The Cost Approach: To Do or Not To Do

The following is from a Liability Insurance Administrators' Claim Alert (May 2006): The growing pains of using the new Fannie Mae forms are continuing; an issue that has developed is whether appraisers should continue to complete the Cost Approach to Value, even in circumstances where it may not be reliable. The Cost Approach section is optional on the new Fannie Mae and Freddy Mac forms, while USPAP directs the appraiser to comment on all approaches to value – whether or not completed. Our national claims counsel suggests that you remind your lenders/clients about the intended use and intended user as defined in your appraisals. A particular concern is that your potential liability exposure may increase if the cost approach analysis contained in your appraisal is used for the purpose of obtaining insurance coverage or determining insurable value. An appraisal completed for a lender/client in connection with mortgage lending should not be used or relied on for insurance purposes. To address these issues and to complete the report in a manner that is not misleading, the following scenarios have been developed, with corresponding suggested language to add to your reports. 1. Appraiser believes the cost approach is applicable

The cost approach has only been developed by the appraiser as an analysis to support their opinion of the property`s market value. Use of this data, in whole or part, for other purposes is not intended by the appraiser. Nothing set forth in the appraisal should be relied upon for the purpose of determining the amount or type of insurance coverage to be placed on the subject property. The appraiser assumes no liability for and does not guarantee that any insurable value estimate inferred from this report will result in the subject property being fully insured for any loss that may be sustained. Further, the cost approach may not be a reliable indication of replacement or reproduction cost for any date other than the effective date of this appraisal due to changing costs of labor and materials and due to changing building codes and governmental regulations and requirements.

2. Cost approach required by client but appraiser does not consider it meaningful

At the request of the client, development of the cost approach has been attempted by the appraiser as an analysis to support their opinion of the property`s market value. Because there is insufficient market evidence to credibly support the (site value/ derivation of total appreciation), the cost approach is not given any consideration in the appraiser`s final analysis. Use of this data, in whole or in part, for other purposes is not intended by the appraiser. Nothing set forth in the appraisal should be relied upon for the purpose of determining the amount or type of insurance coverage to be placed on the subject property. The appraiser assumes no liability for and does not guarantee that any insurable value estimate inferred from this report will result in the subject property being fully insured for any loss that may be sustained. The appraiser recommends that an insurance professional be consulted. Further, the cost approach may not be a reliable indication of replacement or reproduction cost for any date other than the effective date of this appraisal due to changing costs of labor and materials and due to changing building codes and governmental regulations and requirements.

3. When client requires an Insurable Value Worksheet be completed by appraiser

Provision of an Insurable Value by the appraiser does not change the intended user or the intended purpose of the appraisal. The appraiser assumes no liability for the Insurable Value estimate provided and does not guarantee that any estimate or opinion will result in the subject property being fully insured for any possible loss that may be sustained. The appraiser recommends that an insurance professional be consulted. The Insurable Value estimate may not be a reliable indication of replacement or reproduction cost for any date other than the effective date of this appraisal due to changing costs of labor and materials and due to changing building codes and governmental regulations and requirements.

If your lender/client or an insurance company or agent would like to retain you to prepare an insurable value report, the company should specifically retain you for that purpose, and, of course, you should only accept such an assignment if you are comfortable preparing an insurable value report. An issue that may present itself is whether your client will reject inclusion of the above additional language in your report. Because Fannie Mae does not require the “Cost Approach to Value,” your client may not object to the language. However, if this dilemma presents itself, you may have to make a business decision to either decline the assignment or accept the additional exposure in order to maintain the client relationship. Copyright 2005. Liability Insurance Administrators. All rights reserved. Additional Resources:

• Liability Insurance Administrators Claim Alert Bulletins
• The Cost Approach - Appraiser Compliance Issues If you enjoyed this post, subscribe and get FREE updates! Appraisal , Real Estate , Appraiser , Scope of Work

