Birmingham Appraisal Blog » Appraisal

When is a bedroom NOT a bedroom?

Tom Horn — Fri, 18 May 2012 13:35:31 +0000

A homeowner asked me a good question the other day about the appraisal I had done on her home. They had been using one of the rooms in the house as a bedroom for their child, but in the appraisal I was not able to count it as a bedroom. She asked me why.

My explanation to her included two reasons that have to do with what appraisers call functional utility. The Dictionary of Real Estate Appraisal defines functional utility as follows:

The ability of a property or a building to be useful and to perform the function for which it is intended according to current market tastes and standards, as well as the efficiency of a building’s use in terms of architectural style, design and layout, traffic patterns, and sizes and types of rooms.

The room in question was in a part of the house that required you to go through another bedroom to get to it. In addition, it did not have a closet. The definition above mentions traffic patterns and that was the room’s main problem. By going through the first bedroom you would have to disturb the people in it. While this may have been typical and accepted years ago, and by the way this house was built in the 1950′s, it is not considered to be part of today’s “current market tastes and standards”. In addition, it did not have a closet, which is typical in the bedrooms of modern homes. The living area in this room was included in the final value, however the utility of an extra bedroom was not.

It is possible to fix this type of problem by creating an access to it from another room, however the layout of the house would have to be considered to see if this is practical. Have you ever had this type of problem in a house you’ve lived in? How was in fixed, if at all? Leave me a message below, I would be interested in finding out how you “fixed” the problem.

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

10 years of sales in the Liberty Park subdivision of Vestavia Hills, Alabama

Tom Horn — Tue, 15 May 2012 19:01:07 +0000

Liberty Park is an upscale subdivision located in the city of Vestavia Hills, Alabama. It is well recognized because of the Statue of Liberty replica that is located at its entrance. The statue was originally made for the Liberty National Life Insurance Company in downtown Birmingham, however in 1989 it was moved to its current location.

Sales prices in the subdivision over the past 10 years have held relatively stable when compared to other neighborhoods in the Birmingham metro area. I took a look at the median sales price trends over the past 10 years recently while working on an assignment in this popular development.

Take a look at this trend chart of the median sales prices.

Keep in mind that this includes all properties within the development, and there is a wide range of home prices and quality of home. At the lower end there are one level garden homes on a slab foundation and at the upper end there are custom built estate homes on acreage tracts. Sold prices range from the lower $200′s to just over $2.8 million dollars.

Each sub market and price range of homes will have its own price characteristics, however the chart above reflects how the entire development’s prices have changed from 2002 to 2012. Do you see the arch in the middle? This appears to be when the median prices were at their highest. Prices increased from 2002 to late 2008 and then they start to take a dip. From late 2008 to the current time prices have declined slightly and there are more in the lower price range, which has resulted in the trend line shown.

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.

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.

A look at 10 years of unemployment in Shelby County, Alabama

Tom Horn — Mon, 07 May 2012 13:06:02 +0000

An announcer on the radio several days ago stated that interest rate are at their lowest level ever, going back to when they began keeping records. This is very good news for home buyers but it makes me wonder if it will have a significant impact on home sales. Interest rates have been low for quite a while, yet homes sales have still been in a slump and remain at lower than normal levels.

What will it take for home sales to increase? I am not an economic expert but I do know that there are three things that help contribute to a healthy housing market. These are: home prices, interest rates and the unemployment rate. I have wrote extensively on home value trends in the Birmingham, AL area. Property values have been depressed due to the influence of foreclosure sales, which is good for buyers. This has made homes affordable to more people. As I mentioned at the beginning, interest rates are now at an all time low, allowing buyers to purchase more home for lower payment. So with that being said, what else is left? Unemployment is the the last of the three factors that need to be in good shape before the real estate market begins to really take off.

There are good signs for the unemployment rate in Shelby County, AL. If you take a look at the graph of the unemployment rate over the past 10 years you will see that we are at least headed in the right direction, and that is down.

