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Home Appraiser

10 signs you’re overbuilding for the neighborhood

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top-10How do you know if you’re overbuilding? Here are ten signs for your mental checklist if you’re considering a significant addition to the size of your home.

You are overbuilding…

  1. If your house is going to be twice as large as all others in the neighborhood.
  2. If you no longer need Neighborhood Watch because your house towers over all others and is a watchtower in and of itself.
  3. If you have double the bedrooms of other homes in the neighborhood.
  4. If your house is mistaken for a motel or residential care facility.
  5. If you can see in every backyard on the street.
  6. If what you are building will yield little value in the resale market.
  7. If the larger size removes the rear yard and thus creates a negative for buyers.
  8. If prospective buyers think “Yikes, what were they thinking?” or “I would not want to live next to THAT house.”
  9. If shade from your house lowers energy bills for neighbors on every side.
  10. If buyers don’t have the expectation for such a large house in the neighborhood.

Obviously some of the points are only for fun, but you get the gist. If what you are doing is not consistent with the look and feel of the neighborhood as well as the expectations of the marketplace, then you’re probably overimproving your property. Watch a fun 30-second clip below of an overbuilt house I saw in Sacramento (and here is another in Woodland).

Anything you’d add to the list?

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Defective paint before & after 1978 for FHA loans

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It seems like most of us in the real estate community are on the same page that a property built before 1978 with a defective paint surface will require repairs for an FHA loan. We know lead-base paint was used in the United States before 1978, so there is a health and safety risk present when the paint surface is defective. This makes sense and it’s pretty much common knowledge.

What about after 1978? But what about a property built after 1978 that has a defective paint surface (chipping, peeling or flaking paint)? There is much confusion in the market on this point among lenders, real estate agents, home owners and even appraisers. Does FHA require repairs for a defective paint surface for a house built in 1979, 1993, 2005 or anytime after 1978? The answer is YES, but not because there a “health and safety” issue due to the potential for lead-base paint. The issue here is promoting economic longevity for the property since bare wood can lead to decay, which does not promote the longterm health of the property.

FHA’s latest Valuation FAQ on 2-28-12 (click here for PDF link) (unfortunately FHA removed this link, so I did too. Here is the text though still):

Noted lead based paint still seems to be an issue that is unclear in the minds of some appraisers and lenders. Should the lender automatically call for painting only if the home is pre-1978, or should further measures be taken in all cases?

Page 6 of Appendix D in Handbook 4150.2 states, “For any home built prior to 1978, check for evidence of defective paint surfaces, including: peeling, scaling or chipping paint. For all FHA insured properties, correction is required to all defective paint surfaces in or on structures and/or property improvements built before January 1, 1978 in accordance with 24 CFR Part 35.” The appraiser is further instructed to provide a detailed description and identify the exact location of any deficiency under “physical deficiencies” affecting livability. The appraiser is required to condition the appraisal on the “repair” of any noted lead based paint deficiencies.

As noted in mortgagee letter 2005-48, defective exterior paint surfaces in homes constructed post-1978 where the finish is otherwise unprotected will require automatic repair.

Here is a video I did in 2010 on this very issue of pre-1978 vs post-1978. Watch below or here.

I hope this was helpful to answer some of your questions. You can check out other FHA appraisal articles I’ve written including not leaving paint chips on the ground when curing the defective paint surface and even potential options for handling the cost of the defective paint surface.

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The housing market has to run it’s course to see recovery

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Everyone and their mom has a solution to deal with the housing crisis, but ultimately programs and bailouts that only scrape the surface of the issue are not going to bring us back to “normal” until distressed inventory runs its course and employment in the Sacramento area begins to see significant improvement.

Short-term Market Boost: When I look at graphs like the one below, I’m reminded of what it looks like for a short-term program to enter the marketplace to help boost the economy. Ultimately, the tax credit from 11/07/2009 to 09/30/2010 had a positive impact on the market and surely saved some homes from foreclosure too. Yet the boost it gave to the housing market for a matter of months could not hold back the inevitable decline in property value though either. My point? Every day we seem to hear of new solutions to fix the housing market, but as painful as it is, the market may just need to bleed for a number of years ahead. As much as we’d like a quick fix or program, that’s probably not going to happen because we need time for the market to work itself out of the mess.

The graph below is based on research in the Churchill Downs neighborhood in Sacramento. I could plot out many areas of Sacramento and a very similar trend would be seen: stability during the tax credit and a decline afterward.

What do you think it looks like for recovery to unfold? Do you think we’ve hit bottom? Why are we not seeing a surge in property value right now in light of such low inventory levels?

Churchill Downs in Sacramento Trend Graph by Sacramento Home Appraiser

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.

Should congress outlaw appraisers from using distressed sales as comps?

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Would you support a bill in congress that outlawed appraisers from using distressed sales as comps? On paper this might sound appealing because there is often a difference between market value and distressed sales, and if the wrong comps are used there could be a negative impact to value. But in reality, sometimes there are nothing but distressed sales for the appraiser to use.

There have been quite a few bills over the past few years proposing appraisers not be allowed to use distressed sales in their apprisal reports. As an example, H.R. 1755 was introduced in the House of Representatives on May 5, 2011 and says:

Library of CongressARMS LENGTH TRANSACTIONS: The appropriate Federal banking agency shall require that entities used by financial institutions to assess or review underwriting standards and collateral values for real estate loans made by such institutions after the date of the enactment of this Act use comparable sales involving arms length transactions to make such an assessment or review.

(A) IN GENERAL- The term `arms length transaction’ means a negotiated real estate transaction between a buyer and seller in which such buyer and seller act independently of each other.

(B) TRANSACTIONS EXCLUDED- Such term shall not include any transaction involving a short sale or foreclosed property or any other distressed real property.

Can Congress Provide me Comps? I’m finishing up an appraisal on my desk right now in the Wild Wings neighborhood in Woodland. This neighborhood is unique and there are literally no other subdivisions in Woodland that compare to this secluded golf course community. Therefore the most adequate and competitive sales come from within the neighborhood (that makes sense, right?). The only problem is that 75% of all sales over the past 12 months were distressed (only 32 sales by the way). Moreover, I’m doing an appraisal of a 2,500 square foot house and 8 of 8 sales between 2300-2800 squafe feet over the past year were either REOs or Short Sales.

If a law was passed that stated appraisers could not use distressed sales, I would have a big problem in this neighborhood and many others like it. Thankfully I know how to do my job though and I can use sales like this and sift through which ones may or may not represent market value (and make adjustments if appropriate).

Would you support this bill? Why or why not? What is the motivating factor behind a bill like this?

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.

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