I have a question for realtors. This is not meant to be confrontational or obnoxious, I would just be interested in what other possible reasons could exist for the scenario I describe below that I must be overlooking.
I am asked to appraise a house for a purchase transaction. The house is listed for $139,000. The house is very typical for the area, a low-end spec home in a neighborhood full of the exact same type of house, many with the same floorplan, same condition, etc. This particular neighborhood has a 40% foreclosure rate, and pretty much has since it was built about 10 years ago. It is predominantly first time, low-income buyers. Right now there are at least a dozen homes that are similar in size, bed and bath counts, quality, condition, and in the exact same area, on similar lots. Almost no discernable differences.
So here is my question. How on earth does a buyers agent allow their client to sign a contract offering to buy this house at FULL PRICE????
There are no seller concessions or repairs rolled in. There are a dozen other very similar homes they could have for less money (foreclosures, which I understand take more work, for under $100k, and "market" listings for $113k to $132k). There is no possible way an agent could do a CMA and justify this price. The last home that sold for over $135k was over two years ago, and it had superior updates.
When I see these deals I just shake my head, and can only figure that their agent is just not working in their best interests. I see this fairly regularly -- full price contracts for houses in very homgenous neighborhoods where it is VERY apparent that the price is well above what other similar homes are selling for. Yet the contracts are full price offers. Are there really that many buyers out there that just insist on buying that house for a premium regardless of how hard the agent works to dissuade them? Is that what is happening behind the scenes? A hardworking agent pleading with their buyers not to offer full price, since there is no way the house will appraise for that amount and even if they find some crappy appraiser to "make it work" they will likely end up losing money on it; but yet the buyer insists that they write up the contract at full price and submit it? They just love the living room paint color?
The only other answer I can come up with is that the owner refused to budge on their list price (leading to a conversation about the listing agent), and so they are going to see where the appraisal comes in and renegotiate?
How else does this situation occur? When I see these contracts come across my desk, I just want to call the buyers agent and ask them how they came to the conclusion that this was a reasonable offer, but I can't. So educate me, let me know what I am overlooking here...
Here is an email I got from Streetlinks yesterday. I am signed up with them and have been for years, but I don't get any work -- my fees are too high. But I found it interesting that they really don't need me, since their BPO business is doing so well! --------------------------------------------------------------------------
Join the StreetLinks Price Opinion Team! FACT: Millions of Broker Price Opinions (BPOs) & Competitive Market Analyses (CMAs) Will be Performed in 2011.
If you're an active, licensed real-estate professional with proven experience performing price opinions in today's market, your business could substantially improve in 2011 by partnering with us.
>> Click HERE to Sign Up!
StreetLinks is America's fastest growing valuation provider, currently servicing many of the nation's leading lenders. We experienced 500%+ growth in the "down market" of 2010 as a direct result of our commitment to a business model that puts partnership first - with our clients and our vendor-partners.
We're poised to do the same in the BPO market. We are launching our national BPO platform with great market response. View our recent press release to learn more.
Why StreetLinks:
------------------------------------------------------------------------
Maybe we should all just hand in our appraiser licenses and become realtors. Then we can just run a quick search on a 1-mile radius of the house, determine the average price per square foot in the area, multiply that by the SF of the subject property (which is such a perfect method to value a house that I really don't know why they even use appraisers), and collect our $50. We wouldn't have to worry about any legal ramifications from being wrong, or from not actually determining the true market value or putting in the time to properly analyze the property and the comparables. I hear about agents doing 200+ BPO's a month, so at $50/ea that is $10k per month -- not too bad!
PS - No offense to the realtors that do BPO's, but you are never going to convince me that you are doing the analysis necessary to correctly value a house for $50, unless you are working for <$10/hr.
I received this exciting opportunity tonight via email (through the Mercury Network, which annoys me):
Dear Appraiser,
I have a unique product my client is interested in ordering. They have used realtors, however they would like appraisers to do this. It is a 2 billion a year industry and appraisers have been cut out on. I have clients that would be willing to use appraisers for their product. Realtors have been doing these for the past 3 years and do between 20-25 per week and earn an additional $1200-1500 per week. I have clients that are willing to pay $60-70 per order. Realtors give 24hr turn times on these. I have our turn time set at 48hrs with the client.
