Monday, January 30, 2012

How to Prepare for an Appraisal

1.


At some point in the life of a home owner, they get their house and or property appraised. For most homeowners the role of an appraiser is shrouded in mystery, and they don’t know how to prepare for the day of inspection or the remainder of the process. My job in this article is to shed some light on understanding the role of appraisers and preparation for the inspection.


Just another Day

I arrived at the property about 10 minutes early for a conventional appraisal. As I walked up the sidewalk and onto the porch, I was taking notice to the upkeep of the property, exterior features of the home, and looking for any environmental issues. I knocked on the door and was greeted by the homeowner, which appeared very nervous. After introducing myself, I gave her a brief explanation of what I was going to be doing today, and asked if we could sit down and talk for a few minutes. At this point the homeowner was already apologizing for the “wreck” that her home was in, and said she didn’t know I was going to be coming in the home.

As we were sitting at the kitchen table I made some small talk and asked if she had ever been through an appraisal before, which she had not. At this point, I usually explain in detail what I will be doing for the next couple days, because I realize that the homeowner has not been briefed or doesn’t know what to expect from the appraisal process. After the chit-chat, I usually ask several questions about the features of the home such as age, amount of land, where the septic tank and or well is located (if applicable), and any recent updates. By now she had calmed down a little bit, and we proceeded to go through the house for sketching and photographic purposes. I could tell she had a lot of questions, but she didn’t want to be pushy. So I talked her through the appraisal process as we went through the house. We talked about gathering the data, analyzing it, and then reporting the results. I told her how we methodically chose comps, and why I was taking pictures of her dirty laundry and all of her rooms.

Once I was done on the inside of the home we went outside, where I took a few more pictures and measured the home. She was following me around the whole time and when it was time to go, I could tell she was still on edge a bit. This example of a typical inspection for an appraisal happens all the time with both men and women. For some reason the role of an appraiser is one of the least know pieces of the mortgage puzzle.

Understanding the role of the appraiser

It would be easier to understand the role of the appraiser if homeowners would realize that the appraiser doesn’t work for them or the mortgage company, they are employed by the lender/client. The appraiser’s job is to inform the lender of the value of the property so the lender can make a decision on whether or not they will make the loan. The appraiser is the “safe-guard”, because the lender doesn’t want to lend any money if there is not sufficient collateral in the property. Many people do not understand this fundamental fact about the appraiser/client relationship, especially when the appraisal comes back low and the homeowner still has to pay for the appraisal.

Appraisers are contracted on a per fee basis. That means they do not get a percentage of the loan value if the loan is approved. They are paid a flat fee whether or not the loan closes. This system of payment was put in place to protect the independent, un-bias, and impartial stance the appraiser must take. Appraisers cannot be tempted to inflate the value of the property in order to get paid, they must “call it like it is” on the behalf of the lender.

Appraisers will use data from several different sources in order to prepare an appraisal. They examine the general features of the subject (house or property), site, contract, neighborhood, and market before they start using an approach to value. Analyzing all this data will determine if multiple approaches are needed and which ones apply. Appraisers have three main approaches to value: sales, cost, and income. The sales approach is the most common, and this approach uses similar properties that have sold which are then compared to the subject. The next is the cost approach. This approach uses the cost of replacing the structure on the property plus the value of the land minus any depreciation in order to arrive at an opinion of value. This approach is most effective on new constructions, but less on older homes that have been remodeled. The income approach is rarely used on residential properties because an income has to be associated with the property.

5 Steps to prepare for the inspection

1. Prepare your documents- Appraisers love it when all the documents they will need are accessible and current. If you have had changes to the deed, and or property lines moved, make sure the deed is updated. Having the following documents on hand would be even better: deed, plat, past real estate taxes, assessor data, and a list of updates.

