5 things to consider about higher appraisal fees and longer turn-times

Appraisal fees have been going up and turn-times have been getting longer. Why is this happening? Why is it taking longer to get appraisals done? Is there really a shortage of appraisers? Let’s consider a few points below to help think through some of the bigger pieces to this conversation. I hope this will help you better explain the issue to your clients also. Any thoughts? I’d love to hear your take.

appraiser-shortage-by-sacramento-appraisal-blog-image-purchased-and-used-with-permission-by-123rf

5 things to consider about higher fees and longer turn-times:

1) Appraiser “Speculators”: Did you know there are actually 45% less licensed appraisers in California today compared to 10 years ago? This sounds alarming, but is it a shortage? The number of appraisers climbed exponentially before 2007 because the market was good and it was fairly easy to become an appraiser in California at the time. This hefty increase was more about the market though rather than there actually being a need for more appraisers (key point). In fact, many of the appraisers who entered the field were more like speculators hoping for easy money –  but then the economy unraveled. We can’t therefore look at 20,000 appraisers as being a normal or healthy number of appraisers in California.

brea-licensing-numbers-for-appraiers-sacramento-appraisal-blog

2) Rate of Decline Slowing: According to a phone conversation with the Bureau of Real Estate (BREA) last week, in 2009 the state was losing about 190 licensed appraisers each month, and that number is now 34 per month. It’s great news the decline has slowed, but it’s also going to be a big problem if we don’t see the decline stop at some point. The good news is last week BREA actually announced new rules that essentially make it easier to become an appraiser trainee. Now let’s hope lenders/AMCs will encourage trainees to be used in reports (this needs to happen). Of course one factor worth mentioning is we don’t really know how many of the nearly 11,000 appraisers are actually actively working. For reference, the average age of an appraiser in California is nearly 52 years old (73% male and 27% female).

3) Shortage: When talking with BREA on the phone, they said there is NOT an appraiser shortage. Their sense is there are enough appraisers to handle current appraisal volume, though they said certain markets definitely have a shortage (such as rural northern California), while other markets are still saturated with appraisers (they said Orange County and even Sacramento). This reminds us what Jonathan Miller says, that there is NOT an appraiser shortage, but a shortage of appraisers willing to work for low fees.

4) Not Getting All the Money: A loan officer I spoke with was frustrated that his Borrowers were paying $550 for conventional appraisals and $750 for jumbo appraisals – and still experiencing longer turn-times. When he told me the Appraisal Management Company (AMC) he uses though, that’s where the problem comes in. This AMC regularly pays appraisers $350, which means they’re pocketing 40% of the fee the Borrower thinks is going to the appraiser. A few days ago on Facebook there was an appraiser who had an offer from an AMC to appraise a property for $850, but the AMC was charging the Borrower $1,385. Let’s remember appraisers are supposed to be paid “customary and reasonable” fees under Dodd-Frank, but a reasonable fee is what the appraiser gets – NOT what the Borrower pays.

5) Markets Change: The market has been experiencing a correction after years of low-ball fees from AMCs. Maybe some of it is due to there being less appraisers, and we’ll feel that out over time, but before sounding the appraiser shortage alarm, we have to respect the reality that fee markets don’t remain the same forever. For instance, a local architect friend has been so busy lately that he’s been quoting much longer turn-times and “blow off” fees that clients wouldn’t possibly accept (but they are accepting them). We see a similar market change with contractors as they are incredibly busy right now and not taking the little jobs since the big jobs pay more. Keep in mind appraisers are juggling appraisals for purchases, refinances, and private situations. When things get busy, appraisers understandably gravitate toward clients who pay better. This means low-paying AMC clients get dropped and anything that is not a “piece of cake” valuation might struggle to be accepted unless the fee is reasonable. As a consequence this also means AMCs may have to shop for many extra days or weeks to find an appraiser to take on the assignment. It’s not easy to digest this, but we have to respect the way markets move and then change our expectations too. Otherwise we are left feeling entitled to the way things have been when the market is simply different now.

I hope this was helpful.