They are very simple you go to the subject property take 7-8 photos of exterior, if vacant take interior photos if you have access. They also need you to pull MLS comps on the property that you think are the best comparables for the subject property. There is no write-up and they will come in blocks of 3-4 usually at at time. You attach your photos and comps to the form in alamode under General Property Inspection. This form is found by going into appraisal product requirements.
Basically, these are photos of the subject and pulling MLS comps. No write up is needed. This product will start in approx. 2 weeks.
Sincerely,Otto KrebsDiligent Asset Valuations
okappraisals@sbcglobal.net
So do you know Otto? All I have to do is provide him with MLS comps on the property, which, if my MLS board finds out, will get me a substantial fine and probably my MLS access revoked, since it is a violation of my MLS agreement to disseminate the MLS information. But for $60-$70 a pop, for only 2 hours of work (plus gas and the usual overhead), that seems well worth the risk of losing my livlihood!
The sad thing is that Otto is a certified appraiser in California. Seems to me that he is selling out his own profession, but that is just my opinion. What do you think, am I wrong? Does this seem like a good opportunity to anyone?
I get this condition about every 6 months, and just love responding to it. One of the dumber questions I get from underwriting.
Underwriter: "Please make a comment on the appraised value of subject being higher (or lower) than the predominant value in the neighborhood."
Me: "In order to have a predominant, or median, value, it is necessary to have values that are both higher and lower. By definition, a median has an equal number both above and below it. In this case, the value is higher (or lower) than the median. The underwriter will note that the value is well within the typical range as noted in the report and that several of the comparable sales were similarly priced."
I'd like to follow that up with "No adverse effect is noted on the value or marketability of the property due to the limited common sense and/or real estate knowledge of the underwriter", but I try to keep the sarcasm to a minimum.
I received an email today from LRES, which I assume is some type of appraisal management company and/or settlement services provider. Anyway, they were kind enough to notify me that they are now offering new products, and did I want to sign up to provide these services? Below is the text of the email:
We Are Now Offering Our Clients a New Product!Update your vendor profile to be eligible for these new products
Dear Vendor,
LRES is now offering a new product, please read the descriptions below:
Subject Data Report: Focuses entirely on the subject property and asks for 10+ exterior subject photos and completion of a brief questionnaire about the subject and subject market area. If interior access is obtained, 20+ interior photos should be provided of all rooms, damages, needed repairs and upgrades. A value determination will not be required. No comparables necessary. Turn-time will be 24-48 hours.
o Subject Data Report – Exterior - $20.00
o Interior Data Report – Interior - $30.00
Comparables Data Report: $15.00 - The agent runs local MLS for the best 15 comps in the subject market, selects the 15 best indicators of value for the subject property and prints these 15 full agent MLS "WITH" photo galleries to a PDF. Preferred 10 sales and 5 listings. The agent then selects the best 6 comparables (3 sales, 3 listings) and enters these 6 to a form. No visit to the property is necessary. A value determination will not be required. Turn-time will be 24 hours.
Subject Data Report with Comps: $35.00-$45.00 - This report will be a combination of the Subject Data Report and the Comparables Data Report. Turn-Time will be 24-48 hours.
If you are interested in the above products, please log on to your vendor profile at www.LRES.com and provide your fees for each service. Due to call volume, please refrain from calling LRES.
Now, call me crazy, but you really want me to drive across town to take a bunch of photos, drive home, log in, complete a questionairre, and upload these photos...for $20 bucks? Or add the hassle of scheduling an appointment for $30? The guy digging a ditch in my front yard is charging $10/hour, and I have to think that, depending on the location of the house, that is at least 2 hours of my day -- plus gas! WHO IS WORKING FOR THIS????
