The collapse of the economy began with a wind of reality blowing against the house of cards of subprime mortgages. We all live with the results of overly aggressive lending practices and overly active government intervention. With all these friends, who needs enemies?
As the market readjusts, property valuations have plummeted. Some of you may even be “upside down” with your mortgages. You have bought? Do you sell? Can you withstand the tsunami? This series will look at all of the main questions we typically encounter when determining the value of a property. What are the drivers? What are inhibitors? What you need to know to get the best value.
What is a real estate appraisal / real estate appraisal?
The purpose of property valuation is to provide a current market value for a property in comparison to others in its immediate vicinity. So an appraisal is specific to time, location, and geography. It is a comparative value, not an absolute one. Second, real estate appraisals fall into two broad categories: residential and commercial. For the purposes of these documents, we will discuss strictly residential appraisals. Residential real estate appraisers are licensed by their respective states and have different levels of license levels depending on the loan value of the property. They must take classes and pass certification tests to earn and maintain their licensing status. They are also often bounded by county due to the way Multiple Listing Services (MLS) maintains and sells its records. So a good appraiser really knows your geography and what to look for.
Why does it cost so much?
Real estate appraisers are traditionally independent contractors / business people – no appraisals = no money. Therefore, while paying a relatively standard one-time fee (for example, $ 400), they must make sure they get as many appraisals as they can to get any benefit. How is that? After all, they have your $ 400. An appraiser has to cover all out-of-pocket expenses just like any business person (education, health insurance, MLS fees, liability fees, business insurance, state fees, the list goes on). . Also, a good appraiser can spend 3-6 hours preparing (looking for comparables, etc.), have a 45 minute or more drive time to the location, 2 hours driving comparables and taking pictures and then another 1-3 hours. writing the report and then if the bank wants more information or backs up, they have to take the time to answer questions and so on.
Also, if they receive your request from another appraiser or one of these new government-created intermediaries called AMC, they may have to split the fee. All of these are just the costs of doing business. So when someone spends 30 to 60 minutes with a tape measure, know that you are the tip of the iceberg and that you are getting a good deal.
Do I own the appraisal?
The person / company that owns the appraisal is the person who commissioned it. So if you’re looking for a home loan, your loan company “owns” the appraisal, not you because you’re the commissioning agent. Even if you pay the appraiser, it makes no difference – you didn’t set up the transaction. Why is this important? The appraiser cannot legally give you a copy of “your” appraisal – it is not yours. If you request an appraisal for loan purposes, the bank may not accept it because it did not request it or because you do not know the appraiser. Catch 22: Yes, but the appraiser didn’t, so don’t shoot the messenger. There are different types of appraisals (home, land, cost, estate, chronological, etc.) and they are not interchangeable. If you are requesting an appraisal in person, make sure you know what it can be used for.
Why do I need a new appraisal?
The market is so volatile that some lenders may require a reassessment every 6 to 8 weeks. In the past eight months, home values have fallen by as much as 40% in some areas. This means that a $ 1 million home could cost $ 600k now. This has made lenders very uncomfortable and require more documentation and proof of values than before. Of course, it was also the companies that caused the problem: Catch 22 for us. Refinancing has become more challenging as appraised values have come in so quickly that people who can manage the monthly payments are penalized because the “value” puts them under water. For sellers it is even more emotionally challenging as they believe their homes have a higher market value than they do and get angry, real estate agents get angry that the deal won’t close and the bank says the value of appraisal is what it is. it is. The appraiser is attacked by the state of the market rather than the banks that created the issue.
How to determine the value?
Value is determined by recent sales of similar homes within a given geographic radius. This means sales, not pending sales; people may ask what they want, but banks want to know what other similar houses were sold for; don’t let your real estate agent fool you. While the process must be precise, “similar” is a very ambiguous term. Are we talking square footage, age, upgrades, tiles vs. marble, pool vs patio, the variables may seem limitless. That is why online value services are worthless and if you pay for them, you are wasting your money. Only a live on-site inspection can see and assess the value correctly. Lenders understand this. The geographic area is also becoming more flexible. Neighborhoods can change character so quickly that the normal radius for a comparable one is 3 miles. However, because sales have been so slow, comparables are less and less. Because lenders require 3-5 or more appraisals per property, sometimes more; appraisers are looking for comparables outside of the 3-mile radius. Bottom line: If you’re looking to sell in the next 12-18 months, don’t do any major upgrades because you probably won’t get your money back. Do whatever it takes to please yourself and voila.
Who is first in this process?
People who refinance a lot or were thinking of refinancing in the last 6 months often ask this. Remember that in the entire real estate process, the bank has the power, no one else. Recent complaints from others and finger pointing at appraised property values is really a distraction, as banks with their loan programs and compensation systems drive everything. Because banks so freely slowed down money and caused the collapse, they have drifted 1800 away and are now hoarding cash. To justify this approach, they are pressuring loan officers and appraisers for more and more valuable documentation. This is especially ironic for refis – people who are already good customers but just want to take advantage of some good rates. Note that banks do not have customers who are interested in doing business again; you are a commodity. This tight-knit game in the name of “making sure it doesn’t happen again” increases the appraiser and loan officer’s costs, which cannot be passed on to the borrower. If you’re a banker, it’s no big deal, you’ll get a federal or government bailout bond, where basically “who cares is not my money”, these things are not important because you don’t really care about impact. BUT if you work for a living in $ 400 increments with no guarantees where your next job will come from, it means a lot. The other guy in the process, who used to be a silent partner, is the government. They have enacted new legislation to “clean up” the valuation process when it was never broken to begin with. This has backfired in increased regulation that raises the costs of loans in the process, some of which have been passed on to the borrower. It has also stifled loan creation, so even though they still have money, they are unable to borrow due to government pressure. Psychology is beyond the understanding of the normal mind. Everyone who is supposed to help likes to put more rocks in our backpacks as we go up the hill and tell us that it is for our own good.
It also produces lower-quality appraisals and appraisals. For example, Fannie Mae requires that all appraisals they obtain be from “certified” appraisers. Because the government demands that the banks follow suit. Now the difference between a regular appraiser and a certified appraiser is a couple of classes and taking an exam. So let’s say you’ve been an appraiser for 20 years, have done thousands of honest appraisals, have an MBA, and have an excellent reputation, guess what, thanks to the government, you’re out of business until you can spend hundreds or thousands more and take a test. . But it’s the same job you did before. So now you get an appraisal from someone with little practical experience who happened to take a test but gets the job. That’s the answer to some of the basic questions you want to know in this market. If you’re in the middle of this process and frustrated, get it out at the polls, but don’t kick your appraiser, he’s just the messenger.