Square footage greatly impacts the value of a home. So, you want to make sure you have the correct square footage.

Prices start at $125 for a single story home less than 1,500 sf.

Example Sketch

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.

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

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.

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.

There are four types of manufactured homes viz. mobile homes, modular homes, pre-cut homes, and homes which are panelized. The term mobile home is no longer used due to the regulations put into place by the United States Department of Housing and Urban Development (HUD).

A brief introduction about each type of manufactured home is below:

Mobile Home

Mobile homes are built to meet the Federal building code administered by the HUD. Once a mobile home transported to the site, it has very little work to be done. These types of manufactured homes often come with most of the cosmetic work, including paint and flooring, and some type of exterior finish already completed. Over time, the value of mobile homes depreciates, and they have limited expectancy of usefulness.

Modular Home

Modular homes are generally confused with mobile home, but there are some significant differences. Modular homes are created in parts and pieces, and do not have any standard shape. Each modular home is made of two or more modules. These modules are transferred to the site to be assembled and finished by a licensed contractor. The value of modular home increases over time, just like on site construction.

Modular homes are created to meet state and local codes. The construction techniques used to build modular homes ensure that it has less heat and energy loss. Such homes come without most of the exterior and interior work completed.

Panelized Home

Panelized Homes shipped flat from a factory. You would require a construction crew to assemble the pieces, including wiring, windows, doors, and exterior. These houses have to meet both state and local building codes that oversee the area where they are constructed. One benefit of buying panelized home is that it saves construction time and labor costs.

Precut /Kit Home

A precut home is like a kit for making exterior of a house. It is subject to the state and local codes where it is built; therefore, it does not depreciate. Such homes only include the exterior of the home in the price. You may have to hire a contractor for plumbing, interior, and exterior work. Precut or kit homes offer the least amount of material required to build a home, and therefore, the cost to finish your home can easily triple the total cost of the home.

Conclusion

Make sure you calculate both the long-term and short-term costs of the home you choose to buy. Apart from cost, consider both immediate and later needs as well to make a wise investment. Modular home and Precut home can be ideal options to get good return on investment in long run.

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.

An appraiser has a responsibility to the public to perform an accurate appraisal. In some circumstances their assessments may be relied upon by the public or one or more entities. They must protect the confidentiality of their clients and adhere to strict regulations. It is their obligation to provide accurate information with an appropriate degree of competency and maintain professional conduct. Appraisers may often engage in trades where they have specific knowledge to bring to an assignment. It is their duty to use their understanding for the benefit of reporting accurate data that will facilitate the decision process of pending issues. An appraiser may frequently enter into agreements with parties that state specific guidelines that must be met. The appraiser has a responsibility to read and understand the agreement to ensure it maintains integrity and fairness prior to entering into it.

The Uniform Standards of Professional Appraisal Practice

The Uniform Standards of Professional Appraisal Practice (USPAP) is a standard authored by the Appraisal Standards Board (ASB). The ASB is one of two divisions of the Appraisal Foundation (TAF). Periodic revisions are made to the USPAP to address current issues. The standard is comprised of four rules and ten standards. The ethics rule addresses conduct and prohibits specific activities including certain undertakings to procure assignments. It also establishes requirements for performing appraisal assignments and reporting results. The competency rule requires the appraiser to assess his proficiency for performing an assignment. Three steps for accomplishing credible appraisals are established in the scope of work rule. Requirements set forth in the USPAP that contradict law are nullified in the judicial exception rule.

The standards set criteria for the act of performing an appraisal. The USPAP distinguishes the activities performed in the appraisal process from the written document in which it refers to as a report. The standards encompass various disciplines including appraisal and reporting of real property, personal property, business property and intangible assets. The ten standards do not provide specific procedures or methods to follow but rather require the application of practices recognized by the industry to produce reliable results. Those standards that address appraisal reports state that results must be reported in a way that is not deceptive and establish requirements applicable to each discipline.

The Appraisal Institute Code of Conduct

The Appraisal Institute Code of Conduct governs the ethical and competent practices of appraisers in the real estate industry. All Appraisal Institute members must comply with the code of conduct. It consists of principles, rules and explanatory comments established by the Appraisal Institute to inspire the public’s confidence in its members. The code of conduct delineates the requirements for appraisal, appraisal review and consulting service. The criterion exceeds that of the state certified and licensed real estate appraisers. Members who do not comply with the code of conduct are disposed to disciplinary or remedial action. Members of the Appraisal Institute are also responsible for ensuring other members understand and comply with the code of conduct. They are required to report violations to the Director of Ethics and serve on the review board to examine possible violations.

Ethical Practices and Procedures

The establishment of ethical practices and procedures identifies standards that consistently deliver service that benefits the public and society. It establishes rules for conduct to prevent criminal charges resulting from dishonesty or fraud. Ethical practices protect the client’s privacy. They ensure that appraisers are qualified to make assessments prior to performing an assignment and notify clients of any deficiencies in competence. Methods of reporting are established that avert biased data and provide reliable information. Appraisers are prohibited from communicating, contributing to or participating in the preparation or delivery of a report containing misleading figures.

Why You Want to Choose an Ethical Appraiser

Choosing an ethical appraiser protects your financial well-being. It ensures that your property is valued with methods commonly recognized in the industry to provide consistent information. Valuations performed by ethical appraisers provide fairness in tax assessments and mitigate fraudulent lending practices. They also support accurate and impartial claims for insurance and estate claims. An ethical appraiser will protect confidential information. They provide full disclosure of all information relevant to the appraisal to allow you to make informed financial decisions.