There always seems to be some confusion when it comes to appraisals and HUD homes regarding the insurable code that was assigned to it. For every HUD home listing, the appraiser that did the appraisal determined what it’s going to take for the property to meet HUD’s minimum property standards (MPS). The home has also had an inspection preformed by a third party to help to determine the property’s condition, with the results put in what is called the PCR (property conditions report). If a potential buyer wants to purchase a HUD home using FHA financing then understanding these codes will help to determine if the home can qualify, and if so under what conditions.

As you can see from the picture above that this property will qualify for FHA financing, however, there are is work that needs to be done, which is why there’s an escrow for funds until the work has been completed. It’s highly recommended that if you’re interested in purchasing a HUD home that you find a mortgage officer that has experience in dealing with this type of lending.

Glossary for HUD Insurable Terms

Here’s a link to the HUD Home Store if you’re interested in seeing what homes are currently for sale. Below is a glossary for the insurable terms used in HUD’s listings.

• IE = Insurable. with repair escrow. This property requires repairs estimated to cost no more than $5,00o; it is eligible for an FHA-insured loan provided the purchaser’s lender sets up a repair escrow at closing.
• IN = Insurable. This property is eligible for an FHA-insured loan in its current condition.
• UI = Uninsured. This property requires repairs estimated to cost more that $5,000; it is not eligible for an FHA-insured loan, unless a 203K loan can be arranged. Follow this link for more information on HUD’s 203K programs.

Things To Consider When Buying a HUD Home Regarding Condition

There are two things that I would highly recommend when purchasing a HUD home. First, try and get a copy of the appraisal that was completed for HUD. Many times there are deferred maintenance issues that have been listed in the appraisal, and the cost cure them. Deferred maintenance items aren’t required to be repaired to meet FHA minimum property standards, however, they can have an effect on value.

Second, get a copy of the PCR that was done for HUD. This is a very succinct inspection report, but it does cover the main issues that are required to meet FHA’s minimum property standards.

Should You Still Have a Home Inspection

I’ve heard from real estate agents that buyers seem to want to forgo the expense of having a home inspection done when buying a HUD home, being that there has already been two inspections completed; both by the appraiser and the company that did the PCR inspection for HUD.

I’m of the opinion that neither were intended to replace an inspection by a professional home inspector. I would highly recommend getting a home inspection; HUD homes have sometimes been sitting vacant for many months, and should be thoroughly inspected prior to purchasing.

When doing FHA appraisals the appraiser is required to do what is called the “Head and Shoulders” test. The appraiser is required to inspect the attic and basement/crawl space to at least the head and shoulders level. The appraiser should use a flashlight or similar device to illuminate the space being inspected; photographs are required for any deficiencies to document any needed repairs, or other required inspections by a third party.

Things appraiser’s look for:

• Proper ventilation of the roof or attic area.
• Hazards (missing/loose duct work, wiring, etc.)
• Hole in the fire barrier wall between the house and garage.
• Leaking roof, and/or any water or moisture damage to sheathing or roof trusses.
• Standing or pools of water (crawl space).
• Structural problems.

Appraisers must have access to the attic and crawl space. If this area is blocked then the lender will have to be contacted and reschedule an inspection. This would most likely result in an unwanted re-inspection fee. It’s not the responsibility of the appraiser to move homeowner’s personal belongings and furniture to gain access (can you say major liability issues). Some attic spaces do have more than one access entry point, and depending on the area that the appraiser is able view, both may have to be made available.

If the appraiser is unable to gain access:

• Lender will be contacted to reschedule the inspection.
• If access isn’t feasible, then the appraisal is conditioned upon a satisfactory inspection by a qualified third party.
• If the design is such that an inspection isn’t possible (flat roofs, vaulted ceilings, etc.) then the appraiser will indicate that within their report.

