The Evidence Is Clear: Housing Market Headed Back Downward
by Lynn Effinger
JUL 15, 2014 3:04pm ET
With mounting indicators clearly showing that the so-called housing recovery was just an illusion, and many housing industry pundits who formerly touted the validity of said recovery now recanting their views, there should be no doubt that we are headed for another/further housing downturn.
With over three decades of housing and mortgage servicing experience in a variety of management positions behind me, I have witnessed first-hand several housing cycles in my lifetime. In fact my father was a builder and real estate broker for many, many years. I literally grew up in this business. I am not only a keen observer but also an active participant in this vital industry. With respect to the headline above I offer the following:
According to an article published in a recent Inman News story, "A majority of North American mortgage bankers fear another real estate bubble is forming," a recent study conducted by FICO found that 56% of Canadian and American respondents who were polled who are directly involved in mortgage lending "expressed concern that an unsustainable real estate bubble is inflating." The article pointed out that the housing market is "bifurcated" because there is strong price growth in many markets pushing "total homeowner equity in the U.S. to its highest level since late 2007, even as 6 million people struggle with underwater loans."
I concur, of course, that this doesn’t feel like a housing market "in recovery." To be sure, there is mounting concern by many lenders about the growing risk associated with residential mortgages.
On top of this you can add the contraction of the U.S. economy in 2Q of nearly 3%, clearly demonstrating the weakness of the American economy. There is a growing majority of people in our country today who believe there is no leadership in Washington on either side of the aisle who are either capable of dealing with economic issues such as the housing market, or they are simply preoccupied with getting reelected.
Because of this dearth of leadership, the gap is continuing to widen between the beleaguered middle class and the top income earners in this country. And more and more of the tax burden is befalling their shoulders to support a growing list of entitlements bestowed on non-producers. Many see this situation as becoming intolerable, much the same as it did in the days leading up to the signing of the Declaration of Independence. This does not bode well for our Nation. That is no illusion.
Lynn Effinger is a veteran of more than three decades in the housing and mortgage servicing industries. He currently serves as executive vice president of ZVN Properties Inc.
Here is some information you should know about appraisals on damaged houses.
Market Value – “Subject to Completion of Repairs”:
Usually the client is going to need the appraiser to do an appraisal as if the damage did not exist. In other words give a “Repaired Value” instead of an “As Is” value. In Appraisal terms, the appraiser will use a “Hypothetical Condition” to appraise the property, which means the appraiser considers something as fact for the sake of analysis even though it is not true. In this case the house is considered to be in the condition it was in before the property was damaged, even though the home is obviously damaged.
The appraiser will do a physical inspection of the property documenting the current condition of the property and noting all items of damage. Part of the appraisal process will be estimating “cost of Repairs” The appraiser may rely upon other professionals for assistance such as a contractor or other repair experts or may make his own estimates utilizing cost manuals.
The appraiser will be trying to piece together information about what the house was like before the damage. So the appraiser will gather details about the house from a variety of sources like a physical inspection, Tax Records, the home owner, Birds-Eye View Maps, aerial views, old MLS listings and even talk to the neighbors. These sources are used to piece together the physical characteristics of home, equipping the appraiser with the ability to do an appraisal despite the damage.
Application of the appraisal process:
Now the appraiser is ready to apply traditional means of the appraisal process like gathering similar market sales of neighborhood homes for the sales comparison approach to value, land sales and reproduction cost data for the cost approach. Then the appraiser will be able to write the appraisal report and produce a creditable appraisal giving both an “As Is” and “Subject to Completion of Repairs” market value estimate.
Cat with a Hat!
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Usually, settling an estate requires a detailed appraisal report to show market value for the home to the satisfaction of the parties involved. It's understandable that ordering getting an appraisal is the farthest thought from your mind. Because of this, now and then there will be times that the effective date of an appraisal report deviates from the time of death. AMERICAN VALUATION COMPANY... assures that we are accustomed to the procedures and requirements requested by the federal and CA revenue agencies to perform a retrospective appraisal with an effective date and market value estimate matching the date of death. The ethics provision listed within the Uniform Standards of Professional Appraisal Practice (USPAP) binds our appraisers to confidentiality, certifying the fullest degree of privacy for you.
