Posts Tagged ‘Real Estate Appraisal’
Fannie Mae Plays Hardball
As we all know, real estate appraisers are the men and women in the field, going from property to property and making evaluations based on years of training and experience, and then reporting these numbers to mortgage lenders to establish property values.
But after receiving appraisals they feel are too high, some lenders have taken to performing desk reviews – appraisals done from a computer. While qualified real estate appraisers are able to perform accurate desk reviews if need be, lenders’ desk review values can be wildly inaccurate. Since there is no on-site inspection, they don’t reflect the condition of a house, they don’t add value for remodels, they’re often lacking information even on room additions, and so forth. Nevertheless, lenders are using desk reviews as justification to reduce appraised values, and sales continue to fall apart.
Fannie Mae has announced that effective September 1, 2010, lenders will no longer be allowed to reduce appraised valuations. Instead, they will be required to contact the appraiser to resolve discrepancies between the appraiser’s value and the desk review value. If the disagreement can’t be resolved on that level, the lender will be required to order a second appraisal.
By: Present Value
Additional reading:
Oil Spill and Property Values
The ongoing oil spill in the Gulf of Mexico has had a devastating effect on the environment, and will likely continue to wreak havoc on the surrounding ecosystem for months or even years to come.
But the spill is also affecting the real estate appraisal market, particularly in Florida. Two of Florida’s property appraisers have asked state lawmakers to allow them to reduce the value of coastal real estate to reflect damage from BP’s oil spill and force BP to make up for lost tax revenue.
Appraisers are elected in Florida, and it’s their job to provide the fairest property values possible to constituents. Chris Jones, one of the elected appraisers, said, “What do I tell the owner of a $1 million house is the value if he can no longer walk on the beach? We want to hold our own citizens harmless and don’t want to put the burden on other taxpayers.” Florida Governor Charlie Crist has been asked to call a special session of the Legislature to authorize governments affected by the spill to revalue property for the current tax year, something that has been done after hurricanes and tornadoes in the past.
The appraisers are seeking permission to reflect damage to property values from the spill in tax bills property owners will receive in November. Under state law, they can’t alter the value assigned to property on January 1 in the middle of the year.
By: Present Value
Not the Appraisers’ Fault, Either
One of our previous blogs, titled “Pointing Fingers,” covered an article written for the Business Insider website in which a real estate agent blamed real estate appraisers for the current mortgage crisis. “Typical,” stated one Massachusetts-based real estate appraiser, who had not read the article but was familiar with the allegations. “I hear that all the time. But you can’t place the blame solely on appraisers, like myself or the guys at Present Value. Some mortgage companies were asking for inflated property evaluations, which is illegal. They even offered incentives for inflated values, which is also illegal. And some real estate appraisers went along with it – again, illegal. That’s what caused the mortgage crisis. And that’s why they passed HVCC.”
The appraiser continued, “It’s important to note that I said ‘some’ in both cases. You can’t say every mortgage company engaged in comp checks any more than you can say every appraiser agreed to the practice. It’s just those few who ruined it for everyone.”
As stated in the previous blog, assigning blame for the crisis does nothing to alleviate it, but it is important to view it from both sides.
By: Present Value
Additional Reading:
Pointing Fingers
Yesterday on the Business Insider website, a guest columnist wrote an article titled “You’re All Wrong. Blame the APPRAISERS For The Mortgage Crisis.” The author, a business broker and commercial real estate agent, stated that real estate appraisers were single-handedly responsible for the current mortgage crisis. One passage reads: “Enter the real estate market of recent: Appraisers, knowingly, breached their fiduciary responsibility by lying about values.”
While everyone is entitled to their opinion, the article cites no specific instances of the alleged fiduciary irresponsibility, nor does it provide any supplementary information to back up the allegations. Without proof, you might as well blame the mortgage crisis on flamingos or leprechauns.
More importantly, blanket statements like this can do a tremendous amount of harm. Taken at face value, it makes all real estate appraisers sound unscrupulous and untrustworthy. And attempting to assign blame does nothing to help the country out of the crisis either.
If anything, the article does underscore the importance of seeking out and using a reputable, licensed, certified real estate appraisal firm. But it does little else.
By: Present Value
Additional Reading:
Working with HVCC Regulations
A recent article in Banker & Tradesman suggests that consumer confidence in the real estate market is coming back. Coming out of the 2009 Realtors Conference & Expo in San Diego, the article indicates that in spite of the decline of the market, buyers are still looking for vacation and recreational properties.