It’s important to note that FHA requires that the attic and/or crawl space to be inspected; sealed scuttle doors, clutter/furniture blocking entry doesn’t qualify as reasons that an inspection can’t be done.

If you have any concerns about any of the above issues please feel free to contact me for clarification.

Last year the Appraiser Qualifications Board made changes to the criteria for becoming an appraiser. Starting in January 1,2015 all licensed appraisers wishing to upgrade their license to become a certified and general appraiser will be now have to have a bachelor’s degree from an accredited college.

First, I’m all for raising the standards of appraisers, however, not at the expense of crippling the industry. There already was a mass exodus of appraisers due to all of the new onerous regulations that have been instituted over the past few years. I’m of the opinion that this will only exacerbate the problem of people willing enter the appraisal industry. You’re going to have a tough time convincing a college graduate into becoming an appraiser with a starting income of only $20-$25K a year as a residential appraiser, and by the way they’ll have a few thousand dollars a year in business expenses (E&O insurance, license fees, continuing education, mileage, liability insurance, MLS annual and monthly dues, etc..).

Second, if raising the bar for appraisers is so important, it does beg the question what about all of the other players within the real estate industry. How about real estate agents, loan officers, real estate closers; don’t they play an integral part of the residential real estate process?

Mark my words, there will come a day when it’ll take up to 30 days or more for an appraisal to be completed from the time it’s requested until it’s completed. There is no way the system could handle a major real estate boom without some major changes, and if you don’t like the selection of appraisers doing residential work now, hang-on it’s only going to get worse.

At first glance it would seem pretty harmless to have just one piece of siding missing on a house, but that’s unless the birds decided to turn it into their own hotel. All along the back of this house were several holes that the birds burrowed through the sheathing to build their nests. This would seem harmless and an easy fix, that is until you go inside the house. The smell was hardly bearable, and I’m assuming that it has to be from the all of the bird nests in the side of house.

This is an REO property that I was appraising that has been vacant for awhile, so it’s hard to say how long the freeloaders have been around. One thing is for sure, whoever purchases this house should most definitely get a home inspection; there’s no telling what the extent of the damage could be. What seems like a small problem could very well turn-out to be a huge expense.

For every appraisal done on the Fannie Mae Form 1004 appraisers have to figure out what’s happening with current values (the past 12 months) within a given properties neighborhood and/or market area. Short term market trends differ from long term trends, but Fannie Mae tends to be more concerned with what’s been happening within the past 12 months.

Given the current real estate climate, getting this right is more important than ever. If it’s been determined that the values are declining and/or there’s an over-supply of homes, most lenders may require the following:

• At least one to two similar comparable active listings or pending sales that support the appraised value.
• At least two of the comparable sales used within the appraisal must have sold in the past 90 days.
• If there is a high-concentration of distressed sales, then some lenders require that at least one of the comparable sales be a distressed sale used within the appraisal.

I look at three different metrics when estimating as to whether real estate values are increasing, decreasing, or are considered to be stable.

MLS Market Statistics

Most real estate professionals have access to some type of multiple listing service, which usually has statistics for a given city or county. (The multiple listing service that I subscribe to has public access to this information.) The challenge with relying on this data is that it tends to be too broad; however, it does give a general idea as to what’s happening. For example the analysis below is for the City of Elk River, MN, which the MLS indicates that overall prices are declining.

The 1004MC Report

To help appraiser’s (more like force them) figure out what’s happening with values within a particular neighborhood (marketplace) Fannie Mae in 2009 introduced the 1004MC report. The most important aspect of this report is the data that is inputted; garbage-in equals garbage-out. The data for this report should contain “only” similar competing properties within the identified neighborhood and/or market area. This is different from the MLS statistics, which are the aggregate prices for an entire city or county. Some MLS systems have this reporting feature available. If your MLS system doesn’t offer this type of report, there are some Excel programs floating around on the internet.

