Real Estate Appraisal Between The Lines

Episode 063 - Are Your Lights On?

Agents, how many times have you had to delay a closing because of that doggone appraiser? Okay, it was a rhetorical question. However, one of the reasons for the delay might be you.

Most lenders and loan types require certain elements of the home to be viewable and operable. FHA and VA certainly make that clear in their requirements.

Instead of rushing to get the home ready at the last minute for a closing, follow these few steps to save you and your clients time, money, and heartache.

SHOW NOTES

• 00:50 – Is your home ready for the appraiser?
• 01:35 – Home is winterized, and it makes sense, but causes an issue
• 02:20 – FHA and VA minimum property requirements (MPRs). Utilities must be on and mechanical systems must be operable.
• 03:32 – Attic and crawl must be viewed. Tips on how to make that easier.
• 05:35 – Conventional mortgages will require utilities to be on.
• 06:30 – Not preparing the home can be detrimental.
• 06:58 – Appraisal will be required to revisit the property, which causes two issues: reinspection fee and cost, and additional time delay.
• 09:05 – May seem inconsequential but the additional cost and time delays can really affect your clients.
• 09:28 – Not doing this may leave the appraiser with a "bad opinion" or "bad taste in their mouth" about the property.
• 10:17 – Email B if you would like an appraisal inspection preparation checklist.

SHOW LINKS

• Make your Home Ready for Appraiser – https://nlcloans.com/trd_post/10-easy-ways-to-prepare-your-home-for-appraisal/
• VA MPRs – https://www.veteransunited.com/valoans/understanding-the-vas-minimum-property-requirements/
• FHA Cosmetic vs MPRs - https://www.mckissock.com/blog/appraisal/cosmetic-vs-mpr-repairs-guidance-for-fha-appraisers/
• Conventional mortgages require utilities – https://www.investopedia.com/home-appraisal-checklist-5085295

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 062 - Purchase and Refi Values are the Same, Right?

I am sure you have seen it and or had the question posed to you: Why is my refinance appraisal value so much different than the appraisal value from my purchase? It doesn't make sense does it? Is there some policy or requirement that makes them different? The short answer is no, but the long answer may surprise you.

In this episode, Brian talks about why there is a difference and things to look for when this issue comes up.

Cate's side note tangent, if you are reading these notes and happen to notice, Brian messed up (it's his one time allotment per year). He said this was episode 61, not 62. If you are one of the first 10 people to call him out on via email, he will send you a $5 gift card to Starbucks. That will teach him!

SHOW NOTES

• 00:50 – What are purchase appraisals and refi appraisals different? B doesn't know. They shouldn't be but we know they are.
• 01:43 – Here are a few reasons: purchase has a "target" number, which is the purchase price.
• 02:36 – Lender's perspective is only concerned about is if the property is worth at least what the home is being sold for. Some appraisers look at the purchase price as the target.
• 05:10 – Not a good reason, but a reality.
• 05:25 – Refinance appraisals do not have a target. Refi for rate or term or remove PMI. Your home is worth what your home is worth.
• 06:20 – Some appraisers rely on the purchase price as a crutch and if they don't have it, they don't know the value of the property.
• 06:50 – An example of where a refi value number is worth questioning.
• 08:29 – Having a target can be a big reason for the value disparity.
• 08:58 – Appraisers get push back from lender. Underwriter didn't like data or the report, so they might "cut" the number.
• 09:30 – Not good answers, but the answer nonetheless.
• 10:00 – Not all appraisers are the same either and understand the process.

SHOW LINKS

• Appraisal Target? – https://activerain.com/blogsview/4736638/do-appraisers-need-a-target-to-determine-a-home-s-value-
• The More You Know - https://www.youtube.com/watch?v=GD6qtc2_AQA

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 061 - FHA Well Setbacks and Other Tall Tales

FHA minimum property standards can be tedious, annoying, confusing, and wrong. Wait? FHA has it wrong? It's not that they have it wrong, it is that they know they don't know everything, so they rely on the appraiser to discover certain elements and verify with local authorities on those issues.

One of those issues lately has been well distances. That rule is so misunderstood and misquoted. Brian helps to set the record straight and maybe it will help you on your next deal.