Even better, I can compete the Comparables Data Report for $15. This only requires that I determine "the best 15 comps in the subject market", print the MLS data sheet with photos for them (which is illegal with most MLS's since it is proprietary data), then select "the best 6 comparables" and enter these into a form for them. Well, if I come up with what I think are the "best 15 comps" or the best 6 comps, then HELLO, I have just provided you with my opinion of the probable range of values, and so I have just completed an appraisal -- for $15???
Can anyone explain to me who would be (a) willing to work for this pittance, and (b) dumb enough to actually risk your license completing a $15 appraisal?
“What is the price per square foot?” In my job as a residential real estate appraiser, I hear this repeated almost daily. Other variations include “my neighbor sold for $ (x) per square foot”, or “the average in my neighborhood is $(x) per square foot”. Almost always, these comments and questions come from people who are unhappy with the valuation of their home. Unfortunately, the price per square foot method is very rarely a reasonable indication of the true market value of a property.
Let’s look at the basics: The price/sf is determined by dividing the sale price by the number of square feet of living space (also known as the GLA, or Gross Living Area, which is the attached air-conditioned space of the house). So a 2,000sf house that sells for $200,000 has a price/sf of $100. So does this mean that all houses in the area should sell for this multiplier? Of course not, because there are many variables to consider beyond the total square footage. If one house is on a larger lot, it should be worth more. If one house has a pool, it should be worth more. If one is substantially newer or is of superior original construction, it should be worth more.
An appraisal, at its root, is simply the methodology used to determine the value of the sum of the parts based on what “the market” (buyers) are willing to pay for those parts. So for every feature of your property, imagine that the exact same house sits right next door. It was built the same day, using the same materials, by the same builder, on the same size lot, with the same views, is the same floor plan, has the same number of bedrooms and baths, the same floor coverings, cabinets, appliances, garage spaces, etc. The only difference is (for example) that yours has a fireplace and the other one does not. It is our job to determine how much value the market gives to that fireplace. Or perhaps the differing feature is a 3rd garage space, a covered patio, an extra bathroom, etc. The point is, your house may be very similar to other recent sales, or it may be vastly different. The more unique your home, the less valuable neighborhood price/sf statistics are.
Many people in the industry will say that the price/sf is not supposed to exactly zero in on your home’s value, but it can be used to give you a pretty good “ballpark” idea. I disagree. To prove my point, I analyzed the last 30 appraisals my company performed and calculated the low and high range of price/sf for each comparable sale used, the average price/sf, and the differential from the actual price/sf of the subject property. The results show that only 66% of the properties were within 10% of the average price/sf of the comparable sales. So as a home seller, would you be comfortable using that method, knowing that you had only a 66% chance of being within 10% of the market price of your home?
A wide variety of factors influence the value of your home besides the actual size. Do you have a better view than other recent sales? In some neighborhoods one-story homes sell for more than similarly-sized 2-story homes. If your home has only 2 bedrooms, it will not likely sell for as much as a similarly-sized 3-bedroom home. Do you have a large covered patio? A 3-car garage when most have only 2? Do you have a pool? Is your landscaping significantly better or worse than most of your neighbors? Is your house on a busy street while other recent sales are on quiet culdesac lots with little traffic? As you can see, there are a wide variety of factors that influence the value of your home.
When is it a useful indicator? If can be a reasonable indicator when you have a home that is very similar to every other house in the neighborhood. If your subdivision was built by one or two tract home builders over a short period of time, with few options or upgrades available, then it is likely that your home’s value is in line with other recent sales in the area. If most of your neighbors have 2-story homes with 1-side brick veneer, 4 bedrooms and 2 & ½ baths, carpet in the living room and bedrooms and sheet vinyl flooring in the kitchen and baths, the same size lot, and are pretty similar in size and age, then it is probable that you are pretty close to them in terms of price/sf.
However, if you are in an area where the sizes, ages, levels of original construction quality, or levels of updating and condition vary greatly, I would highly recommend getting a formal appraisal done, or at least get a detailed CMA (competitive market analysis) from a trusted and knowledgeable Realtor.
