Real Estate Appraisal Between The Lines

Episode 073 - Do Multiple Offers Matter?

2020/21 and COVID have been nothing less than a pain in the back side. To add to the stress, let's throw in multiple offers. Not just one or two, but 43 for one property. UGH!! It is stressful for agents and it is a pain for appraisers, but face them we must.

In this episode, B talks about the significance of multiple offers and why they do matter in this market. He also gets into how to present them to an appraiser. Hint: it is not saying you have them.

Take a chill pill and let's work through this together!

SHOW NOTES

• 01:00 – Multiple offers are out of hand.
• 02:20 – Appraisal process: collect, analyze, and report data.
• 03:35 – Multiple offer situations have changed a lot in recent times.
• 04:45 – Fannie and Freddie want to know what is going on in the market.
• 06:02 – What are market trends doing? Multiple values may show that.
• 06:25 – Definition of market value.
• 08:10 – Multiple offers might show the stability of the current market.
• 09:00 – Agents give appraisers multiple offer information.
• 10:40 – Maybe provide redacted purchase agreement.
• 11:25 – Appraisers must collect, analyze, and report what they find, which include multiple offers.
• 12:01 – Agents help appraisers, "help us, help you." Appraisers have to sell the report and property to the lender.
• 13:20 – Good appraisers want this information and so do lenders.

SHOW LINKS

• Multiple offers - https://www.houselogic.com/sell/how-to-sell-step-by-step/what-happens-when-there-are-multiple-offers-on-a-house/
• Definition of Market Value - https://www.inman.com/2015/03/26/the-difference-between-market-price-and-market-value-in-real-estate/

BETWEEN THE LINES LINKS

Email

[email protected]

Web

brianclee.com

Facebook

https://www.facebook.com/groups/realestatebetweenthelines/

https://www.facebook.com/Brian-C-Lee-111822417027919/?

YouTube

https://www.youtube.com/channel/UCcv4dHU39-b5_QVVCIhbcBA?

Episode 072 - Myth Debunked: Comparable Distance and Date of Sale Rules

Myth Busters is such a good show. Their experiments to prove or disprove various tales. Today B will debunk the myth that an appraiser must comply with distance and date of sale rules when selecting comparables. Spoiler alert: there are no rules that say that.

In this episode, B talks about how the guidelines work and how you can better find comparable sales and even push back a little on appraisers when they stand hardfast on not being able to get past what they think is a "rule."

SHOW NOTES

• 02:00 – "Rules"; Appraiser says, "I can't…"; what they are saying is "I don't know the rule", or "I don't want to…"
• 03:36 – Guidelines versus rules.
• 04:35 – Pending, listing, and expired sales. A prior sale of the subject itself.
• 06:03 – Maybe you do not need to exceed those guidelines.
• 08:07 – Start the search for comparables based upon close proximity and recent sale and then expand the area and time frame.
• 08:55 – Find properties that are comparable and similar to the similar.
• 09:22 – Proximity and recent sale has some validity but does not mean the property is more comparable.
• 10:14 – Examples about lender underwriting request.
• 11:55 – Search market area for comparables. Market area is the area a typical buyer would search for a home when making a purchasing decision.
• 13:10 – Examples of far exceeding distance and time. Geodesic Dome home.
• 15:09 – Don't exclusively search for comparables based upon recent sale or close proximity. Find properties that are similar to the subject.
• 16:45 – Myth: comparable distance and time parameter "rules" is debunked.

SHOW LINKS

• Fannie Selling Guide on Comparable Selection – https://selling-guide.fanniemae.com/Selling-Guide/Origination-thru-Closing/Subpart-B4-Underwriting-Property/Chapter-B4-1-Appraisal-Requirements/Section-B4-1-3-Appraisal-Report-Assessment/1032992441/B4-1-3-08-Comparable-Sales-10-02-2018.htm
• Geodesic Dome home – https://pacificdomes.com/eco-living-domes/?gclid=EAIaIQobChMIuqil76Tv8AIVsCCtBh1OyQafEAAYASAAEgJ-j_D_BwE
• Yawkey Way Appraisals – https://www.facebook.com/YawkeyWayAppraisals

BETWEEN THE LINES LINKS

Email

[email protected]

Web

brianclee.com

Facebook

https://www.facebook.com/groups/realestatebetweenthelines/

https://www.facebook.com/Brian-C-Lee-111822417027919/?