SHOW NOTES

• 00:48 – Something is in the air with well heads.
• 01:40 – FHA and VA: MPRs (minimum property requirements). FHA 4000.1 handbook. Relatively similar.
• 02:45 – Some rules from FHA and VA are requirements that cannot be ignored. Lead paint is an example. Mechanical systems must be operable.
• 03:45 – Some requirements have some flexibility. FHA rules on a well head placement.
• 04:25 – FHA says the well head must meet three distance requirements: 10' from property line, 50' from septic tank, and 100' from leach field/finger system.
• 05:35 – Are those requirements really a requirement? Local code supersedes FHA rules.
• 06:55 – Look for a permit as that will wash FHA's hand clean of this issue and FHA will allow the setback requirement to be less.
• 07:15 – Handrails issue with a drop from the deck to the ground is 18" or less. Local code supersedes FHA and FHA will bend.
• 08:00 – The reason for this is that FHA rules are in effect for all 50 states in those cases where there is not a local code that address these issues. If there is not a code or requirements locally, then FHA's rule is in effect.
• 09:23 – Agents or the appraiser can call the Atlanta Home Center or the VA Cleveland office to verify this information.

SHOW LINKS

• MPRs, Minimum Property Requirements – https://www.investopedia.com/articles/mortgages-real-estate/11/fha-minimum-property-standards.asp
• FHA Handbook 4000.1 – https://www.hud.gov/sites/dfiles/OCHCO/documents/4000.1hsgh_Update9.pdf
• FHA well setback requirements – https://www.ovmfinancial.com/well-and-septic/
• FHA Atlanta Home Center – https://www.hud.gov/states/georgia/working/atlantaoffice
• VA Cleveland Office – https://www.benefits.va.gov/cleveland/

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 060 - Appraisal Bracketology

Just like any good March Madness fan, appraisal bracketing can make or break you. Setting lower and upper limits on homes, elements, and adjustments can help you to better support your opinion of value.

Valuing of property is tough. Learning the technique of bracketing can help make the complicated task of valuation a little easier. Stick with this concepts and you will feel more comfortable with your CMAs. Oh...and GO HOOSIERS!!

SHOW NOTES

• 00:40 – What is bracketology?
• 01:15 – B is an IU Hoosiers fan!
• 02:09 – What is bracketing? Hard to find comparables with every element that is the same as the subject property. Instead, find two comparables where one is "better" and the other is "worse".
• 02:55 – Square footage example. Subject is 1,500 square feet. Find comparables that bracket that element: one is 1,650 and one is 1,350 so one is bigger, and one is smaller.
• 04:03 – What can you learn from bracketing? Helps show marketability for the elements. Better shows that an element is "normal" for an area. If all comparables are bigger than the subject, that is an indication that the subject is under improved and is an issue. It can go the other way with all comparables are smaller, the subject might be over improved.
• 05:25 – Bracketing helps set the range. Focus on bracketing the home. Find homes that are better overall (sets a price ceiling) and worse overall (sets a price floor).
• 06:56 – Bracketing helps with adjustments. Lower price properties should adjust up, and higher priced properties should adjust down.
• 08:27 – Ideally, bracketing helps the adjustment process to get the comparables to "meet in the middle" and better support your value opinion with a tighter adjusted value range.
• 08:40 – Do not use all better comparables and adjust down, or all worse comparables and adjust up.
• 09:40 – More to this process but understanding the basics of bracketing can help you support your opinion and come up with better adjustment numbers.
• 10:04 – Bracketing is not science, but when you use it will, bracketing will help show you know what you are doing.

SHOW LINKS

• 2021 NCAA Basketball Tournament – https://www.ncaa.com/news/basketball-men/article/2021-march-madness-schedule
• March Madness – https://en.wikipedia.org/wiki/NCAA_Division_I_Men%27s_Basketball_Tournament
• Indiana University Basketball – https://iuhoosiers.com/sports/mens-basketball
• IU and Purdue Rivalry – https://bleacherreport.com/articles/1984366-rivalry-breakdown-indiana-purdue
• Appraisal Bracketing – https://mcappraisals.net/appraisal-information/what-is-the-concept-of-bracketing-in-an-appraisal/#:~:text=Bracketing%2C%20as%20defined%20in%20The,a%20group%20of%20comparable%20sales.

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 059 - Are All Appraisal Reports the Same?

Last episode we discussed how appraisers are different. In this episode, Brian discusses different assignment forms, and gives some cautionary advice on why it is important to know how different reports and forms can change the appraisal process. Hint: they can affect the value and the entire perspective on the valuation of a property. You have been warned!