I was perusing the June issue of Money magazine when I came across a short article entitled "The Benefits of a Beautiful Outdoors". The gist of it was that good landscaping adds about 10% to a homes value according to a Michigan State study. Normally I would have just laughed at that and moved on, but several days earlier I was reading a blog post on Activerain where a realtor had asked a similar question, that she had heard that 10-15% statistic (although from a different source). So now I'm going to have to post something to make sure everyone understands that 10% is NOT a good figure to be telling homeowners.
First of all, lets use some common sense here. If you are selling a $500,000 home with typical landscaping (typical for the neighborhood), and your next door neighbor has the exact same house, exact same finish, etc., but has really done some nice landscaping, do you really think he is going to get $550,000 for it? Very doubtful. In most neighborhoods the differences are relatively minor. The only way I can see that large of a difference occurring is if your yard is a weed-invested, dead grass, no shrubs or trees, dusty mess with a bunch of wrecked cars on blocks in it -- very inferior to the "average" home in the neighborhood. And the neighbors house would have to be substantially above average. Maybe in an ultra-premium neighborhood where everyone has their own gardeners, but for the 99% of the homes out there, not so much.
The problem with extensive landscaping is the upkeep. I've done appraisals on homes where the homeowners insisted on giving me a map of the plants and shrubs along with a history of the design and implementation of the landscaping. These people are pretty much professional gardeners, and they enjoy spending 10 hours a week pruning and maintaining -- it's their hobby. MOST BUYERS DO NOT WANT THAT COMMITTMENT. So the fact that you spent $25,000 in landscaping your $150,000 home, while a testament to your love of horticulture, doesn't mean that you will get that much additional value out of it. For most typical subdivisions, I doubt it would get you more than maybe an additional $5,000 in value. Sorry, but that's what the market tends to show.
Now, about that study. I found the synopsis of it here. In a nutshell, they took a picture of a house, then computer-enhanced the yard in multiple designs to show a variety of options; large shrubs, small shrubs, intricate designs, standard designs, etc. They then surveyed people at home and garden shows across the country and asked them how much more they would pay for the different versions than from the base house.
To me that is a pretty flawed methodology. You're asking random passerby for a definitive number concerning a property that is not in their market, that they have no familiarity with, and that they have no particular attachment to -- no "skin in the game". I think most realtors would agree that if you picked up a random person and drove them through a neighborhood and asked them how much they would pay for some of the houses, the difference between that and someone who actually wanted to buy in that neighborhood would be substantially different. Similarly, asking an interested buyer standing in front of two duplicate homes, one with superior landscaping, would likely not get you an offer with a 10% premium.
So in summary, DO NOT tell sellers to spruce up their yard in order to add 10% to it. As most realtors know, you want to be similar to or SLIGHTLY above average to get top dollar. As long as the landscaping is similar to the neighborhood, there is no need to add to it other than some flowers for curb appeal - the "petunia factor". If you enjoy gardening and love to work in the yard, by all means go ahead, just understand that like a pool you will not get a high percentage of your money back out of it, so do it for the enjoyment.
Dear Andrew,
Now that we are a week into May, I wanted to personally thank you for your efforts in regard to creating the Home Valuation Code of Conduct (affectionately known as the HVCC, or "Half-assed Values at the Cheapest Cost" to those of us in the appraisal industry).
But seriously, I applaud your efforts in allowing Fannie and Freddie to get out testifying in the Washington Mutual/eAppraiserIt lawsuit. I mean, what would that have accomplished anyway? Actually proving that the lenders who were pumping our financial system full of suspect loans were well aware of what they were doing? If you had actually prosecuted that case, it might have caused a major financial meltdown that could have collapsed Fannie and Freddie. Good thing you just let them make a deal. Can you imagine if that had really happened?
Anyway, that whole thing with WaMu and eAppraiseIt was silly anyway. I mean, it was only in your lap because the LENDER was pressuring the MANAGEMENT COMPANY (who was of course pressuring their contract APPRAISERS). And of course the best possible solution was to develop this HVCC, which solves that whole problem by having the LENDERS order directly from the MANAGEMENT COMPANY!