The Cost Approach - Appraiser Compliance Issues

Guest Blogger, Bert Craytor, Certified Residential Appraiser http://www.PacificVistaNet.com addresses some of the issues of providing the Cost Approach to lenders, in residential appraisal reports, where it's known that the intended use is to support an estimate of insurable value: "Insurable Value" is defined by the respective insurance company and is probably outside the domain of many real estate appraisers; i.e. the typical appraiser should not be concerned with estimating "insurable value". However, insurable value is often BASED on "replacement cost" or reproduction cost". And if the client's definition of "replacement value" or, as the case may be, "reproduction cost" matches that of the appraisal profession, then the client should certainly expect a credible value from the appraiser. I think therefore, that if an appraiser loses a suit with respect to insurable value, then it is probably because his method of calculating replacement or reproduction cost according to accepted appraisal standards is faulty. In this regard, page 162 of Eaton's "Real Estate Valuation in Litigation" sheds some light on the problems involved: "Appraisers must avoid representing themselves to the trier of fact as both 'expert appraisers' and 'expert cost estimators'. In a Rhode Island case an appraiser was precluded from testifying to the cost of replacing a portion of a fence taken in an eminent domain action when the court ruled that being an expert appraiser does not necessarily qualify the appraiser as an expert fence builder." (Palazzolo v Rayhill, 394 A.2d 690, R.I. 1978)." "...If the Cost Approach is important to the appraiser's value conclusion, the appraiser is well advised to obtain a reproduction or replacement cost estimate from at least one contractor. To supplement the contractor's cost estimate, the appraiser should develop at least one other cost estimate or use one developed by a cost service. If the appraiser adopts the contractor's estimate with no other evidence, the estimate is not the opinion of the appraiser, but of the contractor. In such a circumstance, the appraiser could be excluded from testifying in regard to the cost of the improvements because the estimate is not the appraiser's opinion and therefore, hearsay evidence. ..." "The problem of hearsay can also arise if an appraiser uses a published cost service as the sole source of data. Aside from the hearsay rule, using a cost service as the sole source of data in estimating reproduction cost has been viewed with skepticism by some courts." It would certainly be advisable to give a clear definition of "replacement cost" and "reproduction cost" in the Cost Approach. Also, as part of the Scope of Work, the appraiser should make an attempt to get the client's definition of replacement/reproduction cost - if the client requests the Cost Approach. Of course, that might create some problems. Bert Craytor Certified Residential Appraiser http://www.PacificVistaNet.com Additional Resources:

• The Cost Approach and the Fannie Mae Form 1004
• Including An "Unreliable Approach" to value.
• The Cost Approach - To Do or Not To Do?

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LOCAL - B-N Twin Cities are number 50 on Forbes list

Twin Cities No. 50 on Forbes list : Pantagraph Article by Scott Miller scottmiller@pantagraph.com BLOOMINGTON -- Educational attainment boosted the Twin Cities’ ranking in a recent list of best small metros for business by Forbes magazine. Bloomington-Normal is the ninth most educated small metro in the country, according to Forbes, but slowed job growth and a higher cost of doing business pulled the cities down to No. 50 on the list of best small cities to do business. In many cases, the cost of doing business in Bloomington-Normal was higher than other Illinois towns. Property taxes, housing availability, transportation costs and other general cost-of-living factors vary throughout Illinois, said Mike Malone, executive director of the McLean County Chamber of Commerce. "Our cost of living surveys show that we run just about average," he said. A tight labor force, as well as an educated labor force, meanwhile, increases manpower costs, he added. According to the Illinois Department of Employment Security, McLean County has the third lowest unemployment rate in the state at 3.8 percent. "If you have a tight labor force, you’re cost of doing business is going to be higher," Malone said. The Twin Cities ranked No. 107 on Forbes’ list for the cost of doing business. Comparing business costs across the nation, Illinois cities are at a disadvantage as the state continues to increase business fees and taxes to plug holes in its budget, said state Rep. Dan Brady, R-Bloomington. "It’s hard to attract businesses when we’ve got a history and a reputation of taxing businesses harder than other states. That’s got to change," Brady said. "Just look at the states around us. They’re doing a better job of retaining jobs and attracting new jobs than we are. "According to Forbes, Bloomington-Normal ranked No. 128 in job growth. According to figures from the Illinois Department of Employment Security, small businesses in McLean County have expanded. More lawyers, architects and other professional services employees work here, for example. The service sector is also growing, according to the IDES. But much of Bloomington-Normal’s past job growth is attributable to the booming 1990s at State Farm Insurance Cos, which has since slowed growth. Meanwhile, McLean County has lost manufacturing jobs, according to the IDES. Still, No. 50 on Forbes’ list of top small metros to do business is a good place to be, Malone said."We have a strong quality of life, a good infrastructure that connects us to major markets (like Chicago and St. Louis) and a good labor-management relationship that you don’t find in other places," Malone said. "Those things make Bloomington-Normal an attractive place for business." If you enjoyed this post, subscribe and get FREE updates! Appraisal , Real Estate , Bloomington , McLean , Illinois