SHOW NOTES

• 01:30 – Many variables that change the appraisal report.
• 01:36 – The most common is the URAR, Fannie Mae form 1004.
• 02:18 – Other forms you might see: Condo, Manufactured Home, 2 to 4 Family, Operating Income and Rent schedule
• 02:54 – More controversial forms that exist. They can be used but be aware of them and their pitfalls.
• 03:19 – Exterior Only form, 2055. Not just a drive-by approach but is subjective on how the exterior viewing occurs. Won't see the interior items like room count, quality, condition, and other elements inside the property.
• 05:27 – Desktop report. No one is viewing the property. Sitting at a desk and valuing property.
• 06:17 – Most controversial is the 1004P. Hybrid or Bifurcated appraisal. One person that is not licensed views the property and an appraiser is in the office writing the report.
• 08:05 – Fannie Mae feels the appraiser's best use is the analysis, not looking at a home.
• 08:48 – COVID-19 has caused lenders and secondary mortgage participants to relax their rules on what an appraiser must do for the appraisal inspection process.
• 10:50 – Agents ask the appraiser what type of report are you writing? Are you going into the home?
• 11:30 – Ask the lender what type of report they are ordering or will allow. Lender might be okay with a desktop or hybrid inspection, but you and your client might not be okay with that choice.

SHOW LINKS

• URAR – https://en.wikipedia.org/wiki/Uniform_Residential_Appraisal_Report
• 1004P Form – http://www.workingre.com/fannie-mae-plans-massive-changes-to-appraisal-process/
• VA Protocol for COVID-19 – https://www.benefits.va.gov/HOMELOANS/documents/circulars/26_20_11.pdf
• Fannie Mae Protocol for COVID-19 – https://selling-guide.fanniemae.com/Content-Management-Labels/KB-Management/Guide-FM-com/1809017161/COVID-19-FAQs-Appraisals-12-16-2020.htm#:~:text=The%20temporary%20COVID%2D19%20appraisal,a%20no%2Dcash%20out%20refinance.

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 058 - Are All Appraisers the Same?

Appraisers tend to get lumped into the same category of other professions that are considered "bad". Is that fair? Brian has a take that might help change your mind. Not all appraisers are the same but for reasons that some might not consider.

This episode gets into how and why appraisers are different, both good and bad. From license type to training, education, and property type all set appraisers apart from each other.

Understanding why appraisers are different can help you when encounter a difference of opinion or when you hire an appraiser for a specific job. Enjoy the episode!

SHOW NOTES

• 00:40 – Are all appraisers the same? B's wife might have an opinion on this topic.
• 01:00 – Not all appraisers are the same but for reasons that might surprise you.
• 01:55 – License type: trainee license; new licensed appraiser that needs training and supervision.
• 03:52 – Licensed Residential Appraiser: licensed to appraise residential real estate up to $1,000,000.
• 04:38 – Certified Residential Appraiser: licensed to appraise anything residential and some light commercial property.
• 05:18 – Certified General Appraiser: licensed to appraise anything; typically, only focus on specific property types.
• 06:09 – Appraiser designations: Appraisal Institute – MAI & SRA.
• 07:08 – Other education and background: college degrees are relatively new; what is their degree in?
• 08:44 – Other real estate experience: broker, instructor, construction, and other real estate background.
• 09:12 – By far the biggest difference in the difference in appraisers is their training and their mentor. Lack of training is an indicator of poor appraisal practices.
• 11:43 – Does the supervisor attend all inspections? They should up front and for specialty properties.
• 12:14 – Continuing education needs to be more than a requirement. Take classes that help the appraiser learn.
• 13:12 – Property type separates appraisers from each other too. Background and experience in specific property types will fit in with some appraisers but not all.
• 14:34 – Assignment type: court, lending, income tax, property tax. Some appraisers are well suited to take on some assignment types and not others.
• 15:20 – Client expectations can make appraisers different. Appraisers fall into a rut with one type of client and gets lazy.

SHOW LINKS

• Appraisal license types - https://www.mckissock.com/faqs/article/what-are-the-appraisal-categories-and-what-types-of-properties-can-they-appraise/
• John Snell – https://www.linkedin.com/in/john-snell-8a8b0a14/
• Appraisal Institute – https://www.appraisalinstitute.org/
• Traci Ostendorf – https://www.ostendorfappraisals.com/StaffProfiles.aspx?ID=20190
• Appraisal Assignment Types – https://en.wikipedia.org/wiki/Real_estate_appraisal

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 057 - How to Make Agents Mad 101

Appraisal licensing classes are so much fun, but none are quite nearly as exciting as How to Make Agents Mad 101. In that class appraisers learn various techniques to really get under the skin of real estate agents. Wait! There is no such class, but I'm convinced agents think there must be that curriculum in appraisal education.

