Appraisal Ace Blog

Frank Garay and Brian Stevens KILLED IT tonight. Best speakers for motivation and method that we have had for a long time. The delivery was spot on and the crowd loved it. I got more complements and I know they must have picked up 20-30 new subscribers tonight. Would have been more, but I think they had an audience full of TBWS Daily show viewers already.

I heard "lightbulbs" going on all over the place and the buzz afterwards was very much, "We can do that" or "What if we did this?" And I think everyone appreciated the positive viewpoint presented. It was very energizing. I hope Frank and Brian got something out of the evening too.

I know that my appraiser friend was already talking about a collaborative effort with me. That made me feel good. Should be fun.

At any rate, it was great for them coming up and sharing with us their amazing mix of truth, insanity and wisdom.

There has been some discussion about whether or not it is necessary to vent the temperature and pressure relief valve on a water heater located in a garage to the outside of the structure according to FHA.

 First of all what we are trying to do first and foremost is to compare apples to apples. That is, the most similar properies are usually the best comparables.

For an appraiser the most important comps are the ones that sold most recently because those tell us what buyers are paying for homes. For a Realtor, I would think that Actives and Pendings might be the most important, because those are your seller's competition and the pool of homes from which your buyer might consider purchasing. Run a CMA to see what the average list to sales price ratio is and apply that to the listing prices to get an idea of what buyers are actually paying.

The 4 things I look at first are (1) closest in terms of location and sales date. I try to define the neighborhood boundaries and, if possible, only use comps from within the same neighborhood. I also don't usually go back further than 90 days. If I have to exceed 90 days, in order to find enough sales, then I have to know whether the market declined or increased since then and apply a percentage increase or decrease to the sales price.

Then I look at (2) size and room count, I stay within 10%+- if I can. Model matches are the best, of course. Lot size has some effect, but not much for most tract homes.

(3) Age would probably be next. We try not to use comps that are more than 10 years older or newer. It's hard to adjust much for age due to remodeling, different levels of upkeep and deferred maintenance.

(4) Condition is the hardest thing to quantify, but that would be the other thing that I would try to match. Hard to measure sometimes from the MLS listings. I always have to call or email the listing and buyer's agent to get a true picture.

There is no rule of thumb for adjustments; it is case-by-case and market derived. What I mean is, what is the market reaction to missing appliances or a pool or proximity to the train tracks? Experience in the market, interviews with agents, matched pair analysis and regression analysis are the ways we isolate each variable and measure how much in terms of dollars or percentage each contributes to the home's value.

Long winded, sorry about that, but as you see it's not so simple. There are other factors, but we can talk about those at another time.

Here are some of the things I've been telling hopeful Certified Residential test takers recently.

Are you using Compu Cram? I used it every study session. I was able to buy Henry Harrison's book used from another local appraiser who just passed his exam. I also studied the questions in "Questions & Answers to Help You Pass the Real Estate Appraisal Exams" by Fisher and Tosh.

Compu Cram is online and costs $69 (www.compucram.com). AL or AR tests are very much the same now. Just more questions on the AR I believe and maybe they're a little harder. So, CompuCram was a great help. Take the tests until you are passing them at 90% or higher and you'll be fine. Write down the stuff you miss and look up the answers and write those down too. Writing it out seems to help memory. Concentrate on your weak areas, that will make the most difference during the test.

Use one or two of the study books and get to know your HP-12C real well. That will give you a lot of confidence when you need it during the test. As far as the calculator goes, until you take the test, do all of your calculations on the HP 12C. That way you will get used to its somewhat reverse functionality. Don't skip the HP 12C, you will need it for some of the questions.

Here is a web page tutorial on the functions of money calculations on the HP 12C - http://www.tvmcalcs.com/calculators/hp12c/hp12c_page1 

Remember, concentrate on your weak areas, like Math and Stats or whatever you feel is your weakest area. I feel that strategy will benefit you the most when you take the test.

Really commit yourself  to prepping on the stuff you are having trouble with. Reviewing the material you know will make you feel good, but it won't help you pass the test.

Don't do marathon study sessions. Your brain will burn out. Break it up into 2-4 hour segments and do something else in between. Do an overall review the day before the test and be sure to get plenty of sleep the night before. No all night cramming. Give yourself plenty of time to get to the exam site so you won't be in a panic when you arrive.