Recent Woodworking: By the way, from time to time I like to share some things I’ve built so you know I have a life outside of appraising. Yes, I’ve built a few skateboards recently with my oldest son. It’s like re-living the 80s for me.

ryan-lundquist-sacramento-appraisal-blog

Questions: Which points stand out to you the most? What else would you add? Did I miss something?

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Making the numbers say what we want (and a Sacramento market update)

We can make numbers say whatever we want. We see this all the time in the media, politics, and even in real estate. Sometimes it’s a matter of intentionally fudging the numbers, but other times we might be honest about sharing something but actually still get it totally wrong. Today I want to highlight a real life example how we can end up saying something totally different about the market depending on the numbers we’re looking at. Whether you’re local or not, I hope you can take something away from this post. Then for those interested we’ll dive into a big Sacramento market update. Any thoughts? I’d love to hear your take.

Example 1: Sales price to list price ratio:

sold-vs-list-price-percentage-in-sacramento-county

The sales vs. list price percentage is the ratio between the sales price and whatever the most recent list price was before a property got into contract. For example, imagine a property listed at $100,000, was reduced to $98,000, and then went into contract at $98,000. The sales to list price would be 100% (98/98). If we look at this metric alone and see a county average of 100%, it looks like properties are selling for whatever they’re listed for. Woohoo, the market is hot!!!

Example 2: Sales price to ORIGINAL list price ratio:

sales-price-to-original-list-price-in-sacramento-county-by-sacramento-appraisal-blog

The sales to original list price ratio is the relationship between the original list price and the final sales price. For example, imagine a property listed at $100,000 but was reduced to $98,000, and then went into contract at $96,000. The sales to list price ratio would be 96% (96/100). This metric takes into account ALL price reductions, and in my mind tells a more fuller story of the market.

KEY QUESTION: Which one above does your CMA report?

BIG POINT: If we look at the sales price to list price ratio the market seems like it’s NOT softening. But if we take a deeper look at the sales price to ORIGINAL list price ratio, we see properties on average sold for 4% less than their original list price last month. This is definitely a more telling stat because it reminds us how many properties have been overpriced lately. Remember, there were nearly 1800 sales last month, so an average 4% decline is a big stat. But it’s easy to miss that if we don’t know what to look for and end up reporting the first stat above.

—-—–—– And here’s my big monthly market update  ———–—–

big-monthly-market-update-post-sacramento-appraisal-blog-image-purchased-from-123rfTwo ways to read the BIG POST:

  1. Scan the talking points and graphs quickly.
  2. Grab a cup of coffee and spend time digesting what is here.

DOWNLOAD 70 graphs HERE: Please download all graphs in this post (and more) here as a zip file. Use them for study, for your newsletter, or some on your blog. See my sharing policy for 5 ways to share (please don’t copy verbatim). Thanks.

Quick Market Summary: The market feels like it should at this time of year. It’s taking slightly longer to sell than it was a couple of months ago, the sales to original list price ratio has been declining, and prices are softening as the hot summer fades away. This doesn’t mean the market is dull at every price range though. In fact, the bottom of the market under $300,000 is definitely more aggressive than properties above $500,000. Right now housing inventory is 11% lower than it was the same time last year and a whopping 35% lower than it was in 2014. If you remember, two years ago the market felt extremely dull and there were about 400 price reductions every day when logging in to MLS (this year price reductions are hovering around 200 tops every day (that’s for the entire MLS coverage area)). This reminds us some fall markets are softer than others. Sales volume this year has been about the same as it was last year, though it’s important to note FHA is down 6% and cash is down over 8% so far. Celebrity house flipping seminars are coming to town frequently in Sacramento, but keep in mind only 2% of all sales in the region last month were bank-owned, which reminds us low-priced fixer deals on MLS are pretty much a thing of the past. Lastly, there has been lots of talk about the market having shifted or beginning a downturn, but right now the stats look to be showing a normal seasonal slowing. We often hear things like, “the market is starting to tank”, but unless we see a real change in the stats or hear something more definitive from the real estate community about values declining, let’s be in tune with the slowing seasonal market. In case it’s useful, here is a video tutorial I did a couple of weeks ago to walk through the slowing season and what it looked like in 2005 also.

