Birmingham Appraisal Blog » Appraisal Tips

How NOT to dispose of peeling paint for an FHA appraisal

Tom Horn — Wed, 09 May 2012 14:36:47 +0000

I wanted to share a photo with you that I took recently of a home I was appraising. It was for an FHA appraisal of an older house built prior to 1978. You may wonder why the year 1978 is so important, so I will tell you. It was in 1978 that lead paint was discontinued. Up until then paint had lead which is poisonous and can cause serious side effects and even death.

If a home was built prior to 1978 and it has peeling or chipping paint, the paint must be removed per HUD guidelines. Take a look at this picture and try to guess what is wrong.

Paint chips have been removed and left on the porch. These can be picked up by children and eaten, which can poison them. HUD states that the chips have to be removed from the house and disposed of so this cannot happen. Have you ever purchased a home with peeling paint that had FHA financing? What did you do to solve this problem? Leave me a message below to tell me what happened.

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.

Hey, why didn’t the appraiser include my basement in this appraisal?

Tom Horn — Mon, 09 Apr 2012 13:42:46 +0000

I got a phone call out of the blue last week from a person who had recently had their home appraised for a refinance loan. The bank had given him a copy of the home appraisal, and after looking at it wondered why the appraiser had not included his fully finished basement. He wanted to get the opinion of another appraiser.

I’ve had this question asked numerous times over the years so I wanted to share my answer with you. When valuing a single family home, appraisers must segregate the various areas of the home. This is usually broken down into above grade gross living area (GLA) which includes any area above the ground such as the main level and all levels above that, whether that be a second and third floor or even half floors. Half floors usually occur when the upper level is less than the main level because of the slope of the roof.

Areas that have any portion that is below the ground is considered a basement. This basement area is separated into finished and unfinished area. The finished area of the basement is not included with the finished area of the main level GLA because they are valued at different amounts. In addition, with the implementation of the recent Uniform Appraisal Dataset (UAD), these areas are now shown differently than they once were. Take a look at a portion of the second page of the appraisal form where this is notated in the sales comparison grid.

The first line of the section titled “Basement & Finished Rooms Below Grade” shows a breakdown of the finished and unfinished area like this: 2997sf1588sfwo. Because the appraisal form has limited space to describe the property it is necessary to condense the description. What the above translates to is this: the 2997 means that the basement has 2,997 square feet (sf) of total area. The 1588 describes how much of the total area of 2997 is finished living area. The wo at the end means it is a walk out basement.

The second line of this section is described as follows: 1rr1br1.0ba1o. This translates as follows: 1rr means that the basement includes 1 recreation room (rr), 1br means it has 1 bedroom (br), 1.0ba means it has 1 bathroom (ba), and 1o means that it has one “other” type of room. So as you can see, even though the house has a finished basement and the basement area is not included with the main level GLA, it is shown in the basement area, and consideration is given to it.

Before you say “whoa, how cryptic can you get”, I agree. Unless you know exactly what to look for it is very difficult to understand how some of the information is described on the form. Appraisers have little control over how the Fannie Mae appraisal form is put together so please don’t blame us. If you have any questions about how to read an appraisal please give me a call, I would be glad to help you. Have you ever had a problem reading your appraisal? What part of the form did you have trouble with? Leave me a message below, I would like to hear from 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.

I’m participating in a Birmingham, AL home selling seminar this month

Tom Horn — Fri, 06 Apr 2012 13:08:25 +0000

I just wanted to share with you that I have been asked to participate in a home selling seminar this month in the Birmingham, AL area. Terry Crutchfield with RE/Max Advantage is putting it on and has asked me to talk about recent market trends in the Birmingham, AL area and the latest in appraisal related issues. TJC Mortgage will also be there to talk about financing. It will be held on April 15th, between the hours of 4:00-5:30 pm, at the Gravlee Fitness facility in the Mount Laurel community.

View Larger Map

Are you going to be selling soon? If you are, I hope you will come by and join us. There will be lots of good information. If you have any questions please give me a call. Hope to see you there.

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.

What’s the value of a pool in my neighborhood?

Tom Horn — Wed, 04 Apr 2012 13:03:23 +0000

This is a question you may have asked yourself at some point. Have you ever dreamed of having one built but don’t know it’s value in your area? Every neighborhood is different, and some areas will give you a bigger return on your investment than others. Swimming pools are always used by appraisers as examples of amenities where cost does not always equal value.

Because every area is different, and the value of a pool varies, I don’t plan on telling you exactly how much a pool will add to the value of your home if you decide to install one. I do want to give you an idea of how the market (other buyers) may perceive it.

Take a look at the pictures below. The first picture is from a neighborhood that has only two pools, and they’re above ground pools at that.

The second picture is from another neighborhood that has 10 in-ground pools. Which neighborhood do you think will give you a better return on your investment? The fact that there are so many pools in the second neighborhood should give us a pretty good indication that homeowners here desire them and will most likely pay more for them. If you build an in-ground pool in the first neighborhood you may not get as much of a return on your investment because pools are not expected or possibly desired here as much as they are in the other neighborhood. When a feature of a home is popular, buyers are willing to pay more for it. So if you added a pool to homes in both of these neighbhorhoods you might expect to get more money for the pool in the second neighbhorhood.

What I have shared with you here is not the be all and end all of determining a pools value. It is a simple tip on a way for you to gauge the “popularity” of swimming pools where you live so that you can make a better informed home improvement decision . Do you have an interesting story about building a pool at your home? Leave me a comment below, I’d like to year from 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.

FHA rules for termite inspections

Tom Horn — Mon, 05 Mar 2012 15:28:18 +0000

If you have ever bought or sold real estate with FHA financing you know that HUD/FHA loans are a little different than conventional loans. In an effort to keep everyone updated I thought I would share some information HUD/FHA provided recently.

