Predictions, Trump’s impact on real estate, and a Sacramento market update

I reached the point of political exhaustion last week in a big way. This doesn’t mean I’m tuned out, but right now I find myself glossing over Facebook rants or skimming certain conversations because they’re only going lead to arguments. Yet still I hoped we could chat briefly about politics and real estate – without unfriending each other. Then let’s take a deep look at the Sacramento market. Any thoughts?

18345737 - the white house, view from the south, home of the president of the united states of america in washington dc usa

Huge Data Fail & Predicting Real Estate: The media laid an egg when it came to predicting the presidency. In fact, it seemed like many political pundits were shell-shocked when election results were coming in contrary to their predictions that Hillary would win. I don’t mention this so we can argue, but only to remind us of the danger of predicting, being wrong, and then having pie on your face (losing credibility). If some of the best political minds in America couldn’t predict the outcome of the presidential race, can we really predict the future of the real estate market with certainty?

Trump Presidency and Newlyweds: I’ve been asked a couple of times this week how a Trump presidency has impacted real estate so far. My answer is simple. Imagine asking a newlywed couple after one week of marriage to tell us how their marriage is going. It’s only been a week though. We probably need more time to really know how married life is going to unfold. The same holds true with Trump’s impact on real estate. We haven’t had enough time to see waves in the market yet, and nobody really knows how his policies will affect housing. There are many predictions right now, especially about repealing Dodd-Frank, but those are only guesses (see paragraph above).

Any thoughts?

—-—–—– 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 71 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.

NEW: I created a one-page market sheet to print and keep handy when talking about real estate. I figured it might be helpful to use while talking on the phone. I’m not sold on the look, but is this a step in the right direction? Download here.

Quick Market Summary: A brutal election season has ended (thank God), and many Americans feel worn out, but the market doesn’t feel that tired. The truth is when we look at the stats we are seeing about what we’d expect at this time of year. Ultimately prices are down 1-3% from the height of summer, it took two days longer to sell a house last month, and inventory is down 14% in the region from last year. It’s easy to see softer stats and assume the market is beginning to crash, but the market softens like this almost every single year (besides 2012 when Blackstone and friends gutted the market and we didn’t have a normal fall season). I’m not saying values are not inflated, affordability isn’t becoming more of a factor, or even the market won’t turn at some point, but only that things feel fairly normal right now for the season. Sales volume has been strong this year in Sacramento and is up slightly from last year despite cash and FHA volume both dropping by 7-8%. Inventory is anemic and there really isn’t a quick solution to deal with that problem, but buyers are still finicky about price despite very few homes being listed on the market. Sellers don’t get this, so they try to command whatever price they want, but that rarely works in this market. Keep in mind buyers are scouring Zillow and Redfin every single day, they are visiting properties with their agent, they are getting beat out on other homes, and they are often looking for MANY months before getting a contract accepted. Sellers frankly are not doing anywhere near this level of research, which is one reason sellers are less in tune with proper pricing. Check out specific stats and graphs below for Sacramento County, the Sacramento Region, & Placer County.

Sacramento County:

  1. The median price is $320,000 and is down a few percent from the height of summer, but it’s 10% higher than last year.
  2. The average price per sq ft was $202 last month (down 1% from a few months ago, but 8.5% higher than last year).
  3. There were only 38 short sales and 31 REOs in the county last month.
  4. Sales volume was 5% higher this October compared to October 2015.
  5. It took 3 days longer to sell a house last month compared to the previous month (one year ago it was taking 5 days longer to sell).
  6. Sales volume is up slightly this year compared to last year (1% or so).
  7. FHA sales volume is down 7% this year compared to 2015 (25% of all sales were FHA last month).
  8. Cash sales are down 8.5% this year (they were 12% of all sales last month).
  9. Housing inventory is 12% lower than the same time last year.
  10. The average sales price at $353,000 is down about 1% from the height of summer (but is 9% higher than last year).

