Category — Appraisal Stuff

Do you want to play a little game called “FHA Roof Trivia”? Nah, I didn’t think so. Me neither. Let’s take a look at some common questions though pertaining to roofs and FHA minimum property standards. I hope this is helpful to answer some questions you might have as a buyer, seller or real estate agent.

Q: How many layers on a roof will FHA accept?
A: “FHA will accept a maximum of 3 layers of existing roofing. If more than 2 layers exist and repair is necessary, then all old roofing must be removed as part of the re-roofing. (4905.1 REV-1, 2-12)”

Q: How much life does a roof need to have left?
A: The roof should have at least two years of physical life left. If the roof does not have two years or looks like it is in really bad shape, the appraiser should call for a roof inspection. This means the roof will have to be certified by a professional to have at least two years of physical life left. If the roof has less than two years of life, then it must be repaired or replaced.

Q: Is it a problem for an FHA loan if the roof is flat?
A: As long as there are no issues pointing toward potential roof problems (such as stains on the ceiling or badly rotted eaves), there is no reason to be alarmed. Straight from HUD, “FHA no longer mandates automatic inspection of flat and/or unobservable roofs. The appraiser must note in the appraisal that he/she could not adequately observe the entire roof area and state which area(s) were unobservable. As with any other type of roof the appraiser is to look for signs that would indicate a possible roof problem. Based on the information reported, either the appraiser or underwriter may call for a roofing inspection.”

Q: Do appraisers have to inspect the attic for an FHA loan?
A: Yes. The appraiser must do a “head and shoulders” inspection of the attic. FHA states the home owner is responsible for making sure the appraiser has clear access. What are appraisers looking for in the attic? Read a previous post HERE. By the way, I’m curious if you find most appraisers to be actually inspecting the attic. I heard from a Sacramento home inspector recently that he has never seen an appraiser with a ladder at an inspection. Hmm…

Q: Are gutters required for the roof?
A: No, they are not. However, as the HUD Handbook 4150.2 tells appraisers: “Check for readily observable evidence of grading and drainage problems. Proper drainage control measures may include gutters and downspouts or appropriate grading or landscaping to divert the flow of water away from the foundation. If the grading does not provide positive drainage from the improvements, make a repair requirement. Note any readily observable evidence of standing water near the property that indicates improper drainage.” In short, gutters are not required, but on the other hand one of the potential repairs to solve a drainage problem could be gutters.

I hope you feel like you know a bit more about the way FHA views a roof now.

If you have any questions or Sacramento area real estate appraisal or property tax appeal needs, contact me by phone 916-595-3735, email, Facebook, Twitter or subscribe to posts by email.

It’s been a great week of life and business, and I wanted to share one of the fun appraisals I have in my bag right now. Yes, my client gave me permission to shoot a video of this “fire house” in the Sacramento area. This one is a two-bedroom crispy critter and it’s going to need to be stripped down to the studs for a rehab project. It’s always fun to appraise houses like this. Enjoy a one-minute clip.

What do you think?

If you have any questions or Sacramento area real estate appraisal or property tax appeal needs, contact me by phone 916-595-3735, email, Facebook, Twitter or subscribe to posts by email.

Newer tract markets usually have ample sales, but how does an appraiser establish value in a neighborhood with no recent sales? There isn’t a quick answer, but here are some of the things I do as a Sacramento area appraiser.