12 Month Trend Analysis

I take the information that I’ve gathered for the 1004MC report and go a couple of steps further. I break down the data into both distressed and non-distressed to see if there has been a bifurcation of the market. This I feel is crucial, because if there is a high concentration of distressed properties you need to know the amount of stigma that can be associated with distressed properties. As you can see by the graph to the right, over the past 12 months prices have been increasing. (Click here for article on how appraiser’s adjust for stigma.)

Final Analysis

Instead of just relying on the MLS statistics, and by taking a few extra steps, you get a much different picture as to what’s really happening within a properties neighborhood and/or market area. For this particular example, at the very least I would consider prices to be stable or even slightly increasing. By putting this data within an appraisal report, or even a CMA, you’re creating a report that truly represents what’s happening, and you’re not misleading the reader.

A Final Note to the Real Estate Industry

Does this take more time, absolutely! Do most appraisers do this level of analysis-I would hope so, but probably not. Should the pay be commensurate to the level of work involved-you bet. This is why I refuse to do work for appraisal management companies (AMC’s) that want to take 40-50% of the appraisal fee. They want a sit down dinner at fast food prices, and I’m worth more than that. There are some AMC’s that understand this, and pay fees that are more in line with the going rate. It tends to be the big box lenders that have their own AMC’s that want to pay cut rate fees. There’s an old saying, “You get what you pay for,” which is something that should be considered before choosing a lender.

Who invented Sheetrock is kind of a trick question, because Sheetrock® is really a product brand invented by United States Gypsum Company, and patented in 1917. However, Augustine Sackett is recognized as the the actual inventor of gypsum board (drywall) in 1894.

History Timeline

Here’s a brief timeline of the development of drywall as we know it today:

• 1894 Austine Sackett is credited with inventing gypsum board (drywall).
• 1902 The United States Gypsum Company (USGC) is formed.
• 1909 USGC purchases the Sackett Plaster Board company
• 1917 USGC patents Sheetrock® brand
• 1925 Cloth mesh tape for concealing joints
• 1953 Sheetrock® Ready-Mixed joint compound

As you can imagine the there’s been quite a transformation from the drywall invented in 1894, which was sheets 36″ x 36″ in size and 1/4″ thick, to the plethora of lengths and thicknesses available today. 

The Tale Of A Low Appraisal

It all started on a mid-afternoon day in the middle of January (last year), with the wind howling and the air so cold that your spit would freeze before it hit the ground. The phone was quiet, the dog was snoring, and then I heard the ding of an incoming email. Yahoo! An appraisal request, and it’s even for a sale. I pondered, “Why would one of the staff appraisers from the largest appraisal management companies in the state not want to do an appraisal for a sale when business is this slow?” I didn’t care, at the time I just wanted the work. Well it didn’t take me long to figure out why every appraiser within their company turned down this appraisal, no comparable sales.

The Appraisal Inspection

I’ve never been one to shy away from a tough appraisal assignment, so I took the case. I donned my winter boots, put on my hat with the ear flaps that button down (think Elmer Fud), gloves, parka, long underwear (no, not the printed animal type), and out the door I went. Driving up to the house in my 4 x 4 pickup truck (ole “Silver”), my first impression was, “This is a really nice house.”

It was the blistering cold outside, and I didn’t want to leave the warmth and safety of my beloved truck (we have a special bond-a guy thing I think), but I had no choice, there was a job to be done. I trudged through the nearly two feet of snow to get the appropriate measurements needed. I couldn’t wait to get inside. I approached the front door, “Nuts”, it’s an electronic lox box and it’s freezing out. After several attempts (it always helps to rub it like a Genie lamp for good measure), and a few nice words, I was granted permission to enter. The interior was in tiptop shape, not to mention warm and cozy (what’s in the fridge, maybe I’ll stay a while). This was a nice listing for being a vacant house.