LOCAL - Medici Restaurant Planned For Downtown Normal, IL

Work to begin on Normal restaurant in July - Pantagraph article by By Mary Ann Ford: NORMAL -- Work is expected to begin on the 250-seat Medici restaurant planned in downtown Normal by July 1. Co-owner Hans Morsbach, who also owns the popular Medici on 57th St. in Chicago, said the 20,000-square-foot restaurant and accompanying bakery should be open by spring 2007. The restaurant will be built on the former site of Other Ports, 120 W. North St. Other Ports owner Bob Steinman is a partner in the Medici project. The bakery will be next door in the former Village Realty building at 122 W. North St., purchased by Morsbach and Steinman late last year. John Meek, president of general contractors Felmley Dickerson, said the restaurant will bring design concepts residents haven’t seen in the Twin Cities before. "We are doing things that are probably unusual and hopefully exciting," said designer Josh Behr of Behr Design Studio in Chicago and Louisville, Ky. "It will be a special place in town. The inside it will be eclectic, funky, yet sophisticated." Trees will play a major role in the 2 1/2-story restaurant and come from Morsbach’s tree farm in Wisconsin. Behr said Amish workers at the tree farm’s accompanying workshop will create all the wood pieces. "There will be dozens of tables and everyone will be different," he said. The tabletops will include the round end cuts from a variety of trees including hickory, walnut, cherry and oak. A large bar on the first floor will be created from large slabs of wood from the Wisconsin trees. "I believe in the end, it will be a bar that no one has ever seen before," said Behr. Slick lighting created by Ben Spicer, a former lighting designer for Oprah Winfrey, will complement the rough wood. "It will be very high tech and unusual lighting," Behr said. There will be two dining rooms on the first floor — one at the front of the restaurant facing North Street and the other in the atrium. The menu will mirror the Chicago restaurant and include pizza, hamburgers, fish, steak, beef stroganoff and quesadillas. A "grand staircase" under a large curved steel beam will take customers to the second story. The staircase will split two ways at the top — one set going to a dining area at the back, the second to a terrace at the front of the building. Behr said the large terrace will have a hydroponic garden, growing plants without soil, a grill and a second bar that straddles the inside and outside. "There will be one to two dozen beers on tap," Behr said. Morsbach’s son, Paul, who also is a partner in the project, brews beer. The other dining room upstairs will include a projection screen that could be used for conferences or perhaps a restaurant-sponsored Super Bowl party, he said. The upstairs area also could be rented out for parties or even a wedding reception. "We’ve built in a tremendous amount of flexibility," Behr said.But the inside isn’t the only place receiving attention. Behr said the front of the restaurant will be "as honest a reproduction of the original 1900 façade" as it can be. The accompanying bakery building façade also will be returned to its original look. Work to begin on Normal restaurant in July By Mary Ann Ford mailto:Fordmford@pantagraph.com If you enjoyed this post, subscribe and get FREE updates! Appraisal , Bloomington , McLean , Illinois

LOCAL - Cedar Ridge Subdivision, Bloomington, IL

Saturday, May 27, 2006 - Developer reserves land for school, park - Pantagraph article by Michele Steinbachermsteinbacher@pantagraph.com NORMAL -- Unit 5 has accepted a Bloomington developer’s proposal to set aside 18 acres for a possible school and park. The agreement sets aside 10 acres for a school in the proposed Cedar Ridge subdivision in southwest Bloomington. An additional 8 acres, adjacent to the school area, would be reserved as a city park. “This agreement gives the option, but not the obligation,” to build a school at the site, said Scott Lay, school board president. Although the town of Normal has an ordinance requiring developers to set aside land for future schools, Bloomington does not. The McLean County Regional Planning Commission OK’d a preliminary plan Wednesday for the subdivision to be located east of Brigham Elementary School on the opposite side of U.S. 51. The subdivision plan must be approved by the Bloomington City Council. If Unit 5 decides to pursue the idea of building a school at the Cedar Ridge site, a referendum would need to pass, said Lay. Under to the agreement approved Wednesday by the school board, the developer, Snyder Corp., could cancel the agreement if a referendum doesn’t pass by July 1, 2008. Earlier this year, Unit 5 set up a similar agreement with developers of the Grove at Kickapoo Creek subdivision. In a separate matter, the school board also authorized the final paperwork for a 1.1-acre land swap proposed about a year ago. The land trade, near Prairieland Elementary School on Raab Road, was proposed to square up land parcels, said Lay. It involves Unit 5, the town of Normal and Twin City developers Jim Shirk and Bill Johnston. The pieces of land were on a small sliver of parkland owned by Normal and used by Prairieland students and another piece in Johnston and Shirk’s development Wintergreen East. Saturday, May 27, 2006 - Developer reserves land for school, park - Pantagraph article by Michele Steinbacher msteinbacher@pantagraph.com If you enjoyed this post, subscribe and get FREE updates! Appraisal , Real Estate , Bloomington , McLean , Illinois

LOCAL - New extended-stay hotel planned for Normal, IL

New extended-stay hotel planned - Pantagraph Article by Mary Ann Ford NORMAL — Workers in the Twin Cities for a few weeks, a month or even a year will have another housing option by next spring. Ehrhardt Hospitality of Hannibal, Mo., expects to start building a four-story, 110-unit Candlewood Suites at 203 Susan Drive this week. The property is on the northwest corner of land behind the strip mall that is home to Borders Books, Dick’s Sporting Goods and World Market. Franchise owner Spike Ehrhardt said construction should be completed by March."It’s designed for the business traveler who needs (housing) for a week, a month or anything under a year," Ehrhardt said. He said his company was attracted to the Twin Cities because so many companies, including State Farm Insurance Cos., Mitsubishi Motors North America and local hospitals, bring in workers for less than a year. Candlewood, a division of InterContinental Hotels, offers discounts for stays over three days, he said. The longer the stay, the bigger the discount. Ehrhardt said each of the 500-square-foot suites includes a kitchenette with appliances and dishes, a living room and a bedroom. The extended-stay hotel also has a convenience store called the Cupboard, which sells a variety of grocery items. "You can get a Coke for 25 cents," Ehrhardt said. "All items are reasonably priced." The hotel also will have an exercise room, a meeting room and a business center, he said. Ehrhardt said Candlewood Suites is a fairly new product of InterContinental Hotels, which has seven brands including InterContinental Hotels and Resorts, Holiday Inn, Holiday Inn Express, Crowne Plaza, Indigo and Staybridge Suites. Ehrhardt Hospitality, which includes Ehrhardt’s son, Scott, and son-in-law, Kevin Wiley, has built four Candlewood Suites in Missouri and Oklahoma.The hotel offers a priority club that gives rewards for frequent hotel guests, Ehrhardt said. He expects to hire about 15 workers, eight full-time and seven part-time. New extended-stay hotel planned - Pantagraph Article by Mary Ann Ford mford@pantagraph.com If you enjoyed this post, subscribe and get FREE updates! Appraisal , Real Estate , Bloomington , McLean , Illinois

