Residential Appraisal Tips

Generally speaking, an appraisal is an unbiased estimate of market value.  Determining an exact value, however, is very scientific and an appraiser has many specific guidelines to follow including the following:

• A general rule of thumb is that the comparables used for an appraisal should have sold within the last six months and be within one mile of the subject property.
• An appraiser is required to use two comparables that have sold within the last 90 days and at least two properties that have not yet sold but are active or pending listings.
• An appraiser is not to use foreclosures or short sales as “comps” unless they are the only comparables available.
• Appraisers are able to be more lenient than ever regarding repair items, however, if the home has an issue that affects safety, the appraiser must require the repair.  The rule here is the home must be safe, sound, and habitable.

 Another appraisal issue that needs to be on your radar screen is renovations.  It is more important than ever to inform the appraiser of all subject property renovations and when they were done.  Sending over photo’s takes it to another level and is super helpful to the appraiser.

 Also, more and more consumers are accessing Zillow for property information.  Be aware that this system relies on tax assssor data only and, thus, is rarely accurate.  A quick search of comps in the neighborhood will always lead to a more reliable estimate of value. 

These are a few good tips to follow to make the appraisal process as smooth as possible!

Major Appraisal Changes Coming, Again

It seems like an annual tradition at this point, but brace yourself as major appraisal changes are headed to the mortgage industry again.  The Uniform Appraisal Dataset (UAD) is a set of new reporting requirements that will be going into effect on September 1st for all single-family mortgage loans delivered to Fannie Mae and Freddie Mac, so this affects all Conventional loans.  The word on the street is that FHA plans to follow suit shortly after this goes into effect, so it appears these changes will apply to all loan types moving forward except VA.  The stated goal of the changes is to make sure that appraisals are conducted and communicated consistently, accurately, and effectively.  The reality is that these changes are going to greatly impact the flow of business at seemingly just the wrong time as appraisers and lenders are already terribly busy right now as the super low rates have created a surge in refinances.  The significant appraisal changes will include the following:

• New appraisal forms
• New appraisal methodology, terminology,  and coding (more details on this in the last paragraph below)
• Stricter compliance requirements due to increased government regulation
• Appraisers will be required to do more research, especially as it relates to improvements made to the property (a description including the condition and quality of all improvements to a home and its basements must now be included in each appraisal)

Without question, these changes are going to be very demanding on both appraisers and lenders.  The newness of the UAD requirements as well as the need for additional information is going to make for a messy transition.  It is going to take longer for appraisers to do appraisals and for lenders to review them.  At Fairfield, our expected appraisal turnaround time is being extended from one week to two, at least in the short run.  Be aware that most lenders’ turnaround time is longer than a week, so I would be shocked if you don’t see some really long delays due to these changes.  Of course, these appraisal delays will naturally trickle down to realtors and buyers as well and are certain to cause approval and closing delays.

Also worth noting, even more restrictive measures are headed our way before the end of the year.  Fannie Mae and Freddie Mac are working on additional Quality Control measures that will require lenders to electronically send appraisals to Fannie/Freddie prior to closing for the comparables used to be tested to see if they are indeed the closest and most recent comps available.  This process is expected to add two more days to the process and, more importantly, may lead to 11th hour approval problems.  More on this at a later date.

The impact of this week’s changes is that the realtor job will become more important than ever.  Your expertise and timely information will make the difference in a smooth transaction.  With this in mind, I have come up with the following six actions points that all realtors should strive to do for all listings and transactions:

1.        Get the contract to the lender as soon as you possibly can.

2.        Follow up and make sure the lender gets the appraisal ordered right away.

3.        Notify the appraiser of all home renovation details that do not show up in MLS/FLMS and the year the renovations were completed.

4.        Send the appraiser photo’s of the renovations notated if possible.

5.        Make sure all of your listings in MLS / FLMS have correct renovation information listed

6.   Cooperate with appraisers who call you for help as quickly and thoroughly as you are able

To emphasize the importance of these actions points, consider this quote from one of our approved appraisers:

“Most of the time, we do not have the luxury of meeting up with the seller during the appraisal inspection, therefore, it is critical that we get all home renovation information from the listing agent when we call to set up the appointment.  It would be even better if the information in MLS / FMLS was accurate preventing us from having to track anyone down.  This would certainly save everyone time!  The more specific the information, the better, too.  We also have to verify the extent of the renovations and the year in which they were done.  Even though we do not have to report the year of renovation for the comparables, it is so helpful if this information is correct in MLS / FLMS as it enables us to adequately compare the subject property with the comparables.”