Some of my Favorite Graphs this Month:

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

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

inventory-september-2016-by-home-appraiser-blog

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

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

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

seasonal-market-in-sacramento-county-sales-volume-6

seasonal-market-in-sacramento-county-inventory-4

seasonal-market-in-sacramento-county-4

SACRAMENTO REGIONAL MARKET:

  1. The median price was $357,000 in October. It went up slightly from September but is down 3% from the height of summer (up 9% from last year).
  2. The average price per sq ft was $208 last month. That’s down about 1% from the height of summer and 7% higher than last year.
  3. It took 2 days longer to sell compared to the previous month (but 5 less days compared to October 2015).
  4. Sales volume was 4% higher this October compared to October 2015.
  5. FHA sales volume is down 8% this year compared to last year.
  6. Cash sales were 13.5% of all sales last month (FHA sales were 21%).
  7. Cash sales are down 7% this year compared to last year.
  8. Housing inventory is 14% lower than the same time last year.
  9. REOs were 1.8% and short sales were 2% of all sales last month.
  10. The average sales price was $393,000 in October. It’s down about 3% from the height of summer but 8% higher than last year.

Some of my Favorite Regional Graphs:

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

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

inventory-in-sacramento-regional-market

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

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

regional-market-median-price-by-home-appraiser-blog

PLACER COUNTY:

  1. The median price was $438,000 last month (highest point of year, but take that with a grain of salt).
  2. The average price per sq ft was $213 last month (down very slightly from the height of summer and up 6% higher than last year).
  3. It took 41 days to sell last month (same as previous month but 6 days less than one year ago).
  4. Sales volume was about 3% lower this October compared to October 2015.
  5. FHA sales volume is down 16% this year compared to last year.
  6. Cash sales were 17% of all sales last month (FHA sales were 13%).
  7. Cash sales are down 3.6% this year compared to last year.
  8. Housing inventory is 13% lower than the same time last year.
  9. Both REOs and short sales were each 1% of sales last month.
  10. The average sales price was $481,000 and is 8.5% higher than last year.

Some of my Favorite Placer County Graphs:

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

inventory-in-sacramento-regional-market

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

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

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

interest-rates-inventory-median-price-in-placer-county-by-sacramento-appraisal-blog

placer-county-price-and-inventory-by-sacramento-appraisal-blog

DOWNLOAD 71 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.

Questions: Did I miss anything? What impact do you think Trump will have for the real estate market (if any)? What are you seeing out there? I’d love to hear your take.

If you liked this post, subscribe by email (or RSS). Thanks for being here.

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.

If you liked this post, subscribe by email (or RSS). Thanks for being here.

8 things you can buy if you win Powerball (and the market in Sacramento)

Have you bought a Powerball ticket? It’s wild to think someone is probably going to win 1.5 billion dollars this week. Of course there’s an extremely slim chance you’d actually win, but if you do, here are some things you can buy when it comes to real estate. After that, let’s take an in-depth look at Sacramento’s housing market.

powerball winner - real estate - sacramento appraisal blog

8 real estate things you can buy if you win Powerball

  1. All current listings in Sacramento: You could literally buy every single active residential listing in Sacramento, Placer, and Yolo County (and still have about $150M left).
  2. NBA Team: You could buy the Sacramento Kings NBA team and have about one billion to spare.
  3. 63 million Shares of Zillow: You could buy 63,911,376 shares of Zillow ($23.47 per share).
  4. Buy an Island: This is an obvious choice for a billionaire. You could easily buy your own island. Heck, you could buy a group of islands. See some islands that are for sale right now.
  5. Own 7 Years of East Sacramento Sales: If you bought every single house that sold on MLS in East Sacramento since October 2008, you would still have 600 million left.
  6. Build a Sports Stadium: Most recent professional sports stadiums have ranged in cost from around $500M to $1.5B. For instance, the 49ers new stadium cost around $1.3B and the Sacramento Kings stadium is coming in around $500M. If you buy, what are you going to name it?
  7. Build a Bigger House than that One Guy in India: You may remember hearing about a 27-story residential home that was built in India in 2014. This home can withstand an 8.0 earthquake and it’s the second most expensive home in the world behind Buckingham Palace. Keep in mind it requires a staff of 600 to care for it. The property was said to have cost $1B total, so you have the coin to pull it off (Wikipedia).
  8. Do Some Good: Imagine the good you could do if you won the lottery. But we know that’s not going to happen. The great thing is we don’t have to wait to win Powerball to be generous since generosity is only relative to how much money we have – whether two dollars or $1.5B.