Wait a minute, that doesn't sound right, does it? If I'm getting this right, the HVCC, which was set up in response to a lawsuit alleging pressure from a lender to a management company, now essentially forces lenders to order from management companies. Well, at least we know that if the lenders aren't allowed to pressure the appraisers any more, the appraisals will be more accurate since the appraisers can now focus on doing the job correctly without having to worry about all that "pressure".
Whats that? The AMC's only hand out assignments to the appraisers willing to work the cheapest and fastest? Well, that can't be right either. Wouldn't that be an inverse relationship? Maybe I've got this wrong, but I've always told clients that they can get it fast, cheap, and accurate -- pick any two. All three is impossible unless your goal is to be broke and exhausted.
Okay, so maybe you didn't get it all right, but at least you made sure to separate the relationships, so that large lending institutions can no longer own these appraisal management companies. I mean, appraisers have to be impartial, right? Those AMC's can't have Big Brother threatening to take away their sales meetings in Vegas and Christmas bonuses because of trivial concepts like "accuracy" and "impartiality". But what am I worried about, that would never happen, right? I mean, how stupid would some manager have to be to walk down the hall and say "hey, lighten up on those appraisals, we need to meet our numbers this month!" I can see the sign on the wall of the AMC telemarketing department: "The heck with our Wall Street numbers, our goal is accuracy!"
What? Oh, you're saying that is okay for lenders to own AMC's, as long as they have "controls" in place to make sure nothing funny happens. Well, I guess that is okay, if the controls are pretty strict. What kind of controls did you specify for them? None? They can determine their own?
Andy, I've gotta tell ya, I'm starting to get a little worried about this whole thing.
Oh, by the way, I've got a copy of an email that a good client (inadvertently) sent to me. It was a long thread in response to my request for my standard $100 fee for a final inspection. Someone at this LENDER didn't want to pay it, and specifically wrote:"I wonder if we can keep him off the (their partially owned AMC) list so he doesn't get any Conventional orders from us after May 1st? I'll check with my Boss to see if we can use it as leverage against him to do it for free." So I'm really glad that there is no more lender pressure occurring. What a relief!
So in closing, I would like to thank you, on behalf of many in the appraising profession, for everything you've done for us. With Obama now in office, from a tax perspective it's probably a good thing that I make substantially less money this year. Let me know what your next lawsuit/deal is going to be, so I know to stay out of that profession!
Sincerely,
Mike LayAppraisal House Texas
Here is an email I wrote to a good mortgage broker client I've had for the past few years, in response to one from them asking me to please sign up with Fiserv as required by Crescent Mortgage, one of their lenders:
Hi Bob,
Tom also sent me one for Taylor Bean & Whitaker, who is using some company called SecurityOne Valuation as their AMC. Both they and FiServ typically charge the borrower more than I do now, and then only pay the appraiser about $200, keeping the rest for themselves. I actually called SecurityOne to ask what their split was, but was told it was a "case-by-case" basis. They wouldn't even tell me what a typical assignment in my area paid, so I have to assume they are rightly embarrassed by the answer.
AMC's like that tend to get the appraiser with the least experience, or at least those with no other business to speak of, that is pretty much starving and will agree to do it the cheapest (to maximize the AMC's take - they don't reduce the cost to the borrower at all), and will turn it the fastest regardless of the work required to do it properly. And even then, the appraisers that don't "make the number" probably get relegated to the bottom of the call list in favor of the ones who do.
This legislation has essentially just added another layer of bureaucracy to the process - someone else gets paid for doing next to nothing and adding no value to the process. Maybe the next step will be "Appraisal Distributors" that collect the appraisal orders from the lenders and distribute them to the AMC's?
I guess it's good for the mortgage side, as I think you will find that you will get the report back just as quickly, and now the numbers will most likely always work. But chances are the borrower or the lender is getting screwed, as in my opinion it's hard to expect an honest opinion from someone who has to rely on an AMC for their livelihood. Those appraisers out in the country with no competition can live with it fairly easily since they can mandate whatever fees they want, but here in our area where there are a lot of appraisers willing to work for nothing, the AMC's know they have us over a barrel.
