September 23rd, 2014 3:51 PM by Joe Bornstein
September 23rd, 2014 3:15 PM by Joe Bornstein
September 23rd, 2014 2:42 PM by Joe Bornstein
As reported in Inman News (www.inmannews.com) August 2014:
The appraisal is probably the most important part of a mortgage application. Lenders originate residential mortgages on the basis of either the sale price or the appraised value, whichever is lower. If the appraisal is too high, sellers worry that they should have asked for more money. And, if the appraisal is less than the agreed sale price, it can be a deal killer unless the seller is willing to take less or the buyer brings additional cash to closing.
But what if the appraisal is wrong — or at least a valuation you want to dispute? What if the comps don’t apply, the appraiser’s data is too old or the appraiser is not familiar with local trends? According to the National Assoc. of Realtors (www.nar.org), about 4 percent of all transactions fall through because of appraisal issues, roughly 200,000 sales per year.
Generally speaking, appraisals are hard to change. Appraisers are likely to stand by their valuations. The options in the case of a disappointing valuation are to ask for a second appraisal, or present the appraiser or lender with additional property information, comps and documents — and then plead for a revision, according to NAR.
Now an alternative is showing up, what might be called “value reviews,” or automated reports that use “big data” to examine appraisals line by line and show how the appraisal compares with expected norms. Never before has there been a way to gauge appraisal results, and with such reports some transactions that might have failed will now go through.
We’re in the process of downsizing and buying a Florida home. We were delighted when the appraisal showed that our property was valued at $232,000 — good news given that the sale price was $220,000.
Then the other shoe fell. Something we had never seen before — a “value review” — arrived from the lender by email, a one-page document that showed the “estimated value” of the property was $200,200. Was the deal off? While we would be perfectly happy to pay less for the property, the odds were pretty good that the owner would not be equally thrilled.
Then we took a closer look at the review. It plainly said that it was not an “appraisal.” It also said that the value of the property might range from a low of $164,164 to a high of $236,236. If you add these figures together and divide by two, you get $200,200.
If the value review was not an “appraisal,” then what was it? Could it kill our deal?
Our loan officer said the value review was an “internal document” and that the loan would still be based on the appraisal results. Since the appraisal was well above the sale price, the appraised value was fine.
But if this was an internal review, then how come it was sent to us?
According to Francois (Frank) K. Gregoire, a Realtor and appraiser based in St. Petersburg and a former chairman of the Florida Real Estate Appraisal Board, we likely received the value review because of “the lender’s attempt/intent to comply with the Dodd-Frank Amendments to the Equal Credit Opportunity Act (ECOA).”
It turns out that ECOA requires lenders to automatically provide free copies of all appraisal reviews to borrowers, but that’s not all: The Consumer Financial Protection Bureau says lenders also have to provide “other written valuations promptly after they are completed, regardless of whether credit is extended, denied, incomplete or withdrawn.
‘Big data’ and appraisals
In the same way that buyers and sellers want appraisals to be on target, so do lenders. They’re looking for a realistic opinion of value, preferably a conservative opinion, because the lender’s goal is not just to make the loan, it’s to make loans with as little risk as possible.
The value review is a way to measure appraisal norms. In my case, the lender was looking for an appraised value that was no more than 20 above or 20 below the “estimated value” shown in the appraisal report. Since the estimated value was $200,200, an acceptable appraised value could range anywhere from $160,160 to a max of $240,240. With an appraisal of $232,000, our valuation was within the acceptable range.
Other lenders might look at the same estimated value and have a different range. Maybe they will only tolerate an appraised value that’s 15 percent above or below the estimated value.
Here’s another way to look at the numbers: We have an agreement to buy at $220,000 and the appraisal says the property actually has a fair market value of $232,000. That’s a difference of 5.45 percent. The lender might require that the purchase price and the appraised value must fall within a certain range to avoid red flags, for example, a difference of no more than 10 percent.
Checking the appraisal, and the appraiser
While a residential appraiser is required to physically inspect the interior of the property — that’s one reason you see so many photos in an appraisal — the value review was done with data and math. Nobody actually stepped inside the home; instead, the review came from things such as recent real estate sales and property tax records.
While the home’s market price is obviously central to the appraisal process, the value review does not stop there. It rummages through the appraisal looking for every possible deviance and abnormality and then presents a red-flag summary.
For instance, the value review answers such questions as:
Is the appraiser’s license valid as of the appraisal date? Is the legal description right? Does the square-foot measurement match public records? Are the buyer and seller different — in other words, is the transaction an arm’s-length sale? What is the 12-month listing history of the property? Do foreclosure sales equal more than 15% of all local transactions? Are photos of comps included in the appraisal?
My particular appraisal raised several issues such as comps that were more than 6 months old and a signature that could not be electronically detected. Such items are not necessarily “errors,” but since they were flagged lenders can instantly see if the matter is worth a second look.
Actually, I was greatly pleased with the value report. It said the home was 54 years old, but because of upgrades and maintenance it had an effective age of 20 years. It also said basically that the appraiser had done a very good job valuing the property.
How does the value review know all of this stuff? The data points come from public records such as assessments, building permits and deeds, plus every time there's a new appraisal it adds more data to the mix. The result is that the system becomes more accurate every time it’s used.