Appraisers Make Mistakes - Soapbox Appraisal Blog

Jonathan J. Miller of the Soapbox appraisal blog has also seen the recent Realtor Magazine Online article Oh No! It's Low! I love this comment from his post:

"A wise appraiser once told me: Everyone in the sales transaction is smarter than the appraiser because they already know the number. The real estate listing broker and selling broker, the mortgage broker, the lender and of course the buyer and seller all know the number. The appraiser is the last one to the party."

For the complete Soapbox post - click here. If you enjoyed this post, subscribe and get FREE updates! Appraisal , Real Estate , Appraiser , Realtor

Oh no! It’s low! - What To Do When The Appraisal Is "Short"

You’ve done everything right. You found your clients the perfect home. True, the property is at the high end of their price range. True, they offered almost full list price after having already lost out on two other homes. Now all your clients need is the mortgage, and the deal is done. But when the appraisal comes in, the valuation is low. What can you do legally and ethically to resolve the situation and not just watch your clients’ perfect home go to someone else? Francois K. Gregoire's article published in the June issue of Realtor Magazine Online : Oh no! It’s low! has some suggestions: You never want to demand or coerce an appraiser to revise the appraisal. There must be a reason for the appraiser to reconsider an opinion of value other than “This is what we need to get the deal through.” However, there are ways to approach a low-appraisal situation that are both legal and likely to produce results. Focus on the facts. Facts, not emotion, will pique an appraiser’s interest. If you have data not available to the appraiser through standard sources, such as the MLS or county tax rolls, you may be able to grab the appraiser’s attention and possibly affect a revision in the appraiser’s opinions or conclusions. Have the details ready. If there are issues you want to bring to an appraiser’s attention, they must be supported by facts, not anecdotes or rumors. An unsupported statement such as “prices have appreciated by 10 percent in this area over the past 60 days” isn’t likely to get an appraiser’s attention. . Present real comparables to support your arguments. Recent sales similar to the property under contract, that appeal to the same market segment, and that are in the same or a similar location are comparables. Other properties are merely sales. Also remember that an appraiser is required to make adjustments to a comp’s price based on differences with the subject property. Adjustments can occur because of changes in market demand, physical differences in properties, or a location’s desirability. You can assist the appraiser by providing all details about the sale and about comps that closely match the property. Remember who the appraiser is working for. An appraiser’s responsibility is to the lender—not to the borrower, the seller, the listing agent, or the selling agent. If your client has an issue with an appraisal, contact the appraiser’s client (the bank) to see if that client will authorize the appraiser to discuss aspects of the assignment. Continuous calls to the appraiser issuing overt or covert threats won’t advance your cause.

"Appraisers aren’t perfect, but they have everything to gain by being thorough, accurate, and honest. Encouraging an appraiser to engage in illegal activity in this era of widespread mortgage fraud could lead to a sanction against you and even to criminal prosecution for you and the appraiser. No transaction is worth that."

Gregoire, RAA, is president of Gregoire & Gregoire Inc. in St. Petersburg, Fla. He’s a past chair of the NATIONAL ASSOCIATION OF REALTORS® Appraisal Committee and chairman of the Florida Real Estate Appraisal Board. You can reach him at francois1@tampabay.rr.com The full article was published in Realtor Magazine Online on: 06/01/2006 by Francois K. Gregoire Oh no! It’s low! If you enjoyed this post, subscribe and get FREE updates! Appraisal , Real Estate , Appraiser , Realtor

California Breaks Record For Number of Licensed Appraisers

RISMEDIA, May 31, 2006—The California Office of Real Estate Appraisers (OREA), the state department that issues licenses to California's Real Estate Appraisers, now licenses more appraisers than ever before.

"OREA is committed to ensuring that only qualified individuals are licensed to appraise real estate," OREA Acting Director Tony Majewski said. "It is critical that lenders and consumers have confidence that licensed appraisers are qualified and professional, complying with the strict standards of the industry."

Currently, there are nearly 20,000 licensed and certified real estate appraisers in the state. In 2005, the number of appraiser licensees rose to a record of more than 17,800. This year, the trend continues with the number of licensees climbing to 19,675 as of May 2006. OREA processed more than 5,000 applications for new licenses in FY 2004-05 within 90 days to meet the needs of the real estate industry during the recent U.S. housing boom. With an increased number of licensed and qualified appraisers, mortgage lenders and brokers have a broader selection of professionals to add to their list of approved appraisers in their market areas. For more information about the Office of Real Estate Appraisers and its programs visit www.orea.ca.gov. Click here for the complete RISMedia story! If you enjoyed this post, subscribe and get FREE updates! Appraisal , Real Estate , Appraiser

Tell Illinois Governor Blagojevich to sign Eminent Domain Act!