Finding Comparable Sales

Back at the home front I was now ready to tackle the arduous task of finding some comparable sales (or just even one sale) that sold for the same price. First, a cursory look on the MLS within subject’s neighborhood, no luck. Second, I expanded the geographical area to include the entire county, no luck. Finally, I have a little talk with my computer, ”You’re making this job a lot harder than it really needs to be,” no luck. (The one nice thing about talking to my computer, it’s a very good listener.) ”Fine,” I say, ”I’ll email the agents involved (with the lender’s permission) with the sale, surely they’ll have some good comparable sales, heck they had to come up with the price somehow.” I wait, and wait, and wait, no reply. Hit send/receive just in case. Nothing.

Finally, the next day I get a response from the listing agent, “You’re the appraiser, you figure it out.” OUCH! Really…..good thing I wasn’t a door to door salesman because my nose would have been flattened. Maybe she was just having a bad hair day. Surely, the selling agent will be anxious to help with some comparable sales. Um, not so much. His reply, “Well, it was the best house that we looked at. Neither I nor the buyers know much about the area, that’s why we hired you.” Well, the mortgage company hired me, but at least he was honest.

The Completed Appraisal

Using the best and most recent comparable sales available, I completed the appraisal and sent it off to the lender, mind you it was about $20,000 less than the selling price. I locked the door, turned off my lights, and waited to make sure the coast was clear before I moved about in my home office, knowing full well that the fur was most likely going to fly.

The Lender

I received the dreaded phone call from the lender. “The listing agent is wondering how much to you know about the area, because she has sent over several comparable sales that you didn’t use.” I thought, “Really, you have to be kidding me.” I wondered how in the world did that happen. First, I let my computer know that I wasn’t very happy with it for letting me down. “Bad computer!” The “missed” comparable sales arrive! They must be thinking about a different house I mused, these comparable sales are for two stories and the subject is a split entry, and her sales are over a year old. The comparable sales used within my appraisal report are of the same style of home, and they’re only 3-6 months old.

I contact the lender and explain that these sales aren’t even close to being the same type of home. The lender firmly states, “If that’s the case, please put in writing why you didn’t use each and every one of those comparable sales.” I felt like saying, “Because you don’t compare watermelons to oranges.” But I took the high road, and did as requested, hoping that this bad dream would be over soon, not so lucky. The lender sends another email, “Please explain why you’re qualified to appraise homes in that area.” You have to be kidding me, this is like a bad dream that doesn’t end!

After explaining that I’ve done dozens and dozens of appraisals within 10 miles of the subject, and over a few hundred appraisals within the same county, and not to mention over 5,000 appraisals in the past 14 years, I felt that I was more than qualified. After my very terse reply, I didn’t hear anything back.

Being a little worked-up, I was wondering why it was only that my credentials were the ones being called into question. I decided to do a little research see what experience the real estate agents involved in selling the home had in this area. NONE! That’s right, neither agent had ever sold a home in subject’s neighborhood, or even in the same county for that matter. I decided to put these lovely little tidbits in a letter and send it off to the lender, “but I never sent it.” I figured it would serve no purpose other than to make my bruised ego feel better.

The Happy Ending

The day before closing I was contacted by the lender to do a final inspection on the work order regarding the deck not being built to code. I contacted the selling agent, as instructed, to find out if the work was complete. He stated that he just left the property this afternoon, and all the work had indeed been completed. He also wanted to let me know that the buyers were extremely happy with the appraisal and the job I did. I thought, “Really! Are you sure you have the right guy.” They were thankful that I did my job, and that I didn’t just hit a number, because they would of not known the difference. And that my friends is how it works.

A Final Thought

In all of the years I’ve been appraising homes, I’ve never had a real estate agent find a comparable sale located within the subject’s same neighborhood that I just happened to miss. Coming in low on a sale is a very serious matter for me, and I go out of my way to make sure all of my bases are covered, which includes communicating with the real estate agents when permitted.

