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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That place where the internet and real estate values meet

My Grandma never considered the internet when buying her first house, but these days it’s on all of our minds. Think about it this way. Would you buy a house if internet access was going to be impossible for some reason? Assuming we’re not talking about a secluded cabin somewhere, it’s safe to say most buyers would have a huge problem with that (not just Millennials either). Yes, there would probably be a value impact to not have internet, but the really intriguing part begins when we consider that what happens online or digitally at or around an address can also potentially impact value. This wasn’t even a part of the conversation just a handful of years ago, yet here we are.

Guy on computer - Image purchased by 123rf dot com and used with permission by Sacramento Appraisal Blog

Digital World Meets Real Estate: A few months back I heard of a house in Kansas that had 600 million IP addresses pointed toward it. If you don’t know, every computer has what is called an IP address, which is basically a string of numbers to identify that individual computer. Well, in this case due to a company’s digital mapping error it looked like 600 million computers were being used from this one location in Kansas, which led to a whole host of problems for the occupants. As the article states, the owners and tenants have “been accused of being identity thieves, spammers, scammers and fraudsters. They’ve gotten visited by FBI agents, federal marshals, IRS collectors, ambulances searching for suicidal veterans, and police officers searching for runaway children. They’ve found people scrounging around in their barn. The renters have been doxxed, their names and addresses posted on the internet by vigilantes. Once, someone left a broken toilet in the driveway as a strange, indefinite threat.”

Yikes. Assuming buyers knew about the IP address problem and unwanted visitors and threats, couldn’t a mistake in the digital world cause buyers to pay less? Or maybe renters would pay less? Appraisers, would this be considered external obsolescence?

BIG POINT: What happens online or digitally around an address just might impact value. Think of the advent of Pokemon Go and how a digital game has the power to bring customers to commercial properties or maybe even help increase use of neighborhood parks. Remember, if you’re tired of hearing about Pokemon Go, don’t worry because there will be many more games just like it in the near future. Again, the digital world and real estate are colliding, and we can expect more of that in coming years.

Pokemon Go Real Estate

Questions: Would you buy a house without internet capabilities? What other types of activity online might impact a home’s value?

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No man’s land & the aggressive real estate market

It’s easy to explain what the market did, but what is it doing now? Everyone and their Mom can sound like an expert with the benefit of hindsight, but how do we see the current market? Do we give more weight to recent sales or listings? Do we have to wait for sales to close to know how the market is unfolding? Let’s consider a few thoughts below. I also have my big monthly market update at the bottom of this post for those interested. Any thoughts?

aggressive market in sacramento - sacramento appraisal blog

Four points to consider:

  1. Sales show us the past: A sale might close escrow today, but does it really tell us about the market today? Not necessarily. A closed sale on April 12, 2016 probably got into contract in early March, so it likely tells us more about the market 30-45 days ago rather than today. The current market in April could actually be higher or lower, so it’s important to ask how value has changed if at all.
  2. Pendings help us see the current market: The current market is often better seen in the pendings and listings rather than the sales. This assumes we have enough solid data of course. One of the most practical questions we can ask is whether properties are getting into contract at higher levels or not. Simply put, if pendings are higher than the most recent sales (and they’re not padded with concessions), they helps us see the current market has probably increased in value. Other questions to consider: Are properties getting into contract more quickly? Is inventory going up or down? Is the sales-to-list price ratio increasing or declining in the neighborhood? Are sellers offering incentives to buyers or not? It’s easy to be so fixated on sales that we don’t ask these questions, but the answers help us gauge current trends. Remember though, sales might tell us about the past, but we still give them strong weight because they actually closed at that level. After all, pendings might not end up selling. In that sense we have to “appraise” the pendings too. Are they reasonable? Do they reflect the market? Or are they outliers?
  3. Getting bid up to “no man’s land”: Sometimes in a frenzied market, properties can easily get into contract for more than they are worth. Yes, the market has been aggressive and values have been increasing (see trends below), but sometimes properties are simply getting bid up to “no man’s land” so to speak. In other words, there just isn’t any support for a value that high based on all market data. Remember, even when housing inventory is incredibly sparse like it is right now, there still has to be support for the value. We can’t just list at an astronomical level or let offers get bid up way beyond what is reasonable and expect a magical appraisal to meet the contract price.
  4. Making or not making market adjustments: If the market has changed since the sales went into contract, appraisers may need to account for that with a market conditions adjustment. If you didn’t know, appraisers can give an up or down adjustment to the comps if the market has changed since the comps went into contract. In fact, if an adjustment is not given when it should be given, the appraised value could easily reflect the market in the past rather than today. Appraisers need to consider what a real market adjustment for time might look like. For instance, last week I used a comp that was nearly one year old since recent sales were sparse, and I gave an 8% adjustment up since the neighborhood market has increased in value by that much. I could have given a small token adjustment that I just made up, but 8% was very reasonable based on more recent sales and current pendings.

