Birmingham Appraisal Blog » Appraisal Tips

Appraising In The Aftermath Of A Tornado-Birmingham, Alabama

Tom Horn — Tue, 31 Jan 2012 03:35:57 +0000

How do you appraise a home that has been destroyed in a tornado? That is the question I got from a friend recently after I told him I had gotten some assignments in the storm devastated areas of Birmingham, Alabama. I thought that since he was curious about this that others may be also. I hope this post can provide some helpful information to those with questions about how an appraiser might value a home after it is destroyed.

This past week the Birmingham, Alabama area experienced its second major tornado in less than 12 months. The first storm occurred last year on April 27, 2011, and on Monday of last week another major tornado hit in the Pinson, Clay, and Trussville areas of metro Birmingham. When disasters like this occur, insurance companies must determine the property losses suffered by their customers. Appraisers are often hired to estimate the market value of the home just prior to the loss. Because the effective date of the appraisal is made before the day the appraiser actually looked at the property this is called a “retrospective appraisal”. The appraisal is based on the condition the home was in before the storm occurred.

The appraisers major task is collecting information about the house from an on site inspection as well as from speaking with the owner to determine the condition of the property. Recent updates or renovations are taken into consideration and sometimes pictures are provided that shows what features the home had as well as showing the quality and materials of construction.

After all of the physical characteristics of the home have been determined the appraiser can then go about finding comparable sales that match the property as close as possible. Sometimes a long period of time may have passed between the loss and the day the appraiser looks at the property, but comparables must have sold before the date of value (or loss). Other than recreating the physical characteristics and condition of the home the assignment is rather straight forward and similar to a normal appraisal. If I can help answer any other questions you may have, please let me know. Have you ever experienced the loss of your home in disaster? Tell me about your experience.

If you have any real estate appraisal related questions you can call me at 205.243.9304, email me, or connect with me on Facebook., Twitter, or Youtube.

Are these FHA required repairs?

Tom Horn — Fri, 20 Jan 2012 21:57:03 +0000

I was doing some work recently for a novice property investor and he was asking me some questions about FHA required repairs. He wanted to prepare the house he just purchased so that if the buyers were going to use FHA financing there wouldn’t be any issues at the last minute to hold up the closing. I told him that was very insightful, especially since I’ve seen seasoned investors not even consider this and then at the last minute need to make changes or additions to the property before it would close. By planning ahead this can save time and allow the loan to close without a hitch as well as save the buyer money in unnecessary final inspections from the appraiser.

The two items we were talking about involved vapor barrier in the crawl space and deck stair railings. It’sunderstandable that he was confused because these are two issues that HUD changed several years back. Vapor barrier, or the black plastic sheets that you sometimes see in the crawlspace of homes, was once an FHA requirement. The vapor barrier provides protection against ground moisture and the possible build up of mildew in the house. It is now not necessary to have this. Some people still use it, but they don’t have to, and it will not be a repair requirement in the appraisal.

The next item was stair railings. As was the case with the vapor barrier this was a required repair. It does not require automatic repair now unless it poses a safety hazard. If you have stairs that are 3 or 4 risers high then it should not be an issue, however something 8-9 high is another story. The appraiser will report it and then lender discretion and prudent underwriting will determine if the repair is advisable. I think FHA took a look at their requirements several years back and compared it to the requirements of other forms of financing and decided to ease the requirements a little. They are still concerned about the three S’s: Safety, Soundness, and Security but have backed off of their very strict repair requirements. If you’re not sure what these are and how they relate to MPR’s you can read another blog post I wrote here.

Are you an investor that has an FHA question? Are you a seller and want to know what has to be done to a house for it to qualify for FHA financing? Please give me a call and I would be glad to talk with you about this.

If you have any real estate appraisal related questions you can call me at 205.243.9304, email me, or connect with me on Facebook., Twitter, or Youtube.

Birmingham, Alabama Cash Buyers: Don’t Make This Mistake

Tom Horn — Wed, 11 Jan 2012 14:31:11 +0000

After seeing an article about how cash buyers have made a strong showing in residential real estate transactions I started wondering how many of them got appraisals on their purchases. Most of the time people think the only reason to get an appraisal is so you can borrow money from the bank. This is only part of the story though. The other reason is that you want to make sure that the property you are buying is truly worth what you are paying, and that it is a good investment. You may be paying less because of the market we are currently in, but you still need to make sure that it is worth what you are paying. You want to increase the chances that if you had to sell later that you could get your money back.