2. Prepare your property- A property that sees regular maintenance, periodic updates, and has been cleaned will have a positive effect on the effective age of the property. Effective age is the age of homes yours competes with on the open market. For example, if you have a ten year old home and have done regular maintenance to it and some updates, it may compete with a five year old home. The opposite is also true. If you have the same home that has been abused and not taken care of, it may compete with a 15 year old home. Make sure that if you’re in the middle of a remodel job to get to a natural stopping point when the appraiser comes out. The appraiser will be looking at the finish of the rooms. If he or she sees a room that has the floor ripped up, walls knocked out, or key components missing such as tubs and countertops, it will delay and possibly cause the mortgage to not be approved. In regards to remodeling, keep in mind that the cost of the remodel job doesn’t guarantee a direct return on investment. The appraiser will take into consideration what the market is willing to pay for the feature, not what it cost to put on your property. Consult with several professionals before spending large amounts of your hard-earned money on remodeling (i.e.- planning and zoning, Realtors, and appraisers). Also, make sure the water and electricity is turned on.

3. Prepare your family- Let family members know when the appraiser is coming over. He or she will need access to the rooms (and will be taking pictures), so make sure no one is sleeping or taking a shower when they arrive. Also, try and pen up Fido so the appraiser doesn’t end up with paw prints all over them.

4. Have all areas open for access- Depending on the type of appraisal, the appraiser may need to get into the attic and crawlspace. If this is the case, have the access panels for both of these areas free of obstructions. Also, don’t have any of your rooms locked (this could cause an additional trip fee).

5. Get ready for the next step- Depending on the type of financial transaction, the appraisal could take from a few days, up to two weeks to get back to your mortgage broker. The appraiser may have to make an additional trip to your property if something did not meet the underwriter’s guidelines. Your broker should be able to provide you a copy of the appraisal before closing, and if you have any specific questions about the report, please direct them to your lender; however, feel free to give the appraiser a call if you have any general appraisal principle questions. Just keep in mind, appraisers work for the lender, and they can only share specific information when written authorization has been provided.



Conclusion

Well, this wraps up this article. I hope that this will shed some light on the appraiser’s role in the mortgage process, and what homeowners can do to prepare for the inspection. Feel free to check out our website bvs-ky.com and our facebook page (Bluegrass Valuation Services) for more interesting articles and information on the Real Estate industry. If you need appraisal services as a homeowner, lender, or a Realtor, we have something for everyone. Be sure to click the like button and leave a review before you leave. Thanks for reading, and I’ll see you around the Hardin, Meade, Jefferson, Bullitt, Grayson, and Breckinridge County areas.





Lance Shore is a certified residential appraiser in the Central Kentucky area. He has been in and around the Real Estate industry since 2001 where he started working in the management program at 84 Lumber. He started Bluegrass Valuation Services in 2009, and is also a licensed Realtor in the state of Kentucky. Lance performs a variety of valuation services for homeowners, lenders, and Realtors.
1. woodlandsappraiser.com

Wednesday, January 25, 2012

Hardin County Update part 2

Here is a great article that backs up a previous piece I had written earlier in the month.  


