Recently we have appraised a property with an accessory dwelling unit (ADU) for a purchase. The property was listed on MLS with the combined square footage of both the primary dwelling and the additional dwelling unit. The primary dwelling was approximately 1,000 sf  with two bedrooms and one bathroom. The additional dwelling unit was approximately 7oo sf with two bedrooms and one bathroom. The listing had the square footage as 1,700 sf with four bedrooms and two bathrooms.

First off, two separate dwellings do not equal one dwelling of combined square footage. The ANSI Z765-2013 standard (Method for calculating square footage), Fannie, Freddie, and FHA require this to be appraised as a 1,000 sf home with an additional dwelling unit. It definitely aids in the appraisal process if the listing accurately describes the property. The comments did indicate there were two 2/1 dwellings, but did not describe the size of the primary dwelling.

I was asked if this property could be compared to duplexes. The answer in this case was NO. There was adequate data of single family dwellings with additional dwelling units in the subject’s neighborhood which had identical zoning to the subject.

I took my USPAP  course last week from the REAA (Real Estate Appraisers Association).  USPAP stands for the Uniform Standards of Professional Appraisal Practice and is the standards for real property, personal property, intangible assets, and business valuation appraisal analysis and reports in the United States. The completion of this course is a mandatory requirement for all California State Licensed Appraisers once every two years.  as well as other continuing education requirements.

I belong to the East Bay Chapter and am a board member this year. The REAA typically has one class of continuing education a month at a great value of typically $35 which includes a meal as well as the class which counts towards appraisers continuing education. The USPAP class this year was $125 for members. The USPAP class costs more than the typical class. These classes are a great opportunity to meet and network with other appraisers and would encourage any appraiser to go to a class to see how they like it. There are several chapters throughout the state.

It has been a while since my last post. I am going to make a better effort the rest of the year to post more often on this site. I am shooting for twice a month. I would like to do once a week, but I think that may be a bit much for me at this time.

ReaList, a nationwide public records service provider had an outage this week. It was out over twenty-four hours and delayed many appraisals. Message boards over the nation had appraiser’s complaining about the downed service and the delaying of appraisal reports which were due. It would seem that a major service provider such ReaList would have an adequate backup strategy to prevent this type of problem. I hope they have learned a lesson and will make sure they put one in place that will prevent this problem in the future.

Starting on January 26, 2015 Fannie Mae’s Collateral Underwriter (CU) will be available to lenders. What is the Collateral Underwriter? Per Fannie Mae it is a proprietary appraisal risk assessment tool to improve appraisal quality. Appraisals will be scored for risk from 1.0 to 5.0 with a 1 indicating the lowest risk and 5 indicating the highest risk.

Does the collateral underwriter provide an estimated value for the property? No it does not. Does it determine adjustments for the appraisal? No it does not. But it does provide feedback whether the adjustments do not appear to correlate with prior appraisals submitted to Fannie.

What are some of the concerns about the Collateral Underwriter?

• The CU uses census blocks instead of neighborhoods to determine the impact on location of a sale comparable.
• The CU will provide up to 20 properties that are ranked by risk, not necessarily the most suitable.
• Is the CU going to influence appraiser’s adjustments and values?
• With Appraisal Management Companies seizing the market share of appraisals for lender work since 2009 and hiring the lowest fee appraiser, and in many cases, appraisers not familiar with the market area, it brings into question the quality of the appraisal data Fannie Mae has accumulated.
• Fannie just recently removed the maximum adjustment guidelines of 15% net and 25% gross because appraisers were not making market adjustments in order to meet the guidelines. Will appraisers start appraising to minimize the CU risk factors instead of market value?
• CU appears to be concerned with risk of overvaluation instead of undervaluation. Accordingly, some are concerned this will lead to an emphasis on appraisals under valuing properties and impeding transactions.

It will be interesting to see how this plays out over the next year. Will it improve appraisal quality and remove appraisers performing poor or fraudulent appraisals? Or will it over burden appraisers with additional busy work which has no effect on value and increase the cost of appraisal services? Only time will tell.