The current rhetoric being tossed around by the NAR and the Builders Association regarding appraisers is only going to exacerbate the problem, and not solve anything. The best appraisers are either leaving the business, or moving on to non-mortgage related work (like myself). It’s tough enough working in this current climate, let alone having two of the largest housing associations throwing you under the proverbial bus every chance they get.

Yes, I know there are some absolute idiots out there appraising houses, but when you find the perfect business where there are no idiots, please let me know, I want in.

The last housing trivia post was about who invented the first flush toilet, so I felt it was only fitting to unravel the mystery of who invented toilet paper. Heck, what good is a toilet if you don’t have a fluffy roll of “TP” to go with it.

First, I was surprised that there were several different terms used around the world for toilet paper: bum wad, loo roll/paper, bog roll, toilet roll, and dunny roll/paper. Second, there is a plethora of scents, plys, and colors; you name it and it’s probably available. However, there is almost one thing universal with every roll, and that’s the cardboard cylinder.

So who invented toilet paper? Well…..It was the Chinese! They are given credit for having the first recorded use of toilet paper in 589 AD. This really surprised me, and in the 14th century it was recorded that they produced 720,000 sheets of the ole “bum wad.”

Joseph Gayetty is credited for inventing the first packaged toilet paper in 1857, which was sold in flat sheets until around the 1920′s. Rolled toilet paper, the type we wouldn’t be without today, was invented around 1880 by Clarence Scott, who along with others started the Scott Paper Company.

Sources:

Toilet Paper History.net

Wikipedia

I recently finished an appraisal for the sale of a hobby farm that turned out to be fairly difficult. The biggest challenge was to find comparable sales that had a similar out building. This was no ordinary building; it was over 4500 square feet with an insulated shop area, tack room, and eight horse stalls.

Typically the “best practice” for this type of appraisal is to find at least one sale that has a similar building, or even multiple buildings, thus requiring no adjustment-no such luck! I used the best comparable sales that were available, and unfortunately I had to adjust all of the comparable sales upwards due to fact that none of them had a similar out building. I explained this in great detail within my appraisal report as to why I was unable to find any similar sales, so you can imagine my surprise when I receive an email from the underwriter stating the following:

Appraiser to provide an additional comp which has similar outbuilding as the subject property (all of the comps provided have an upward adjustment). Appraiser to explain, appraiser must comment if any changes are made.

This is the kind of stuff that makes appraiser’s pull their hair out, and mine’s already getting thin enough. It’s as if I somehow just happened to miss that one ”best” sale that would have made my life a  whole heck of a lot easier. Also, when an underwriter states, “appraiser must comment if any changes were made,” is code for maybe you should reconsider your value.

I held my ground, reiterating that due to the fact that there were no sales with similar out buildings that this was unavoidable. I also directed them to page such and such of my appraisal report that explains this in great detail (it helps if the entire report is read). I haven’t heard back yet, but you can surely bet that I’m going to be thrown under the bus if they decide not to do the loan, because you know darn well that the underwriter will say, “If only the appraiser was able to find one more sale, then we would approve the loan.”

Measuring a condominium for an appraisal is fairly simple and easy to do, that is unless you have a grain silo that’s been turned into condominiums. I appraised one of these units several years ago, which was quite the challenge due to the round walls. For this example I think we’ll stick to the traditional squared walls. There are two things to keep in mind that are different from single family housing.

First, is that the gross living area (GLA) is measured from the inside of the walls, not the outside like single family. Second, some condos can have fairly large utility rooms that aren’t usable living space and shouldn’t be counted.

However, it can be very difficult to ascertain as to whether the similar comparable sales listed in the MLS used the utility space or not. If the real estate agents that listed the homes on the MLS didn’t subtract out the utility space, then y0u’re going to have to include it in your calculation. This is what Fannie Mae expects you to do, see below.

The key to remember is consistency, if everyone within the real estate industry is using the same measuring standard, then the data will only be that much better and credible.