Local home sales decline after strong 2010


Overall, market here remains relatively stable

By Sarah Bennett
After a significant boost from the Base Realignment and Closure initiative in 2010, residential home sales in the Hardin County area declined slightly in 2011.
<div class="source">Jeff D'Alessio</div><div class="image-desc">This home is under construction on Tunnel Hill Road in Elizabethtown.</div><div class="buy-pic"><a href="http://www.lcni5.com/cgi-bin/c2newbuyphoto.cgi?pub=053&amp;orig=120homes1.jpg" target="_new">Buy this photo</a></div>
Jeff D'Alessio
This home is under construction on Tunnel Hill Road in Elizabethtown.
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According to numbers from the Heart of Kentucky Association of Realtors, the number of residential sales in its area fell from 2,207 in 2010 to 1,643 in 2011.
HKAR President Steve Heartsill said despite the decrease, the county’s housing market has been relatively stable compared to other areas of the country such as California or Michigan. He credited that to the foresight of those involved in the Hardin County housing market.
Heartsill and Greg Pawley, president and CEO of The Cecilian Bank, said if 2010 is taken out of the picture, housing sales have remained consistent since the market reached a low in 2008 with $441 million in sales.
Heartsill said the housing market nosedived in 2008 as the economy entered a recession.
“When you lose jobs, you lose housing,” he said.
Fortunately for Hardin County, BRAC arrived during that time, hitting a high note between the end of 2009 and close of 2010, Heartsill said, when many new families relocated to the area because of increased employment at Fort Knox.
While many of these families purchased homes, many men and women in uniform chose to rent apartments or live in military housing on post, he said.
Besides completion of BRAC, September saw 1.3 million foreclosed homes enter the market across the country, which had significant effects in housing markets close to home and nationwide. The effect in Hardin County was the value of homes declined 2.5 percent, he said.
In 2011, a lot of home sales were in the $150,000 range, Pawley said. Overall, buyers seemed more interested in purchasing moderately priced residences.
“Financing options aren’t as easy to come by,” he said. “Loan underwriting and the mortgage market are tighter than they used to be.”
Since the recession hit, Heartsill said he’s observed that buyers appear to be educating themselves in the process of buying a home, which is a positive sign. Buyers appear to be purchasing new and existing homes.
“When you’ve got somebody that stays within their means, they won’t foreclose on a home,” he said.
Elizabethtown contractor Paul Brantingham of Brantingham Builders Inc. was the most positive about the area’s housing market. The contractor, who has been in the business since the 1970s, said the market has made observable improvements since 2008-09.
Most notably, there are people showing interest in new homes, which adds “vitality” to the housing market by creating a domino effect, he said.
“People have been putting things off, and finally, they’re just done putting things off,” Brantingham said.
Three weeks into 2012, Heartsill said the year already is off to a good start with a few sales under way, which is unusual to see in January.
With this in mind, he believes Hardin County’s housing market has a bright future ahead and will continue to grow steadily rather than decline.
“Once people realize the worst is over with, they’ll jump on the opportunity to purchase a home,” Heartsill said. “This is the time to buy.”
Pawley echoed Heartsill’s optimism, saying he believes home sales will stay on par with previous years rather than decrease. He’s hoping a large employer will come to Hardin County, perhaps at the Glendale industrial megasite, and create tremendous growth in the economy.
“Hardin County needs the next big thing,” Pawley said.
Sarah Bennett can be reached at (270) 505-1750 or sbennett@thenewsenterprise.com.

Monday, January 23, 2012

Appraising still good in Hardin County

Thanks go out to Josh Hay for sending these to me.  Even with the slight rise in interest rates, refinances are still going strong.  Enjoy the info!