The requirement of needing an appraisal when working with government agencies to prove Real Estate value when filing documents is often not considered by most people.
Opinions of value used in documents filed with revenue authorities definitely should be supported by an accurate report as to how the appraiser acquired his conclusions. A report of this caliber will certainly demonstrate the evidence that the values expressed are well-founded and accurate.
An executor will be satisfied by a report by AMERICAN VALUATION COMPANY... which will give him solid facts and numbers to deal with the IRS and CA state agencies' requirements. It assures peace of mind to everyone concerned because we are there to stand behind the report if it is ever refuted.
This property needs some work!
When interviewing a home inspector, ask the inspector what type of report format he or she provides. There are many styles of reports used by property inspectors, including the checklist, computer generated using inspection programs, and the narrative style.
Some reports are delivered on site and some may take as long as 4 - 6 days for delivery. All reporting systems have pros and cons.
The most important issue with an inspection report is the descriptions given for each item or component. A report that indicates the condition as "Good", "Fair" or "Poor" without a detailed explanation, is vague and can be easily misinterpreted. An example of a vague condition would be:
Kitchen Sink: Condition - Good, Fair, or Poor.
None of these descriptions gives the homeowner an idea what is wrong. Does the sink have a cosmetic problem? Does the home have a plumbing problem? A good report should supply you with descriptive information on the condition of the site and home. An example of a descriptive condition is:
Kitchen sink: Condition - Minor wear, heavy wear, damaged, rust stains, or chips in enamel finish. Recommend sealing sink at counter top.
As you can see, this narrative description includes a recommendation for repair. Narrative reports without recommendations for repairing deficient items may be difficult to comprehend, should your knowledge of construction be limited.
Take the time and become familiar with your report. Should the report have a legend, key, symbols or icons, read and understand them thoroughly. The more information provided about the site and home, the easier to understand the overall condition.
At the end of the inspection your inspector may provide a summary with a question and answer period. Use this opportunity to ask questions regarding terms or conditions that you may not be familiar with. A good inspector should be able to explain the answers to your questions. If for some reason a question cannot be answered at the time of the inspection, the inspector should research the question and obtain the answer for you. For instance, if the inspector's report states that the concrete foundation has common cracks, be sure to ask, "Why are they common?" The answer you should receive will be along these lines: common cracks are usually due to normal concrete curing and or shrinkage. The inspector's knowledge and experience is how the size and characteristics of the cracking is determined.
We recommend that you accompany your inspector through the entire inspection if possible. This helps you to understand the condition of the home and the details of the report.
Read the report completely and understand the condition of the home you are about to purchase. After all, it is most likely one of the largest investments you will ever make.
Article by, Lester Caplan, SCREA, CA State Certified General Appraiser
·The quality of an appraisal improves when the appraiser has more information. The more information agents can give appraisers, the better we can do our job. Higher-quality data put into the Multiple Listing Service (MLS) by agents will translate into a better analysis and a higher-quality appraisal report. Better data could improve appraisal turn times, which would help agents close the deal quicker. More reliable data would not eliminate the dreaded verification calls but might make them less frequent and quicker. Good data can help the appraiser with the process of making sure that the best comparables are selected.
· Don’t just provide the highest comps. Sometime the highest comps convert to a lower value estimate when properly adjusted. Rather explain the character and condition of all sales nearby that the appraiser is likely to find in their research. If there is a low sale next door explain why this property is inferior to your subject property. Agents go through lots of homes and hear a lot of things. They can sometimes explain why a sale was low due to marketability or condition issues not reported in the MLS that the appraiser may not be privy to.