YouTube

https://www.youtube.com/channel/UCcv4dHU39-b5_QVVCIhbcBA?

Episode 071 - Appraisal Waivers: Worst Idea Ever

Kool and The Gang sang the song "Celebration" in 1980. You know how it goes, "Celebrate good times, come on." There is plenty of time for that in a real estate transaction when the closing is finished, but don't celebrate an appraisal waiver.

Appraisals serve a vital purpose in the real estate transaction. One that protects your client. An appraisal waiver serves only one party, the lender, NOT your client. In this episode, B dives into what an appraisal waiver does and does not do, and how you might be doing your client a disservice by celebrating that waiver.

SHOW NOTES

• 00:45 – Be nice to each other! We are in this together.
• 01:57 – Agents celebrate appraisal waivers like the Ewoks dancing at the end of Return of the Jedi.
• 02:45 – Pros to a waiver: save time, money, and avoiding the "low" appraisal.
• 03:30 – Does the appraisal waiver serve your client.
• 04:45 – What is an appraisal waiver?
• 06:00 – Appraisal waiver is based around a Zillow estimate.
• 07:25 – Appraisal waiver only serves the lender, not your client.
• 09:05 – What is best for your client? Have a conversation with your client about what is happening.
• 10:45 – Agents have a negative opinion on the appraisal process, but that is not a good reason because you will likely get a good appraisal.
• 11:50 – Appraiser is unbiased and not out of emotion. We help clients make an informed, financial decision that is well informed. Helps avoid buyer's remorse.
• 13:34 – What are your client's short-term and long-term plan for the property.
• 15:45 – Advocate for your client; an appraisal does have value for your client to help them make an informed decision.

SHOW LINKS

• Star Wars: ROTJ Celebration (Yub Nub) – https://www.youtube.com/watch?v=np6vAuS0KNs
• Kool & The Gang, "Celebration" – https://www.youtube.com/watch?v=3GwjfUFyY6M
• What is an appraisal waiver? – https://www.firstsavingsmortgage.com/mortgage-blog/what-is-an-appraisal-waiver-and-is-it-right-for-me/

BETWEEN THE LINES LINKS

Email

[email protected]

Web

brianclee.com

Facebook

https://www.facebook.com/groups/realestatebetweenthelines/

https://www.facebook.com/Brian-C-Lee-111822417027919/?

YouTube

https://www.youtube.com/channel/UCcv4dHU39-b5_QVVCIhbcBA?

Episode 070 - Is It Time for a Time Adjustment?

Using dated sales is one of the best indicators of value in many cases. The problem occurs when those sales are dated and/or the markets have changed (increased or decreased) since those sales.

In this episode, B talks about when to consider a time adjustment and how you can go about estimating a legitimate and reasonable percentage of change.

SHOW NOTES

• 01:56 – How can values increase if appraisers use dated sales?
• 03:15 – Time adjustments make up the gap between dated sales and current markets.
• 03:37 – Are time adjustments being recognized? Not just in current markets, but future markets. Are they being analyzed and are time adjustments being applied?
• 04:30 – Dated sales help comply with underwriting requirements. Unique properties that a lender might require.
• 06:27 – Pay attention to supply and demand. When homes sell "slow", is the market stable?
• 07:50 – Recognize the possibility of the increasing, decreasing, or stable market.
• 08:14 – Analyze the change in the market. How much has it changed?
• 09:55 – Look at your MLS to see if they have the ability to provide a system that will help analyze market trends specific to the area around the property you are valuing.
• 10:25 – Search for a group of comparable properties from the specific market. Put it into a spreadsheet. An extremely easy regression analysis.
• 12:10 – Apply the time adjustment. Take annual appreciation, divide by 12 to come up with a monthly change. Multiply that monthly amount by the number of months from today's date to come up with the percent change.
• 13:28 – Should you apply the time adjustment to the contract date or sale date? Huge debate on which date to use.
• 14:15 – Multiple offers can assist in justifying a market increase.

