A huge change in the real estate market has been caused by the changes in the appraisal process and home valuation. More often than not, appraisals are coming in lower than the sale prices, which cause enormous friction between buyers and sellers. This can result in lower sale prices, deals falling apart and a basic stagnation of the market. Since the control has shifting to only the banks ordering appraisal, many good appraisers are out of work. Those that want to continue to eat must stay in the good graces of the lenders. Now, getting a good appraisal depends on having a really good (knowledgeable and experienced) appraiser. Today, I am happy to have a conversation with Vicki Brennan of  VBrennan Appraisals. If you have any additional comments or questions feel free to contact Vicki below.

 

Q. Describe what an appraisal is and what it means to the homebuyer?

 

A.An appraisal is, by definition, “an opinion of value.” The appraiser’s opinion of value is important to the homebuyer because the lender will determine the loan amount for a purchase based on the LTV calculated by using the LOWER of the appraised value or the purchase price. It will also indicate if the buyer is paying the right price.

 

Q. Even though the appraisal is actually based on the opinion of the person doing it, it is based on facts and data. If we were to do two different appraisals on one house, would the value typically come out the same? What are the 3-5 main factors that create the bottom line value?

 

A. The tolerance level for value differences between two independent appraisals on the same property is about 5-8%. The six most important factors in determining the bottom line value are: location, condition, location, square footage, amenities, oh, and did I mention location?

 

Q.  With the crash of the real estate market, appraisals are coming in lower than the purchase price more often than before. Do you find that appraisals [in your area] are coming in lower than purchase prices?

 

A.Yes. The two main reasons for appraisal values coming in lower than purchase prices are: 1) the selection of comparable sales is terribly limited; prior to 2009, a data set of comparables for a “typical” property would include approximately 12-15 sales for an appraiser to analyze/review and then choose three for the report. For the past year the number of transactions has been so low that the data set is sometimes limited to 5 sales and there are foreclosures and short sales among those. 2) Sales concessions seem to have increased and in some markets are a part of almost every transaction (probably a function of the current “buyer’s market” and shortage of buyer down payment funds). If a comparable sale had a sale concession, an adjustment must be applied in the sales comparison analysis thereby lowering the comparable by as much as 3-5% right from the start.

 

Q. Do you see a trend upward in home prices, flattening of the market, or do you think they [prices] will continue to come down?

 

A.It is impossible to generalize as each market area has its own nuances and must be analyzed individually. However I will say that for the most recent 4-6 months the “first time homebuyer” market appears to have stabilized, i.e. the past trend of average sale prices lowering has ended, and I am not seeing the massive oversupply of active listings like we had 8-12 months ago; a definite plateau. This is attributed to the tax credit, low rates, and the fact that the first time homebuyer does not have a property to sell prior to a new purchase. The middle and upper end markets, however, appear to still be struggling as there is less demand for those properties right now. The renewed tax credit should help the stabilization continue. As far as the market “going up” again for properties in all markets, I believe that will occur only when the unemployment rate falls and consumers gain confidence again in the economy and the market. There are not too many families looking right now to “move up” and increase debt.

 

Q. Name a few things that might help make the market go up and a few to make it go down.

 

A. The market going up I talked about above. Will the market take another fall? It’s possible, depending on the number of pending foreclosures that are in the pipeline right now. Between foreclosure moratoriums/suspensions and attempted “default workouts”  in 2008/2009 it is unclear how many foreclosures were merely postponed and will take place going forward.  Every day it seems there are differing statistics announced; “increase in mortgage payment defaults” or “decrease in foreclosures filed.” The number of foreclosures in any area has a direct affect on home sale prices. My prediction? The market will stop declining finally when 1) the foreclosures are really “done” and 2) when the average price of a home in any given market is considered affordable to the average buyer in that market (by underwriting standards the monthly payment for the home will be no more than roughly 30% of total DOCUMENTED monthly income).

 

Q. You have been an appraiser for many years and I know from experience that your work is excellent. What sets a good appraiser apart from a bad one?

 

A. Knowledge of the market and thoroughness are the two main traits. If a lender requests an appraisal in Oshkosh, and you’ve never been to Oshkosh, then either plan to spend a lot of time researching and analyzing Oshkosh, or more wisely, do not accept the assignment. The blame is not to be placed on the lender for sending an appraiser to areas in which an appraiser is not familiar. The appraiser makes the final decision and assumes all responsibility.  Thoroughness – an appraiser must check and double check everything every time, never assume anything, and explain in great detail – it seems no amount of information is considered “too  much” for an underwriter – photos, photos, photos!

 

Q. Do you think that being an appraiser is an art or a science and how has doing thousands of appraisals improved your work?

A. I think it’s a little of both. The science part involves objective items such as data collection, appraisal theory, methodology and good old fashion mathematics. The art portion involves more subjective things like opinion of location influences, appeal of certain style homes versus others and the market value of certain amenities. The thousands of appraisals completed over the years has hopefully helped me meld these two components of  residential appraisal and focus on applying the “scientific results” to the more subjective aspects in order to obtain accurate estimates of market value.

 

Q. What are the greatest challenges for appraisers today?

 

A. On a day by day / per assignment perspective, the lack of comparable sales data has been my biggest challenge lately. On a more global level, the HVCC and changes in underwriting requirements are the two most recent changes that have affected the appraisal business. The HVCC has been written about a thousand times so I won’t go on about it here – suffice it to say that although its intentions were good there have been far reaching negative affects for appraisers that have had honest successful appraisal businesses and relationships for years. Underwriting requirements – the increased amount of narrative information, additional forms (1004MC for example), and additional comparable sales/listings now required have added hours on to the completion of each appraisal assignment without any increase in fees. Enough complaining, I love what I do and would do it for free if I had to (ok, kidding about the free part).  

 

Q. I know you are super busy, which is great. But what do you do to relax after a crazy week of being on the road?

 

A.If the weather is warm I can be found at the beach either kayaking, searching for sea glass or sitting with iPod and NY Times or a good book, for instance “The New Rules for Mortgages” (not kidding, read it one Sunday on the beach and recommended it to a few neighbors). I am also a frustrated chef, so I find relaxation in the kitchen experimenting with new recipes or putting dinner together for family and friends.

 

 

Vicki Brennan is Brooklyn born and a graduate of Fordham University. She currently lives and works in Connecticut so she can be near the beach. Vicki has been in the real estate industry since 1986 and is the President of Vicki Brennan Appraisals. She does appraisals for residential bank loans, estate valuations and foreclosure sales.

 

Visit her Vicki at  www.vbrennanappraisals.comor reach her via email: vbrennanappraisals (at) yahoo.com