1. Older Sales: I look at sales over the past 1-3 years in the immediate neighborhood. While it’s ideal to have model match sales within a 90-day time period, that’s rarely possible with more unique neighborhoods with tight market boundaries. It therefore becomes important to use older sales in an appraisal report and then make an adjustment to the sales price depending on whether the market has declined or appreciated in value over time. For example, I might use a sale that is twelve months old in a unique neighborhood and then give a 15% adjustment downward after figuring out the market has declined by 15%. Methodology like this becomes important for appraisals along the Sacramento River, more custom homes in Camden Passage West in Elk Grove, or even sometimes in areas like Curtis Park, Land Park or Midtown depending on the property. Of course if the appraisal is for lending purposes, the lender will likely want to see some newer sales in addition to older ones.
2. Competitive Neighborhoods: If there are no real comps over recent months in the immediate neighborhood, I find competitive neighborhoods for comparison and then use recent sales in those neighborhoods. It’s important to ask the question, “where else would a buyer for this neighborhood shop for a house?” and then look for comparable sales in those neighborhoods. These competitive tracts will likely be outside of a typical one-mile radius, which is okay. This can work well when appraising in places like Little Pocket or Country Club Estates where I might have to cross a freeway or major street to find adequate comparables (I try not to do that though where possible). However, some neighborhoods are very distinct, which makes it more challenging to really find a competitive neighborhood. Take the Woodlake neighborhood in Sacramento, for example. This neighborhood resembles Land Park, yet is located nearly five miles away and is surrounded on all sides by properties with signficantly lower values. There is really nothing comparable to Woodlake in the entire 95815 zip code, so sticking with historical sales to a certain degree seems more reliable to me than picking sales from 5-10 miles away. Even Gold River is a good example of a distinct community. When appraising in Gold River I do not ever use comps outside of Gold River because it really is its own community.
3. Current Listings: I talk with real estate agents who have current listings in the immediate neighborhood to see if I might glean some insight into how the market is seeing the neighborhood. While listings are not sales, they are able to tell us something about the market and are important for consideration.
4. Recent Withdrawn Listings: I run a search of recent withdrawn sales in the immediate neighborhood and then talk with the real estate agents involved. Why did the property not sell? That question usually gleans some insight into how buyers perceive the neighborhood.
5. Other: I talk with appraiser friends, real estate agents, create historical graphs, consider other metrics, rental value, and poke around online to see what I can find too.

I’d be curious to hear more from real estate agents, home owners and appraisers. Why do you think there might not be any comps for the appraiser to use? If you have any insight or a point to add to the discussion, feel free to comment below.

If you have any questions or Sacramento area real estate appraisal or property tax appeal needs, contact me by phone 916-595-3735, email, Facebook, Twitter or subscribe to posts by email.

Do you remember how hot the market felt when the first-time homebuyer tax credit hit the streets? If you recall, the tax credit went into effect from November 7, 2009 to April 30, 2010 (but then the deadline was extended to September 30, 2010 – but you had to be in contract by 4/30/10).

I just finished up an appraisal in North Highlands and I know the market really well in this particular neighborhood. I’ve been doing appraisals consistently over the past few years in a particular tract for an investor, so I’ve watched the market decline, seemingly stabilize during the tax credit season, and then decline again. The image below includes all of North Highlands as an example of the impact the tax credit appears to have had. There was an uptick in sales and the decline in property value seemed to stop while the credit was alive.

Now that the credit has been expired for over a year, how would you say it impacted the real estate market? Do you see this trend below in other neighborhoods or maybe just in markets under $200,000? What were the positives and negatives of the credit?

If you have any questions, or real estate appraisal or property tax appeal needs in the Greater Sacramento Region, contact Lundquist Appraisal by phone 916-595-3735, email, Facebook, Twitter or subscribe to posts by email.

Just because a model match sells at a certain level does not necessarily mean it’s a good comp, right? Obviously model match sales are great for comparison because they have the same layout, but there are so many factors  why model matches do not always sell at a similar level. This point is particularly evident in the graph below of all MODEL MATCH sales in the Lincoln Crossing neighborhood. Isn’t it amazing to see nearly a 25% difference in price level for the same floor plan?