Any thoughts? I’d love to hear your take below.

—————– For those interested, here is my big 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 a few minutes digesting what is here.

DOWNLOAD 87 graphs HERE: 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 Sacramento Market Summary: It’s been aggressive out there. This is why many real estate professionals are comparing the current market with the beginning of 2013. There are certainly similarities, though the market three years ago had very rapid appreciation and all the metrics show it was hands-down more aggressive than it is today. We can talk about the differences in the comments if you’d like. Values overall saw a healthy uptick last month, it took 12 less days to sell a house compared to the same time last year, and housing inventory is currently over 25% lower than it was last March. Sales volume was up about 4% last month compared with the same time last year, and interest rates declining has certainly helped draw more buyers out (which doesn’t help with the low inventory problem). FHA had been increasing in the Sacramento market, but in light of how aggressive the market is out there, FHA buyers have begun to get squeezed out. FHA buyers were still 23% of all sales last month, but that’s down from 25-28% for multiple months in a row. It’s worth noting bank-owned sales are up very slightly. Some REO brokers have said they are starting to see more action in their REO pipelines, though so far there really isn’t any big change as REOs were only 5% of all sales the past quarter.

SACRAMENTO COUNTY:

  1. It took an average of 37 days to sell a home last month.
  2. It took 9 less days to sell last month that the previous month.
  3. It took 10 less days to sell this March compared to last March.
  4. Sales volume was up nearly 4% this March compared to March 2015.
  5. There is only 1.2 months of housing supply in Sacramento County.
  6. Housing inventory is 26% lower than it was last year at the same time.
  7. The median price increased by 2% last month.
  8. The median price is 8.7% higher than the same time last year.
  9. The avg price per sq ft increased by 2.3% last month.
  10. The avg price per sq ft is 8.3% higher than the same time last year.

Some of my Favorite Graphs this Month:

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

inventory - March 2016 - by home appraiser blog

fha and cash in sac county - sacramento appraisal blog

sales volume and cash in sacramento - by home appraiser blog

CDOM in Sacramento County - by Sacramento Appraisal Blog

REO and short sale trends - sac appraisal blog 3

median price and inventory since jan 2013 - by sacramento appraisal blog

price metrics since 2015 in sacramento county - look at all 2

SACRAMENTO REGIONAL MARKET:

  1. It took 9 less days to sell last month compared to the previous month.
  2. It took 9 less days to sell this March compared to last March.
  3. Sales volume was 2.5% higher in March 2016 compared to last March.
  4. Short sales were 3.5% and REOs were 5.2% of sales last month.
  5. There is 1.5 months of housing supply in the region right now.
  6. Housing inventory is 19% lower than it was last year at the same time.
  7. The median price increased 3% last month from the previous month.
  8. The median price is 7.2% higher than the same time last year.
  9. The avg price per sq ft increased 1.6% last month.
  10. The avg price per sq ft is 7.6% higher than the same time last year.

Some of my Favorite Regional Graphs:

median price and inventory in sacramento regional market 2013

months of housing inventory in region by sacramento appraisal blog

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

sales volume 2015 vs 2016 in sacramento placer yolo el dorado county

sacramento region volume - FHA and conventional - by appraiser blog

Regional market median price - by home appraiser blog

PLACER COUNTY:

  1. It took 14 less days to sell a house last month than February.
  2. It took 9 less days to sell this March compared to last March.
  3. Sales volume was 11% lower in March 2016 compared to last March.
  4. FHA sales were 18% of all sales last month.
  5. Cash sales were 20% of all sales last month.
  6. There is 1.8 months of housing supply in Placer County right now.
  7. Housing inventory is 3% lower than it was last year at the same time.
  8. The median price declined 2% last month (take with a grain of salt).
  9. The median price is up 6.5% from March 2015.
  10. Short sales were 3.2% and REOs were 2.4% of sales last month.

