Birmingham Appraisal Blog » Appraisal

An interesting trend in the Birmingham, Alabama real estate market

Tom Horn — Tue, 14 Feb 2012 00:32:34 +0000

I have noticed an interesting trend in the Birmingham, Alabama real estate market. The trend involves the segmentation of the market in various areas, but mainly where foreclosure activity is prevalent. I noticed it most recently in the Centerpoint area of Birmingham. The segments include the following:

foreclosures
“normal sales” and
flip properties

The “normal” sales are being negatively affected in an interesting way, and I will tell you how. There is a larger than typical (I guess that’s relative in today’s market) percentage of foreclosure homes that have sold over the past 12 months. Over the last several years the Birmingham market has consistently had 30-40% of sales be foreclosures or short sales. From February 2011 to February 2012 the Centerpoint market has had approximately 70% of the homes that sold be either foreclosures or short sales. That is an astonishing number, but one that indicates it is ripe for the picking by investors who want to buy, renovate, and flip the property for a profit. It appears that is exactly what they are doing.

Many of the flip properties are being listed and sold for below the market, so they will move quickly. That is where the problem for the “normal” properties comes in. They have to compete with true foreclosures that are being sold by the banks at rock bottom prices and also the flip properties that have been renovated and priced higher, but still not as high as what a “normal” property might be listed at. A homeowner wanting to sell their house will have a hard time competing with this. It seems like the forces of the market will require sellers to price their homes below the flip properties (since they are usually not in as good of condition, unless they have also been renovated recently), which will drive property values down. This phenomenon will probably begin to reverse whenever the percentage of foreclosures have been reduced, but we really don’t know when that will occur since there could be more shadow inventory waiting to come onto the market. Have you seen anything like this in your area? What has been the outcome? Let me here your story by leaving a comment below.

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.

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.

Which Of These Houses Does Not Conform?

Tom Horn — Mon, 31 Oct 2011 12:45:25 +0000

Appraisers talk about conformity when describing houses that do not “fit in” to the neighborhood. Sometimes this can be subjective but you can usually tell when it has occurred. Neighborhoods have certain characteristics relating to price range, house style and various other factors. Some times house style and price range intersect and you have an overpriced home that stands out like a sore thumb. I don’t mean that it’s an eye sore but rather it does not fit harmoniously into the personality of the neighborhood. Check out this video and see if you can spot the home that does not fit in.

Well, did you guess which house it was? See, I told you it was pretty easy to spot. From an appraisal standpoint there could be an issue with the subjects conformity to the neighborhood and a possible over improvement. Both of these items can effect the value of the property. Have you ever seen something like this before? Do you know what effect it had on the properties value?

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.

No related posts.

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.

Could Alabama Appraisers Be In Violation Of State Law?

Tom Horn — Thu, 13 Oct 2011 16:06:37 +0000

Do you do work for Appraisal Management Companies (AMC’s)? If you do and they are not registered with the Alabama Real Estate Appraisers Board, you could be subject to discipline. As of October 1, 2011 any AMC’s doing business in Alabama must register with the state. Pursuant to §34-27A-20(a)(9) of the Alabama Real Estate Appraisers Act appraisers must not accept assignments from an unregistered AMC. It’s easy to check if they are registered, just go to the state’s website.

AMC’s are companies that manage the appraisal process by working with lenders and appraisers. Lenders typically hire the management company to do the appraisal ordering and quality control aspect of the loan process. This supposedly puts a layer of protection between the loan officer and the appraiser. This became an issue recently with the collapse of the real estate market and the accusation by some that lenders and appraisers were working in collusion to make real estate deals work. Some lenders would find appraisers that would give the values they needed to close a loan. Businesses recognized this as an opportunity to provide a service to the real estate industry. Up until the passing of this law in Alabama and other states, the AMC business had little regulation. This law seeks to help regulate the industry and make AMC’s more accountable for their role in the process.

So before you do any work for an AMC, please check out their status with the state so that you avoid being disciplined.

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.

The Media Is Now Confirming What Appraisers Have Been Reporting All Along

What I’ve Learned in My First Year of Blogging

Tom Horn — Thu, 22 Sep 2011 13:44:34 +0000

Technically speaking it has been about 18 months since I started blogging but “My First Year” sounded better so that’s what I went with. If there was one phrase that summarized my experience during this time it would be “slow and steady wins the race”. It has been a time of learning new things, meeting new people, and radically changing the way I do business.