Here are my observations:

1. There is a vast range of prices among model match sales.
2. The neighborhood has seen a decline in value over time.
3. The range of sales is about $85,000. This range has been seen more or less over the past few years, which is important to note.
4. The sales at the top tend to back the greenbelt and have premium upgrades, while the ones at the bottom tend to be short sales. In this neighborhood short sales are tending to sell for less than foreclosures (for this model anyway).
5. The appraiser could botch the value if simply using model match short sales as “comps” while ignoring traditional sales at the top. At the same time, there could be money left on the table if the property is marketed against the lowest sales in the neighborhood. Also, the home owner could use all the wrong comps in a tax appeal too, right? This brings up the importance of working with local professionals and sifting through bank-owned, short sales and traditional sales to establish market value.
6. Having such a large range of sales means it may prove challenging for online valuation websites like Zillow and Cyberhomes to render a credible value. Granted, a reliable value is not always easy for human appraisers either to be fair, but actually seeing the property and understanding the market makes all the difference.

What stands out to you about the graph? What scenarios have you seen cause a huge difference in price among model match sales?

If you have any questions, or real estate appraisal or property tax appeal needs in the Greater Sacramento Region, contact Lundquist Appraisal by phone 916-595-3735, email, Facebook, Twitter or subscribe to posts by email.

I was interviewed recently by Sacramento Area Realtor Doug Reynolds. This was a one-take video where we discussed the accuracy of Zillow, which has been a hot topic on this blog over the past year. Since Doug has clients asking about Zillow all the time and wondering if they can really rely on Zillow, he wanted to see what I think about Zillow as a real estate appraiser. For reference, here is the Zestimate accuracy table I mentioned in the video. Lastly, I also gave some tips for hiring a local appraiser. Thank you so much, Doug. Enjoy.

What do you think? Any questions or insight?

If you have any questions, or real estate appraisal or property tax appeal needs in the Greater Sacramento Region, contact Lundquist Appraisal by phone 916-595-3735, email, Facebook, Twitter or subscribe to posts by email.

The definition of value in an appraisal report matters greatly. Most appraisals geared toward loans for Fannie Mae will use a typical Fannie Mae definition for market value. But this definition for value is not used in appraisals for other purposes. Let’s take a quick look below.

Fannie Mae Definition: Market value is the most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller, each acting prudently, knowledgeably and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: (1) buyer and seller are typically motivated; (2) both parties are well informed or well advised, and each acting in what he considers his own best interest; (3) a reasonable time is allowed for exposure in the open market; (4) payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto; and (5) the price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale.

What other definitions exist? As an example, I have one client who wants an established value for a 45-day sale. Or in other words, what is the value today based on properties having sold in only 45 days? This value is really a  “quick sale” value to help them sell off their foreclosure inventory – not market value as defined by Fannie Mae. Or I have another client that wants to get an idea of what a 90-day value would be in the future. Or in other words, how much would this property sell for in 90 days from now (theoretically)? Additionally, other clients want a retrospective value, which is a value based on a date in the past. This type of value is often used for ”date of death appraisals” and used in most estate settlement situations.

Did you know the IRS has their own definition of fair market value? This definition should be used in estate settlement appraisals since the end-user of the report is the IRS. These types of appraisals are ordered for tax purposes.

IRS Definition: Fair market value (FMV) is the price that property would sell for on the open market. It is the price that would be agreed on between a willing buyer and a willing seller, with neither being required to act, and both having reasonable knowledge of the relevant facts. IRS Publication 561

What’s the big deal? I bring this up because the definition of value will impact the appraised value. For example, if a normal marketing period is 60 or 90 days, but a client is requesting a 45-day value, the appraised value will likely be less than market value to speed up the sales process, right? Ultimately, it’s important for the appraiser and client to be able to agree upon the definition of value and understand what is being asked of the appraiser. The definition of value will ultimately guide what the appraiser is really looking for.

This is a no-brainer when it comes to doing typical loan appraisals because the Fannie Mae definition will likely be used, but in other private appraisal situations it is something that needs to be figured out (maybe for divorce or estate settlement). Home owners really shouldn’t worry about technical terms or finding the appropriate value definition though because any competent appraiser should be able to understand what the home owner is looking for after asking the right questions.

If you have any questions, or real estate appraisal or property tax appeal needs in the Greater Sacramento Region, contact Lundquist Appraisal by phone 916-595-3735, email, Facebook, Twitter or subscribe to posts by email.