IAR thanks you for your key support in getting the eminent domain reform legislation to the Governor's desk. Now in the final stage to ensure enactment of this landmark legislation to strengthen private property rights in Illinois, please send an e-mail to the Governor urging his approval of SB 3086. Get the latest legislative news of interest to REALTORS in Quorum Call. If you enjoyed this post, subscribe and get FREE updates! Real Estate , Appraiser , Bloomington , McLean , Illinois , Realtor

Appraisers In The Funny Papers? On TV? Why Not!

At Gaxed.com, you can put your message on almost anything – snow, the sky, or a building. Images were provided under a Creative Commons license, and they're passing them on as such: feel free to share them. You can click the graphic below to see the full screen version.

Real Estate Market Crashed?

According to Gaxed, it was created in 2006 "'cause I'm having lots of fun with generators." You can email me with your feedback or visit my blog. If you enjoyed this post, subscribe and get FREE updates! Appraisal , Real Estate , Appraiser , Blog

Technology - Six Leading Anti-Virus Programs Reviewed

Peter Butler, Senior Editor, CNET Download.com says, "Intrusive and aggressive spyware might be the most dangerous enemy you'll have to face on your personal PC (for now), but viruses are often the peskiest. See Jessica's blog post about World Cup worms for a current example. " Additionally, though spyware and adware have spawned a booming freeware community that offers powerful and free tools for eradicating malware, most of the quality virus protection comes with a price tag. To help you make some sense of the current batch of antivirus tools, CNET has assembled their antivirus product reviews for six of the leading antivirus programs in an easy-to-compare format. Learn which of the contenders scored the highest review and what differentiates one from another. If you enjoyed this post, subscribe and get FREE updates! Technology

House Reforms Would Revitalize the FHA

The House Financial Services Committee on May 24 approved sweeping measures that would revitalize and reform the Federal Housing Administration's single-family mortgage insurance programs. H.R. 5121, the Expanding American Homeownership Act of 2006, includes several provisions supported by NAHB. The bill, which will be sent before the full House for further consideration, would:

• Increase the limit for FHA-insured mortgages in high-cost areas
• Grant the FHA flexibility to establish zero or reduced downpayment requirements for its single-family programs
• Allow the FHA to establish a risk-based mortgage insurance premium pricing structure
• Permit the FHA to extend the maximum loan maturity to 40 years
• Authorize FHA to insure all of its single-family loan programs under the Mutual Mortgage Insurance Fund, which would clear the way for FHA to streamline the condo project approval requirements

NAHB Executive Vice President and CEO Jerry Howard testified in support of H.R. 5121 before the House Financial Services Committee’s Housing and Community Opportunity Subcommittee in early April.

He noted that these provisions would give the FHA a greater ability to respond to the needs of borrowers and enable more working families to become home owners. To read Howard's full testimony, click here. (Document is in PDF format.)

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Market Action Slips Away From Coasts

Based on a statistical analysis of housing price cycles in 100 major metropolitan areas, Christopher Cagan, director of research and analytics for First American Real Estate Solutions in Santa Ana, Calif., concludes that . . .

" . . .significant real estate investment opportunities during the balance of the decade will be found in local markets where home prices typically plod along from year to year and where job growth is favorable and housing prices are moderate. "

Conditions for above-average price increases and home building will be particularly favorable in Texas, Colorado and the energy belt areas of the Southwest, he believes. Cagan says that Texas is the real beneficiary of the energy crunch. In addition, major heartland markets are nowhere near their home price growth limits and that, along with an attractive qualify of life, could spur population movements to them. For cyclical housing markets — including most of California from the San Francisco Bay area south, much of Florida, the Washington area, Baltimore, New York and much of New England — boom times have burned themselves out by pushing housing prices to unaffordable levels. (www.washingtonpost.com) Washington Post (5/27/06); Kenneth R. Harney If you enjoyed this post, subscribe and get FREE updates! Appraisal , Real Estate , Appraiser ,Marketing , Realtor

Everybody Wants a Whirlpool Tub, But Nobody Uses It

While 62% of home owners polled by NAHB say they want whirlpool tubs, less than 6% say they actually use them. A linen closet is the most preferred amenity in the bathroom, identified by 91% of those responding to the survey, followed by an exhaust fan (88%) and a separate shower enclosure (78%). NAHB researchers were surprised to see that 76% of respondents listed water temperature controls among their top-five favorite bathroom features. Sixty-three percent of those polled indicated that high-quality products and amenities were more important than space, and 57% prefer these products to be included in the base price of the home rather than as extra-cost options. Over the next five years, NAHB researchers predict growing popularity for low-maintenance, natural materials; synthetic stucco; energy efficiency; and external security. Inside the home, open space, quality features, technology and special-purpose rooms are on the upswing. (www.ntxe-news.com) If you enjoyed this post, subscribe and get FREE updates! Appraisal , Real Estate , Appraiser

April Illinois Home Sales Ease Off Record Pace.