The highest level was around January 2010 when the unemployment rate was approximately 8.0, and as of March of 2012 we were at 5.1%, which is about where we were at in January of 2009. While we are not at the low levels we had in 2007, the current trend is encouraging. What do you think about the downward trend? Do you agree that a low unemployment rate is the last piece of the puzzle for a healthy market? Please leave me a message below and tell me your thoughts.

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.

So, How IS The Birmingham, Alabama Real Estate Market??

Tom Horn — Mon, 30 Apr 2012 13:44:20 +0000

Funny you ask. I get asked this question a lot and I have my own thoughts, but it’s nice to know that other professionals agree. In addition to experiencing the local Birmingham market from a first hand experience, I read a lot of market data to assist me in my real estate appraisal business.

Local real estate analyst Tom Brander, who helps contribute data to the Alabama Center For Real Estate (ACRE), recently compiled data on what other experts think. Their findings?- you can read the entire article at the above link on Tom’s blog, but I will summarize what the community of real estate professionals feel the summer months will bring. They are confident that the market will improve and sales will be better than last year. The actual performance in the first quarter of this year, no doubt has contributed to the rosy outlook. On a negative note however prices are not expected to improve anytime soon, and the availability of credit does not look good.

I always say you have to take the good news with the bad and find the positive in anything we go through. It took a long time for us to get in the mess we are in, and it will probably take a while to get out of it, but I believe there are positive signs that show we are moving in the right direction. This is not to say that we won’t get sucker punched by the release of a new wave of foreclosures that was recently reported, but we’ll just have to cross that bridge when we get to it, right? What do you think of the local real estate market? Leave me a message below, I would like to hear your thoughts.

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 5 Years of house sales can tell us about property values in the Highland Lakes subdivison of Shelby County Alabama

Tom Horn — Thu, 19 Apr 2012 13:33:43 +0000

The Highland Lakes subdivision in Shelby County, Alabama is not unlike other neighborhoods around Birmingham. It has also been effected by the slowdown in the real estate market and the downward trend in property values. Over the past 5 years the total number of sales have decreased as well as the number of home sales in the upper price ranges. If you take a look at the chart below you will see what I mean.

Do you see the downward trend in the median sales prices of homes from 2007 to 2012? A look at the median sales price for each of the years shows that in 2007 the median price was approximately $433,000 and each year it has decreased until the last year which was approximately $379,000. This is a decrease of $54,000 in the median price. This supports a previous post of mine analyzing the trend in Shelby County property values over $500,000. You can read that here. Several factors contribute to this decline, including the influence of foreclosures and the decrease in the number of buyers. Buyer confidence has been diminished due in part to the high unemployment rate. People have either lost their job and are unable to buy, or they fear that they may lose their job. I believe when the unemployment rate decreases this will help home sales.

The Birmingham MLS reports that there were 56 sales in the past 12 months. At the current time there are approximately 63 homes for sale in Highland Lakes. This includes existing homes as well as homes under construction. This translates into approximately 31 months of inventory. This seems excessive, however it appears to be caused by slow sales last month (March). The average months of inventory last year was around 10 months. One good thing is that of the 63 homes for sale only 6 are foreclosure listings. This is not considered excessive and their influence should be minimal. Do you live in Highland Lakes or a similar area that has experienced declines in the number of sales and/or prices? Do you see things turning around? Leave me a comment 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.

Then and Now: Comparing Alabama’s Peak Years To The Current Market-Part 2

Tom Horn — Tue, 17 Apr 2012 18:45:37 +0000

In my last post I looked at how the current real estate market in the Birmingham, Alabama area is performing compared to peak years in the past by analyzing the median price and number of sales that have occurred. Data has been taken from reports published by the Alabama Center for Real Estate (ACRE). This post will cover the last two statistics which are days on market and absorption rate.