Lastly, below is a sampling of some of the actual changes in the appraisal report moving forward:

• The # of days on the market now has to be listed in the appraisal for the subject property as well as all comparables and is defined as the total number of days a home has been listed (short-term gaps that home is off the market have to be ignored)
• The history of all prices changes must now be reported
• For the first time, the appraiser will have to notate a sale as one of the following: REO, Short-sale, Court-ordered, Estate, Relo, Non-arms length, or Arms length
• Old descriptions such as 1 story or 2 story home are replaced with appropriate architectural designs such as Ranch, Colonial, and Traditional
• The condition of the home and comparables must be rated on a scale from C1 to C6
• The quality of the construction of the home must be rated on a scale from Q1 to Q6
• The remodeling of the home must be categorized as “Not Updated,” “Updated,” or “Remodeled” with specifics and time-frames of work done given
• More specific finished v. unfinished basement info must be reported

 I hope you find this overview helpful and educational and please contact me if you have any questions…..

Maximum Loan Limits in Metro-Atlanta

Here are the maximum loan amounts in metro-Atlanta for Conventional, FHA, and VA loans.

Conventional (Fannie Mae / Freddie Mac)

1-Unit:         $417,000

2-Unit:        $533,850

3-Unit:        $645,300

4-Unit:        $801,950

* These limits are unchanged since 2006

FHA

1-Unit:         $346,250

2-Unit:        $443,250

3-Unit:        $535,800

4-Unit:        $665,850

* FHA Up-Front Mortgage Insurance can be financed over and above these maximum loan amounts

VA

All Units: $417,000

* VA funding fee can be financed but must be included in the maximum loan amount

* For loan amounts between $417k and $1M., borrower required to put 25% down of the amount over $417k

Gifts Can Now Be Used for All of Required Down Payment on Conventional Loans!

At the beginning of this year, Fannie Mae and Freddie Mac announced that moving forward, all funds on a Conventional loan can come from a gift even if the borrower puts less than 20% down!  This was an amazing announcement considering in the past on a Conventional loan the borrower has always had to come up with at least 5% down from their own savings unless the borrower put 20% or more down.  Although Fannie and Freddie have been willing to implement this policy, it has not been something anyone could actually utilize because the PMI companies have not gone along with it, that is until now.

In early March (2011), one of the leading PMI companies, MGIC, announced that effective Feb 21, gifts and grants can be considered as the borrower’s own funds for purposes of meeting the 5% Minimum Borrower Contribution as long as the borrower’s credit score is 740 or higher, the debt ratio is 41% or lower, and the property is located in a Nonrestricted Market.  This is super news except for the fact that Atlanta is still defined as a Restricted Market right now by MGIC due to continued declining values.  With this said, it is only a matter of time until Atlanta moves off of MGIC’s Nonrestricted Market list and only a matter of time until other PMI companies begin matching this policy.  Thus, this should be something we can actually utilize in Georgia in the very near future!   

Please note that gifts or grants are acceptable from a relative defined as related by blood, marriage, adoption or legal guardianship, domestic partner or fiancé/fiancée, OR a public or non-profit organization, church, or municipality, OR an employer with an established employee assistance program.

Fannie Mae Guideline Change Not As Super As It Seems

Fannie Mae recently issued a guideline change that sure seemed like fantastic news for the real estate industry.  In the past on a Conventional loan, if the borrower received a gift, the borrower still had to come up with at least 5% from their own funds unless the borrower put 20% or more down.  Fannie Mae declared that moving forward, all funds on a Conventional loan can come from a gift even if the borrower puts less than 20% down!  What seemed like super news is not so super though as the Private Mortgage Insurance (PMI) companies are not honoring this change at this time making the change, well, worthless.  A head underwriter with a leading PMI firm confirmed last week that none of the PMI companies have changed their guidelines thus far.  Hopefully, at least one of the PMI companies will choose to adopt this guideline change in the near future.  Until that happens though, FHA remains the loan of choice for a borrower receiving a gift for down payment who does not have at least 5% from his/her own savings.  Although this is not as great of news as it first seemed, what should not be missed is that THE major player in the mortgage industry (Fannie Mae) just came out with a significantly more lenient guideline and that in and of itself is good news and a step in the right direction!