April Illinois home sales ease off record pace. Total homes sales (single-family and condos) were down 8.4 percent to 14,569 homes sold in Illinois, compared to the previous record for the month of 15,897 homes sold in April 2005. Statewide median price is $203,500. Read IAR's full report in Market Stats. April sales are down 7.17 percent nationwide, according to the NAR release. If you enjoyed this post, subscribe and get FREE updates! Appraisal ,Real Estate , Appraiser , Bloomington , McLean , Marketing , Illinois , Realtor

Can you check comps for me? I want to know if I should order an appraisal!

"Can you check comps for me? I want to know if I should order an appraisal!" That's a common question that is asked of appraisers every day. Lenders and borrowers don't want to waste their time and money on loans that won't "Appraise Out". The Appraisal Foundation, in its May 2006 Q&A Newsletter, has addressed this nagging issue of Appraisers “Providing Comps” to clients and what constitutes an appraisal. Question: I have a client that just wants me to “provide comps” from a neighborhood. Are there any USPAP requirements I must comply with to perform this task? Response: To answer this question, it is important to identify exactly what the appraiser is being asked to do. If the appraiser is asked to “provide comps,” that would typically mean the appraiser would be exercising his or her own judgment to determine which sales are most “comparable” to the subject property. The appraiser may choose to include only those sales that he or she deems are most similar to the subject in size, location, quality, etc., which could mean that certain sales may be omitted. In this case, the resulting data would have been “filtered” by the appraiser’s judgment, which would have the net effect of providing a range of value to the client. This range of value is defined as an appraisal under USPAP; therefore, the appraiser would be obligated to comply with STANDARDS 1 and 2. This should be contrasted to a request for an appraiser to simply provide data. For example, an appraiser asked by a client to provide “sales data of all homes located within a one mile radius” of a specific address could comply with the client’s request without complying with STANDARDS 1 and 2, as the appraiser would just be providing sales data pursuant to the client’s defined parameters. In this example, the appraiser must be careful not to communicate any opinions or conclusions regarding the data provided. For related guidance on this topic, please refer to Advisory Opinion 19, Unacceptable Assignment Conditions in Real Property Appraisal Assignments and Illustration #4 “Appraisal and Market Information” in Advisory Opinion 21, USPAP Compliance. If you enjoyed this post, subscribe and get FREE updates! Appraisal , Real Estate , Appraiser , USPAP , Regulation

The Four-Day Week Challenge - Work Smart, Not Long!

Thanks to Brooke Long at Cataluna for the tip on a great article from A List Apart called The Four-Day Week Challenge by Ryan Carson The problem, according to Ryan is: "If you’re like most people, you’ve got too much to do and not enough time to do it. The e-mail inbox is always overflowing and the list of to-dos never ends. You always feel that twinge of guilt because you’re never spending quite enough time on what you should be. What’s even more frustrating is that the more you work, the more it seems there is to do. Argh!" The article discusses the issues and solutions for both employed and self-employed folks. I'm betting that a LOT of real estate professionals will recognize themselves as they read the full article: - Click here. Here are some tips to help you out

1. Avoid using instant messaging: It’s a constant source of distraction.
2. Only check your e-mail twice a day: The surest way to waste time is the ol’ Send and Receive button.
3. Stick to what matters: Take care of the most important stuff first. Don’t waste time on low-priority stuff. (In fact, delete the low priority stuff from your to-do list. It’s not going to get done anyway!).
4. Ask for alone time: If you need uninterrupted time to get something done, politely notify your co-workers that you’ll be unavailable for a couple of hours.
5. Limit blog-reading time: Set a time limit on your blog reading. If you don’t get through all your blogs in that amount of time, hit the trusty “Mark All As Read” button and move on.
6. Make lists: Write a “to do” list for each day (on paper if you can bear to tear yourself away from Outlook). Put the time-sensitive stuff at the top and be realistic.
7. Choose three time-intensive things to do and five quick things to do. Make sure you finish all of them before you leave in the evening.
8. Restrict meetings: If you can, restrict the amount of meetings you call, or are involved in. Meetings drag on and can eat into your day. Instead aim for one or two meetings per week and plan them carefully to ensure you cover all important topics and keep on track.

Other resources: If you want some great ideas about maximizing your effectiveness and time management, I’d definitely recommend checking out the following:

• Getting Things Done by David Allen
• How to Shut Up and Get to Work! by Jason Fried
• Lifehacker
• Ta-Da Lists

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Why Isn't My House Selling For What It's Appraised For?

Ilyce R. Glink of Inman News recently tackled a seller's question regarding the differences between appraised and market values. Click here for full article.

Q: I tried to sell a house for the appraised price and was unable to sell at that price. I understand that property will not sell when it is priced too high but the offers I received were $5,000 to $8,000 less than the appraisal. I was under the impression that if I advertised the property for the appraised price, it would move quickly. I told one real estate agent when she made me an offer from a client that I was going to have the house appraised again and that I would provide the appraised price to the potential buyer so he could adjust his bid. The agent didn't go for that at all. Can you give me some suggestions as to what I did wrong? When I couldn't sell the house, I finally rented it.