By the way, the winner won’t actually get 1.5 billion. I realize a huge sum is coming off the top right away for taxes and such.

Now let’s look at the latest Sacramento real estate trends.

the market in 2015 in sacramento

Two ways to read THE BIG MONTHLY POST:

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

DOWNLOAD 78 graphs HERE (zip file): Please download all graphs in this post (and more) here as a zip file (or send me an email). 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: If I had to sum up the market last year I would say: Modest value appreciation, but aggressive demand. If I added a few more details I would say the story of the market is summed up as follows: More sales, lower inventory, higher demand, a fairly normal fall (though far less dull than 2014), and modest value increases over the year. Right now housing inventory is only 1.28 months in the region, which is 32% lower than last year at the same time. Overall sales volume in 2015 was 10.8% higher in the regional market, and it’s important to note FHA volume increased by 30% this year. In December it took 4 days longer to sell a home than it did in November, and that reminds us the market experienced a seasonal softening dynamic even in the midst of more competition. Remember though it was taking 90 days to sell a house four years ago, and selling in less than half the time right now helps us see the market can be different each year depending on inventory, interest rates, the economy, etc…  Overall most of the value increases came in the first two quarters of the year, and the market was fairly flat for the past six months in terms of value. Buyers really haven’t had very many options because of how low inventory has been, but at the same time buyers are exhibiting price sensitivity by not pulling the trigger on overpriced listings. One last aspect worth mentioning is rents have been increasing in many areas in Sacramento, and it’s worth watching this trend.

SACRAMENTO COUNTY:

  1. It took 4 more days to sell a house last month than November (but 7 days less than last year at the same time).
  2. Sales volume was 20% higher this December compared to last December.
  3. Sales volume was 10.9% higher in 2015 compared to 2014.
  4. FHA sales represented 27.5% of all sales during the past quarter.
  5. Housing inventory is 41% lower than it was last year at the same time.
  6. The median price increased by 2% last month (see #6).
  7. The average price per sq ft and average sales price stayed about the same from the previous month (so don’t put too much weight on #5).
  8. The average price per sq ft is 10% higher than last year at the same time.
  9. The median price is 11% higher than it was last year at the same time.
  10. REO sales were less than 4% of all sales last quarter (Short Sales were less than 5%).

Some of my Favorite Graphs this Month:

sales in 2015 2

Median price and inventory since 2011 by sacramento appraisal blog

bottom of market

fha and cash in sacramento county by sacramento appraisal blog - part 2

CDOM in Sacramento County - by Sacramento Appraisal Blog

inventory - December 2015 - by home appraiser blog

REOs and Short Sales in Sacramento County since the bottom

price metrics since 2014 in sacramento county - look at all

SACRAMENTO REGIONAL MARKET:

  1. It took 3 more days to sell a house last month than November, but it was taking one week longer to sell at the same time last year.
  2. Sales volume was 14.5% higher this December compared to last December.
  3. Sales volume was 10.8% higher in 2015 compared to 2014.
  4. Housing inventory is 32% lower than the same time last year.
  5. Cash sales were only 15% of all sales in 2015.
  6. The average price per sq ft, median price, and average sales price showed a slight seasonal dip over the past few months.
  7. The avg price per sq ft is 7.5% higher than last year at the same time.
  8. The median price is 5.6% higher than it was last year at the same time.
  9. REO sales were 3.5% of all sales last month.
  10. Short sales were only 3% of all sales last month in the region.