Sacramento County:

  1. The median price is 102% higher than it was in early 2012.
  2. Sales volume was up 8.5% this August compared to August 2015.
  3. There were only 4 sales under $100K last month (single family detached).
  4. Sales volume is up about 4% this year compared to last year.
  5. Housing inventory is 11% lower than the same time last year (only 1.57 months of inventory).
  6. FHA volume is down about 6% this year compared to 2015 (though they were 26% of all sales last month).
  7. Cash sales were only 14% of all sales last month.
  8. It took an average of 26 days to sell a home last month, which is 1 day less than the previous month (and 8 less days compared to last year).
  9. REOs were only 3% of all sales last month and short sales were 2.8%.
  10. The median price increased by 1% from last month, is down 3% from two months ago, and is up nearly 12% from last year at the same time.

Some of my Favorite Graphs this Month:

inventory-in-sacramento-county-since-2013-part-2-by-sacramento-appraisal-blog

median-price-context-in-sacramento-county

median-price-since-2013-in-sacramento-county

price-metrics-since-2015-in-sacramento-county-look-at-all

inventory-august-2016-by-home-appraiser-blog

cdom-in-sacramento-county-by-sacramento-regional-appraisal-blog

sales-volume-in-sacramento-county-since-2012

SACRAMENTO REGIONAL MARKET:

  1. The median price is 98.5% higher than it was in early 2012.
  2. It took the same time to sell last month compared to the previous month (but 8 less days compared to August 2015).
  3. Sales volume is about the same as it was last year at the same time (very slightly more this year so far)
  4. Cash sales were 15% of all sales last month.
  5. Cash sales volume is 6.4% lower this year than last year.
  6. FHA sales were 22% of all sales last month.
  7. FHA sales volume is down nearly 7% this year so far.
  8. There is 1.77 months of housing supply in the region right now, which is over 13% lower than the same time last year.
  9. The median price increased last month, but it’s down from two months ago. The median price is up nearly 9% from last year at the same time. The average sales price and average price per sq ft are both up about 8% from last year too.
  10. REOs were only 2% of all sales last month and short sales were the same.

Some of my Favorite Regional Graphs:

median-price-sacramento-placer-yolo-el-dorado-county

regional-inventory-by-sacramento-regional-appraisal-blog

sacramento-region-volume-fha-and-conventional-by-appraiser-blog

days-on-market-in-placer-sac-el-dorado-yolo-county-by-sacramento-appraisal-blog

number-of-listings-in-sacramento-regional-market

interest-rates-inventory-median-price-in-sacramento-regional-market-by-sacramento-appraisal-blog-market

number-of-listings-in-placer-yolo-el-dorado-sacramento-by-home-appraiser-blog

PLACER COUNTY:

  1. Today’s median price is 70% higher than it was in early 2012.
  2. It took 4 more days to sell a house last month than the previous month (but 6 less days than last year at the same time).
  3. Sales volume was down less than 1% in August 2016 compared to last August and is down slightly for the year about 3%.
  4. Both FHA sales were 16% and cash sales were 19% of all sales last month.
  5. There is 2.05 months of housing supply in Placer County right now, which is down nearly 13% from the same time last year.
  6. The median price declined about 1% from the previous month, but for a better context it’s up 7% from last year at the same time.
  7. The average price per sq ft was $214 last month (was $202 last year at the same time).
  8. The average sales price was $472K last month (up about 4% from last year).
  9. Bank owned sales were only 1% of all sales last month.
  10. Short sales were 2% of sales last month.