When you take the test - use a test management system.

On a blank sheet of scratch paper make three columns and do the following:

1. Answer any question that your are sure of and move on.

2. Any question you think you know, but are not sure of, put that question number on the paper in the first column. You may come across a question later that jogs your memory or answers all or part of the question.

3. Any question you really don't know the answer to, put that number in the second column. If nothing comes to you later, guess, as there is no penalty for a wrong answer. I would leave these for last as it doesn't take much time to take a wild guess.

4. Put all of the math questions in the third column. Math takes a different kind of logic than the other questions and it takes too much time for your brain to adjust. Answer all the math questions at the same time. You might want to do these second so you don't run out of time.

For those of you who have taken the test and did not pass: Now that you've taken the test once, you know how serious you need to be about preparing, so you should do just fine next time.

Anyway, good luck. I hope your studying goes well. Email me if you didn't understand any of the above advice or if you have any more questions?

bill@appraisalace.net

My crystal ball is a little cloudy right now, but I would agree with many observers who say we are at some kind of a "bottom" currently. I have even seen a few instances where prices in a neighborhood are rising slightly, most likely those neighborhoods where inventory is low and multiple offers are common. Getting those properties to appraise at the contract price is the problem as comparable sales trail the market.

However, we still have some distance to go. There are anywhere from 50,000 to 200,000 (depending on who you believe) homes in California still out there as hidden inventory, REOs that the banks have not released. Plus there is the current moratorium on foreclosures that will have to end someday and that will be more added homes that have to be resold. And into next year and the year after, there are a bunch of Option Arms that are due to reset in 2010 & 2011. I believe most of those will end up in foreclosure too.

So, while I think the bottom may be close as the housing affordability index increases, there is the unemployment situation that is affecting home sales too. People who are not working do not buy homes. And people who are afraid they may lose their jobs do not buy homes either.

So, what has to happen? All the hidden and potential inventory has to be revealed and absorbed over the next couple of years. And unemployment numbers have to go down. Plus the overall economy has to continue to recover.

Best guess, 2012 before the market really bounces back. 5-7 year cycles in real estate, if I remember my economics classes correctly.

The Agreement

In the beginning was the Agreement. And then came the HVCC.

And the HVCC was without form. And the Agreement was without substance.

And darkness was upon the face of the Appraisers. And they spoke among themselves, saying "It is a crock of shit and it stinketh."

And the Appraisers went unto their Brokers and said, "It is a pail of dung and none may abide the odor thereof."

And the Brokers went unto their Investors, saying, "It is a container of excrement and it is very strong, such that none may abide by it."

And the Investors went unto their Legislators, saying, "It is a vessel of fertilizer and none may abide its strength."

And the Legislators spoke amongst themselves, saying one to another, "It contains that which aids plant growth and it is very strong."

And the Legislators went unto the Vice President, saying, "It promotes growth and it is very powerful."

And the Vice-President went unto the President, saying, “This new Agreement will actively promote the growth and vigor of the country with powerful effects."

And the President looked upon the Agreement and saw that it was good.

And the Agreement became Policy.

This is how Shit Happens.

I will be interviewed on Scott Saitman's Reverse Mortgage Radio show on AM 1410 in the Sacramento Area tomorrow night at 5 PM, repeated on Sunday at the same time, unless prempted by an A's game. We are going to be talking about Reverse Mortage appraisals and some issues facing the market and appraisers right now. Tune in if you want to gain some insight.

Website is : TheReverseMortgageRadioShow.com

Former Countrywide execs form PennyMac to sell whole loans

By Riley McDermid

NEW YORK (MarketWatch) -- A group of former executives from troubled lender Countrywide Financial Corp.are forming a new firm to capitalize on the fallout in the mortgage-securitization business, the newly-formed company announced Monday. Former Countrywide President Stanford Kurland and other high-ranking colleagues are forming Private National Mortgage Acceptance Co., or PennyMac, to purchase distressed whole loans, revamp them and then sell them at a profit. PennyMac will partner with private equity firm BlackRock Inc and Highfields Capital Management on the deal.

PennyMac is unique in that it will revert to old-fashioned buying of one loan at a time, as opposed to purchasing huge blocks of bundles mortgage securities, and will then work with borrowers to restructure the loan to become profitable again.