SHOW LINKS

• Easy Regression – https://online.stat.psu.edu/stat462/node/91/

BETWEEN THE LINES LINKS

Email

[email protected]

Web

brianclee.com

Facebook

https://www.facebook.com/groups/realestatebetweenthelines/

https://www.facebook.com/Brian-C-Lee-111822417027919/?

YouTube

https://www.youtube.com/channel/UCcv4dHU39-b5_QVVCIhbcBA?

Episode 069 - Interview with Real Estate Agent Cate Lee

She's Back!! By popular demand, Cate Lee (B's better half and more significant, significant other) is with B to talk about current market conditions, "low" appraisals, and an issue on one of her transaction that B helped save.

SHOW NOTES

• 01:00 – Cate is back with us. B is Mr. Cate Lee
• 02:00 – Update on what Cate has been up to.
• 04:20 – Discussion about "low" appraisals and no shortage of opinion. And sharing a legal description issue that dealt with appraisal issues.
• 05:55 – "Low" appraisal = appraisal that is below the purchase price.
• 08:00 – Preparing buyers and seller for the current market with crazy offers and likelihood of the "low" appraisal.
• 09:50 – Gap shortage language in purchase agreements.
• 10:25 – How many buyer's agents are doing a CMA for their buyer?
• 12:00 – Time crunch can affect the reaction time.
• 13:18 – Stop gap issue. Have conversation with buyer, are they willing to come up with the difference?
• 15:10 – If you want something, you can pay what you want.
• 16:30 – The lender is not willing to loan on a home for more than market value.
• 17:45 – What is time, energy, and memories worth to the buyer?
• 18:25 – What do you do from the seller's perspective?
• 21:00 – Gravy to the seller if the property appraises for more than market price.
• 21:56 – Preparing the appraiser up front: list of updates, comparables, and anything to help support the purchase price.
• 24:00 – When you have multiple offers, give that detail to the appraiser.
• 27:05 – Appraiser needs a lot of info to help support the value for the lender.
• 27:25 – Listing agents: communicate information when you close out properties.
• 27:45 – Cate's issue with a "duplex" property.
• 29:55 – All of the appraisers were right. What report is required.
• 34:15 – [email protected]

SHOW LINKS

www.rubiconrealtor.com

BETWEEN THE LINES LINKS

Email

[email protected]

Web

brianclee.com

Facebook

https://www.facebook.com/groups/realestatebetweenthelines/

https://www.facebook.com/Brian-C-Lee-111822417027919/?

YouTube

https://www.youtube.com/channel/UCcv4dHU39-b5_QVVCIhbcBA?

Episode 068 – What is a Bedroom?

Bedrooms – what a huge source of argument between agents, buyers, sellers, and appraisers. What is a bedroom and does it really matter. Short answer, NO! Let's get into that pesky definition and why that label really doesn't matter.

SHOW NOTES

• 01:10 – What qualifies as a bedroom? No rule.
• 02:10 – Local code might have a "rule" on what qualifies as a bedroom for new construction, remodeling, or permitting.
• 02:59 – Local MLS policy might direct agents how to advertise/disclose what a bedroom includes.
• 03:34 – Unknown "sources" have an opinion.
• 03:49 – In the appraisal world, how does a room affect value? No rules except one with FHA.
• 04:45 – What matters is what the market thinks the room will function as.
• 04:57 – "General" definition of a bedroom: entry door that is closable, closet, second means of egress (door or window), and do I have to walk through one room to get to the second room.
• 07:40 – What would a typical buyer/the market do in this market? Would they use it as a bedroom?
• 07:57 – Newer homes might need to comply the "general" rules.
• 08:36 – Older/historic homes likely don't have a closet and comps are similar.
• 10:12 – What does the market think?
• 10:35 – Basement bedrooms are a thing too. Egress windows, closets and the difference between above and below grade bedrooms.
• 11:40 – So what if it's not a "bedroom"? Room didn't magically disappear. The label might not be a bedroom, but the room exists so it still has value. Functionality is what matters.
• 13:18 – Room has value regardless of its label. Is its value significantly diminished? Probably not.
• 14:25 – Don't get wrapped up in the room's label. Be transparent and disclose what the room includes.