In the Birmingham, Alabama market cash sales made up about 10-13% of total sales from 2001-2007. Residential sales peaked in volume around November of 2006 when 1485 homes sold, according to the Alabama Center For Real Estate. Sales then started taking a nose dive. Right after that, the percentage of cash sales increased dramatically to around 17% in 2007-2008 and has steadily climbed to around 32% between November 2010-2011. This is very close to the national average of 38% for the nation as reported by Housing IntelligencePro. A lot of these are probably investors, but I am sure there are a good number of owner occupants as well. Banks will tell you they are still lending but the numbers contradict this. What I do not want to happen is for people to forgo the appraisal just because they are using their own money.

I will give you a real world example. Several weeks ago I got a call from an older lady who was interested in buying a home with inheritance money. She was looking at down sizing into a smaller garden home, but did not want to take out a mortgage. This was an older lady who was in her retirement years, and for whom every dollar she had counted. Her idea was that she wanted to be sure she was paying the right price because if she was paying more then it would take away from money she could be saving and/or investing since she was no longer working. It turned out that the home was over priced. She used the appraisal to make a counter offer to the sellers and they accepted it. This situation turned out well, however in the past I have seen the seller refuse the offer. In the short term this may be an inconvenience to the buyer but by looking long term it can help you make smart money decisions and make good investments. Are you considering a cash sale? Let me know if I can help answer any questions you may have.

If you have any real estate appraisal related questions you can call me at 205.243.9304, email me, or connect with me on Facebook., Twitter, or Youtube.

I Can Help Birmingham, AL Realtors With Their Sales Meetings

Tom Horn — Mon, 09 Jan 2012 15:46:38 +0000

If you are a Realtor in the Birmingham, AL area I would like to help you with your sales meetings by providing appraisal education to your agents. I have spoken in the past at local real estate offices about how to read an appraisal, how we come up with comparables, why we sometimes must use foreclosures as comparables and various other issues. These topics are good for new agents to know as well as those that have been in the business a long time but may still have questions. Contrary to what some believe, agents and appraisers can speak together about certain things.

I can also speak about FHA appraisals and how we look at those properties differently than a conventional purchase. By knowing what appraisers look for the agent can prepare the listing so that follow up trips can be avoided, thereby saving the buyer money and helping the loan close more quickly. HUD has certain guidelines we must follow and I can give you a heads up regarding common problems I have found doing FHA appraisals.

If you think I can help you educate your agents on various aspects of the appraisal process please give me a call, email me or text me. I look forward to connecting with you.

If you have any real estate appraisal related questions you can call me at 205.243.9304, email me, or connect with me on Facebook., Twitter, or Youtube.

Seller Tips: Picking The Right Comps To Help Narrow The Gap Between List Price and Sale Price

Tom Horn — Mon, 19 Dec 2011 13:54:54 +0000

After looking over a weeks worth of real estate sales data I have found a trend in some market areas. That trend is the increasing gap between what a house was initially listed at and the final sales price. This is one of the statistics appraiser’s look at, and this week in one area I was working in, I found it to be larger than typical.

Let me first explain what I am talking about. For example, if a house is listed at $100,000 and it sells at $90,000 then the sales price to list price ratio is 90% ($90,000/$100,000). Houses that are priced based on market data (recent comparable sales) sell for a price closer to their list price and they sell quicker. The best case scenario would be for this ratio to be as close to 100% as possible. Buyers are not stupid, and they know what homes are selling for in this market. The internet has made it easier for them to look up this information. They will not pay more for a house than what other similar ones are currently selling for or are listed at.

It is very important for FSBO sellers and Realtors to do their homework to come up with a reasonable list price based on recent sales and current listings. In order to do this you must pick homes that have sold recently and are similar to yours in age, style, appeal, size, etc. I have seen so called “comparables” that were much bigger than the subject property, or maybe they were much newer or had superior amenities (ie: swimming pool, more land, updated kitchens and baths, etc) than the subject property. In addition, older comparables that sold more than 3-6 months ago do not reflect what is current occurring in the market. I thought I would explain how appraisers pick their comparables so that owners or agents will know what they are looking for and maybe this can help in making the sale price to list price ratio closer to each other. If this happens, then hopefully we will have less problems with deals falling through due to homes not appraising for contract price.