Industry experts, however, still appear to be concerned about issues surrounding real estate appraisals and the unintended consequences of the implementation of the Home Valuation Code of Conduct (HVCC). As we have discussed in other blog posts, the perceived problem is that appraisers, working for appraisal management companies, are often working outside areas with which they are familiar and may not have access to information about specific markets. Realtors argue that as a result of valuations that sometimes are too low, sales have been delayed and even cancelled.
This Banker & Tradesman article provides some interesting suggestions by realty agents of ways to work with the HVCC changes, including providing appraisers with detailed property comparison information and background materials to help appraisers achieve the most accurate appraisals.
As always, Present Value LLC is both an appraiser and an appraisal management company, which means that it can play the role of the third party required by the HVCC changes and save you the step of having to seek out a separate appraisal management company.
By: Present Value
Income Approach
This is the third installment of our series on the various methods used by real estate appraisers to determine property value. Last week, we discussed the sales comparison approach and the cost approach. This post will focus on the income approach.
The income approach generally is used to estimate the value of income-producing properties, including office buildings, hotels, warehouses, apartment buildings, and shopping centers. It is a method of appraising real estate based on the property’s anticipated future income.
The income approach, which is often viewed as the most reliable of the three approaches, is used when reliable financial data is available for recent sales of similar income properties in a given marketplace. The expected annual income of a property is divided by the capitalization rate to determine the market value of a property.
- The capitalization rate is calculated by a property’s net operating income and sales price for the sale of similar properties in a given area or marketplace. If sales of similar income properties in the area can be determined, one can establish a market capitalization rate by averaging the capitalization rate values of area sales.
- To determine the expected annual income of a property, an appraiser first estimates the annual potential gross income for a property, which includes how much rent each unit could generate in the market. The estimates of potential rental rates are generally derived from the current marketplace. The effective gross income for a property is generated by reducing the annual potential gross income by a vacancy allowance amount, which is determined by current market rental conditions for the type of property being analyzed. Additional income is added to the income estimates, including parking fees, laundry fees, and other profit-generating variables. Operating expenses are deducted from the effective gross income to determine the annual net operating income for the property.
It is important to note that when there is insufficient financial data for similar properties in a given market, appraisers may use all three appraisal approaches that we covered over the last three blog posts.
By: Present Value
Recent Articles About HVCC Changes
We’ve written several posts this year about the HVCC changes and how they affect the appraisal industry. You can read those articles here. Over the last two weeks, there have been a couple of articles written about how those changes affect not only appraisers, but home owners.
The Seattle Times published an article that followed one appraiser’s experience of the industry before and after the HVCC changes designed to keep brokers and appraisers from working too closely together went into effect. For this particular appraiser, appraising is a family business and he describes not only his worries for the industry as a whole, but his personal pain as he watches the HVCC changes’ negative effects on the industry he loves.
The article in The Seattle Times briefly mentions the effect of the HVCC changes on consumers, but another article published in the Chicago Tribune goes into a more in-depth exploration of consumers’ worries. This article discusses a man’s experience selling his home in Massachusetts. He had a successful sale, but found that the HVCC rules designed to protect him made the experience more stressful than it had to be.
To read the article in The Seattle Times, click here. The Chicago Tribune’s article can be found here.
By: Present Value
News About HVCC Changes
There was an article in The New York Times last week about the changes to the Home Valuation Code of Conduct (HVCC) that went into effect in May of this year, which we’ve written about here and here. Essentially, the changes say that only lenders can order appraisals and that rather than going to an appraiser directly, they must order appraisals through an appraisal management company.
During the housing boom, appraisers were occasionally under pressure to overlook property defects, which, in turn, contributed to increasing home prices. Ethical appraisers who refused to overlook defects were in danger of losing work and asked for greater enforcement of laws designed to regulate appraising. The HVCC changes were intended to decrease home appraisal conflicts of interest by putting the entire appraisal process in the hands of those most at risk of losing money – the lenders. But the changes designed to solve one problem seem to have created a whole host of other problems. Some real estate agents argue that the changes block home sales and are asking for the changes to be suspended until 2011. Some appraisers feel that the changes, which were meant to help ethical appraisers, actually hurt them by driving business to inexperienced appraisers.
