Appraisal Blog

Lately, I have been getting a lot of requests for RETRO appraisal reviews. For laymen, that means that a bank or financial institution dug up an old appraisal and dusted it off to look at the numbers again, usually because they just foreclosed on the home in question and can't sell it for nearly what it was appraised for at the time of the loan.

So, they want another appraiser to review the the appraisal and look at the real estate market in the past to determine if the original appraisal was acceptable, and if not, to provide my opinion of what the value should have been.

This has led me down a walk into the past. I have done retrospective appraisals and reviews before, but usually I only have to time travel a year or two. Lately, I have had to set my time machine back 5 to 6 years, which is kind of scary. I actually had to travel to the MLS office and root through the ancient MLS book to excavate comparable sales, because I found out that all MLS data become extinct on internet after 5 years. Some useful data are lost forever, even from the MLS books, like withdrawn listings that never saw the light of day. I am also sometimes at the mercy of archaic realtor notes in the MLS books that have to do with the condition of a property. I don't even attempt to call anyone - Can you imagine?

"Hello, I'm an appraiser doing a review and would like to ask you a question about a sale you listed 5 years ago." - silence - then - Click.

So I finish the review, agree or disagree, give my professional opinion with supporting data and return to the future.

When I finally finish the mission, I am drained. Traveling to the past is a tough journey. And I know I will be returning sometime soon.

I would much rather travel into the future, like Doc and Marty McFly. It would make appraising so much easier.

Many homeowners (and some realtors) don't realize that when doing an FHA appraisal inspection, the appraiser is required to check certain things that are not typically required for non-FHA transactions. Below are a list of basic things that you as a homeowner or realtor can do to avoid delays and 2nd trips by the appraiser.

1. Electricity and water utilities must be turned on. (It is not the appraisers responsibility to deal with breaker boxes or water utility valves. These utilities should be up and running when the appraiser walks in) 

2. Heating / Cooling must be functioning.

3. Plumbing and electrical fixtures should be functioning properly.

4. Attic must be accessed.

5. Security bars on all bedrooms should be removed, or emergency release latches installed.

Also, if there are any cracks in the foundation or any observable problems with the structure (foundation, roof, wall separation, etc.), it would be helpful to have documentation from a professional to identify and provide opinion on the needed remedy for the issue.

When all of these items are address beforehand, the possiblility of delay is greatly minimized.

It is amazing that some clients still put estimated values on the appraisal orders. One of the reasons HVCC went into effect and now FHA adopting some of HVCC standards, is to give appraiser's more independence and have greater objectivity in completing assignments.

If you are a financial institution and still doing this, please know that you are not "helping" the appraiser by giving us a value to "shoot for". Let us do our job objectively and ethically. Please let your loan officers know that HVCC and FHA strictly forbids any communication about value or any other aspect of the appraisal with the appraiser. We are now told to report any of these incidents to the respective authorities. This may result in cancellation of the order and in extreme cases an investigation.

So, you're watering your lawn, and a notice a car drive by slowly, the driver looking at your house. Suddenly, he / she takes out a digital camera and snaps a photo of your home - and drives off quickly without a word.

What was that - a drive-by shooting?

If you ever witness this strange behavior, don't automatically run for the shotgun. It may be an appraiser just doing his job. Appraisers sometimes are required to take photos of homes that have sold recently to place in the appraisal report. Taking pictures of homes from a public street is perfectly permissable, even if you are not an appraiser. It is understandable to be concerned, and by all means you have the right to investigate. If a property owner is visible when I am taking pictures, I usually get out of my car and explain to them the situation, and they are more than happy to comply. One homeowner even wanted to pose in front of her house!

Many appraisers have a heavy workload and don't want to take the time to do this, which saves time but may result in a city wide chase scene. I prefer to take the time.

Comparable Sales -how are they chosen?

Good question. To answer this, I ask another question. Why are they chosen? Why even have them in the report? Well, it has to do with the very basics of defining value.

After all , what is value? Let's take a bottle of water. Many would pay maybe 70 cents for a nice cold one in the middle of the summer. I probably would not pay more than $1.25. I don't VALUE it that much. But, I think that the VALUE for a bottle of water will be much greater if I found myself stuck for a week in a hurricane ravaged island with no other source. How much would I pay then? $2.00? $4.00? 

I think you would agree that the situation in which we are it makes a difference. In this case, the difference was the lack of supply, and the overwhelming demand I have for water. Another example - look at the enormous VALUE increase of Michael Jackson memorabilia after his death as opposed to when he was still living. Just phenomenal. What changed? Well - there is no more Michael Jackson "moon-walking" around. The supply is gone.

OK. So. We get the idea. So, the thing about houses is - they generally can't be moved. Once they are built - there they are (unless you are Superman). And, as every real estate agent will tell you, location, location, location is the meat and potatoes of marketing your house and eventually the determinant of your sales price.

In the market place, the VALUE of your house is determined mostly by the constant tug of supply and demand in and around your neighborhood. The best way to find out what the average buyer is willing to VALUE your house at is to obtain what buyers have typically paid for similar houses in your area in the recent past. So, ideally, we want to analyze identical homes to the home we are appraising that have sold last month across the street or next door. Unfortunately, this is the real world, and there are differences between homes, some have pools, some are bigger, some are newer, and some might have been foreclosed on and are in need of repair.

