Birmingham Appraisal Blog » Appraisal

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.

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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.

A Man’s Home Is His Castle, Right?

Tom Horn — Mon, 11 Apr 2011 12:22:03 +0000

We’ve all heard the old saying that a man’s home is his castle, right? This was exactly what I thought of when I saw this house in Shelby County, Alabama.

It got me to thinking about personal taste and how that may translate into how others may feel about architectural styles that are atypical. Do you think that this style of home would appeal to others? While not a hard and fast rule, past experience has taught me that homes like this take longer to sell. Have you had any experience in buying, selling, or appraising a home with a unique style? I would be interested to hear your story.

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Can A Pre-Listing Appraisal Be Used By The Buyer’s Lender?

Tom Horn — Thu, 31 Mar 2011 13:41:11 +0000

I’ve done several pre-listing appraisals recently and I got a question the other day that I wanted to share with you. The homeowner wanted to know if a pre-listing appraisal could be used by the buyer’s lender to get their mortgage. The short answer to this is “no”, however this was not always the case. Before the HVCC (Home Valuation Code of Conduct) was enacted it was possible for a pre-listing appraisal to be done on a house, and then when it sold the bank would ask the appraiser to do an update on it for the mortgage. The update would consist of the appraiser re-inspecting the home and looking for more recent sales since the initial inspection. This could often be done at a cost savings.

As I stated previously this is no longer possible. New laws require that the buyer’s lender order an appraisal from their list of approved appraisers. The appraisers on this list are typically “rotated” after each assignment. The rotation was put into place so that there would be no actual or perceived fraud between the loan officer and appraiser. It is possible for the appraiser to be on the approved appraiser list of the buyer’s lender, however they would have to be next up in the rotation to get the job.

This should not be perceived as a “deal breaker” in deciding whether or not to get a pre-listing appraisal. The buyer pays for the mortgage appraisal so this does not affect the seller any differently than it did before. The bottom line is that a pre-listing appraisal can help you save money by 1) Getting the maximum selling price for your home based on current market conditions, and 2) Preventing your home from being listed for an extended period of time. I’m sure you’ve heard the old saying that “time is money”, haven’t you? Well the longer your home is on the market the more you pay in advertising and marketing expenses. The bottom line is that the return on investment of the appraisal is greater than the cost. Do you currently have your home for sale or are you getting ready to list it? Has it been on the market for and extended period of time? Please let me know if I can help 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.