When doing research for comparable sales appraisers base their searches on recent sales that have physical characteristics of the home such as age, size, bedroom/bath count, etc. In addition to similar physical characteristics we look for “comps” that are in similar areas and that are affected by similar economic and external influences. If a home is affected negatively by being located next to an airport then it is best to try and use sales comparables that were also affected by these same influences. We also look for homes in similar school systems. One of the situations I encountered recently involved the use of a comp in a Realtors market analysis that was very different than the subject, which was a one story slab home. The comparable had a finished basement and an in-ground swimming pool. It also sold more than 12 months ago. By picking comparables that are as similar to the subject as possible, the total amount of adjustments made to the comps is reduced and the value estimate is more accurate. By following this process and using several sales you can get a pretty accurate value estimate from which to determine a list price for your home. Do you follow a similar process when coming up with your list price? Can you see where following a similar process that appraisers use might help reduce deals that fall through? I would be interested in hearing your opinion.

If you have any real estate appraisal related questions you can call me at 205.243.9304, email me, or connect with me on Facebook., Twitter, or Youtube.

Why You Need A Local Appraiser In Today’s Real Estate Market

Tom Horn — Mon, 21 Nov 2011 23:30:57 +0000

I’ve written about this in the past but thought I would mention it again because I have received a couple of calls within the past month from loan officers not happy with the appraisals they have received. In both situations, out of town appraisers were used.

The first call involved an appraiser from Georgia coming over for an assignment. Yes, you read that right, Georgia. It seems that because business has been slow in Georgia some appraisers have chosen to venture over into Alabama. While it is legally permissible to do this with a valid temporary permit, it would not be wise practice if you are not very familiar with the local market. Besides lacking the necessary knowledge of different neighborhoods and the various value influences, you should also have access to local data sources such as the Birmingham Multiple Listing Service as well as be a member of the local appraiser coop known as AGDA. I have written about AGDA and its importance in a previous post.

The second situation occurred when an appraiser from south Alabama was used for an appraisal on a lakefront home in south Shelby county. I had a conversation with the listing agent and she informed me that the appraiser had asked her to take pictures of the property as well as measure it. This type of appraisal practice is ethically not acceptable. Many appraisal mangement companies these days order appraisals with their main criteria being price. In order for some appraisers to take on these jobs and make money they must cut corners, and this is one way they do it.

It is best to hire a local appraiser who is familiar with the area as well as having access to all required data services and sources. A competent appraiser will be aware of what needs to be done in order to complete and accurate appraisal. You may pay a little more but the value of their service is immeasurable.

Banks are not allowed to pick appraisers for individual assignments however they can add appraisers to their rosters that exhibit high ethical standards. If you require an appraisal for pre-listing, tax appeal, divorce, or estate settlement you can hire whom ever you want. Just remember to ask them if they are familiar with the local market, have access to local data services, and if they have experience in the area the home is located.

Have you ever been involved in a situation like I have described? Did it have an impact on the results of the appraisal? If you are a real estate agent do you see this type of thing happening much?

If you have any real estate appraisal related questions you can call me at 205.243.9304, email me, or connect with me on Facebook., Twitter, or Youtube.

Market Value: The X-Factor in Most Real Estate Transactions

Tom Horn — Wed, 16 Nov 2011 15:07:28 +0000

Most people have a good idea of what market value is. A short and abbreviated definition of Market Value is as follows:

Market value is the most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller, each acting prudently, knowledgeably and assuming the price is not affected by undue stimulus.

A common thread I have seen in many failed real estate transactions is the failure to start with market value and work backwards. I will give you two examples and explain to you how most people approach them contrasted with how I, as an appraiser, believe they should be approached. Many people are familiar with the process of buying a house and flipping it for a profit. Many times this is done successfully, other times not so much. Some investors do this successfully while others fail because of their flawed understanding of cost and value.

