CoesterVMS Inside the Mind of the Appraiser 101

What we will cover

•What Appraisers Look for in a Home•How Lender’s Guidelines Effect Appraisals•What They are required to report back•How the Inspection Process takes place•FHA Guidelines and Tips•How to communicate with an appraiser

•What to do .•What not to do.•What to never, ever do.

•Valuing Green Improvements•Q&A

What’s inside the mind of the appraiser?

What clients may think….

To Become an Appraiser

•4 Year College Degree from Accredited University•300 Hours of Tested Education Classes (an entiremonth of 9 hours a day)

•3,000 “Logged Field Experience Hours”•Pass a Criminal Background Check•Become an apprentice for 2 years•Take a 200 question test and score an 80% orabove

•Take an FHA test

….then you become an appraiser that doesn’tknow anything…

Communicating with the Appraisers

WHAT YOU CAN DO…. • You can talk with an appraiser

• You can have normal conversations about the property

• You can question the work completed as well asprovide information.

WHAT YOU CAN’T DO….. • What you can not do is try to influence or change the value

• You can not select the specific appraiser you want for a particular assignment.

• You can not threaten them or threaten to withholdfuture work if they don’t hit a value.

What Appraisers Really Look for in a Home

• The specifics aren't as important as the location themarket, location and other unchangeable factors.Anything that can be changed with relative easy is notas much of a factor.

• The biggest single factor is the neighborhood, style ofhome, and the overall renovations.

• Appraisers look for similar "use" that would appeal to a broader audience.

Appraisal Guidelines vs. Lenders Guidelines

Map of US

How Lenders See the US

Guidelines are written to fit theseareas.


• Typical Home

• $273,900

• 2,700 sq ft

• Lot Size 14,680 sq ft

• 3 Bedrooms

• 2 Baths

• Heated by Gas

The forms

The Creation of the appraisalform was to try and standardize

the way things are reportedback to the lender in an easily

understandable format.

URAR History

The Appraisal Form’s

URAR History

• Revised March 2005

• Grew from 2 pages to 6 pages

• Incorporated former addendum1004B

• Assumptions and Limiting Conditions– 10 to 6

• Appraiser Certifications - 9 to 25

URAR History

To report an appraisal of:• One-unit property

• One-unit property

• with an accessory unit

• Unit in a PUD

• Requires interior inspection

• Requires 1004MC Addendum

What’s Required In the Report?

• Exterior building sketch withdimensions

• Interior dimensions for condo or co-op

• Floor plan if atypical or functionallyobsolete

• Gross Living Area (GLA) calculations

• Street map – subject and comps

What’s Required In the Report?

• Photos– Subject property front, rear and street

– Interior photos of certain areas (detailsbelow)

• Operating Income Statement– Form 216 for investment properties

• Single-Family Comparable RentSchedule– Form 1007 Rent Schedule

– Form 216 when applicable

Determining Market Conditions

Reports

• Comps• Adjustments• Grids• Addendums• Reconciliation• Value

Reports

Reports

ADJUSTMENTS:• Match Pair Analysis

Street Map With Comps

Subject Photos

Comparable Photos

Home Sketch

Condo Sketch

How Accurate?

• It’s not 100% accurate and not designed to be 100% accurate, it’s designed to be a reflection of the general layout of the property.

Who’s going behind the bush?

GLA What?

Inspection and appraisal process

So what's the purpose ofthe form?

To gather all theinformation needed for

the lender in an organizedformat, this is not the

appraisal.

Reports

The appraisal is the valueand certification by theappraiser, anything elseis a lender requirement.

Fannie Mae Guidelines

FNMA Announcement 8-30

Provide Sales Contract to the Appraiser

• The lender must provide the appraiser will all financing data andsales concessions for the subject

• The lender must provide the appraiser with the sale contract andall addenda

• If the sales contract is amended, the amendments must beprovided to the appraiser


Selection of Comparable Sales• Appraiser to provide an explanation as to why specific

comparables were used in the appraisal report when…

• 4 Comparables total

• 2 Comparables within 90 Days

• 2 Listings or Contracts

• Urban – 1 mile

• Suburban – 2 miles

• Rural – 10 miles


Repair Escrow – Existing Construction

• Appraisers reporting the existence of minor conditions or deferredmaintenance items NOT affecting livability, soundness, or structuralintegrity of the property may complete the appraisal with an “as is”status

• Minor conditions or deferred maintenance items to be remedied orcompleted after closing may be escrowed by the lender

• Property must be appraised subject to completion of the specificalterations or repairs when there are incomplete items orconditions affecting livability, soundness, or structural integrity


Appraising the Entire Site of a PropertyClarification – the appraisal must include the actualsize of the site and not a hypothetical portion of the site

Example: Anappraiser may not

appraise only 5 acres40 acresof an unsubdivided

40-acre parcel. Theappraised value must

5 acresreflect the entire 40-acre parcel.