Ms. Glick responded: "I think you made a few basic mistakes. First, the appraised value is not necessarily the same thing as the market value. The appraised value of the home is what an appraiser thinks the home is worth based on the sales of other similar homes in the area. The market value is what someone will actually pay for the house. " It's true that an appraised value may not be the same thing as market value, but not for the reason that Ms. Glick implies above. There are different types of appraisals, such as a "quick sale value," "as-is condition," "future renovated valuation," "employee relocation," and many others. Ms. Glick says: "The market value is what someone will actually pay for the house." If she is correct , when a buyer under-pays or over-pays for a house, that must be market value? I don't think so! Price may not equate to Value. An everyday example of this is shopping for Levi's online, or a discount store, or a department store (market). The price for the identical product may vary from $12.00 to $20.00 but the value of the jeans will remain the same. If there were "Levi Appraisers" they would report the most probable value that a knowledgeable buyer would be willing to pay. Ms. Glick concludes: "In your case, either because of the condition or location of the home, the market is telling you that your home isn't worth what the appraiser thinks it should be worth--it's worth $5,000 to $8,000 less. Getting a new appraisal doesn't change what someone will pay for the home. You'd be better off buying some cans of white paint and repainting the interior of the property. Then, you might get more money for it." The author has jumped to the conclusion that the appraiser has "over-valued" the property because he or she did not correctly adjust for adverse condition or location factors. While that is possible, there's no evidence to support that conclusion. What are some reasons a property may not sell for the appraised value?

• The Intended Use of the appraisal has changed. It's possible that the owner is using an appraisal optained for a cash-out refinance. NOW she wants to use for as a pre-listing guide. There is almost always a range of reasonable values for any property. The upper-end of the value range may have been appropriate of the original use (refinance) but it may not be appropriate to then use it to support a negotiated sale price.
• The market has changed. Have interest rates gone up? Seasonal demand changed? Appraisals are a snapshot in time.
• Inadequate marketing efforts or unrealistic marketing timeframe. Appraisals assume that the property will be exposed to the open market for a reasonable period of time. If the seller was expecting a "quick turn", and the appraiser was unaware of of this, they may not have properly discounted the prevailing market values.
• Value Point vs Range of Value. In lending work its SOP (Standard Operating Procedure) to reconcile the indicated market value range to a single "value point". For pre-listing assignments I feel that it is more appropriate to express the market value as a "range of value". Real Estate Appraisers are about the only class of appraisers where a point value is expected. In fact, there is NO single market value point for a given property. Don't believe me? Put your property up for sale and see how many different opinions you'll get from appraisers, sales agents, family members, friends, and potential buyers. Then run an Internet on-line home value (AVM) product.
• Opinion or Fact? An appraisal, simply stated, is an opinion of value supported by adjusted market sales. As mentioned above, there is no "single" market value. Professional appraisers strive for a 5% margin of error when comparing appraised values and ultimate sales prices. If a home is appraised for $100,000 and utimately sells for $95,000 to $105,000 ($10,000 spread) the appraiser has met industry standards and outperformed the best of the online valuation products.

Original Article: "Seller learns difference between appraised and market value" - Thursday, May 25, 2006 By Ilyce R. Glink

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Getting The "Best" Real Estate Appraisal

According to Bob Bruss' article "How to get the best appraisal for your house or condo" Here’s a summary of what Mr. Bruss thinks will make sure that you get an accurate appraisal of a residential property.

• Put the home in model home condition before the appraiser arrives.
• Hand the appraiser a list of the home’s special features, especially those that add market value. Also, provide the appraiser with suitable comparable properties.
• Always accompany the appraiser to facilitate the inspection and answer the appraiser’s questions. Don’t hesitate to point out special features.
• Insist that the lender provide the borrower with an appraisal copy, although technically the appraisal belongs to the mortgage lender who hired the appraiser.
• If the appraisal comes in low, promptly request a review appraisal by another appraiser (to be paid for by the lender).

On the face of things, his suggestions might seem to make sense? AND, in fact I can actually agree with most of what he said above (topic headers). My issues are with his "explanations" of why those are important. As a form of rebuttal, I'd like to address some "quotes" from his article. Mr. Bruss starts off his article with an explanation of "What Is An Appraisal"? His brief explanation of a "market value" appraisal left me more confused than enlighted. A more complete (and accurate) description of what a market value appraisal is can be found in the Wikipedia section: Market Value definitions in the US.

Although computers have changed real estate appraisals, there is no substitute for the experience of a realty appraiser to interpret the recent sales prices of comparable nearby houses and condos, which determine the market value of a specific home.

But having said that, Mr. Bruss goes on to imply that AVMs are the "scientific" way of valuing homes and that appraisers are necessary to "verify facts". Apparently he hasn't read the recent study by MSNBC that said: " . . . even the BEST of the online AVMs only had a 50% chance of being within 5% of the likely sales price. So traditional appraisals may not meet Mr. Bruss' definition of "scientific", but isn't "accurate" more important? I agree with Bob when he suggests that homeowners get their property in good shape prior to the arrival of the appraiser. "Clean Sells!" But getting the property into "Open House" condition is not mission critical to obtaining an accurate valuation.