MARKET COMMENT
Mortgage bond prices were lower last week, which pushed mortgage interest rates higher. Inflation fears were reignited when the core producer price index came in higher than expected. Germany had a successful 2Y debt auction, which alleviated some of the short-term Euro debt concerns. Germany has been one of the few bright spots for the Euro and is credited with keeping other Euro nations afloat. Spain and France also had decent debt auctions later in the week, which also reversed some of the flight to quality buying of US debt we saw recently. The weekly jobs data wasn’t as bad as expected which also added to MBS losses for the week. Mortgage bonds ended the week worse by approximately 1/2 of a discount point.
LOOKING AHEAD
Economic
Indicator
Release
Date and Time
Consensus
Estimate
Analysis
2-year Treasury Note AuctionTuesday,
Jan. 24,
1:15 pm, et
NoneImportant. Notes will be auctioned. Strong demand may lead to lower mortgage rates.
Fed Meeting AdjournsWednesday,
Jan. 25,
2:15 pm, et
No rate changesImportant. Few expect the Fed to change rates, but some volatility may surround the adjournment of this meeting.
5-year Treasury Note AuctionWednesday,
Jan. 25,
1:15 pm, et
NoneImportant. Notes will be auctioned. Strong demand may lead to lower mortgage rates.
Weekly Jobless ClaimsThursday,
Jan. 26,
8:30 am, et
355kImportant. An indication of employment. Higher claims may result in lower rates.
Durable Goods OrdersThursday,
Jan. 26,
8:30 am, et
Up 0.8%Important. An indication of the demand for “big ticket” items. Weakness may lead to lower rates.
New Home SalesThursday,
Jan. 26,
10:00 am, et
320kImportant. An indication of economic strength and credit demand. Weakness may lead to lower rates.
Leading Economic IndicatorsThursday,
Jan. 26,
10:00 am, et
Up 0.3%Important. An indication of future economic activity. A smaller increase may lead to lower rates.
7-year Treasury Note AuctionThursday,
Jan. 26,
1:15 pm, et
NoneImportant. Notes will be auctioned. Strong demand may lead to lower mortgage rates.
Q3 Advance GDPFriday,
Jan. 27,
8:30 am, et
Up 1.7%Very important. The aggregate measure of US economic production. Weakness may lead to lower rates.
U of Michigan Consumer SentimentFriday,
Jan. 27,
10:00 am, et
62Important. An indication of consumers' willingness to spend. Weakness may lead to lower mortgage rates.
FED FOCUS
The United States central bank, the Federal Reserve, coordinates the borrowing and lending activities of federally chartered banks. The principal reason the Federal Reserve was created was to reduce severe financial crises. One way of accomplishing this goal is to control the amount of money that flows through the economy. By manipulating the US money supply, the Fed influences inflation, unemployment, and the level of US economic activity. The Fed has a variety of tools that it uses to control the money supply, but its chief policy tool is the manipulation of short-term interest rates.
No rate changes are expected at the Wednesday meeting but there is concern about the future. The Fed indicated they hope to keep rates low into 2013 but also indicated they would be ready to make changes to that policy as warranted. Their post meeting remarks will be carefully analyzed.
RATE LINK is provided by Market Information for Mortgage Professionals. Copyright 2012. All Rights Reserved. Mortgage Market Information Services, Inc. The information contained herein is believed to be accurate, however no representation or warranties are written or implied.
CONFIDENTIALITY NOTICE: This e-mail transmission and any attachments may contain confidential or legally privileged information. This information is intended only for the necessary business use of the individual(s) or entity to whom it is intended even if addressed incorrectly. If you have received this e-mail in error, please immediately notify the sender by e-mail at the address shown. You should delete this entire transmission from your files if you are not the intended recipient and you are prohibited from retaining, distributing, disclosing or using any information contained herein. Thank you for your compliance.

Wednesday, January 18, 2012

Residential & Commercial Signs

Fed: Residential Market Sluggish, Commercial Market Improves 

Economic activity expanded at a modest-to-moderate pace in most districts, although activity was sluggish in residential real estate markets, the Federal Reserve reported Jan. 11 in its latest Beige Book. Commercial real estate markets remained somewhat soft, although districts reported signs of improvement.

While most districts indicated little or no change in overall business loan demand, Cleveland, Dallas, New York and San Francisco showed increases. Consumer lending was largely flat compared to the previous report, but Cleveland, New York and Philadelphia reported greater demand for refinancing of residential mortgages.

Meanwhile, credit quality improved in several districts. New York reported a decline in delinquency rates for all loan categories, while Dallas, Kansas City, Philadelphia, Richmond and San Francisco all reported general improvement in loan quality.

The Fed reported that residential real estate activity was largely steady at depressed levels, with sluggish single-family home sales. However, Dallas reported a modest increase in home sales compared to the previous report, while Atlanta and Boston rose above rates reported a year ago, which fell significantly following expiration of the homebuyers' tax credit in mid-2010.

Home prices were largely stable on a short-term basis in most districts, but in many instances were below their levels from 12 months earlier. Boston, Chicago, Richmond and San Francisco reported that extensive inventories of distressed properties were restraining home prices.

Construction of multifamily residences increased but construction of single-family homes remained at depressed levels in most districts, with Kansas City, Minneapolis, Philadelphia and St. Louis reporting further declines. However, Cleveland reported an upswing in single-family construction over the past couple of months.

The Beige Book reported that demand for commercial real estate remained somewhat soft, with only a few districts reporting improvements. Conditions for office space remained relatively unchanged in Boston, Cleveland, Philadelphia, Richmond and St. Louis. However, New York saw vacancy rates edge down and rents go up. Meanwhile, Atlanta, Chicago, Dallas, Kansas City, Minneapolis and San Francisco all reported stronger demand for commercial real estate compared to rates seen at the beginning of 2011.