Other links on the Collateral Underwriter

http://turnersappraisals.com/fannie-mae-to-pick-lowest-risk-comparables-for-appraisers/
http://www.aqualityappraisal.com/Four+Reasons+Real+Estate+Appraisers+Fear+Fannie+Mae+CU

Whether you’re a buyer or seller, you may have a particular price in mind for your property. However, the amount of money that is involved in the transaction may differ from that of the mortgage lender. In order to achieve an objective assessment, the lender will assign an appraiser to look over the property and determine a market value. The condition of a dwelling, amenities and square footage are just a few important considerations that can influence value of a property. The following are property attributes an appraiser will use to assess the value and condition of a property.

Dwelling attributes

A property that is close to public transportation, schools and major expressways can have an impact on the price of a property, especially if it sits in a favorable community. Breathtaking views, what number floor a condo is on and proximity to the city can also affect the value of a property.

Living Area

Above grade living area that is finished is typically used when it comes to determining and calculating the square footage of the dwelling. While a finished basement may be considered and used as living space to the occupants of the dwelling, it’s usually not counted as square footage in the main dwelling, but handled separately.

Condition

Homes that need a lot of TLC and are in disrepair will be noted on the appraisal and negatively effect the market value. However, properly caring for a structure by properly maintaining it throughout the years can add dollar signs to the end amount. An appraiser will look to ensure that the structure has been kept up with routine household improvements such as a fresh coat of paint, new roof, updated flooring and repairing leaking faucets.

Amenities and Upgrades

Amenities and upgrades can be added to a dwelling to raise the overall value of a home. Improvements such as insulated doors and windows can save homeowner’s a substantial amount of money on heating and cooling costs. Swimming pools, privacy fences, security alarms, hot tubs and updated landscaping can increase the value of a property. Today’s consumer is also environmentally conscious and energy-efficient plumbing fixtures, electric systems and appliances can be added benefits that can raise a home’s price.

Site Attributes

Location, Location and Location can play a huge role in a home’s appraisal value. Factors an appraiser will take into consideration include the median income, city’s cost of living, popularity and geographical attributes. While a three bedroom home in a city such as New York or San Francisco can generate a high value, you’ll find a similar sized home in the Midwest to go for a significantly lower amount. Because the region may have a lower income level and cost of living, the home could appraise much lower.

External Influences

External influences of a neighborhood such as noise, industrial features and traffic can lessen a home’s value, especially when they are in the vicinity of an airport, train tracks or busy street.

Site Size

The square footage of a home, and the land that surrounds the dwelling is taken into consideration during the appraisal process. A plat survey map usually reports the dimensions and square footage of the site of the property. Generally, a larger site will indicate a higher value.

Topography

Important factors such as soil type, drainage, sewers, easements and where the home sits are topographical issues that should be taken into consideration during an appraisal. They can determine if the home is going to face structural issues, flood risks and other dangers that can hinder or harm the dwelling in the future. Other considerations include utilities such as electric, well, septic and city water.

Outbuildings

Barns, sheds and gazebos are popular outdoor structures that can bring additional value to the property. An appraiser will look at the condition, size, use, and market demand of the structures to determine the amount that should be added to the value.

Decks and Patios

Decks, patios and landscaped yards are aesthetically pleasing. They can also add value to a home when they are well-maintained seasonally. With a little deck stain, sealer and by keeping the patio weed-free, you can have an outdoor oasis that’s the envy of the neighborhood.

Appraiser publications across the country are lamenting the fact that the appraisal industry has lost many of the professionals in just a few years. Furthermore, a large percentage of those professionals still left are very close to retirement. Why are appraisal firms not hiring and training appraisers to replace these jobs?

Prior to HVCC (Home Valuation Code of Conduct), hiring a trainee appraiser and raising him up through the ranks could be a lucrative option, if the appraisal firm did it correctly. An appraiser trainee could be a valuable asset for an appraisal firm who is turning down business. Having a trainee can benefit your company in many ways as well as train the next generation of Appraisers. Within a period of time, a trainee can inspect properties and be trusted with a portion of the process.