Neighborhood Boundaries• Preferable for the appraiser to provide comparables from the

subject’s neighborhood

• Fannie Mae does allow for the use of comparable sales that arelocated in competing neighborhoods

– Best comparables available and the most appropriate for the appraiser’sanalysis

• The appraiser must indicate the comparables are from a competingneighborhood and address any differences that exist

Understanding FHA and What theappraiser is looking for

What FHA will lend on….

Eligible Properties

• Detached 1-4 units• Semi-detached 1-4 units• Townhouses• Rowhouses• Condominiums• Approved Projects• Spot Unit Approvals

Ineligible Properties

• Commercial Enterprises• Boarding Houses• Hotels/Motels• Tourist Houses• Private Clubs• Bed and Breakfast Establishments• Fraternity/Sorority Houses• Condotels

Eligible

Properties

Ineligible

Properties

Mixed Use Properties

FHA will financeproperties with

minimalnonresidential use…

Mixed Use Properties

•Must be self-sufficient•Net rental > monthly

payment•Net rental income is the

appraiser’s estimate forvacancies OR the vacancy

factor used by thejurisdictional HOC orwhichever is greater

Unacceptable Locations

Hazards

Environmentalcontaminants

Noxious odors

Offensive sights andexcessive noises to thepoint of endangering thephysical improvements

Private Water and Sewer Systems

Appraiser to report if public water and sewer are available.

Lender is to determine feasibilityUsually connection Is considered feasible if the

cost is less than 3% of appraised value.If home has been vacant from 30 days or several

months inspection and dye test will be required.

Private Water and Sewer Systems

Private Roads

Private streets and shareddriveways

Each property must havevehicular or pedestrian access

Road surface over whichemergency vehicles can pass

The absence of these itemsmust be noted

Accessory Units

Habitable living unit addto, created within, ordetached from a single-family dwelling

Accessory units may notbe subdivided orsegregated


Below 100 year flood level

Flood Insurancenot available

Unacceptable area near airport


Not approved

InstabilityEasement


• Three noise zones

• Clear zones

• Accidental potential

zones


• Appraisers who workin CBRS areas mustobtain the appropriatemaps from the U.S.Fish and WildlifeService

• Prohibited areas onthe maps are thoseinside the red areas

The Best Way to Deal with the appraiser

What if your value comes in low

• Submit an Appraisal Rebuttal• Provide supplemental comparables that are

similar to the subject that would meet thelender requirements for standard appraisalpractice.

• Generally speaking pointing out minor errorswill not get the value changed.

It is to…

“Address legitimate concerns with theappraisal in which there is tangible

evidence the appraisal is flawed and theproperty is being misrepresented.”

- Brian C. Coester.

Concerns on the appraisalCould be:

1.Better comparables sales are available that support a differentvalue that are not in the report.

2.Misrepresentation of the property. “I didn’t know the homeownerowned the waterfront lot next to the house”

3.Overlooking key features such as acreage, view, updates, features.4.Lack of appraiser competency apparent in the report.

5.Over conservative appraisal.6.Lack of attention to detail and multiple errors

What Not to do

“This appraisal is horrible, we need an extra 10k to make this work. Callthe appraiser and tell him to change it or never use him again!”

“Appraiser missed a ton of stuff, borrower paid 90k more two years agoand he know its worth at least that we need to order a new appraisal”

“Need more value to close please adjust”

All of these get us nowhere……..

What TO do

“Noticed that the garage adjustment was only 2k and the deals very tight.Can you see if the appraiser can re-look at the garage adjustment.”

“Borrower indicated the appraiser didn’t give appropriate adjustmentsfor upgraded kitchen and bathrooms as you can see from the photos its

in great shape, can you have him look again?”

“Local realtor was able to find 3 additional closed sales that support a20k higher value. Can you send these to the appraiser have them take a

look?

Your Appraisal Inspection Package

• Copy of Fully Executed Contract• List of all renovations and improvements done within 5 years• Any notable features that are not obvious during the inspection

• Copy of Sketch• Copy of PlatMap• Copy of Old Appraisal

• If purchase supply appraiser with comparables the agent used for listing the property.Anything that may be helpful for them to spend more time on the report and not in research.

What appraisers are dealing with in themortgage industry…

How appraisers are looking at Green

• Very Difficult to Value• No Clear Structure in place

• The best is the AI ready energy efficientAppraisal form that adds some data points.

• Biggest issue is lack of Data on comps• About 2 – 3 years from a real solution.

Thank you

Laura HiteMarket TrainerCoester Valuation Management [email protected]

mailto:[email protected]

CoesterVMS Inside the Mind of the Appraiser 101

Real Estate

Transcript of CoesterVMS Inside the Mind of the Appraiser 101