SHOW LINKS

• "Truly, Madly, Deeply" Savage Garden – https://www.youtube.com/watch?v=WQnAxOQxQIU
• MIBOR – https://www.mibor.com/

BETWEEN THE LINES LINKS

Email

[email protected]

Web

brianclee.com

Facebook

https://www.facebook.com/groups/realestatebetweenthelines/

https://www.facebook.com/Brian-C-Lee-111822417027919/?

YouTube

https://www.youtube.com/channel/UCcv4dHU39-b5_QVVCIhbcBA?

Episode 067 – The Appraiser is Unbiased, Until the Dog Bites Him

Bias in the appraisal world is a hot topic right now. In this episode, Brian talks about where a legal form of bias might come into the appraisal process and how you can handle it.

SHOW NOTES

• 00:55 – This episode is not about illegal bias and a future episode will include racial bias with a group of people.
• 03:00 – Bias does come into the appraisal process even outside of fair housing issue.
• 03:22 – USPAP states the appraiser must be unbiased as we are not an advocate for any transaction or a party in the transaction.
• 04:32 – By law cannot be biased based up Fair Housing concerns.
• 05:12 – There is some bias that is inherent in the appraisal process. Bias exists everywhere in our world in all things.
• 06:05 – Conscious bias. Value range sets up bias. We have to estimate the value of the property within the adjusted value range.
• 07:09 – Unconscious bias. Comp selection. What draws the appraiser to choose the comparables they ultimately select for their report.
• 08:36 – Adjustments have unconscious bias.
• 09:40 – Humans have bias in general and prone to persuasion.
• 12:30 – Dog bites tend to leave the appraiser with a bad taste in their mouth about the property.
• 14:10 – Comparable selection will likely be different between appraisers. Based upon objective criteria, but still looking at details that help us make a final decision on the comparables we select.
• 15:10 – Appraisal must conform to underwriting guidelines. Comparables are selected to "sell" the appraisal report to the lender's underwriter.
• 16:35 – Adjustments are hard to substantiate. There is not a book on the adjustment. Are there things that make the property weird?

SHOW LINKS

• USPAP - https://www.appraisalfoundation.org/imis/taf/standards/q_as/taf/qas.aspx
• Conscious vs. Unconscious Bias - https://unleashpotential.ie/conscious-and-unconscious-bias/

BETWEEN THE LINES LINKS

Email

[email protected]

Web

brianclee.com

Facebook

https://www.facebook.com/groups/realestatebetweenthelines/

https://www.facebook.com/Brian-C-Lee-111822417027919/?

YouTube

https://www.youtube.com/channel/UCcv4dHU39-b5_QVVCIhbcBA?

Episode 066 - Dealing with AMCs

Frustrations with appraisers continue to mount up. Most of the time it is likely not warranted, but every once in a while you get a "bad" appraisal. One of the causes of that might be the party ordering the appraisal and that process.

AMCs (Appraisal Management Companies) serve a function, but they have some issues. In this episode, B talks about what an AMC is, what they do, and what they might not be doing. Enjoy!

SHOW NOTES

• 01:06 – AMC stands for Appraisal Management Company.
• 01:40 – Company that manages the appraisal process for the lender.
• 02:25 – Lender must be disconnected from the appraisal process. Illegal activity was happening prior to changes.
• 04:08 – AMCs tend to hire the cheapest contractor (appraiser). Usually, you get what you pay for.
• 05:06 – Payments to appraisers are not always transparent.
• 06:33 – Appraisers that are not from the same area. Do they have geographic competency.
• 07:47 – What can an agent do? Ask lender how they are ordering the appraisal. Are they using an AMC?
• 08:32 – Some lenders do not use an AMC. They use an appraisal panel.
• 09:55 – Good appraisers typically do not like AMCs, they like to be on appraisal panels.
• 11:20 – Get what your client is paying for: a quality report and analysis.