Some of my Favorite Placer County Graphs:

placer-county-median-price-since-2014-part-2-by-home-appraiser-blog

placer-county-housing-inventory-by-home-appraiser-blog

months-of-housing-inventory-in-placer-county-by-sacramento-appraisal-blog

number-of-listings-in-placer-county-2016

days-on-market-in-placer-county-by-sacramento-appraisal-blog

placer-county-sales-volume-by-sacramento-appraisal-blog

DOWNLOAD 70 graphs HERE: Please download all graphs in this post (and more) here as a zip file. Use them for study, for your newsletter, or some on your blog. See my sharing policy for 5 ways to share (please don’t copy verbatim). Thanks.

how-to-think-like-an-appraiser-class-by-ryan-lundquistAppraisal Class I’m teaching: On September 29 from 9am-12pm I’m doing my favorite class at SAR called HOW TO THINK LIKE AN APPRAISER. This is a tremendous time where we’ll talk about seeing properties like an appraiser does. We’ll look at comp selection, using price per sq ft properly, and so many issues. My goal is to help you walk away glad you came and full of actionable ideas for business. Register here.

Question: Did I miss anything? Any other market insight you’d like to add? What are you seeing out there? I’d love to hear your take.

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Tips for working with appraisers when they’re really busy

It’s been taking appraisers longer to get their reports done lately. Have you noticed? In many parts of the country appraisers have simply been flooded with work, so quick turn-times have suffered or vanished. In light of this I wanted to give some tips for working with appraisers during times like these. This is really geared toward appraisals for loans instead of private work (divorce, estate, litigation, etc…). Anything else you’d add? Feel free to comment below.

Working with appraisers - sacramento appraisal blog - image purchased and used with permission from 123rf

Tips for working with appraisers when they’re really busy:

  1. Turn-times: Sometimes agents say, “We really need the appraisal in three days because that’s when contingencies will be removed”. But the appraiser just got the order yesterday and the lender may be giving 7-10 days to complete the file. For whatever reason the appraisal was simply ordered way too late in the loan process (not the appraiser’s fault).
  2. Communication 101: If an appraiser emails you, I highly recommend emailing back. The appraiser may be trying to save time by avoiding a phone call. Or if an appraiser calls you, just call back (even if you don’t like to use the phone). These days it seems like good business etiquette to try to communicate with people in their preferred method. I know that sounds petty or even offensive, but it’s true. Obviously if an appraiser is asking a million questions via email, just email back and say, “I’d love to chat, but let’s make this a quick phone conversation instead.”
  3. Don’t call incessantly for status: It doesn’t help speed up an appraisal when everyone is asking for status updates. On a practical note, keep in mind appraisers don’t owe status updates to anyone but the client.
  4. Information up front: Take a few minutes to answer common questions and get this information to the appraiser (preferably during the inspection). I recommend using my Information Sheet. Sometimes agents wait to share information about the property until the value comes in too low. Why not be proactive instead about telling the story of the marketing of the property on the front end of the transaction? This just might save time in the transaction too by avoiding challenging a low appraisal.
  5. Offer a rush fee: If lenders or AMCs are concerned about turn-times, one of the best things to do is offer a reasonable fee to begin with AND also a rush fee. Right now many appraisers are still getting blasted with low-ball appraisal fees from Appraisal Management Companies. During such a busy season appraisers are frankly turning these orders down and gravitating toward working with clients who pay better fees and are easier to work with too. The truth is some AMCs are spending extra days or weeks searching for an appraiser who will take a lower fee (and then blaming appraisers for taking too long). Remember, a Borrower might fork out good money for an appraisal, but how much of the fee is the appraiser actually getting? If you find an AMC is scraping way too much off the top, maybe it’s time to do business with a lender or AMC who is actually paying the appraiser a reasonable fee. On a related note it seems like the market is experiencing an upward fee correction since appraisal fees have been undercut by AMCs for years.
  6. Longer escrows: It can be frustrating that turn-times change because we like to think they’re set in stone or always less than a week, but that’s what markets do. I find something similar has happened with contractors locally as many are absolutely swamped. In short, it might not be a good market to promise a 30-day escrow.
  7. Do repairs up front: If an appraiser is busy, the same appraiser may also need more time to go back out to the property to verify repairs were made. If you know there are obvious repairs, it might be a good idea to have the owner make them in advance so you can avoid a re-inspection. If you are concerned about repairs, reach out to a local appraiser or a loan officer before the property hits the market so you can maybe glean some wisdom.
  8. The little stuff: Some of the most common repairs are actually installation of smoke detectors and carbon monoxide alarms (in California). Even if the appraiser doesn’t care about these things since they have nothing to do with value, a lender may be asking the appraiser to verify they are there. As an FYI, it’s been law for 5 years in California for CO alarms to be in most residential properties, yet this is still one of the top repair issues.