Some of my Favorite Placer County Graphs:

Placer County housing inventory - by home appraiser blog

Placer County price and inventory - by sacramento appraisal blog

number of listings in PLACER county - 2016

months of housing inventory in placer county by sacramento appraisal blog

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

Placer County sales volume - by sacramento appraisal blog

I hope this was helpful and interesting.

DOWNLOAD 87 graphs HERE: 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: Any other points to add about sales vs. listings? How else would you describe the market right now? I’d love to hear your take and what you are seeing in the trenches.

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How do appraisers deal with cracks?

Is it going to be an appraisal problem if there are cracks in a home’s foundation or walls? I saw the crack below in a home in Sacramento, and stuck a pen in the wall to show how big it was. What do you think? No biggie or big deal? I’d love to hear your take in the comments below.

cracks in walls in appraisal - sacramento appraisal blog

Here are a few things to consider about cracks:

  1. Cracks are Common: Buyers buy homes all the time with cracks – especially on the exterior when there is stucco. Cracks are a bit like wrinkles in that they are inevitable at some point as a home ages. Yet sometimes we see a crack like the image above and think, “Yikes, what is going on?”
  2. Cracks are Subjective: Some cracks might be deemed “normal” by an appraiser because nearly every house in the neighborhood has cracks as such. I know it sounds a bit subjective to talk like this, but after seeing thousands of homes in an area, appraisers have to consider what normal looks like. Yet other times cracks might indicate something is clearly not right. So will the appraiser call for repairs? Well, there really isn’t a one size fits all answer because not all cracks are created equally.
  3. Fannie Mae Structural Integrity: If you didn’t know, Fannie Mae’s appraisal form asks appraisers to state whether there are any adverse conditions or physical deficiencies that impact the livability, soundness, or structural integrity of the property. Side note: Is it just me, or is it a bit odd that Fannie Mae asks appraisers to verify something like this? Anyway, appraisers either select YES or NO to this question in their appraisal reports. This means if an appraiser observes a crack that looks beyond what might be “normal”, the appraiser will describe the issue, include photographs, and possibly call for repairs or further investigation by the client. If an appraiser essentially believes there could be a problem, it’s prudent and professional for the appraiser to bring the issue up rather than ignore it.
  4. Qualified Professionals: Lenders sometimes ask appraisers to state that cracks are normal or okay, but since appraisers aren’t crack specialists they need to outsource making that call to someone else – a qualified professional. I do this from time to time in lender reports when I see an iffy crack. I don’t know if there’s an issue or not, but if a crack looks suspicious or too big, I’d rather not guess that things are okay. So I make the value subject to further inspection to make sure things are alright. I don’t do this for every single crack I meet because then I’d be asking for an inspection on virtually every single property. It’s really only when something looks out-of-the-ordinary (or there is a clear trip hazard for FHA). What type of professional should look into the situation? As an appraiser I simply say “qualified professional” and let the client decide. Often times a lender will send out a structural engineer or some other individual they deem qualified, and I can then include that person’s written professional opinion in the appraisal if needed. Keep in mind this is important because a lender will want to be sure there are no structural issues before lending on a property. However, during a cash transaction or private appraisal, an appraiser might not have access to a “qualified professional’s” opinion. Thus the appraiser will render a value, but make assumptions and disclaimers about the cracks – and reserve the right to adapt the opinion of value based on new information. Lastly, in other cases an appraiser might have a documented cost-to-cure from a qualified professional. In a case like this an appraiser would entertain what sort of value impact exists for the repairs so the appraiser can render an “as is” value.

I hope that was helpful. Any thoughts? I’d love to hear your take.

Class I’m Teaching: By the way, I’m teaching a class called How to Think Like an Appraiser at the Sacramento Association of Realtors on March 10 from 9-12pm. This is my favorite class to teach because we set aside a few hours to really tackle issues and get valuation training. You can register here if interested. Thanks.

how to think like an appraiser class - sacramento appraisal blog

Questions: Any stories, insight, or ideas to share? Did I miss anything? What is point #5?

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