SHOW LINKS

• AMC Theaters – https://www.amctheatres.com/
• AMC Channel – https://www.amc.com/
• Appraisal Management Company – https://www.investopedia.com/terms/a/appraisal-management-company-amc.asp

BETWEEN THE LINES LINKS

Email

[email protected]

Web

brianclee.com

Facebook

https://www.facebook.com/groups/realestatebetweenthelines/

https://www.facebook.com/Brian-C-Lee-111822417027919/?

YouTube

https://www.youtube.com/channel/UCcv4dHU39-b5_QVVCIhbcBA?

Episode 065 - Sunrooms and Square Footage

For some reason sunrooms are a HUGE deal when it comes to square footage. Nearly every week I get a call from an agent or homeowner asking about how they can make their sunroom into square footage. With all the love in the world, calm down about this concern. It is not as big of a deal as it is made out to be.

Sunrooms do add value, so let's take that off the table. Sunrooms and their inclusion in the square footage calculation probably doesn't make as big of a difference as you think when it comes to the valuation of your property.

B sets the record straight on when a sunroom adds to the square footage and more importantly, what it does for the value of the home.

SHOW NOTES

• 01:50 – Challenge agents: don't focus on square footage; most people are conditioned to calculate price per square foot.
• 02:55 – Most people cannot tell the difference in square footage.
• 03:47 – Worry more about the value of the space than the size.
• 04:08 – How square footage is measured. ANSI Standard.
• 04:58 – Space must match the other living area in design, condition, quality, and style.
• 06:50 – Sunroom has value, regardless of whether or not it counts as square footage.
• 08:15 – Break down the home into pieces into just square footage.

SHOW LINKS

• ANSI Standard – https://www.ansi.org/
• House Measurement Specialist – https://homemeasurementspecialist.com/

BETWEEN THE LINES LINKS

Email

[email protected]

Web

brianclee.com

Facebook

https://www.facebook.com/groups/realestatebetweenthelines/

https://www.facebook.com/Brian-C-Lee-111822417027919/?

YouTube

https://www.youtube.com/channel/UCcv4dHU39-b5_QVVCIhbcBA?

Episode 064 - Can You Get a New Appraiser or Appraisal Report?

If I get asked once a day, it seems like its a hundred times a day, "Can I get a new appraiser or appraisal report?" No! No you can't and get over it. Okay, just kidding, but seriously, probably not.

Bad appraisers and bad appraisal reports do happen and try as you might, you can't get them changed. There are a few instances where you might pull off the hail mary and actually be able to change one of them up though.

Listen in to hear if you might have a chance with another appraiser or a new appraisal report.

SHOW NOTES

• 01:00 – Have you ever had a bad appraisal?
• 02:30 – What options do you have to get a new appraiser or report?
• 03:04 – Can you get another appraiser? Dealing with the issue at the beginning of the process.
• 04:02 – Reach out to the lender and state your case. Might make sense if: appraiser is not from the area, competency, or appraisal report type.
• 05:47 – If you can't get the appraiser changed, consider changing the lender.
• 06:23 – Can you get a new appraisal report? Very tough to do. Dealing with the issue after the fact.
• 07:33 – Significant defects in the appraisal: square footage, gross negligence, factual data that is wrong (not adjustments or comparables).
• 09:10 – Don't make the wrong argument. Don't argue items that are opinion. Argue facts.
• 10:00 – "Easy fix", get a new lender. FHA and VA loan issues.
• 11:15 – Don't "blacklist" an appraiser. Might be illegal.

SHOW LINKS

• Dodd-Frank Act – https://www.congress.gov/bill/111th-congress/house-bill/4173/text
• Dumb & Dumber, One in a Million – https://www.youtube.com/watch?v=sxuxJpWnicU
• Dumb & Dumber, One in a Million Talk – https://www.youtube.com/watch?v=mDLoT5sWOmE

BETWEEN THE LINES LINKS

Email

[email protected]

Web

brianclee.com

Facebook

https://www.facebook.com/groups/realestatebetweenthelines/

https://www.facebook.com/Brian-C-Lee-111822417027919/?

YouTube

https://www.youtube.com/channel/UCcv4dHU39-b5_QVVCIhbcBA?