Value reviews are going to become more common, a way to check appraisal accuracy and completeness and also a tool that can teach borrowers much about the property they’re financing. It’s an example of big data being used to protect both consumers and lenders, and for this buyer that’s a very comforting idea. #################################################
September 23rd, 2014 12:45 PM by Joe Bornstein
September 22nd, 2014 5:17 PM by Joe Bornstein
September 22nd, 2014 4:40 PM by Joe Bornstein
September 22nd, 2014 4:21 PM by Joe Bornstein
Provided by Sihle Insurance Group (www.Sihle.com) Sept. 2014: Do you need sinkhole coverage? All policyholders in the State of Florida have catastrophic ground collapse by law. But any insurer can exclude sinkhole coverage. What will insurance pay? A claim would be paid if the insured is unable to reside at home due to sinkhole activity. The sinkhole would have to be so bad that the structure is compromised, and then the insurance company will pay up to the policy limit for damages to the home. What is the difference between a sinkhole and catastrophic ground cover collapse? A sinkhole is described as a land form created by subsidence of soil, sediment or rock as underlying strata are dissolved by groundwater. A sinkhole may form by collapse into subterranean voids or holes created by the dissolving of limestone or dolostone (or by the subsidence) as these strata are dissolved. Catastrophic Ground Cover Collapse = Geological activity that results in ALL of the following: 1. The abrupt collapse of the ground cover. 2. A depression in the ground cover clearly visible to the naked eye. 3. Structural damage to the building including the foundation. 4. The insured structure being condemned and ordered to be vacated by an authorized government agency. What does this mean to you? It means that if your home is damaged by sinkhole activity - but it doesn't meet all 4 of the above criteria for catastrophic ground cover collapse (i.e. you have foundation cracks but your home is still livable) - insurance probably will not pay for the damage unless you have the additional sinkhole insurance coverage. This is generally an addendum or rider to your existing policy, as well as an additional premium charge. ----------------------------------------le
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September 16th, 2014 5:20 PM by Joe Bornstein
August 31st, 2014 3:10 PM by Joe Bornstein
August 22nd, 2014 3:37 PM by Joe Bornstein
As reported by Florida Realtors (www.floridarealtors.org/) in ORLANDO, FL on August 21, 2014:
Florida's housing market reported rising median prices and increased inventory in July, according to the latest housing data released by Florida Realtors®. Closed sales of single-family homes statewide totaled 22,099 last month, up 5 percent over the July 2013 figure.
"Florida's housing market continued its steady pace in July," said 2014 Florida Realtors® President Sherri Meadows, CEO and team leader, Keller Williams, with market centers in Gainesville, Ocala and The Villages. "Median sales prices rose year-over-year for both single-family homes and townhouse-condo properties in July – marking 32 months in row for higher median prices. Statewide, inventory (active listings) for single-family homes last month rose 17.5 percent year-over-year, while the townhouse-condo inventory of active listings rose 10.9 percent."
The statewide median sales price for single-family existing homes last month was $185,000, up 3.6 percent from the previous year, according to data from Florida Realtors Industry Data and Analysis (IDA) department in partnership with local Realtor boards/associations. The statewide median price for townhouse-condo properties in July was $137,500, up 7.4 percent over the year-ago figure. The median is the midpoint; half the homes sold for more, half for less.
According to the National Association of Realtors®(www.realtor.com), the national median sales price for existing single-family homes in June 2014 was $224,300, up 4.5 percent from the previous year the national median existing condo price was $215,700. In California, the statewide median sales price for single-family existing homes in June was $457,160; in Massachusetts, it was $365,000; in Maryland, it was $284,553; and in New York, it was $229,000.
Looking at Florida's townhouse-condo market, statewide closed sales totaled 8,984 last month, down 6.7 percent compared to July 2013. The closed sales data reflected fewer short sales last month compared to the previous year: Short sales for condo-townhouse properties declined 61.1 percent while short sales for single-family homes dropped 54.8 percent. Closed sales typically occur 30 to 90 days after sales contracts are written.
Florida Realtors Chief Economist Dr. John Tuccillo said, "The July numbers look very much like June's when each is compared to the prior year. This tends to verify our preliminary view that the market is settling into a stable pattern. I'm asked a great many times about the 'new normal,' meaning how the Great Recession changed the housing market. We are now beginning to see that the 'new normal' is really the 'old normal' with statistical patterns reminiscent of the market that prevailed prior to the frantic run-up of prices.
"The only troubling area is condo sales. The declines here, coupled with the sharper declines in condo cash sales, suggest waning interest on the part of investors. This is an area that will bear watching."
Inventory was at a 5.5-months' supply in July for single-family homes and at a 5.7-months' supply for townhouse-condo properties, according to Florida Realtors.
According to Freddie Mac (www.freddiemac.com), the interest rate for a 30-year fixed-rate mortgage averaged 4.13 percent in July 2014, down from the 4.37 percent average recorded during the same month a year earlier.
Clearly the market is still favorable for home sellers. If you are considering listing your home, give Cathy Nanfeldt a call. I will be happy to provide a Comparative Market Analysis for your home at no charge to you. 407-704-0423 or firstname.lastname@example.org
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