So which ones do we choose? The answer lies with, of course, the subject (the house we are appraising) and the market forces in the area. In some markets, there is a huge difference in sales price between a 2 bedroom versus a 3 bedroom home, while in others, there is no value difference at all. Pools can actually be a detraction in some markets where there has been constant shifts in land causing problems, and in other markets they are greatly VALUED. Remeber the water analogy - suppy, demand. What is the demand for? Living area, garage, granite counters, extra bathrooms? This can be different in each market. That is why it is so important to choose comparable sales that are close by - they share the same market forces. We also want to choose homes with as many similar physical aspects as compared with the subject as possible.

I may think that my water softner system and new tankless water heater that I installed last week is what makes my home the best on my street, but average Joe homebuyer may really not care.

If you don't rember anything else about his blog, remember the words of the American writer and satirist Mark Twain, "It ain't what you don't know that gets you into trouble. It's what you know for sure that just ain't so."

When I was freed from the fetters of college, and was clamped to the iron chains of the outside world (little did I know), my father had mercy on me and hired me to manage his clinic. My greatest teachers were my parents, especially my mother, who had managed his family practice since the beginning of time. I observed how she responded to cranky patients, problematic employees, indifferent insurance companies, and egotistical sales peope, and arrogant clients. She was firm, yet listened. She was tough, but relenting. She could be sharp as a knife, and as merciful as only a mother could be. And she had the patience of Job. I knew that these skills took years of develpment, and knew that I had a long way to go.

One of the main traits that I was able to garner from my 8 years of servitude was that through all the trials and tribulations, my parents always exhibited professional respect to every person. Never did arguments turn into insults. Never did they allow a frustrating situation make them exhibit extreme irrational behavior. Through all of the years I worked there, never did I hear yelling or the use of foul language. The style of leadership exhibited from my parents radiated to all in the workplace - employees, patients, sales people, etc.  so that over time, those that entered our medical practice knew the atmosphere and what to expect of every person. They would receive human dignity and respect. They would recieve it through our words, our ears, and our actions. It did not mean that they would get what they wanted; my mom was no push over! But it meant that she would take the time to speak with them, listen to them, and explain things, even if they did not want to hear it.

In the end, my father had a successful practice that he was able to sell for a good chunk of change, and now is enjoying his retirement. The doctor that took the practice over nearly ran it into the ground within a year. That is another story, but I saw the way he treated his employees and everyone else, and I could tell why no one wanted to work with him. He lacked the ability to give respect to those around him.

Learning this trait has been invaluable to me as I deal with borrowers, real estate agents, mortgage brokers, appraisal management companies, builders, and buyers and sellers. Every once in a while, our office gets "The Call" about the appraisal that didn't make the purchase price. Actually, it is a barrage of calls from all parties involved in the transaction, so we get hit from every angle. "Don't you know what you are doing?", "I never have this problem with the other appraisers!", "You are blowing the whole deal!", "You really f------ me up and ruined months of work!" These are the more tame calls we have recieved. I haven't been perfect in all of my responses, but I always strive to do better. These are frustrated responses of people that more than likely have no understanding of the appraisal process. The may think that USPAP is a medical exam, and not the bible that we as appraisers must abide by for every single appraisal. Sometimes, you just can't communicate with them, and a polite silence and "thank you and goodbye" is the best policy. It takes practice. I takes patience (alot of it). It also takes a good amount of humility to listen, and admit that sometimes a mistake can be made (although the appraisal is usually double and triple checked, especially when it does not make the sales price). Many times these callers haven't even seen the appraisal report.

If you're frustrated, It's best to take a deep breathe, and collect your thoughts. Get all of the information before making judgement. Try to understand before being understood. Don't make rash judgements. In this way, you will be well informed, and will appear to everyone (especially yourself) as a professional, or at least a reasonable person.

So, in summary: Be respectful. Getting angry is fine, but don't call me names. Don't insult me. Don't be-little my profession. There is a big chance that I may know what I am talking about.

Better known as the "Drive-by", clients sometimes think that these appraisals are less work and easier than a standard traditional appraisal. Actually, the amount of work at the desk is the same, and in some cases more time consuming than a regular interior appraisal. Why?

Sometimes there the county data has sketchy information about the house, such as room count, year built, gross living area, etc. To verify this, I have to make calls, search other data sources, and sometimes told by the client to "estimate" the data. In some cases, where the lack of data would not produce reliable results, I will decline the order. I would gladly avoid all this by just walking into the house to get clear and accurate data.

Apart from this, the research and analysis, which is the bulk of the work, is identical to interior appraisals. The 1004MC form is still required, as well as all the narrative needed to support client requirements. The only time saving quality of these types of assignments is that I don't have to schedule an appointment and inspect the home, which in relation to the whole, is not a big deal.

So in summary, if you are considering an exterior appraisal, don't assume you are going to get it a day earlier - unless you want a sloppy appraisal. The same amount of blood, sweat and tears are going into the report.

This is our first official company blog. As many in our area know, performing real estate appraisals in the Rio Grande Valley can be challenging, especially in rural areas (which is much of the time!). I would say that more than half of the appraisals we complete, require comparable sales that are "outside the box" when it comes to distance, date of sale, etc. As a result, our report looks more like a narrative than a summary.

I guess the point of this blog is to create a setting for future blogs, which address many of the unique issues in the Rio Grande Valley.

Chow.

Gerry Sauceda