However, I would expect that underwriter conditions will go up, and the turn time to get them addressed will be several days since you can't just call or email and say "can you change this one little item". It now needs to be sent to the AMC in writing, who then contacts the appraiser, who fixes it, sends it to the AMC who (theoretically) reviews it, and then sends it back to you.
I, like many appraisers that have worked hard to build a business with hard work, good service, and a quality product, won't work that cheap, nor be relegated to sitting around hoping some AMC will call to offer me what is effectively minimum wage. I am fortunate to have plenty of non-Fannie/Freddie business, so I'm not going to be signing up with any of these AMC's that take half the fee for doing 15 minutes of work.
Anyway, that is my rant on AMC's. I know that it is the lenders requiring it and not you all, and I will miss your business, but keep me in mind for any jobs that are not going to Fannie/Freddie, like FHA appraisals, construction loans, or anything else that comes along.
FYI, if any lenders use AlaMode's XSite for their HVCC compliance, or AppraisalPort.com, I am set up with both of them. They charge me a flat fee of roughly $15 for every report processed which is very reasonable. And I still get my regular fee, which is the way this AMC business should work, IMO.
Anyway, I do appreciate the business we have had for the past few years, and let's please keep in touch. Maybe after a few months of this new business model, the lenders will realize they made a mistake and we can work together again. I will keep my fingers crossed!
Well, the first of two important dates is almost upon us. On April 1st, Fannie and Freddie will require the 1004 MC Market Conditions Addendum with all 1-4 unit property appraisals. And that means most appraisal types, not just the 1004. It also applies to the 2055 (exterior only), 1073 & 1075 (condo forms), 2090 and 2095 (co-op forms), and 1025 (2-4 unit multifamily form). Here is a link to a FAQ's page at FannieMae if you are interested in the details.
Personally I can live with this one. I'm not happy about it, but I can live with it. I think I've got the form down to about a 10 minute exercise. My MLS data is pretty good and easy to search, and so the info is fairly good. However, I sincerely doubt it is going to solve the problems Fannie thinks it will. I've done about 10 of these so far, and I can tell you it is just as easy to manipulate the data as it always was, so the cheaters and liars in our business will continue to do so. The only difference is now the rest of us have to suffer through another 10-30 minutes (or more) of work. And from what I'm hearing from appraisers around the country, no lender is willing to pay any more for it. PERFECT!
And of course we have May 1st bearing down on us, the (theoretical) start of the HVCC. While the NAMB is currently trying to sue to stop it, I have to believe the major damage has been done. There is a great (or depressing, more appropriately) chart here from Alamode that shows the increase in orders through AMC's over the past year. So the threat of the impending implementation forced most lenders to move to AMC's, and why change back if they are already there? I think some will find they miss their old appraisers, while others will get used to the status quo. Let's face it, as long as it makes value, most LO's don't care who does the work.
What I've realized is the most distressing part of this is the "unknown" -- not knowing what will happen in the next 6-12 months for my business. When the legislation first came out last March, there was a Q&A period and then a decision was going to be made in May or June. Then it was pushed back to November. Then a revision came out around Christmas, and a new start date of May 1, 2009. Now the NAMB has filed suit, which may delay it again if they can get in front of a judge in time.
While I would love to see the majority of the HVCC go away, I'm getting to the point where I just wish it were done with either way, so I had a better idea of what the next 6 months or year would look like for my business and could plan accordingly. I've made some moves over the past year to be better positioned for the HVCC if it does go into effect, but I also hedged my bets and did some things that will be beneficial if it gets defeated. The problem is, I can't get fully engaged with any of it until I know what the final outcome is going to be, and I think that is probably the worst of it all.
As a business owner, I want to have a defined plan of action. I will tweak it as necessary month to month, but to make a major shift -- which the HVCC is going to cause some of us -- is not something you can do in a months time without a significant negative impact to your business.
I guess I should have taken that job in the financial products division at AIG, collected my million dollar bonus after flushing the economy down the toilet, and required to my weekend home in the Hamptons. Oh well...
Copyright © 2012 Appraisal House TexasPortions Copyright © 2012 a la mode, inc.Another XSite by a la mode, inc. | Terms of Use| Site Map