FHA does not automatically require inspections to be made on all loans, however several situations do require pest inspections. These include

Evidence of active infestation
If it is mandated by state or local jurisdiction
If it is customary in an area, or
At the lenders discretion

If an appraiser sees signs of active termite infestation they must report it on the appraisal form. This would trigger the lender/underwriter to then call for an inspection to verify the damage. The appraiser also reports if there has been prior damage and treatment, if it is readily observable.

HUD notes that if a termite inspection provisions are called for in standard real estate contracts for your area, or where a high likelihood of termite infestation exists then an inspection is required. Some states have their own wood destroying insect/organisms form that must be filled out in which case an inspection would be required. Another good way to determine whether an area has a high probability of termite infestation is to look up the “Termite Infestation Probability (T.I.P) Zone. If the home you are interested in is within this zone then an inspection will probably be called for by the loan underwriter. Underwriters have the final decision in calling for an inspection and this is usually handled on a case by case basis. Do you know of any other situations where you should definitely get a termite inspection?

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.

Photos from the field- FHA repair item or not?

Tom Horn — Mon, 27 Feb 2012 15:57:59 +0000

On one of my inspections recently I came across this empty pool. The house I was appraising was not using FHA financing, however because FHA typically has more stringent requirements about the condition of a property I thought I might share the picture with you and ask a couple of questions: Do you think this would be an FHA required repair? If you are a Realtor listing this home, should you be concerned with getting it fixed before showing and selling it?

FHA has very specific guidelines relating to the safety, soundness, and security of a property that they are financing. Items that fall under the safety category relate to the health, sanitary condition, and habitability of the property. An empty pool would fall under this category. If the pool is empty there are numerous problems that can occur. Besides the fact that someone could fall in and get hurt, the functioning of the pool equipment cannot be verified. This can be expensive to repair or replace and FHA does not want the buyer to face future excessive costs. This is a vinyl liner pool and as you can see it is missing. The vinyl liner would need to be replaced and the pool filled with water. When this is done the functioning of the pool equipment can be verified.

In addition to the safety concerns, the security category would also be questionable. From past discussions we know security in this situation has to do with the property being used as security for a loan. FHA does not want to loan money on a home with a pool if the pool is not functioning and is not contributing value to the real estate, especially if the sales price includes a functioning pool. This would also effect the homes marketability. Of course we have already been discussing the soundness aspect because it is unsafe in its current condition. If you want to learn more about MPR items you can read my post titled- “Birmingham, Alabama Real Estate Agent Tips: What is an MPR?”

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.

10 reasons NOT to get a pre-listing appraisal

Tom Horn — Thu, 09 Feb 2012 01:48:33 +0000

1. It costs too much money- Really? If you think about the fact that by pricing the home correctly you could cut the marketing time down and reduce marketing costs, this becomes a no brainer. In addition, the modest cost would probably not exceed future price reductions that you may need because it was priced too high to begin with.

2. I want to test the market first- Some people think that they can “test” the market to see if the their estimate of value will be accepted but this could lead to longer marketing time and multiple price reductions.

3. My Realtor can come up with a list price- This is true, and there are many good Realtors that know the market, however when your home is in a an area where sales activity has been minimal, or the agent is not familiar with the market, then an appraisal can give you a more educated estimate of value that reflects current market activity.

4. I can use the tax assessed value to price my home- Assessment values set by the county that you live in are not arrived at with the same methods as an independent appraiser would use. They are done on a larger scale and do not take into consideration special features of your home. They may even be excluding newly finished areas such as basements.

5. I can give potential buyers the square footage that the county has- Buyers like to know how big a house is so that they can determine if their furniture will fit in the house. An appraisal will give accurate square footage (and a floor plans sketch) so that you can let them know exactly how big the house is.

6. I can price it for the same amount that my neighbor did who sold his home recently- I ran into a homeowner who tried this recently. What he didn’t know was that the neighbor told him the wrong price. His home actually sold for less than what he said. My client tried for months but could not sell his home because it was overpriced. He got an appraisal and we found out the home sold for a lesser amount. After my client readjusted his price, the home sold quickly.

7. I never had to do this before, why do I need to now?- We live in an unprecedented time. Who ever thought that real estate values would go down? There are more foreclosures on the market now that WILL be competing with your home. They are in better shape than they use to be and are being considered by potential buyers. An appraisal will consider both normal and foreclosures to arrive at a more accurate value estimate. If these are not considered then you could over price your home which will result in a longer marketing time and more future price reductions.

8. I know how much money I’ve put into my house, I can go by that- Cost has never equated to market value, and even more so in today’s market. While construction and renovation costs have increased, property values in many areas have decreased. Because of this you cannot assume that all of the money you invest in your home will be returned when you go to sell. Again, a pre-listing appraisal will give you a realistic estimate of what you can expect to get for your home in today’s market considering its current condition.

9. I can list it for an amount similar to what my insurance company has it insured for- For reasons similar to #8, insurance value does not equal market value. The insurance company insures your home for an amount that would be required to rebuild the home. This does not factor in depreciation and general market forces.

10. I’ll use the value that the appraiser came up with last year when I refinanced- With today’s ever changing market even an appraisal done last year can be invalid. Markets are changing daily and if you use an appraisal from last year the value may be inflated in this years market, which can result in longer days on market, price reductions and other items I’ve already mentioned. If it is in an area that is starting to rebound then the value could be too low. An appraisal done today is more accurate than a year ago.

As you can see, there are many reason not to get a pre-listing appraisal, but they all lead to the same results: incorrectly pricing your home for sale so that it takes longer, costs more, and results in unnecessary price reductions. By making a modest investment upfront you can increase your chances of a successful sale 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.

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.