The changes are fairly new and it remains to be seen how they will affect the industry in the long run. To read the full article and learn about the opinions of those affected by the changes, click here. To read a previous post about how these changes affect Present Value, click here.
By: Present Value
New HVCC Appraisal Rules Blamed for “Destroying the Housing Market”
A recent AP article contends that there is strong backlash against the new Home Valuation Code of Conduct (HVCC) rules that were enacted on May 1, 2009.
“The new guidelines bar mortgage brokers from ordering appraisals themselves, forcing them to do so through a mortgage lender. Lenders may order appraisals through in-house staff or appraisers hired by outside firms known as appraisal-management companies. But neither may talk to the appraisers about the value of the property they’re evaluating.”
Players in the real estate market, including realtors, homebuilders, mortgage brokers, and some appraisers, argue that the rules have created a number of problems, including the undervaluation of properties and delays in sales closings.
The changes state that rather than going to an appraiser directly, lenders must order a real estate appraisal through a third party, such as an appraisal management company. The new HVCC appraisal rules were put in place to prevent conflict of interests that led appraisers to inflate the value of a property, which have been partially seen as responsible for the current crisis in the real estate market. As part of a settlement between New York Attorney General Andrew Cuomo and Fannie Mae and Freddie Mac, the policy was intended to eliminate the pressure appraisers might be under by lenders and brokers to overinflate property valuations to increase profits.
Organizations like The National Association of Mortgage Brokers and The Appraisal Institute have come out against all or portions of the new regulations.
You can find Present Value’s other blog posts on HVCC here.
By: Present Value
The Appraisal Foundation Announces 2010-2011 Edition of USPAP
On June 9, 2009, The Appraisal Foundation, a congressionally authorized nonprofit organization that fosters professionalism among appraisers by setting qualifications and standards, announced that its Appraisal Standards Board (ASB) adopted revisions for the 2010-2011 edition of the Uniform Standards of Professional Appraisal Practice (USPAP). USPAP are the generally accepted performance and ethical standards for the appraisal profession in the United States. Standards are included for real estate, personal property, business, and mass appraisal.
The new edition is expected to be available in October. However, ASB has issued a Summary of Action that will enable appraisers to become familiar with the changes that are part of the 2010-2011 edition. The changes will take effect on January 1, 2010.
The majority of revisions were made to the ETHICS RULE, the COMPETENCY RULE and STANDARD 3: Appraisal Review, Development and Reporting.
Two of the most significant changes are as follows:
- “A requirement was added to the Conduct section of the ETHICS RULE, stating that, prior to accepting an assignment (and if discovered at any time during the assignment), an appraiser must disclose to the client and in the report certification any services regarding the subject property performed by the appraiser within the prior three years, as an appraiser or in any other capacity.”
- “The appraiser’s obligation to allow a client access to his or her workfile when providing a Restricted Use Appraisal Report was removed.”
Present Value is a certified appraisal company and provides USPAP-compliant appraisal reports.
By: Present Value
Recent Posts
Categories
- Appraisal Terms
- Asset Inspection
- barcoding
- business appraisals
- business broker
- Business Valuation
- Buying a Business
- C Corp to S Corp Conversion
- Case Study
- Certified Machinery and Equipment Appraisers
- Custom Appraisal
- economic stimulus package
- equipment appraisal
- Equipment Auctions
- estate planning
- Fannie Mae
- FHA Loans
- Freddie Mac
- Goodwill
- HVCC
- Intellectual Property
- Inventory appraisal
- Inventory Control
- inventory management systems
- investors
- lenders
- loans
- Machinery & Equipment
- Machinery & Equipment Appraisal
- present value
- Press release
- Public-Private Investment Program
- Real Estate
- Real Estate Appraisal
- Sample Reports
- SBA
- SBA SOP changes
- small business
- Small Business Administration
- small business loan incentives
- succession planning
- Tax issues
- Uncategorized
- Valuation Fraud
- Videos
Tags
Recent Comments
- Mortgages Home on Private Mortgage Insurance
- Highlight approved before making offers | Car loans Blog on The Importance of Inventory Appraisals and Asset Verification Services for Businesses and Lenders
- Selling your Business Step by Step Process on Four Methods to Determine a Property Value
- Home Equity Loans in Las Vegas | Shoppings Blogs on Four Methods to Determine a Property Value
- Casey Lafera on Small Business Lending Still Considered Sluggish, According to Federal Reserve