Are you a visual learner? I am. Today I want to show you how to export data from MLS to make a great visual presentation. This can come in very handy for real estate agents and appraisers when comparing different segments of data in a specific neighborhood, city or county. You might consider doing something like this to display a difference in bedroom count, price vs. square foot range, distressed vs. typical sales or even something like pool vs. no pool. In the video example below I show you how to plot Arms-length vs. REO vs. Short Sales in a neighborhood (like this graph in Elk Grove). I hope it’s easy to understand. Enjoy and let me know if you need any clarification. Happy graphing!!

If you have any questions, or real estate appraisal or property tax appeal needs in the Greater Sacramento Region, contact Lundquist Appraisal by phone 916-595-3735, email, Facebook, Twitter or subscribe to posts by email.

Last week I gave some tips on how to challenge a low appraisal, and today I’d like to point out something very obvious you ought to pay attention to in an appraisal report. If there is a big difference in square footage between the appraisal and official records (tax, assessor, county, city), it’s important to know why there is a difference, because it could hurt your wallet.

In the example below, an investor client hired me to review an appraisal on one of their recent flipped properties in Sacramento. One of the very first things I noticed was the appraiser measured 1087 square feet, but Tax Records said 1207. Since the appraiser adjusted by about $50 per square foot, it looked like this could possibly make a $5,000 difference in the report. Who was right in this case? After my client hired me to accurately measure the house, the actual GLA (gross living area) was 1207. You can see the appraiser measured the western wall at 38 feet, but it was actually 45 feet. The original appraiser ended up fixing the error and then adjusted the value up by $5,000.

There was obviously an error in the example above, but in other cases, why is there a difference between actual living area and what official records say?

1. Builder was wrong: Official records could have been wrong from the beginning if the builder reported an inaccurate GLA for that model.
2. Change of building plans: Sometimes building plans change, but the adapted square footage is not reported to the county, so the local authorities only have on file what was originally planned.
3. No permits: The house may have been added on to without permits.
4. Permit not recorded: The addition was done with permits, but for whatever reason the additional square footage was not recorded.
5. Appraiser error: The appraiser made an error.
6. Including the wrong stuff: Maybe official records mistakenly includes an enclosed patio, sun room, garage or something else that really shouldn’t be GLA.
7. The 5 foot rule: There is a difference between the footprint of the house and actual square footage in cases with slanted ceilings with short walls (especially an A-frame house). It’s always important to take into consideration the “5 foot rule” for calculating square footage.
8. Shoddy workmanship: Maybe there is a legal addition, but the workmanship is really not up to par for consideration as GLA because it doesn’t meet standards for GLA.

What other reasons might there be a difference in square footage between official records and reality?

If you have any questions, or real estate appraisal or property tax appeal needs in the Greater Sacramento Region, contact Lundquist Appraisal by phone 916-595-3735, email, Facebook, Twitter or subscribe to posts by email.

I cannot tell you how often I get phone calls from local real estate agents about bad appraisals on properties they are trying to sell. Usually the complaint is the appraisal has come in lower than the sales price. Of course we all know market value and contract price are not always the same, right? But very often in these situations there is a legitimate complaint because the appraisal just doesn’t seem to be well-supported. In cases like this I recommend the following points for preparing a solid appraisal rebuttal or reconsideration of value:

1. Put it in writing: Don’t just say things like, “this appraisal is bad”. That does nothing to provide support for why you think the appraisal is not adequate, and it does nothing to propel the conversation forward. Don’t just make a phone call either. It’s better to put your thoughts on paper in a logical manner so the lender and appraiser can digest your well-reasoned argument.
2. Be specific: Provide specific support for why the value opinion is different in your mind. It does nothing to only say “value should be higher”. Pick apart the comps in the report and any other properties you think are truly comparable too. Maybe you know the neighborhood really well, so you could point out something the appraiser really missed that impacts value. For example, you might say, “Comp 1 has zero upgrades and backs to a commercial property, yet the appraiser considered this property equal to the subject and did not make an adjustment. Why was no adjustment made?” Or maybe you’d say, “Comps 1-3 were all short sales and sold within 10 days of being listed. These sales appear to have sold quickly and below market value. Why was no adjustment given in the report for the distressed nature of the sales?” You might consider mentioning important information about neighborhood boundaries if inappropriate comparables were selected. Make sure to include marketing information on the subject property too (how many offers did you have?) as well as a list of all upgrades and costs too. Lastly, are there any big differences between the reported square footage or bed/bath count in the appraisal report in comparison to what you know to be accurate about the subject property?
3. No pressure: Remember not to pressure for a higher value. Just stick with the facts in the marketplace as they relate to the value of the subject property. As much as possible, try to illuminate the market so it can speak for itself. You are asking the appraiser to reconsider the value, not meet your sales price.
4. Be humble: You might be right, but you could also be wrong. There may be a very good reason why the appraiser made a certain adjustment. If the appraiser got it right too, then let the appraisal stick. There is no sense in trying to fight something if you don’t really have a case.
5. The big picture: Focus on big picture items that impact value like proper comp selection and proper adjustments in the report. It probably doesn’t alter value if the appraiser made a spelling error, right? Put your energy into things that really matter.
6. Bullet points: Be systematic in your presentation. Don’t write a novel, but organize your thoughts into 5-10 specific bullet points so the appraiser and lender can easily digest your reasoning. Avoid lengthy paragraphs and emotional points void of logic and specific data.
7. Be professional: Be nice even if you don’t feel like it. The way you ommunicate reflects upon you and your company.
8. Ask pointed questions: This goes back to being specific. Ask the appraiser to explain why certain adjustments were made or not made. Try to understand the report and ask the appraiser to explain himself.
9. Opening Paragraph: Include something like the following at the beginning of your letterhead: “After reviewing the appraisal for [address] by [appraiser], we would like to request further clarification and investigation by the appraiser. We would like to ask for a reconsideration of value based on the following points:”
10. Closing Paragraph: ”All things considered, we would humbly ask the appraiser to take a second look at the information above as it relates to data and adjustments in the appraisal report. The information above may impact the overall value of the subject property. We appreciate your time and consideration, and we can be reached with any further questions at 916-xxx-xxxx. Respectfully,”

Let me know if you have any questions or need my assistance for a property you are working on. I cannot be an advocate for you, but I can provide you with market insight or a second opinion of value.

Have you experienced any success with appraisal rebuttals? Any tips to share?

If you have any questions, or real estate appraisal or property tax appeal needs in the Greater Sacramento Region, contact Lundquist Appraisal by phone 916-595-3735, email, Facebook, Twitter or subscribe to posts by email.

This graph illustrates perfectly why it’s important for some home owners to dispute their property taxes. Can you see how the Assessor’s value is truly a “lone ranger” among similar sales? A Sacramento area investor contacted me to prepare an appeal report for him to demonstrate market value on January 1 (date of assessment). As you can see, there is an enormous difference between assessed value at $167,154 and market value at $95,000 in the case of this halfplex in Citrus Heights. The savings in taxes per year equals $901, which works out to $75 per month. What would you do with an extra $75 each month in your pocket? (money that should be there in the first place)

If you have any questions, or real estate appraisal or property tax appeal needs in the Greater Sacramento Region, contact Lundquist Appraisal by phone 916-595-3735, email, Facebook, Twitter or subscribe to posts by email.

It’s Halloween next week, so let me give you a tour of a spooky house. There are no goblins or spirits or werewolves here, but be assured it definitely ranks on the creepy scale to inspect boarded-up dark houses in certain neighborhoods in Sacramento (alone). Enjoy a brief video tour below (or here) of a pitch-black bank-owned fixer. What do you think?

If you have any questions, or real estate appraisal or property tax appeal needs in the Greater Sacramento Region, contact Lundquist Appraisal by phone 916-595-3735, email, Facebook, Twitter or subscribe to posts by email.