It certainly may seem like with different values, adjustments, and answers, but we really aren't trying to make people mad at us. It can be frustrating, but once you understand more about the process, rules, and guidelines, it does make a little more sense. Listen in to hear about the things that made agents mad about appraisers and what they produce.

SHOW NOTES

• 00:57 – How can appraisers make agents mad? Appraisers go through many classes and none of them are how to make agents mad.
• 02:25 – Why are values and adjustments different? Conventional versus FHA appraisal with different numbers. Adjustments for adjustments.
• 03:26 – Appraisal is an unbiased, credible, opinion of value. Unbiased: we don't care about your transaction as our client asked the appraiser to come up with a value to rate risk.
• 04:07 – Opinion: one person's opinion as this time and type.
• 04:40 – Agents are biased. You are an advocate. You are supposed to get best price for your client.
• 05:10 – No set process to the appraisal process. No adjustment book that all appraisers use. Some rules that all appraisers follow.
• 06:02 – Different rules for different lenders, loan, and appraisal types.
• 07:15 – Appraisers look at the rules differently.
• 07:42 – Appraisers are not the enemy of the agent. Most appraisers are not out to get you or make you mad.
• 08:33 – It takes more time and energy when the appraiser comes in "low".
• 09:15 – Like agents and pizza, not all appraisers are of the same quality.
• 10:32 – You get what you pay for. Quality is worth the money.

SHOW LINKS

• Evil laugh – https://www.youtube.com/watch?v=7edeOEuXdMU
• Unbiased opinion of value - https://www.reddit.com/r/Showerthoughts/comments/ah2tqm/unbiased_opinion_is_an_oxymoron/

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 056 - Do I Need An Appraiser?

Why do we subject ourselves to the pain and agony of hiring an appraiser? Short answer – Worth it! Long answer – They really are worth it when you need them!

You don't always need an appraiser for certain situations, but it sure helps to have an unbiased, credible, valuation professional complete tasks when they are needed.

There are many reasons to hire an appraiser and we talk about some of that in this episode. Hold your judgement and hear me out. Appraisers do add value to your valuation needs.

SHOW NOTES

• 01:28 – Most agents only think of the appraisal need with the lender and the borrower's loan.
• 02:05 – Different definitions of value for different uses.
• 02:22 – Different reasons for an appraisal: FSBO pricing; Cash purchase; Listings; Pricing dispute between the listing agent and seller.
• 03:50 – Legal reasons for appraisals: Divorce; Probate.
• 04:22 – Improvements analysis for remodeling or adding on to a home.
• 04:40 – Tax Reasons: Income, property, and estate taxes.
• 05:15 – Analogy: You wouldn't hire a general medical practitioner for brain surgery. Agents do not specialize in valuation. Appraisers are the specialist.
• 06:22 – Appraisers complete a lot of analyses. Trends, comparables, adjustments. Appraisers add credibility to the value.
• 07:20 – Appraisers are unbiased. Divorce example. Listings. Appraiser's "don't care" about your situation.
• 08:52 – Appraisals are not always needed. A CMA works for general idea.
• 09:31 – An appraisal was just completed and you might be able to use it for another purpose such as tax appeal.
• 10:02 – BPO is a middle grade valuation. CMA is generally at the bottom of detail. Appraisal is at the top, and BPO is in the middle.
• 10:45 – A good appraiser will turn away work if the client doesn't really need it.
• 11:10 – An appraiser brings A LOT to the table.

SHOW LINKS

• Definitions of Value – http://www.duncanbrown.com/definitions-value
• CMA – https://www.realtor.com/advice/sell/understanding-the-comparative-market-analysis/
• BPO – https://en.wikipedia.org/wiki/Broker%27s_price_opinion#:~:text=A%20broker's%20price%20opinion%20is,estate%20agent%2C%20broker%20or%20appraiser.&text=The%20final%20BPO%20is%20used,of%20a%20real%20estate%20property.

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 055 - Don't You Know the Rule?

Rules. Ugh!! The world would be so much better without them in same cases. As I talked in the last episode, there are many regulations. The problem is that many appraisers, lenders, and agents misquote them, misunderstand them, or just flat out make them up.