Chart courtesy of Alabama Center for Real Estate

Days on Market: The days on market statistic can provide valuable information on how the real estate market is performing. A large inventory of homes can result in a buyers market. In this type of market if homes are overpriced they will sit for extended periods of time, until the price is adjusted to reflect supply and demand. If a home is priced too low it will sell fast but the seller may not get as much money for their home. In contrast, if a home is priced too high then it will take a long time to sell. When a home is priced to reflect what is occurring in the market, the days on market will fall within a range that is typical for the area, while at the same time allowing for the highest price to be paid for the home. The chart shows that in February the average days on market was 172, which is very close to what it was in 2002. This is a also the highest average days on market within the 10 year period. It reflects homes which have been on the market for a long period of time, most likely due to being overpriced. When the home is priced more realistically this should come down.

Chart courtesy of Alabama Center for Real Estate

Absorption Rate: I have covered what the absorption rate is, and how it is calculated in my blog post titled “A Look At The Absorption Rate In Pelham, Alabama“. It is a measurement of how long it will take to sell the current inventory of homes given the recent rate of sales. It determines whether the market is a buyers or sellers market, or if it is considered to be in balance. This is important to know because you would not want to overprice a home in a buyers market. Potential buyers would pass your home up in a heartbeat and move on to the next one.

The current statewide absorption rate of 12.4 months indicates a buyers market. If not priced correctly homes can take longer to sell, which actually appears to be happening from the days on market graph. It should be noted that the absorption rate, on a statewide basis, has been decreasing since February 2010, when it was at a high of 16.0 months. This may change soon because it was recently reported that the next wave of foreclosures will be entering the market soon. This will of course increase the level of inventory and absorption rate, unless sales activity increases to offset the increase in inventory.

Are you trying to sell your home? Are you pricing it to the market? If I can help you in any way please give me a call, I look forwarding to speaking 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.

Then and Now: Comparing Alabama’s Peak Years To The Current Market-Part 1

Tom Horn — Wed, 11 Apr 2012 14:04:47 +0000

As a real estate appraiser in the Birmingham, Alabama market I am very interested in how the housing market is performing. While we still have a long way to go to reach the levels we attained years ago, I do believe 2012 will turn out to be a year that shows positive trends in that direction.

Clients frequently ask me how the market is, and over the past several years I really didn’t have a lot of positive news. I hope my response will change this year. So far in 2012 I am beginning to see positive trends. The Alabama Center For Real Estate (ACRE) publishes great information on housing statistics for the state, so I decided to take a look at their findings and how our current situation compares to the market when it was red hot. The four statistics I decided to look at include: median sales price, total number of sales, days on market, and the absorption rate. I will cover the first two in this post and the last two in my next post.

Chart courtesy of Alabama Center for Real Estate

Median Sales Price: Because real estate appraisers report on home values, and that is tied to price, the median sales price is a statistic I am very interested in. I believe the median sales price is a better statistic than average price because it is not influenced by extremes like the average price is. Over the past 10 years the highest median sale price of $129,317 occurred in February of 2007. As of February of this year (2012) the median sale price was $109,214, which is 15.5% less than the peak. These number reflect the whole state of Alabama, however the Birmingham area has actually showed a 3.5% increase from one year ago. This trend in median sales price is slow in showing increases, which is likely caused by the influence of foreclosure sales in the market. In addition, more stringent credit requirements is affecting the number of potential buyers. With the pool of buyers being reduced sellers have to continue to drop their price until they get an eligible buyer. This will probably be one of the last statistics to show a positive upward trend until the foreclosure inventory has been depleted.

Chart courtesy of Alabama Center for Real Estate

Total Sales: Total sales is a good reflection of activity within the market, however it does not consider other important factors like the aforementioned median sales price or type of sale such as foreclosures and short sales, however it is still a statistic that needs to increase if the market is to return to its peak years. The February sales volume of 2,685 is at about the same level it was in 2002, when 2,640 homes sold. The peak year within this 10 year time frame occurred in February of 2006 when there were 4,266 sales. We are currently at about 63% of our peak year. The state, as well as the Birmingham area is headed in an upward trend since last year, with Birmingham showing a 26.7% increase over February 2011. An increase in sales will help reduce existing inventory, including foreclosures and short sales, which is necessary if we are to return to a healthy market.

Do you study the real estate market in the Birmingham, Alabama area or where you live? What do you see occurring in your market? Leave me a comment below, I would like to hear your take on the state of the market.

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.