My New Blog

We hear stories on Radio and TV or see article in the newspaper that cite trends about what is happening in the real estate market. At least a couple of times a year local newspapers print in depth articles including a lots of statistics and quotes from experts. The statistics seem to catch everyone’s eye and the buzz around the water cooler is about how the market is performing, how much property values have gone up or down and my favorite, the average price per square foot for houses.

While taking a statistics course a professor said, “Statistics are like bikinis. What they reveal is suggestive, but what they conceal is vital”. The problem with statistics is that most people don’t understand what they mean and then try applying them to their individual situations.

Think about it, you see the following statistic, the average weight, lifted by men, at the gym is 600 pounds. You figure, I’m average and try to lift 600 pounds. After a quick trip to the doctor to have your arms reattached you learn that the average was based on four guys; Superman, Hercules, The Hulk and Atom Ant. The moral of the story is averages don’t mean anything to you as an individual and that unless you know how they were calculated they can be pretty dangerous.

The following statistics were printed August 3, 2009 in the New Orleans Times Picayune. The data was reported to be supplied by MLS to Real Property Associates a firm run by my former professor and friend Dr. Wade Ragas. The data is for Zip Code 70057, the small community of Hahnville in St. Charles Parish.

Using the statistics report provided through MLS, the following are the results indicated for the same time periods;

We don’t know exactly how the two analyses differed but we can see the difference in results. If we clean the data up just a little, by taking out properties that were not typical of the market or adjust for seller concessions, based on the MLS program, the decline is only about 3%. If we then compare just the first half of 2008 to the first half of 2009, we actually see an almost 1% increase.

So what does it all mean? Not much to start with there are so few sales in the area, the statistics are statistically not reliable. With just a little change in the analysis the answers vary widely. Statistics are great for identifying trends in the overall market but they can be misleading if you want to know what’s going on in your back yard. If you need to know the value of your home call an appraiser, if your are trying to buy or sell a home hire a qualified Realtor.

“Appraisal Shock” is when you find out that appraised value is lower than you expected. My advice on how to handle appraisal shock is the same as my advice on what to do after any appraisal is completed. First things first, ask for a copy of the appraisal and read the report. The appraisal is filled with information about the home and the neighborhood and can tell you a lot about what is usually the largest single investment for most people.

Appraisals and appraisal orders involve people and people can make mistakes. So to start with check the basic information.

Is the house in the pictures the property that is being appraised?
Is the address reported the right property?
Is the lot or land size in the appraisal the same as what you expected?
Is the house size or living area the same as you thought?
Is the number of bedrooms and baths what you expected?

The number one cause of appraisal shock is differences in the size of a house and the second most common problem is differences in the size of the lot, both of which can be simple mistakes.

Most residential appraisals rely on comparing recent sales to the property being appraised. These sales should be in the neighborhood or nearby and similar in lot size, living area, room count, design, and quality.

When reading the appraisal check that the sales price, date of sale and other basic information about sales is the same as found in the MLS. Ask yourself if these sales are really similar to the property being appraised. If you are not sure, check the MLS and the public records for sales that you may be a better comparison.

If there is a problem with the appraisal prepare a letter asking the lender to review the appraisal and have the appraiser explain why any problems. The letter should include a list of any problems with the basic information and with the sales used, if any. Provide copies of the MLS sheets with the details of any sales you believe are better and ask that they be considered.

The lender will contact the appraiser to have your questions answered. A reputable appraiser will correct any problems and explain why there may be a difference. If in the end you believe the appraisal has not been done correctly ask the lender if a new appraisal can be ordered or what else can be done.

The sub-prime mortgage meltdown has brought lots of new rules that affect the way we buy or refinance real estate. One of the changes is an increased focus on appraisal quality. Gone are the days when just about any appraisal with 3 sales in the last year or so was a good enough. To prepare an appraisal that will past the new underwriting guidelines an appraiser must be more than just licensed, they need to be well trained, experienced and know the market. At a minimum appraisal reports now include information about the total number of sales, absorption rates, listing and sales price trends, average days on market and other statistical data that reflects the activity over the past 12 months. While appraisals still include at least 3 sales, the new rules require at least two must be within the past 90 days and more often than not appraisals may have to include as many as six comparables to be acceptable.

