Pros and Cons to Calculating Your Home's Value Online

More homeowners are turning to free or nominally priced online tools to follow the possible changes in the value of their properties. The Wall Street Journal staff put four Web sites (and a professional appraiser) to the test. WSJ hired Richard Hagar, an appraiser with American Home Appraisals of Mercer Island, Wash., to price the home. He calculated different numbers based on a "desktop" appraisal (using local real estate and other computerized data), a drive-by, and an extensive on-site appraisal. Link: RealEstateJournal Pros and Cons to Calculating Your Home's Value Online. If you enjoyed this post, subscribe and get FREE updates! Appraisal , Real Estate , Appraiser , Technology

FDIC State Profiles Highlight Generally Positive Economic Picture Amid Signs of Housing Slowdown

Job market conditions remained generally positive in most of the U.S. through the first quarter of 2006, with some pockets of weakness along the Louisiana Gulf Coast and the auto-dependent upper Midwest. FDIC-insured institutions also continue to record strong earnings, supported by low credit losses and growth in both real estate and commercial lending. However, many states show signs of an emerging slowdown in housing market activity. These and other state-level economic and banking trends are summarized in the Summer 2006 edition of FDIC State Profiles released today.

"Most regions are seeing solid job growth and strong economic activity, which are helping to support loan demand," said FDIC Chief Economist Richard A. Brown. "We also see housing market activity slowing in a number of regions, as affordability continues to be a challenge. It appears that housing will probably not be a leading sector for the U.S. economy in the second half of the year."

Home sales activity appears to be slowing across many areas of the country, and inventories of unsold homes are increasing. FDIC regional analysts note that affordability continues to be a challenge for homebuyers, particularly in the Middle Atlantic and Western states. Recent data show that rates of home price appreciation have recently decelerated in many states, although prices have declined outright in only a few metropolitan areas. Meanwhile, rising energy costs continue to pressure consumer finances, particularly among lower-income households. The banking industry reported a fifth consecutive year of record earnings in 2005, and this strong financial performance has continued into 2006. However, rising short-term interest rates, a flattened yield curve, and growing dependence on non-core funding sources are pressuring net interest margins, particularly among mortgage lending specialists. FDIC analysts note that margin compression has been offset to some extent by strong loan growth, notably in the construction and development (C&D) segment of the commercial real estate (CRE) portfolio. Concentrations of C&D and CRE loans are rising, particularly among institutions in states in the Mid-Atlantic, Southeast, and West. Loan performance currently remains favorable across all loan categories, including farm-related credits held by agricultural banks. FDIC - 6, 2006 Media Contact:David Barr (202) 898-6992 dbarr@fdic.gov If you enjoyed this post, subscribe and get FREE updates! Appraisal , Real Estate

USPAP 2006 Revisions - Office of the Comptroller of the Currency - OCC 2006-27

The 2006 Revisions to Uniform Standards of Professional Appraisal Practice [USPAP] - June 22, 2006 - OCC 2006-27 Purpose : The Office of the Comptroller of the Currency (OCC), Board of Governors of the Federal Reserve System (FRB), Federal Deposit Insurance Corporation (FDIC), Office of Thrift Supervision (OTS), and National Credit Union Administration (NCUA) (collectively, the agencies) are issuing this statement to notify regulated institutions that the Appraisal Standards Board (ASB) has issued the 2006 version of the Uniform Standards of Professional Appraisal Practice (USPAP) and the attached 2006 USPAP and Scope of Work document. The 2006 USPAP, effective on July 1, 2006, replaces the 2005 USPAP and incorporates extensive revisions to appraisal standards. A regulated institution must ensure that appraisals supporting federally related transactions adhere to USPAP as well as the other minimum appraisal standards contained in the agencies’ appraisal regulations. Therefore, regulated institutions should be familiar with the 2006 USPAP and consider the ramifications of the revisions to their appraisal practices. Revisions to USPAP : The 2006 USPAP incorporates certain prominent revisions. These revisions include a new Scope of Work Rule and the deletion of the Departure Rule and associated terminology, such as "binding" and "specific" requirements and "complete" and "limited" appraisals. The Scope of Work Rule clarifies the standards for the type and extent of research and analysis performed by the appraiser in an appraisal assignment. In adopting the 2006 revisions, the ASB has indicated that the appraisal process has not changed and that the concepts in the Scope of Work Rule are not new to USPAP. However, there is greater emphasis on the appraiser’s process of problem identification and development of an appropriate scope of work. 1 The 2006 USPAP and other ASB documents are available on the Appraisal Foundation Web site at : Appraisal Foundation 2 Under the agencies’ appraisal regulations, a federally related transaction includes any real estate-related financial transaction that an agency or any regulated institution engages in or contracts for and that requires the services of an appraiser. Refer to OCC: 12 CFR 34, C; FRB: 12 CFR 225.61-67; FDIC: 12 CFR 323; OTS: 12 CFR 564; and NCUA: 12 CFR 722. Page 1 of 2 OCC 2006-27 Attachment Page 2 of 2 Consistent with the 2006 USPAP, an appraiser must determine an appropriate scope of work that should be performed to produce "credible assignment results." According to the USPAP Advisory Opinion 29, credible assignment results depend on the scope of work meeting or exceeding both

1. the expectations of parties who are regularly intended users for similar assignments; and
2. what an appraiser’s peers’ actions would be in performing the same or a similar assignment.