Real estate appraisers see hundreds of homes each year and are experienced at looking at the "real estate" that is their job to appraise. Still, poor housekeeping can be an indication of sloppy maintenance and puts the appraiser on the alert. I have to chuckle when Mr. Bruss suggests that appraisers "can't possibly remember each home's special features" if they see 2 or 3 properties a day! He thinks we'll do a better job if we have a sales agent or the homeowner yakking our ears off while we're WORKING!! Doesn't everyone work better that way? Hey Bob! Watch an appraiser while they're at work sometime. Armed with laser measuring devices, digital camera, PDAs and UMPCs, and wireless Internet connections, appraisers have a wide variety of tools in the field to take notes and "memory jog" photos. Many technologically advanced appraisers are capable of entering the property data and detailed sketches directly into their appraisal software while at the property. Several quotes in his article were from " . . . A Realtor friend of mine . .". Wouldn't you think when an article is about getting the "best" (or most accurate) appraisal, that he'd talk to an appraiser!? Other Resources:

• What Is An Appraisal?
• Getting Ready For Your Propery Inspection - Video
• Helpful Documents For Your Appraiser
• Questions Your Appraiser May Ask

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The Greatest Real Estate Generation? - Boomers' Housing Habits Study

Before David Lereah took the podium at the Wardman Park Hotel at 2 PM Thursday to announce the findings of the largest study ever conducted of baby boomers’ housing habits, some 17 national media outlets already were eager for the story. What story? - Report from the Midyear Meetings: The Greatest Real Estate Generation? © Copyright NATIONAL ASSOCIATION of REALTORS® If you enjoyed this post, subscribe and get FREE updates! Real Estate , Realtor

Gramm-Leach-Bliley (GLB):Time for the appraisal industry to get compliant

What do the words Gramm-Leach-Bliley mean to you? According to a la mode's most recent newsletter: "If you're like many appraisers, you're vaguely aware that GLB (as we'll call it) is a law that deals with financial privacy. You may have heard something about it being applicable to appraisers, but no one's ever really pressed the issue, so like the vast majority of your colleagues, you've never really done anything about it. " No one ever really pressed the issue to title companies either. That's changed now that Kansas-based Nations Title Agency Inc. has settled Federal Trade Commission (FTC) charges that it was careless with consumer information. (Kansas City Business Journal account) A Kansas City TV station found discarded mortgage loan applications in an open, unsecured dumpster on Nations Title property. That prompted the FTC, the agency that enforces GLB, to investigate. The FTC found in addition that Nations Title had failed to secure its digitally-stored consumer information and it had been accessed by a hacker. The settlement agreement, which you can see at this link (PDF), should be read as a cautionary tale by anyone who doesn't take GLB seriously. Then there's the Department of Veterans Affairs data analyst who lost 26.5 million veterans' personal information when his home was burglarized had often taken such data, including Social Security numbers home with him for years, VA Inspector General George J. Opfer said. A $50,000 reward for information leading to the recovery of the laptop stolen from the employee's home was announced. Consumers, brokers and loan officers can't sue you under GLB, but can certainly report you to the FTC. They may do it because you've been careless with personal information, or they might do it for some other reason. If it happens, your t's had better be crossed and your i's dotted. Appraisers are subject to the rules Appraisers are subject to GLB's Safeguards Rule and Privacy Rule. Lenders requested waivers during the development of the FTC's rules for its vendors, including appraisers, and the request was rejected. The FTC has time and again clarified publicly that appraisers must comply. See for example 16 CFR 313.3 (text search for "appraiser"). The size of your company or practice doesn't matter. It also doesn't matter if a particular transaction is "federally related" or not as FIRREA contemplates. The rules are applicable to you or your company overall, not specific assignments. The "non-public personal information" (NPI) the law seeks to protect need not come directly from a consumer. You are responsible for securing NPI you get from a client while it is in your possession. You are responsible for determining whether information is "non-public." It would be a mistake to assume a phone number or e-mail address — two kinds of NPI — is publicly listed. It is best to assume none of it is. GLB and its rules trump state law. You can't simply comply with your state's privacy security laws and hope that squares you with federal law, too. What you need to do All appraisers must, at minimum, do the following:

• Secure the transmission, receipt, and storage of data relating to consumer NPI at all times, via passwords, encryption, and physical protection, backed by a written information security plan
• Provide easily understood privacy statements to any consumers who engage you directly, disclosing the gathering, sharing, and security of NPI data, as well as the methods the consumer may use to opt-out of sharing of the data with others.
• Note that a privacy statement and opt-out procedure are only necessary when a consumer engages you directly. The information safeguards required when you're in possession of NPI are applicable at all times.

A detailed Best Practices document discussing these issues in depth is available from a la mode's resources page at this link. The Best Practices document includes a discussion of the applicability of the rules to all appraisers and how generally to respond. The second half is advice specifically for a la mode customers regarding how to use our tools to help you comply.

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