The new challenges are complicated by the HVCC. Because HVCC has promoted the selection of the lowest fee and fastest turn time many of the best appraisers have left the business or have quit working with lenders. As a result, when the appraiser assigned to do your appraisal calls it is someone you have never heard of. Often these are newly certified appraisers or appraisers from different markets.

So if you end up in this situation these are some tips to help you avoid appraiser shock?

1. Meet the appraiser at the property and be sure the person inspecting the property is the appraiser assigned to do the appraisal.

2. Bring a list of features of the home including any updating or special amenities.

3. Bring a floor plan of the property if you have one.

4. Bring copies of the contract, the legal description or survey and the home inspection.

5. Bring copies of any MLS sheets for recently closed sales that are comparable and support the value.

Yes it is the appraiser’s job to find all the things listed above but remember it is the agent’s job to do whatever it takes to get the deal closed and closed on time. Remember there is a difference between providing information and improperly influencing the appraiser. Don’t bring just the highest sales; bring sales that are really comparable.

Because of the new Home Valuation Code of Conduct (HVCC) many lenders have turned to Appraisal Management Companies (AMC) to handle the appraisal process. The AMC charges a flat fee and then earns its profit by finding appraisers who will do the job for the lowest fee and with the fastest promised completion time.

Both as an appraiser and as a state director for Louisiana Realtors I recently been hearing lots of horror stories about appraisers and appraisals. It seems the old adage is true you get what you pay for. When appraisers with the lowest fees and promises of getting the job done fast are hired you often get an appraiser who is not qualified or has only minimum qualifications. To make matters worse it seems many of these appraisers don’t have a problem accepting assignments in areas where they have little or no experience despite rules that require them to know the market they are working in.

While the Realtor organization and many other industry organizations are working to change the current rules, we still must deal with the problems that have been created.

So, what can you do to limit appraisal shock? Well the answer is pretty easy and can be good for your community too.

1. Choose a local lender, unlike the large national lenders many local lenders have chosen not to use an AMC but use a panel management model. These lenders have retained their relationship with local appraisers who know the area and have a proven track record of quality. Before choosing your lender, ask if they use an AMC or if they have their own panel of local appraisers.

Remember a promise of a great rate is not that great if the loan can’t be done because of a bad appraisal.

2. When the appraiser calls for an appointment, ask some questions. Where is their office located? How long have they been certified? How long have they been working the area and how many appraisals have they done in the market where the property is located?

If you don’t think the appraiser is qualified tell the lender before you schedule the appointment. Ask that the appraisal be reassigned to someone that is local and has the experience necessary to complete the assignment properly.

3. Meet the appraiser at the property. Ask for a business card or other identification to ensure the appraiser inspecting the property is the one who is appraising the property and not another appraiser or appraiser trainee.

While these steps will not ensure you the appraiser of your choice, they will help to improve the chances that you will get an appraiser that is familiar with the market and is qualified.

The last installment of this 3 part series will include tips about how to prepare for the appraisal and what to do if there is a problem with the appraisal.

In the past, loan officers and often buyers or real estate agents selected the appraiser that would provide the appraisal for home loans. Today, under the Home Valuation Code of Conduct (HVCC) adopted by Fannie Mae and Freddie Mac, the way appraisers are selected has changed. While HVCC only applies to conventional loans, most lenders are using this process for all of their loans including FHA.

The intent of the HVCC was to provide appraiser independence to promote more realistic appraised values. The results, however, have not been what were expected. Potential purchasers and borrowers have had to pay higher appraisal fees, wait longer to get the appraisal completed and often had less competent appraisers doing the appraisal.

So as professionals what can we do to avoid "Appraisal Shock"?

1. Prepare the client by explaining the market has slowed, that overall values have declined, that lenders are tougher on appraisals and that there could be a problem.

2. When listing a home or advising a client about price be sure the living area, which is often the basis of the selling price, is correct. Differences in the living area listed and the living area calculated by the appraiser is often the problem when an appraisal does not support the contract price.