Some investors begin by looking at what they paid for the property then add the cost of improvements to arrive at a list price for the property. The problem with this scenario is that cost does not always equal value, meaning that just because you paid $50,000 for a property, invest $25,000, and require a 15% profit, does not mean that you can ask and get $86,000. The market may not support that value for the house in the current economic climate. A better way to approach this is by determining what sales price the market will support and working backwards from this number. This will help you determine how much you should pay for a property and how much in improvements you should invest, as well as covering your desired profit. I have seen many investors attempt to do it the first way I described and resort to dropping the asking price because the market will not support their original price. The bottom line is that the price is lowered, which reduces the profit from the investment.

The second scenario involves homeowners attempting to sell their home. Many owners arrive at a list price by looking at what they owe on the house and then adding in the cost of improvements they have made over the years. While this may sound like the logical thing to do the price may not be supported by the market. Some homeowners may have put too much money into their home, either by over paying for home improvements or by over improving the home for the neighborhood. It is always a good idea to find out if the value added is more than the cost of the improvements. It would not make sense to invest $25,000 in a swimming pool if the market (ie potential buyers) will only pay an extra $15,000 for that amenity. I use the pool as an example because that is one of the most common improvements that does not give you a good return on your investment. Have you experienced what I have described here? What was your outcome? I would be interested in hearing your story.

If you have any real estate appraisal related questions you can call me at 205.243.9304, email me, or connect with me on facebook.

What Red Flags Can Kill A Birmingham, AL Area FHA Appraisal?

Tom Horn — Tue, 18 Oct 2011 14:05:48 +0000

Have you ever wondered if a house would pass an FHA appraisal inspection? FHA does have more stringent appraisal guidelines than conventional loans but if you know what to look for then you can be ready before any problems come up. I have included some of the top problems I have seen in my 20+ year career as a real estate appraiser. I hope my experience can help you avoid some problems and make the FHA loan process smoother. Here they are in no particular order:

Peeling Paint
This is one of the biggest problems I see, especially in older homes. If a home was built prior to 1978 it is highly likely the paint contains lead. It can be poisonous if ingested. The best thing to do is remove the peeling chipping paint and repaint before you try to sell it or refinance your FHA loan.

Frayed Electrical Wires
Wires that are exposed can cause electrical shock and even be a fire hazard. This is best repaired by reinstalling whatever was there to begin with or using caps to cover the bare wires. These can be purchased at any hardware store and are inexpensive when compared to the wasted time and effort after the loan is in process.

Stuck Windows
This problem is normally seen in older homes but can also be present in newer homes with wood frame windows that have been painted shut. There must be access to the outside from every room in case there was a fire or other situation that required quick exit. The only exception would be a room that had access to the exterior by way of a door. The stuck windows must be repaired so the window opens and closes easily.

Standing Water
Standing water is usually present in the crawl space of the home. It can occur when water is not directed away from the foundation. Instead of flowing around or away from the crawlspace it enters it and just sits there. This standing water can result in mold, mildew, and even rotting wood. It can be fixed by directing the water away from the home by a french drain or other similar method.

Curled and Worn Roof Shingles
Roof shingles provide protection from rain and weather. When they are worn and curled they can allow rain to leak through the roof and into the home. This can destroy the ceiling and also cause damage to flooring and other interior items. If a roof has curled, worn, or cupped shingles the appraiser will typical call for a roof inspection to determine how much more life it has. It is better to address the issue before hand, especially if you think the potential buyer will use FHA financing.

Termite Infestation
Termite infestation can cause a good deal to go bad real fast. Appraisers look for signs of rotting wood that is caused by termite infestation. This can be visible either in the crawl space or the attic. Appraisers do not typically do an invasive inspection like removing parts of walls to inspect the interior wood frame. They do look for obvious signs of deterioration though and when viewed will note this in the appraisal.

Utilities Not Working
One of the easiest things to do to prepare for an FHA appraisal inspection to the make sure the utilities are on and working. The operation of the electrical, plumbing, HVAC, and other major systems are checked at the time of the inspection. If they are not turned on then the appraiser must make a second trip after they are operating to make sure they work. This can delay the closing and cost the buyer more money.

