Practical Residential Appraising
Beverly has been hearing for years that she should write a book about appraising. When it comes to understanding the real estate appraisal industry, nobody knows it better than Beverly. People from all different parts of the real estate industry have come to Beverly for her guidance and wisdom. It’s not just appraisers either, nearly every day she gets a phone call or a personal visit at her office from one of the local real estate agents for answers to some of their more difficult questions. Her opinions and knowledge is so valuable that she regularly teaches at real estate offices to escrow agents, title agents, real estate agents, lenders, and even other appraisers. Most recently, Beverly has been told by many people that she should get in to litigation appraising which requires you be the best in the industry. Beverly has been appraising since 1977, has had her SRA designation since 1990, and was the chapter president of the Appraisal Institute in Ventura County, CA in 1992. She is currently a region 7 representative for the Southern California Chapter of the Appraisal Institute.
Well, we already know that Beverly is qualified to write this book, but why did she actually do it? “I felt that there was a need for people in the real estate industry to have an understanding of the appraisal side of things.” “I started out writing this book for new appraisers, but slowly it evolved into a book for anyone trying to further their understanding and knowledge of the industry.”
It's a known fact in the industry that the more educated you are, the higher the likelihood is of you getting new business and maintaining past business relationships. Why is it that people are always so skeptical of working with a first year agent? It’s because the sellers are leery as to their education. Beverly has struggled many times with appraisals due to the lack of education from different parties involved in the transaction. Sometimes it’s the real estate agent, other times it’s the loan agent, sometimes it’s the seller or the buyer, and even sometimes it’s the escrow and title agents.
How about a little bit more about the book? Now, keep in mind, this book is NOT going to teach you everything you need to know about real estate. All this book will do is teach you about appraising in an easy to read fashion. The book follows the format of the Uniform Residential Appraisal Report (URAR), merging the information requested by the designers of the report; the requirements of the Uniform Standards of Professional Appraisal Practice (USPAP); appraisal theory; and opinions and suggestions of the author. Let’s check out a short excerpt from the book:
Sales or Financing Concessions
Per Fannie Mae: “examples of sale or financing concessions include interest rate buy downs or other below-market rate financing; loan discount points; loan origination fees; closing costs customarily paid by the buyer; payment of condominium or PUD association fees; refunds of (or credit for) the borrower's expenses; absorption of monthly payments; assignment of rent payments and the inclusion of non-realty items in the transaction. The amount of the negative adjustment to be made to each comparable with sale or financing concessions is equal to any increase in the purchase price of the comparable that the appraiser determined to be attributable to the concessions.” Per Fannie Mae: “positive adjustments for sales concessions are not acceptable.”
Remember we are appraising to the most probable sales price – based on cash or financial arrangements comparable to cash – not a value based on special financing and added concessions, even in similar financing arrangements and concessions apply to the subject property and some or all of the comparable sales. Adjustments for concessions (as with all adjustments) are not to be a dollar for dollar adjustment, but a reflection on how they affect the market (cash) value of the comparable.
There are two types of concessions: one to help the buyer buy the property – such as a seller paying the buyer’s closing costs; other concessions are offered to lure a buyer to a particular property. A new tract development is seeing sales slide and a shortage of lookers, so they offer a “free” 3 day mini-vacation if you buy. The appraiser needs to determine if the offer is resulting in a higher sales price for the comp (or the subject property), and if so, how much?
In times when concessions are common, the appraiser might need to search out sales without concessions to determine the affect on value for the subject property due to its concessions. Often when new homes are not selling well, the developer will add concessions to facilitate sales and all the comps in the subject development and in competing new developments that might have similar (or accelerating) concessions. Thus adding re-sale homes to the appraisal might highlight the truth.
In times when concessions are normal for new home sales, the appraiser may need to go back in time to determine the premium paid for new homes over used homes as a percentage of sales prices and move that percentage forward for the current appraisal. Another issue with new homes is the cost of added upgrades and lot premium charges. If most buyers are willing to pay extra for these things, is that “market?” I think sometimes it is (within reason) however, those upgrades and premiums may not be held up on the re-sale market. Attentive appraisers might also want to address the issue of lost value to new home improvements on the re-sale market.
It's amazing how much there is to learn in just that one subsection from the book. Keep in mind that was just one subsection of one chapter and there are 12 chapters in the book with several subsections each. There are actually 13 chapters in the book, but the 13th chapter is an explanation of the 2006 USPAP. Even if you're not an appraiser, this information is still very valuable.
Here's a quick rundown of the chapters in the book by their titles:
2. The Appraisal Assignment
3. Prelimiary Work
4. The Property Inspection
5. Writing The Report
6. The Sales Comparison Approach
7. The Cost Approach
8. The PUD Section
9. The Final Reconciliation
10. Advanced Topics/Appraisal Theory
11. Special Appraisal Assignments
12. Defending Your Work
13. USPAP 2006 Simplified
One last thing, like I stated above, being a real estate professional requires not only knowledge in your particular field, but in all aspects of the industry. It's been proven that the people with the most knowledge get ahead, and the ones that don't have the knowledge necessary fall way behind. Don't make the mistake of being an un-educated real estate professional, you're hurting not only yourselves, but the clients you work with and their families.
Just $19.95 for a limited time