Some of my Favorite Regional Graphs:

sales volume 2015 vs 2014 in sacramento placer yolo el dorado county

prices in sacramento region - FHA and conventional - by appraiser blog

months of housing inventory in region by sacramento appraisal blog

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

median price and inventory in sacramento regional market

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

PLACER COUNTY:

  1. It took 6 more days to sell a house last month than November, but it was taking 5 days longer to sell at the same time last year.
  2. Sales volume was 1% higher this December compared to last December.
  3. Sales volume was 13% higher in 2015 compared to 2014.
  4. Housing inventory is 16% lower than the same time last year.
  5. Cash sales were only 15% of all sales in 2015.
  6. The average price per sq ft, median price, and average sales price showed a slight seasonal dip over the past few months.
  7. The avg price per sq ft is 3.6% higher than last year at the same time.
  8. The median price is 2% higher than it was last year at the same time.
  9. REO sales were 1.8% of all sales last month.
  10. Short sales were only 3% of all sales last month in the region.

days on market in placer county by sacramento appraisal blog months of housing inventory in placer county by sacramento appraisal blog number of listings in PLACER county - December 2015 Placer County price and inventory - by sacramento appraisal blog Placer County sales volume - by sacramento appraisal blog

I hope this was helpful and interesting.

DOWNLOAD 78 graphs HERE (zip file): Please download all graphs in this post (and more) here as a zip file (or send me an email). 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.

Questions: How would you spend the money if you won at Powerball? What stands out to you about the latest stats in Sacramento? How would you describe the market? I’d love to hear your take.

If you liked this post, subscribe by email (or RSS). Thanks for being here.

10 things appraisers are now being asked to do for FHA appraisals

Have you heard FHA made some changes recently to their appraisal manual? That’s right. The new FHA 4000.1 Handbook went into effect on September 14th, 2015, and it has stirred quite a bit of conversation and emotion among appraisers. Even agents have expressed fear that appraisers will now be calling for more repairs. In my opinion most of the changes have more to do with how appraisers write their reports rather than new items to look for during an inspection. Let’s scan a few of the changes below to get a general sense of the new manual, but realize it’s nearly impossible to talk through every single change. Have a read and let me know what you think.