Monday, January 16, 2012

Appraisal Info for Hardin and Meade County

Thanks go out to Josh Hay for providing us with this information.  It's interesting to see how much of a global economy we have moved into when the European debt crisis has repercussions in our markets.  
MARKET COMMENT
Mortgage bond prices were higher last week which helped mortgage interest rates improve. The Euro debt crisis dominated trading as market direction swung rapidly on news articles throughout the week. Last Tuesday, Fitch Ratings reported that French triple A credit was safe. Spain and Italy had decent debt auctions. These events kept MBS prices in check early in the week. Fortunately, higher than expected jobless claims Thursday and S&P Ratings downgrade rumors for France on Friday pushed MBS prices in the right direction. Mortgage bonds ended the week better by approximately 3/8 to 1/2 of a discount point.
LOOKING AHEAD
Economic
Indicator
Release
Date and Time
Consensus
Estimate
Analysis
Martin Luther King DayMonday,
Jan. 16 -
-Important. Extended holiday weekend may result in market volatility when trading resumes Tuesday.
Producer Price IndexWednesday,
Jan. 18,
8:30 am, et
Up 0.3%,
Core up 0.1%
Important. An indication of inflationary pressures at the producer level. Weaker figures may lead to lower rates.
Industrial ProductionWednesday,
Jan. 18,
9:15 am, et
Up 0.1%Important. A measure of manufacturing sector strength. A lower than expected increase may lead to lower rates.
Capacity UtilizationWednesday,
Jan. 18,
9:15 am, et
77.7%Important. A figure above 85% is viewed as inflationary. Weaker figure may lead to lower rates.
Weekly Jobless ClaimsThursday,
Jan. 19,
8:30 am, et
392kImportant. An indication of employment. Higher claims may result in lower rates.
Consumer Price IndexThursday,
Jan. 19,
8:30 am, et
Up 0.2%,
Core up 0.1%
Important. A measure of inflation at the consumer level. Weaker figures may lead to lower rates.
Housing StartsThursday,
Jan. 19,
8:30 am, et
655kImportant. A measure of housing sector strength. Weakness may lead to lower rates.
Philadelphia Fed SurveyThursday,
Jan. 19,
10:00 am, et
8.9Moderately important. A survey of business conditions in the Northeast. Weakness may lead to lower rates.
10-year Treasury TIPS AuctionThursday,
Jan. 19,
1:15 pm, et
NoneImportant. TIPS will be auctioned. Strong demand may lead to lower mortgage rates.
EUROPEAN TURMOIL
The newswires were full of European downgrade rumors last Friday as French news reports indicated France and four other countries would soon see their credit ratings downgraded. Spain, Portugal, and Italy were rumored to face a two notch credit rating cut while France would lose triple A rating. This would likely put additional pressure on Germany despite the fact it is expected to maintain triple A status. The European Financial Stability Facility is a special entity created to help fight the European debt crisis. The EFSF relies heavily on France and Germany to fund the loans it provides to troubled eurozone countries.
This news came amid earlier reports that Banks holding Greek debt failed to come to an agreement on a write-down and reignited fears of a Greek default. Charles Dallara, the head of the Institute of International Finance which is representing the banks in EU negotiations, indicated "there is no agreement on any element of a deal.” Things don't look good for Greece.
The terrible news out of Europe has some positive news for the US as mortgage interest rates benefit from flight to quality buying in the short term. Now is a great time to take advantage of the historically low rates.
RATE LINK is provided by Market Information for Mortgage Professionals. Copyright 2012. All Rights Reserved. Mortgage Market Information Services, Inc. The information contained herein is believed to be accurate, however no representation or warranties are written or implied.
CONFIDENTIALITY NOTICE: This e-mail transmission and any attachments may contain confidential or legally privileged information. This information is intended only for the necessary business use of the individual(s) or entity to whom it is intended even if addressed incorrectly. If you have received this e-mail in error, please immediately notify the sender by e-mail at the address shown. You should delete this entire transmission from your files if you are not the intended recipient and you are prohibited from retaining, distributing, disclosing or using any information contained herein. Thank you for your compliance.