· MLS data accuracy is important. Lot size, acreage (in some areas), square footage (GLA), year built, neighborhood name, and school district are important. If this information is wrong, the MLS records likely will not display correctly when searched and good viable sale comparables might be missed. I can’t tell you how many times I searched for sales in a particular neighborhood and a very similar property was missed because the Realtor put an extra number in the square footage like 11,750 when the house was actually 1,750 square feet and the house fell outside of my search criteria. Accuracy matters.
· Take photos of the street in both directions, all angles of the exterior, all bathrooms, the kitchen, bedrooms and the living area at a minimum. Buyers want more photos when they’re looking for a home. Appraisers want more photos when they’re trying to select comps. Also during the appraisal process when I am making adjustments and rating comparable properties I pull up the listing of each comparable an make a careful examination of each photo to determine how the quality, design & appeal, condition and level of upgrades compare to the property I am appraising. Also if there is damage, take a picture of it.
· When you combine contributory structures into the listed gross living area (GLA) when it is livable area, report the size of the contributory structure in the comment section. Appraisers sometimes need to value the main house at a different contributory value than the guest house etc. This helps the appraiser more accurately do their appraisal.
· It is always a good idea to provide the appraiser with an Updates/Features sheet and it is required If the home is a flip that sold in the year prior the valuation date since the appraiser is required to report on physical changes to the property that occurred between the two sales.
· Return calls as soon as it is convenient when an appraiser has questions about sales that are being used as comparables. Most of the time the appraiser is in the final stages of the appraisal process when they are calling and the appraiser is usually on a very tight lender prescribed deadline. Also remember that even thou the appraiser is most likely calling about a property that has already closed so they are not calling about “your deal” it’s is somebody’s deal. What goes around comes around. So it really is in your best interest to help appraisers as much as you can. Your fellow agents will help out when it is your deal that needs to close.
· Include the pre-listing comparative market analysis (CMA) and any other comps you wish to provide when the appraiser calls to set the appointment.
· Understand basic FHA issues like peeling paint, wood to ground contact and open electrical boxes and other items needing to be fixed.
· Provide appraisers with pending sales prices on relevant comps when they have that information. Agents have a duty to keep information confidential. However appraisers are also under strict confidential requirements and the Gramm-Leach act. So appraisers do not share the pending price with other sales agents which would be an ethics violation because it could jeopardize future negations if your sale fell out of escrow. Disclosing pending sales prices is proper since the appraiser is under strict rules of where they can disclose that information. They can only disclose that information to their lender/client. When the listing agent won’t share it with the appraiser it can have a very adverse impact upon the final appraised value estimate. This is especially true in a rising market because the higher pending sales will be utilized to make market condition (time adjustments) to the older, lower closed sales. We have all heard of “low ball” appraisals where the appraised value came in lower than the sale price. Often times it was the result of an appraiser not able to get current sale prices on pending sales to support a value estimate higher than the recent closed sales.
· When selling a multi-family property, include the current rents. It’s one of the most important pieces of the puzzle, on the appraisal of a multi-family property. It is left out way too often.
A few other quick tips
· Take care of repair items that are intended to be repaired before the appraisal inspection.
· Garage Count: List the number of cars based on the number of “doors,” (not the number tandem cars) additional parking in the garage should be listed in the comments.
· Attics, basements and garages are not GLA.
· Help appraisers help you. If you are producing inferior work (MLS data, photos, etc.), appraisers are using inferior data in their reports.
· Highest sale properties: the highest sale, even in a rising market, is going to get additional scrutiny by the lender, so if the agent has that particular sale, the more information they can give appraisers the better. The more information we have about the transaction and market data, the more accurate our value opinion will be.
What Appraisers Wish Agents Knew
· Appraisers are bound by the Uniform Standards of Professional Appraiser Practice (USPAP).
· Appraisers do not determine value by price per square foot.
· Appraisers would like mandatory reporting of sales concessions in the MLS since we are required to report sale concessions.