I hope this was helpful.

Podcast with 2 Agents: By the way, last week I did a podcast with two local real estate agents (The Two Jakes). You can give it a listen below (or here) and check out iTunes or the Worley Real Estate website.

Questions: Anything else you’d add? Did I miss something? I’d love to hear your take and any stories you have to share.

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The market is definitely maybe going to do that one thing in the future

The market is doing great. It’s about to crash. Values are fine but they’re slowing. Actually, the “bubble” popped two months ago. Right now there are some strong opinions about real estate trends. It feels a bit manic to be honest as some say the market is tame while others say it’s beginning a downward slide. In light of this, I hoped to kick around some ideas together. What do you think?

36852833 - businessman holding a glass ball,foretelling the future.

A few things to consider when the market begins to slow:

  1. Don’t let headlines become your talking points: It seems like sensational headlines and stories can become our talking points if we’re not careful. It’s easy to let this happen in our personal lives, so two weeks ago we were offended by Ryan Lochte, this week it’s Colin Kaepernick, and next week it’s going to be some other person or situation. I’m not saying these things don’t matter, but only that it’s easy to get swept up in the latest headlines. The same thing happens with real estate articles and opinions. It’s easy to hear something and swiftly conclude “the market is doing this or that,” without really fact checking our local market. My advice would be to let local data inform our market statements.
  2. Be careful about predicting value: It’s really not the job of real estate professionals to predict what values will do in the future. If I asked you to predict exactly what Apple stock will be worth in one year, could you be precise? Or tell me how consumers will feel about Netflix in 5 years from now. Or let’s keep it simple. Who is going to be President in two months? You get the point. Everyone is asking where the real estate market is heading, but the most honest thing we can say is, “I don’t know what the market is going to do. My crystal ball is broken. But I can tell you in depth what the market is doing right now and what it seems poised to do in the immediate future.”
  3. Know the seasonal trend: Almost every single year in the later summer the real estate market slows down and the real estate community tends to freak out. What is happening? Has the “bubble” popped? Is the market starting to turn? It’s as if we are disconnected from seasonal trends and thus treat any slowing like it’s something totally unexpected. Like I said two weeks ago, weighing a slowing market is like stepping on a scale at the right time of day. Frankly, we have to be able to answer questions like this: What does the market normally do at this time of year or during this month? Does it take longer to sell? What happens with sales volume? Does monthly inventory usually go up or down? Do prices usually soften or increase? Answers to these questions can show us how the seasonal market usually behaves and then help us interpret whether a current slowing is something normal or not. Here’s a good rule of thumb: Unless we see something that indicates this is more than a seasonal slowing, it’s probably an okay idea to consider this a seasonal slowing.
  4. Preaching the market is going to change: For those preaching a coming change in the market, here are a few questions: What is going to cause the market to change? When is it going to happen? And by how much will values decline? In reality it’s a given that at some point in the future the market is going to change. Why? Because that’s what markets do. They go up and they go down. While I’m not a huge fan of predicting real estate, I guess if someone has a platform of change, I’d rather hear some specifics because otherwise preaching change seems like prophesying something inevitable. Know what I’m saying?

I hope this was helpful and relevant.

Video Market Screencast: In the following video I talk about seeing the seasonal market and what the market was like in 2005 when values began to decline. I hope this will be helpful and maybe even a game-changer for some. Watch below (or here). Yeah, it’s not short, but maybe watch it in the background while working.

Questions: What is point #5? Did I miss anything? Which point resonated with you the most? Do you think what’s happening now is a seasonal trend or is it something else? I’d love to hear your take.

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