In this episode, I get into rules and guidelines, and the sources of that information. I finish up talking about how to work through issues when someone "knows the rule."

SHOW NOTES

• 00:30 – Friendly neighborhood appraiser, not your enemy.
• 01:00 – Building off of the last episode, I talk about "rules."
• 01:10 – Rule versus Guideline. "The rule says ."
• 02:06 – Rule: I must follow. Cannot deviate from that rule. If I don't, the appraisal report will not qualify for a loan.
• 02:53 – Guideline: I would like to have . A suggestion, preferred item.
• 03:22 – I break the guidelines, but I don't break any rules.
• 03:40 – Most of the "rules" are not rules, they are guidelines. Example: time, distance, and adjustment "rules."
• 04:25 – There are rules some of the time, but most of the time it is a guideline.
• 04:45 – Quoting the wrong source is quite common.
• 05:40 – USPAP doesn't require comparables, scraping and painting, or adjustments.
• 05:55 – USPAP says find data, analyze the date, and report the findings.
• 06:30 – Frustrating when an appraiser calls a guideline a rule or quotes is from the wrong source.
• 07:10 – There are some rules and sources for this information. Agents probably don't know.
• 07:40 – Agents: ask the appraiser to show that rule and the source.
• 08:19 – Anecdotally the appraiser cannot provide the rule or source because it does not exist. It is more likely to be a guideline.
• 08:50 – Han Solo: "Don't get cocky, kid!"; be respectful to the appraiser.
• 09:28 – Know the difference between a rule and a guideline. When the appraiser says there is a rule, ask them to cite the rule and source.

SHOW LINKS

• Rule versus Guideline – https://wikidiff.com/guideline/rule#:~:text=As%20nouns%20the%20difference%20between,a%20regulation%2C%20law%2C%20guideline.
• "Don't get cocky, kid!" – https://www.youtube.com/watch?v=nN9xsFUsPqM

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 054 - Valuation Regulations

I know, I know! No one likes to talk about the law, requirements, and regulations...unless that is if you are an appraiser and have a podcast. Agents have it easy with almost no regulations. Meanwhile, appraisers have plenty. The rules can be frustrating for appraisers and agents. Instead of being mad about them, learn what they are to get better results. In this episode, I talk about some of those regulatory bodies and what appraisers and agents are up against.

SHOW NOTES

• 00:39 – Last episode, this episode, and the next episode are "tied" together to set up the bigger picture issues.
• 01:28 – Agents have it "easy" from the valuation process with almost no regulations in that realm.
• 02:20 – Appraisers have many regulations that go into how they come up with their value estimate. Agents typically only look at the number and any required repairs, but there is so much more in the report.
• 03:05 – We don't need to get into the "weeds" on the rules, because they are not applicable to agents. It is worthy to be aware of the general principles and who the regulators are.
• 03:28 – USPAP: Uniform Standards of Professional Appraisal Practice; the appraiser's "bible". Does not talk about adjustments or comparable selections.
• 04:25 - URAR and other reports made by Fannie Mae and Freddie Mac. They have expectations of what they want to see in a report.
• 05:20 – FHA and VA have their own rules that get into what to inspect and note.
• 05:48 – Underwriting overlays: every loan has appraisal criteria that they expect to see in the appraisal report.
• 06:25 – Important to know because lender is taking on risk, and the appraiser must "sell" the appraisal report to the lender.
• 07:00 – If my report does not match up to the regulations and requirements, the report will get through underwriting and your client will not get the loan.
• 07:30 – Appraisal practice is complicated. Your CMA may show a number but it will not make it through the lender's muster.
• 07:50 – Give appraisers a little bit of a break. We are not your enemy. We have to write a credible report that the lender will accept.

SHOW LINKS

• USPAP – https://www.appraisalfoundation.org/imis/TAF/Standards/Appraisal_Standards/Uniform_Standards_of_Professional_Appraisal_Practice/TAF/USPAP.aspx
• URAR Report – https://singlefamily.fanniemae.com/media/12371/display
• Fannie Mae – https://en.wikipedia.org/wiki/Fannie_Mae
• Freddie Mac – https://en.wikipedia.org/wiki/Freddie_Mac
• Underwriting Overlays – https://gofirstnations.com/what-is-an-underwriting-overlay/
• Pass muster – https://idioms.thefreedictionary.com/pass+muster

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?