· Appraisers must verify information.
· Cost does not equal value.
· Appraisers don’t make value. They only gather data, analyze the data and report their findings.
35 Tips for snowbirds on how to prepare your home for an extended summer absence
For more helpful articles visit my web site; http://www.desertavc.com
There are a number of general things to do in preparation for "flying north." Make sure to update your emergency contact information with your Home Owners or Community Association including giving them the name of your emergency key holder and who has a key. If available, sign up for any Vacation Watch programs your community offers. Some police departments have vacation check programs. Notify them, and generally they will do a routine check of the house. While some will only drive by and look for suspicious activity, some will get out of their vehicles and inspect the grounds looking for any break-ins. If contact information is left with the police, they can phone the homeowners if there has been a break-in or disturbance.
Arrange for services such as landscaping, pest control and pool services if needed. Contact your internet provider and cable company to stop service or start vacation hold. Arrange for mail forwarding and newspaper stop. Ask a neighbor to pick up stray newspapers, flyers, packages etc. and make sure that neighbor has your contact information and a key. Ask the neighbor to park in your driveway occasionally to make the home looks occupied. Consider using a professional home watch company to care for your home.
If you have never done so, take photographs or videos of all your expensive items. If needed this would be helpful for both the police and the insurance agency to identify the stolen goods. Be sure to store all of your valuables in a place that a burglar cannot access. (i.e., take jewelry to a safe-deposit box, lock computers in closets, hide keys to extra cars, etc.) Be sure to remove all valuables from sight.
In the kitchen remove food from the house to discourage pests. Store staples such as sugar or flour in sealed metal, glass or thick plastic containers. The best refrigerator solution is to turn it off; empty it and prop open the doors. The next best solution is to empty out items which will spoil and add items like bottles of water, etc. to help retain the cold and help the unit use less energy. Don't forget to turn off the ice maker and place a box of baking soda in the refrigerator to absorb odors.
Regarding other appliances, put 2-3 tbsp. of vegetable oil in the dishwasher to keep the seals moist. Do not latch the door. Also put 2-3 tbsp. of vegetable oil in the garbage disposal to help keep it from locking up. Remember to unplug other appliances throughout the house.
With telephones turn off the ringers so thieves can't hear if no one is answering the phone. Don't leave a message on the answering machine that tells callers you're out-of-town. Instead, say you're away from the phone and you'll get back to them.
To help add moisture for the furniture place several 5 gallon buckets of water around the house. Close blinds. If using timers, leave the blinds open slightly to let light shine out so the home looks occupied. Open all doors to rooms and closets to allow for air flow.
Regarding water, in the bathrooms wrap toilet bowls with cling wrap to keep the water from evaporating. Turn off inside water valves at the washer, under sinks, and at toilets. Valves like to be used. Better yet, shut off the main water valve when leaving.
Change the furnace filter(s) especially if you are leaving the A/C on. You could turn it off completely but if not, set it to a high temperature (95) in the summer. Check / close fireplace damper. Lock all doors and windows placing wood dowels in the tracks of sliders where possible.
Outside the home pick the remaining ripe fruit from trees to avoid falling fruit accumulating under the tree. Trim trees and bushes away from the house so as not to obscure windows and doors. Set the irrigation timer to the summer watering cycle. Replace the 9v battery if not done so in a while. Drain water features and treat with appropriate chemicals to avoid mosquito infestation. Store the patio furniture and barbecue grill in the garage.
Speaking of the garage, disconnect the car battery. Leave golf cart batteries on trickle charge. Fill the golf cart batteries and car battery. Turn the water heater to vacation or pilot. Disconnect hot water circulator or set it to the off position.
Just before leaving shut off the house main water valve but do not touch the landscaping water valves. Unplug the garage door opener or lock garage door. Double check that all doors and windows are locked making sure the door between the garage and the house is locked. Leave by the front door and lock it!
Now you're set to enjoy your trip!