FHA changes - image purchased and used with permission from 123rf dot com

10 things appraisers are now being asked to do for FHA appraisals

  1. The Appraiser MUST: FHA has introduced more definitive language for appraisers by highlighting the word “must”. This theoretically helps HUD be more clear about their expectations. For instance, the manual says, “The appraiser MUST operate all conveyed appliances and observe their performance”, and “The appraiser MUST note and comment on all onsite hazards and nuisances affecting the property”.
  2. Observation vs. Inspection: The appraisal “inspection” is now called an “observation” instead of an “inspection”.
  3. Angled Photos: When possible, appraisers MUST take comp photos at an angle to show the front and side of the house. If you didn’t know, this is how appraisers take front photos for the subject property during a FHA appraisal, but it’s now also the case for comps.
  4. Legal Nonconforming: If a property has a legal nonconforming zoning, the appraiser MUST comment whether it can be rebuilt as improved. Of course it’s not always easy to get this type of information, and sometimes cities or counties might even charge $100+ to say whether the property can be rebuilt as is (this is often called a “burn letter”). Remember that appraisers won’t pay for this type of information, so lenders, AMCs, and/or buyers are going to need to obtain this information in a timely manner so the appraiser can do his/her job.
  5. Provide Legal Documents: An appraiser should have a preliminary title report and TDS (disclosure statement in California) for a FHA appraisal since FHA says the mortgagee MUST provide “any other legal documents contained in the loan file” to the appraiser. We all know that rarely happens. Sometimes an AMC may not have all the information, but other times certain documents might be withheld on purpose for whatever reason. Will this actually happen? We’ll see.
  6. Full Attic (Maybe): Appraisers will need to fully access the attic and crawl space if there is space available to do so. If the appraiser cannot observe the full attic, a “head and shoulders” view should suffice. Appraisers have already been required to do a “head and shoulders” inspection at the least. If the attic is fully finished, the appraiser can do the inspection of the entire space, but if it’s not, appraisers won’t be walking on 2x4s in the attic and having legs break through the ceiling (they shouldn’t be doing that anyway).
  7. Airport Contour Maps: FHA is asking appraisers to review airport contour maps and comment on the marketability of the subject being near an airport. You may be wondering what the heck an airport contour map is (like many appraisers). Well, it’s a map that basically shows noise levels surrounding an airport. The old FHA manual actually stated the appraiser must review contour maps, but the new manual takes it a step further to ask the appraiser to do reporting on the map or any issues. Old Handbook: “Appraisers must identify affected properties, review airport contour maps and condition the appraisal accordingly.” New Handbook: “The Appraiser must review airport contour maps and analyze accordingly. The Appraiser must determine and report the marketability of the property based on this analysis.”
  8. Two Years of Roof Life: The appraiser MUST report if the roof has less than two years of remaining life, and make the appraisal subject to inspection by a professional roofer. This is actually an interesting requirement since appraisers probably aren’t qualified to say whether a roof definitively has less than two years or roof life or not. Isn’t that the job of a roofer?
  9. Consider Three Approaches: If you didn’t know, there are three approaches to value in an appraisal report. Appraisers often only use the Sales Comparison Approach (analyze comps), but there is also the Cost Approach and Income Approach. FHA is saying appraisers must consider and attempt all approaches to value and must develop and reconcile each approach that is relevant. This doesn’t mean appraisers are required to complete all three approaches to value in the appraisal, but they do need to at least consider the approaches and do them if they are relevant. I have heard the real estate community say things like, “The Income Approach is now required for FHA”, but that’s not really true. An Income Approach would only be required if the appraiser determines it is relevant for the assignment.
  10. Sump Pump: This is a good point to end on since it highlights that appraisers are ultimately being asked to be more descriptive in their reports. The appraiser MUST notify the mortgagee if the sump pump is not properly functioning at the time of appraisal. This is an interesting issue. How is the appraiser supposed to determine if a sump pump in a basement is working or not? “Hey Mr. Owner, do you mind bringing the hose into the basement so we can do a little test?”  🙂

Do you feel a little stressed? If so, that’s normal. It will take a little while for appraisers to get used to these changes, and it will take some adjusting for the rest of the real estate community too. Again, most of these changes have to do with actually writing the appraisal report instead of what happens during the appraisal inspection observation. DOWNLOAD the new FHA 4000.1 Handbook HERE.

DOWNLOAD an FHA inspection checklist HERE (pdf) (made a few months ago, but still relevant for today despite the manual changing)

Possible Impact of these FHA Changes:

  1. Ripple: In recent years conventional appraisals have seemingly been on a trajectory to become more like FHA appraisals, so there may be more required of appraisers for conventional loans in coming time.
  2. Fees: It’s possible that some appraisers will charge more for FHA assignments since there is more work involved.
  3. Rejection: It’s also possible that some appraisers will simply choose not to accept FHA assignments because of the extra work and/or liability.
  4. Agents Be Ready: It is going to be important for real estate agents to be aware of some of the things appraisers need during a transaction so turn-times don’t have to be extended needlessly. For instance, if an appraiser needs disclosure statements (called a TDS in California) or a “burn letter” (a letter stating the property can be rebuilt as it is),  agents may be able to help track down that type of information. Or if an appraiser is going to observe the attic, be sure your seller knows to remove personal belongings under the scuttle so the appraiser can do the observation.

Questions: Any other changes you want to mention below? Did I leave anything out? What other impact might these changes bring? I’d love to hear your take.

UPDATED POST: This post was updated to further explain what a TDS and “burn letter” are (I had questions via email and on Facebook).

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