3. When establishing either an asking or selling price be sure to educate the client about what homes are really comparable. Explain that differences in lot size, age, condition, quality, room count and all other major amenities affect the value. Prepare a CMA showing past sales and current listings or suggest an appraisal. Using average price/square foot or even the price/square foot of selected homes can often under price or over price a home.

4. When offering or asking for seller concessions in a contract, understand that is the current market and under stricter appraisal review standards it is almost impossible to support a value that is above the list or asking price.

The next segment of this series will discuss how choosing the right lender get improve your chances of getting a better appraiser and appraisal

2008 was the most recent year when every Assessor in Louisiana was mandated to re-assess property values. This re-assessment came at a time when real estate values were at their highest levels. Even though property value have fallen since then it is unlikely that assessed values will be lowered. In the end many people will have to pay more in taxes than they should.

If you think your property taxes are too high, your chance to appeal them will be coming up soon. Each year between August 15^th and September 15^th the Assessors open the tax roles and this is when you must request a change in your property tax assessment. After the books are closed the chances of having your taxes lowered are not very good.

Because so many people have seen the value of their real estate decline over the last two years many Assessors will be busy handling request for lower assessments. While having an appraisal by a Louisiana certified appraiser is not required or a guarantee that your assessor will lower your assessment it can help. Additionally an appraisal will help you know just how much the value of your property has changed.

If you need more information or help in finding out if your assessment if fair visit our e-mail us at info@thevalueexperts.com

The reason I wanted to start this blog was to add fresh and new content to my website and to improve my web ranking. I have procrastinated about making entries because being new to blogging I really did know what to blog about, what someone may be interested in and if I had anything of value to say. Being a real estate appraiser I did what comes natural to me and started doing research and conducting a survey of my friends about blogging.

What I learned was the best blogs are written by someone who has knowledge about the subject matter, has a passion about the subject matter and truly enjoys sharing with others. So I started by making a list of all the things I thought I knew about, was passionate about and that I would want to share with others. My list was short;

• My grandchildren
• Real Estate Appraisal
• Cooking

While I enjoy cooking, learning about cooking and even helping others cook, I know I am no Bobby Flay or Rachel Ray so I figured this would probably be a subject better blogged about by others.

Next I considered blogging about my grandchildren (one girl and one boy). There is no doubt I am passionate about them, I know a lot about them and they are an endless source of funny stories. They have taught me more about myself than I would have believed possible and so I thought this is what I should blog about. While at first this seemed like a good idea I realized pretty quickly that a blog about my grandkids on a website about real estate appraisal maybe wouldn’t be the best combination. So I decided that maybe that would be another blog for another site. I do make warning within the pages to be written here you may see a reference or two about the grandkids.

The only topic left was real estate and real estate appraisal. My dad was a Realtor, an appraiser and a developer so I have been around real estate all my life. I graduated from the University of New Orleans with the closest thing they had to a degree in real estate, I have attended hundreds of hours in classes about real estate and real estate appraisal and I have been appraising full time since 1983, that’s more than 25 years. I have taught real estate and real estate appraisal to lots of people and I really love what I do. So I figured that is what my blog should be about and it really fits the website.

I hope you enjoy reading the blog, I hope it provides answers to your questions, helps you understand that appraising is more of an art than a science and I hope to spark an idea or two that helps you. If you have any questions, comments or suggestions please join in the conversation because that is what a blog is all about.

Ben Oubre, IFAS

Managing Director of IRR-Residential Value Experts

Ben@thevalueexperts.com

Welcome to the IRR-Residential Value Experts blog.  This site will focus on the real estate markets in both the New Orleans and Baton Rouge markets.  We hope to bring you information about what is going on in the larger markets, as well as highlighting local neighborhoods. 

While real estate appraisers like to talk about numbers and statistics we know there is a lot more about choosing where you live than the price.  So we will talk about all thing that effect real estate like schools, goverment services, employment and culture.  We will talk to bankers about loans, title companies about closing, get tips on buying and selling residential real estate.