This is not a complete list of what appraisers look for but is one that includes some of the major items I have ran across in my day to day inspections. I hope that it can help you avoid problems should you require an FHA appraisal. If you have a question regarding other items please give me a call or email me and we can discuss it. What are some concerns you have with FHA appraisal inspections?

If you have any real estate appraisal related questions you can call me at 205.243.9304, email me, or connect with me on facebook.

How To Estimate The Value Of Your Home Without Getting An Appraisal

Tom Horn — Mon, 01 Aug 2011 13:24:44 +0000

If you are in the market to sell your home the best thing you can do is to get a qualified appraiser to provide you with an appraisal of your home. This will ensure that the most accurate sales and listing information is used to give you the most precise value estimate.

If you are just curious about the value of your home there are various online methods such as Zillow and Trulia, but personally I don’t think they are that accurate. I have used them for fun and found that they give value ranges that can vary by as much as $50,000. It doesn’t do you any good if you find out your home is between $300,000-$350,000, or some other similar value range. With a little bit of investigation you can probably come up with something on your own that is more accurate. Most of these sites provide sales data but it’s the interpolation of the data that leaves much to be desired. They will usually take the sales price, which is good information, and come up with the price per foot using the gross living area (GLA) from county data, which is the bad information. They then take this price per square foot and apply it to your home’s square footage (from county data-once again, bad information) to come up with a not so accurate value estimate. Not all county square foot information is inaccurate, however I have found more bad than good.

While the method I will give you for estimating your homes value is not the most perfect, it will give you a ball park estimate, which is no worse than the online methods. It will probably end up giving you a better handle on your real estate market as well. The first thing to do is go on line and locate closed sales in your neighborhood. You can do this through web sites like these:

Trulia
Zillow
Realtor.Com
al.com (local website for the Birmingham, Alabama area)

If homes have recently sold in your neighborhood, and you have addresses and home owners names, you may also be able to look up this information on the county tax assessor website. This sales information will tell you what homes have actually sold for. You need to decide which homes are most similar to yours. If your home has a finished basement, only look at homes with finished basement, and so forth with other features. By looking at several of the most recent closed sales of homes similar to yours you will get a pretty good idea of what price range your’s might sell for. In addition to closed sales you can also look at homes that are currently for sale. These homes will give you an idea of what the upper end of the range might be. The final sales price of these homes for sale will typically be less than what they are listed at because buyers usually negotiate down from the list price, especially in today’s “buyers” market.

By looking at a combination of closed sales and active listings you can get a fairly accurate picture of where your home might fall within this range. Have you ever used this method to estimate your homes value? Do you have any other websites you have used to located sales information? I look forward to hearing about your experiences.

If you have any real estate appraisal related questions you can call me at 205.243.9304, email me, or connect with me on facebook.

FHA Repair Item…or Not?

Tom Horn — Tue, 05 Jul 2011 23:07:43 +0000

I get a lot of questions about FHA appraisals and what types of repairs are required, and which ones are not. As I have stated in a previous blog post, most items of repair in an FHA appraisal are related to safety, soundness, and security. Some items will definitely need to be repaired before the loan closes and others do not.

Last week I was looking at a home that had several issues and I thought I would share them with you today. I have included pictures for you to see them. Try to decide whether these items are required FHA repairs or not.

Item #1

This item of deferred maintenance is a window frame that is rotting out. It would require repair because, if it is not, water could eventually enter the home and cause a lot more damage affecting the soundness of the home.

Item #2

This moisture stain is in the garage. If this were just a cosmetic problem it probably would not have to be repaired. This may have occurred prior to the roof shingles being replaced, and the owner has not yet gotten around to repainting the ceiling. Whatever the case, it requires further investigation. This is what I saw on the roof.

Item #3

After looking at the roof line over the area of the stain, we see what is causing the leak, and this would require an inspection and repair because it appears that the leak is still active and caused by the rotting wood on the chimney.

Repair items are not always straight forward. Some require further investigation. As I stated previously, repairs are required if failing to do so will affect the safety, soundness, and security of the structure. Do you have an FHA repair item on a home you are purchasing that you are unsure of? I look forward to talking with you and answering any questions you may have.

If you have any real estate appraisal related questions you can call me at 205.243.9304, email me, or connect with me on facebook.