferable for the appraiser to provide comparables from the subject’s neighborhood • Fannie Mae does allow for the use of comparable sales that are located in competing neighborhoods – Best comparables available and the most appropriate for the appraiser’s analysis • The appraiser must indicate the comparables are from a competing neighborhood and address any differences that exist
  46. 46. Understanding FHA and What the appraiser is looking for
  47. 47. What FHA will lend on…. Eligible Properties • Detached 1-4 units • Semi-detached 1-4 units • Townhouses • Rowhouses • Condominiums • Approved Projects • Spot Unit Approvals Ineligible Properties • Commercial Enterprises • Boarding Houses • Hotels/Motels • Tourist Houses • Private Clubs • Bed and Breakfast Establishments • Fraternity/Sorority Houses • Condotels
  48. 48. Mixed Use Properties FHA will finance properties with minimal nonresidential use…
  49. 49. Mixed Use Properties •Must be self-sufficient •Net rental > monthly payment •Net rental income is the appraiser’s estimate for vacancies OR the vacancy factor used by the jurisdictional HOC or whichever is greater
  50. 50. Unacceptable Locations Hazaqdu Enviqonmenval contaminants Noxiotu odoqu Offenuive uighvu and excessive noises to the point of endangering the physical improvements
  51. 51. Soil Contamination Conditions that could indicate soil contamination include: Poolu of lirtid Pivu, pondu, lagoonu Svqeuued vegevavion Svained uoilu oq pavemenv Dqtmu Odoqu If any of these conditions exist, further analysis or testing is required.
  52. 52. Private Water and Sewer Systems  Connection Is considered feasible if the cost is less than 3% of appraised value. If home has been vacant from 30 days or several months inspection and dye test will be required.
  53. 53. Private Roads  Pqivave uvqeevu and uhaqed driveways  Each pqopeqvy mtuv have vehicular or pedestrian access  Road utqface oveq shich emergency vehicles can pass  The abuence of vheue ivemu must be noted
  54. 54. Accessory Units  Habivable living tniv add to, created within, or detached from a single- family dwelling  Acceuuoqy tnivu may nov be subdivided or segregated
  55. 55. Unacceptable Locations Below 100 year flood level Flood Insurance not available Unacceptable area near airport
  56. 56. Unacceptable Locations Not approved Instability Easement
  57. 57. Unacceptable Locations • Three noise zones • Clear zones • Accidental potential zones
  58. 58. Unacceptable Locations • Appraisers who work in CBRS areas must obtain the appropriate maps from the U.S. Fish and Wildlife Service • Prohibited areas on the maps are those inside the red areas
  59. 59. The Best Way to Deal with the appraiser
  60. 60. The Best Way to Deal with the appraiser
  61. 61. What if your value comes in low • Submit a Value Reconsideration • Provide supplemental comparable that are similar to the subject that would meet the lender requirements for standard appraisal practice. • Generally speaking pointing out minor errors will not get the value changed.
  62. 62. It is to… “Address legitimate concerns with the appraisal in which there is tangible evidence the appraisal is flawed and the property is being misrepresented.” - Brian C. Coester.
  63. 63. Concerns on the appraisal Could be: 1.Better comparables sales are available that support a different value that are not in the report. 2.Misrepresentation of the property. “I didn’t know the homeowner owned the waterfront lot next to the house” 3.Overlooking key features such as acreage, view, updates, features. 4.Lack of appraiser competency apparent in the report. 5.Over conservative appraisal. 6.Lack of attention to detail and multiple errors
  64. 64. What Not to do “This appraisal is horrible, we need an extra 10k to make this work. Call the appraiser and tell him to change it or never use him again!” “Appraiser missed a ton of stuff, borrower paid 90k more two years ago and he know its worth at least that we need to order a new appraisal” “Need more value to close please adjust” All of these get us nowhere……..
  65. 65. What TO do “Noticed that the garage adjustment was only 2k and the deals very tight. Can you see if the appraiser can re-look at the adjustments and maybe add an extra 2k?” “Borrower indicated the appraiser didn’t give appropriate adjustments for upgraded kitchen and bathrooms as you can see from the photos its in great shape, can you have him look again?” “Local realtor was able to find 3 additional closed sales that support a 20k higher value. Can you send these to the appraiser have them take a look?
  66. 66. Your Appraisal Inspection Package • Copy of Fully Executed Contract • List of all renovations and improvements done within 5 years • Any notable features that are not obvious during the inspection • Copy of Sketch • Copy of PlatMap • Copy of Old Appraisal • Anything that may be helpful for them to spend more time on the report and not in research.
  67. 67. What appraisers are dealing with in the mortgage industry…
  68. 68. How appraisers are looking at Green • Very Difficult to Value • No Clear Structure in place • Coping from Commercial Space • The best is the AI ready energy efficient Appraisal form that adds some data points. • Biggest issue is lack of Data on comps • About 2 – 3 years from a real solution.
  69. 69. Thank you