Further, the appraisal report must contain sufficient disclosure to allow intended users to understand the scope of work performed. Since the 2006 USPAP reporting options remain unchanged, appraisers may continue to label appraisal reports as self-contained, summary, or restricted use.

Compliance with Appraisal Regulations : While an appraiser is responsible for establishing the scope of work under the 2006 USPAP, regulated institutions are responsible for complying with the agencies’ appraisal regulations. Besides conforming to USPAP, the agencies’ appraisal regulations require that appraisals supporting federally related transactions must:

• Be written and contain sufficient information and analysis to support the regulated institution’s decision to engage in the transaction.
• Analyze and report appropriate deductions and discounts for proposed construction or renovation, partially leased buildings, non-market lease terms, and tract developments with unsold units.
• Be based upon the definition of market value in the regulation.
• Be performed by a state licensed or certified appraiser in accordance with the regulatory requirements.

From the appraiser’s perspective, these regulatory appraisal requirements are "supplemental standards" to USPAP. If an appraiser knowingly fails to comply with supplemental standards, the appraiser is in violation of the USPAP Ethics Rule.

When ordering appraisals, a regulated institution should convey to an appraiser that these supplemental standards remain applicable. The agencies also continue to encourage regulated institutions to use an engagement letter in ordering an appraisal to facilitate communications with the appraiser and to document the expectations of each party to the appraisal assignment.

To determine an appraisal’s acceptability, a regulated institution should review the report to assess the adequacy of the appraiser’s scope of work given the intended use of the appraisal. In accepting an appraisal report, the regulated institution must determine that the appraisal report contains sufficient information and analysis to support the credit decision.

Regulated institutions are reminded to consider an appraiser’s competency for a given appraisal assignment. Further, regulated institutions should not allow lower cost or reduced delivery time to compromise the determination of an appropriate scope of work for appraisals supporting federally related transactions.

Attachment: 2006 USPAP and Scope of Work If you enjoyed this post, subscribe and get FREE updates! Appraisal , Real Estate , Appraiser , USPAP , Regulation , Scope of Work

How do appraisers establish value when there are no comparable sales?

Unusual properties pose valuation challenges. So how DO appraisers establish value when there are no comparable sales? Full article from Inman News -By Dian Hymer Inman News It's relatively easy to establish the market value of a property located in a neighborhood where the houses are created in the mirror image of one another. Figuring out the valuation of an unusual property is another story. Appraisers determine market value [opinions] by comparing the property in question with [at least] three similar properties in the neighborhood that have sold and closed within the last six months. In recent years, there has been plenty of sales activity, so finding comparable sales in most neighborhoods hasn't been a problem. However, in certain low turnover markets finding comparables can be challenging. Even more taxing is finding comparables for a truly unique property. Recently, a one-of-a-kind listing came on the market in the desirable Crocker Highlands neighborhood in Oakland, Calif. What made this property unique was its impressive architecture and size. It was a 4,500-square-foot home in a neighborhood where a 3,500-square-foot house is considered big. The lot size was big and the yard included a swimming pool -- also uncommon for the neighborhood. The special nature of this listing attracted a lot of attention from multiple buyers who wanted to make offers. The trick was figuring out what it was worth. There was not a single house in the neighborhood that could be called comparable to this one. HOUSE HUNTING TIP: Appraisers who are faced with this predicament look to other neighborhoods that could be considered somewhat comparable in order to help determine [their] market value [opinion]. In the above example, expanding the geographic boundary to neighboring Upper Rockridge and Berkeley yielded valuable insights into the probable market price for the property. The winning buyer in this particular situation paid all cash. The purchase was not financed with a mortgage, so the property wasn't put through the scrutiny of a lender's appraiser. However, if the buyer had included an appraisal contingency as a condition of the purchase contract, an appraiser would have used the same approach. Last year, a unique property was sold in the Rockridge area where most homes are on postage stamp lots. This special property had one level acre of land with a tennis court and a recently restored Mediterranean-style home built in the 1920's. There was literally nothing like it in the neighborhood. This time, the buyer needed a mortgage to finance the purchase. The appraiser for the buyer's lender appropriately considered the property an estate. He looked to Piedmont for comparable sales -- a nearby affluent community with many estate properties. Piedmont's claim to fame is a fabulous school district. Oakland's schools, while improving, aren't considered on par. Appraisers make adjustments to account for the value-added benefits that one comparable property might have over another to derive a justifiable market value [opinion] for the subject property. Even if a listing isn't unique, there are times when there's little comparable sales data, especially when sales activity drops. Although this hasn't been a big concern during the last few years of robust home sale activity, it has been a problem in the past. In this case, appraisers look for similar listings that sold longer ago than the generally accepted six-month cut off date. Valuation adjustments are made for market changes during the intervening period. We've been in a market of rapidly increasing home prices for several years. During this time, buyers have often waived their right to have the property appraised. Going forward, it might be wise to rethink this strategy. THE CLOSING: Depending on how an appraisal contingency is written, you may be able to withdraw from the contract without penalty if the property appraises for less than the price you've agreed to pay. Dian Hymer is author of "House Hunting, The Take-Along Workbook for Home Buyers," and "Starting Out, The Complete Home Buyer's Guide," Chronicle Books. If you enjoyed this post, subscribe and get FREE updates! Appraisal , Real Estate , Appraiser