I first read about blogging, as it relates to real estate appraisal, in the magazine “Working RE“. The article was titled “Using Blogs to Grow Your Business”. It was written by Baton Rouge Real Estate Appraiser Bill Cobb and described what he has done to expand the marketing for his business. He also mentioned Sacramento appraiser Ryan Lundquist, who has become very successful at using social media to get the word out about his business. These two bloggers as well as others have helped me to get started blogging about my own appraisal business and the real estate market in the Birmingham, Alabama area. To further my knowledge I have read books such as “Trust Agents” by Chris Brogan and “Pro Blogger” by Darren Rowse. I have learned a lot but I still have a long way to go. I wanted to share with you some of the things I have learned in this first “year” of blogging.

The first thing I have learned is that while you may be able to learn and do this stuff by yourself, why would you? The community of bloggers are very friendly and eager to help each other out. There are lots of resources online to help you learn in’s and out’s of blogging. There are usually local groups in your city that get together occasionally to discuss blogging and they are usually very eager to help out beginners. Many areas have “Wordcamps” each year to help those using this platform. I attended one in Birmingham last year and blogged about it here.

I also learned that consistency in blogging is very important. My goal is to blog 2-3 times per week, however this is not always possible, especially if business picks up and I get busy. I resume blogging as soon as possible because the experts say that the more often you blog the more search engines index your website, and this helps people find you on the internet. By providing relevant content on a consistent basis your website and name will be getting in front of more people.

Most people do not want to begin blogging until everything is perfect. Perfection is not a requirement for blogging but being yourself is. Being able to come up with something that you believe your readers will find interesting and then writing a blog post about it is more important than perfect grammar and an expensive professionally built website. WordPress makes it possible for you to set up a blog and begin writing immediately. You can tweak your blog as you go.

Patience is the last thing I wanted to cover here. Blogging will not give you overnight success. You will need to be persistent and methodical so that over time your content will be picked up by search engines and consumed by people interested in your topic. I am just beginning to see regular responses to my blog. I regularly receive emails and phone calls from readers who either need a question answered or want to order an appraisal. The fruits of my efforts are beginning to pay off but I will need to keep up the hard work so I continue to see results.

I have only scratched the surface of what I have learned since beginning to blog. Maybe I will continue this discussion in the near future. If you have not yet started your blog because you are scared or just don’t know where to start don’t give up. There is a community of bloggers out there eager to help you and maybe in about twelve months or so YOU will be bogging about everything you have learned.

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.

Ask The Appraiser: Can Pending Sales Be Used In An Appraisal?

Tom Horn — Thu, 14 Jul 2011 17:38:10 +0000

I was asked a great question yesterday that I thought I would share with you. Can pending sales be used in an appraisal? The short answer is “yes”. Appraisers have three options for comparables. They include closed sales, active listings, and pending sales. The appraiser must use a minimum of 3 closed sales in the appraisal report, however if there are more sales that would support the final value estimate then they should also be included. This might occur when the sales that are available exceed recommended guidelines such as time of sale, distance, or adjustment percentages.

The use of active listings provides good insight into what other similar homes are priced at. The best way to look at it is to imagine what other homes a potential buyer might consider if the subject property were not available for sale. Not all properties that are the subject of an appraisal are “for sale”. The appraisal may be for a refinance, but the same concept can be used. The appraiser is estimating the market value of the home if it were to sell on the date of valuation. In today’s market an active listing will typically set the upper end of the value range, and will most likely be negotiated down from the list price. Appraisers make sale price to list price ratio adjustments to the list price to reflect this. The adjustment is estimated based on what other closed homes have sold for compared to what they were listed at. There can be some margin of error to this though because many variables go into negotiating a sales price, including buyer/seller motivations.

Pending sales are the last type of comparable that can be used in an appraisal. If you think about it, this is really the best sale possible. A closed sale is a record of what happened in the past, an active listing involves a calculated guess at what the list price to sale price ratio is, however the pending sale is one which is current and reflects what is happening in the market at pretty much the same time as the valuation of the subject property. Not all pending sales are the same however. A pending sale which has been signed by both parties that agree on the contract amount, that has received a good title policy, and appraises for the contract price or more, is a better pending sale than one that just consists of an offer by an interested buyer. If you are a Realtor, do you provide the appraiser with current sales information, including pending sales that you are aware of?

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.