It can be beneficial only if the appraisal business owner can have the trainee perform functions which the supervisor manages with the trainee to insure the work meets quality standards.  If a trusted trainee could be sent to inspect a property alone or even in with the Supervisor, then work on the report with the Supervisor, more work could be done in less time. The trainee gets paid for their efforts and earns experience and log hours for their licensure, and the company can be more profitable as well. So, this is a win-win situation.

Certainly, trust and credibility are issues, but the following are some prominent issues that you might face here:

• Was the inspection done in a professional and thorough manner?
• Was the appraisal and report completed accurately?
• Was the process adhering to all laws, USPAP, and quality standards?

The supervisor is required to co-sign the report and take the ultimate responsibility for its quality, compliance to USPAP, and assure the work was completed with integrity and excellence.

Lender work today has made it almost impossible to hire and train an appraiser. Most of the engagement letters that appraisal business owners receive state, “The Certified Appraiser must physically inspect the property, all comparables, and complete the appraisal report. The use of Trainees for this assignment is not allowed.” So, even if you hire a new trainee, he or she is limited in helping your business grow until they are fully certified.

Hiring a trainee can reap long-term benefits for your appraisal business, such as:

• With the help of a trainee appraiser, you can work on more appraisal projects and can make more money for your business.
• You do not have to work for late hours, and compromise on personal life. You can share your workload with your trainee, and focus on other imperative business operations.
• A trainee appraiser can help expand your firm’s expertise. As he/she will most likely develop an interest in a specific area of practice, property type or geographic area, thus increasing your appraisal business’s capabilities.

Conclusion

Hiring and training a trainee appraiser can be problematic only if you do not supervise their work. A supervisory appraiser will be held responsible for trainee appraiser’s work, and therefore, the time the supervisor takes to review the trainee’s work is worth it. With adequate supervision, trainee appraisers may provide a substantial increase in productivity and profitability of your appraisal business.

So you completed your appraisal and sent it off to the Lender to have it come back with please bracket the subject’s pool, or living area, or bedroom count, or bathroom count, or lot size, or in-law unit, or design style, or age, or etc… The list can go on forever.

What exactly is this bracketing the underwriter is talking about?

Bracketing, as defined in The Dictionary of Real Estate Appraisal, Fourth Edition, Appraisal Institute, is “a process in which the an appraiser determines a probable range of values for a property by applying qualitative techniques of comparative analysis to a group of comparable sales.  The array of comparable sales may be divided into two groups – those superior to the subject and those inferior to the subject.  The adjusted sales prices reflected by these two groups limit the probable range of value for the subject and identify a bracket in which the final value opinion will fall.”

The logic behind selecting superior and inferior sale comparables is making appropriate adjustments to the sale comparables. For instance, if a sale is superior to the subject property, the appraiser needs to make a downward adjustment to the sale whereas if a sale is inferior, then an upward sales adjustment will be made.

Here is an example of bracketing the bedroom count.

Assume the subject has three bedrooms and there are no three bedroom dwellings which have sold to compare to the subject. Then, to bracket the bedroom count you would like to have at least one sale comparable with a bedroom count of less than three bedrooms, say two, and one sale comparable with more than three bedrooms, say four bedrooms. Of course, if the market warrants a bedroom adjustment, you would adjust the bedroom count for each sale comparable accordingly.

Assuming that in the subject’s market, additional bedrooms have additional market value.  Then, in the case of the two bedroom sale comparable, you would add the value for the additional bedroom and in the case of the four bedroom dwelling; you would subtract the value of the fourth bedroom.

Is it mandatory to perform bracketing in an appraisal?

No. It is not mandatory to perform bracketing in an appraisal. However, it is a good practice to perform bracketing and recommended by such organizations as HUD. If bracketing is not possible, HUD wants the appraiser to explain why.

What if I cannot find a sale comparable with a similar feature?

If a certain feature cannot be bracketed, explain why. Explain how far you went out to find a property with a similar feature. Explain how far back you went to find a property with a similar feature. Explain, explain, explain…

Conclusion

Although, there is no written rule that an appraiser has to use bracketing, it aids in supporting sales adjustments and determining the final opinion of value.