http://batonrougerealestateappraisers.com/ – Baton Rouge Appraiser Attends Appraisal Institute’s “Appraisal Challenges: Declining Markets and Sales Concessions”
On 8/28/2008, Bill Cobb, CREA, attended this newly developed seminar, written by Mark Rattermann, SRA & Patrick Carey, SRA. The instructor was Cheryl Kunzler, SRA, out of St. Louis, MO. The specific syllabus of the seminar is outlined below. The location was Ellisville, MS, on Jones Community technology campus that was state-of-the-art. The Sponsor for this seminar was the Mississippi Chapter of the Appraisal Institute, hosted by the wonderful and long-time members of the Mississippi Chapter, Roy & Ann Caves. There’s only reason this appraiser travels 2.5 hours each way to attend CE (Continuing Education) in Mississippi and that’s because of the tremendous hospitality and friendship of the Caves. They provide a warm, friendly smile, a hug from Ann and a full table of refreshments throughout the day with donuts in the morning and lunches brought in for our convenience. I only wished the Caves lived closer to Baton Rouge so I could see them more often.
Let me say at the beginning that the two (2) most impressive aspects of this seminar were:
1.) Handed out at the end of class – the “Suggested Solutions” packet, 44 pages of answers to the 5 mandatory quizzes, numerous scenarios and 15 case studies. Instead of a “theory” class, the seminar is taught interactively to insure home appraisers leave with the know-how to properly understand declining markets, to apply declining market adjustments and sales concessions adjustments. If 7 hours wasn’t enough time to fully understand this national real estate market situation, then the 44 page packet would be a great help for the challenging times ahead. This was the first time in 16 years that I have attended any appraisal seminar where this type of solutions guide was handed out.
2.) The Instructor, Cheryl Kunzler, SRA. Mrs. Kunzler has already been working in the challenging and somewhat declining markets around St. Louis, MO and has learned to apply these tips and helps in her appraisal practice/market already. It was obvious and very refreshing that she was teaching us from her experience and not theory. And, she treated the attendees as “peers”, as professionals that could also lend their expertise in discussion to the benefit of the entire class. After this experience, I plan on taking more seminars with Mrs. Kunzler.
Other Tips & Helps I gained from this class:
*Effective 2/2009, the new FNMA 2 Page “Market Conditions” form will be mandatory. This form is already available within SFREP appraisal software. My comment is this: Yes, along with the added active or pending listings required now, this new 2 page form is going to create more work for the same appraisal fee. However, this extra analysis and a stated format should work to lessen the appraiser’s liability.
*True or False #1: Most appraisers will easily spot that point in time when the market is changing from appreciating to declining? To receive the Answers to True/False questions – take the seminar.
*Terminology Changes. From “Time Adjustments” to “Market Conditions Adjustment”. In the Neighborhood Analysis, From “Neighborhood” to “Market Area”.
*True or False #2: Appraisers should always report why one market is better or worse than another?
*Effective 2/2009, FNMA “DEMANDS” the appraiser to have a “fully executed” copy of the Purchase Agreement for review of duress, to gauge motivation and to verify seller concessions. “Fully Executed” means it must be signed by the seller and buyer and properly dated. This is supposed to be a FNMA directive. My own interpretation of this is: No more bickering with Realtors for a copy of the P.A.. If the Realtor(s) won’t give up the P.A., then the appraisal doesn’t get turned in and the loan doesn’t close, period. If the Realtor delays getting me the P.A., then they’re delaying their own closing(s). When the new FNMA Appraisal forms arrived in 2005, we were told to get a copy of the P.A. and if the Realtor(s) wouldn’t give us a copy, document in appraisal who you requested it from with their name(s) and phone number. Currently, when I have a problem with a Realtor sending the P.A., I state this in the report and turn in the appraisal. Then, 2-5 days later, the lender sends me a copy of the P.A., I have to revisit and revise the report and re-submit. My policy is changing to when the appraisal order is sent to me, the P.A. must follow before I begin on the assignment – just like the appraiser isn’t supposed to begin an FHA appraisal until the FHA Case # is sent to them.
*It’s important to understand WHY a market is changing!
*True or False #3: When appraisers find an oversupply problem, they will always have to adjust for it in the Sales Comparison Analysis?
*In these ever-changing markets, state the effective date and that this appraisal report is good for TODAY ONLY, not next week, not next month, but for TODAY ONLY. This is crucial in “Pre-Listing Appraisal” assignments where some owners choose to sell FSBO. The Pre-Listing Appraisal client needs to understand this specifically – that the appraised value is only good for today and if your home sells 90 days later, the appraised value may not be the home’s actual value or worth any longer.
*True or False #4: To measure the supply and demand for a property, the date should reflect the same buyer that would be attracted to the subject?
*As Mrs. Kunzler stated, not all areas within a market may be in decline. It might be just certain price range(s). Perhaps the upper end of the market is soft with marketing times over 6 to 12 months, while the affordable housing has a stable, 1-3….2-4…or 3-6 month normal marketing time period. For example, in the Baton Rouge market, $300K to $750K has been soft for the past year, but under $250K is still selling, just at a little slower pace.
True or False #5: In a declining market, some properties in a geographic area may suffer a loss, but others in the same area in a different price point may not?
*Explained why in a declining market listings are so crucial to the appraisal process today, especially pending listings. And, the appropriate method of using Listing Price to Sales Price Ratios to properly adjust the listing prices. On some assignments, lenders are requiring 2-3 listings. Most AMCs are requiring listings. If an active or pending listing is used, say listed at $199,900, and the list to sales price ratio is 96%, the listing price is adjusted downward by 4% or -$7,996, which is the projected closing price based on recent history within that market.
*Crucial to Mortgage Underwriters To Answer Top Of Page 2 Of FNMA 1004 Form – # of Comparable or Competing Listings & Competing Sales Within Previous 12 Months. Divide the number of listings by the monthly absorption rate to obtain the number of month’s supply.
Part 2 Will Follow In The Next Blog Posting