ASK THE EXPERTS will be an occasional feature where I interview industry professionals and get their insight to the most commonly asked questions in their field.
This post features Scott Murphy with DS Murphy & Associates, a residential and commercial real estate appraisal firm . I asked him to provide answers to these questions. Click on read the rest of the story for the full interview.
1) What is an appraisal?
An appraisal is an estimate of market value based on three approaches to value; sale comparison, cost and income approaches. The sales comparison is most often given the most weight because it relies on the actions of buyers and sellers.
2) What is the difference between a market and refi appraisal?
Technically there is no difference. The appraiser is ask by the client to render a professional, unbiased opinion of market value. Why then do so many refi appraisals come in higher than purchase or "market" appraisals? The answer is lender/client pressure. I am not sure how much time or space you have for me to fully answer this question but here is the abbreviated response. Appraisers have been put under a great deal of undue pressure to meet a pre-determined value. But you say "appraisers are licensed aren't they - why would they yield to pressure from a loan officer or borrower to "push" the value? Well, you need to understand the "food chain" in the mortgage process. Until just recently, loan officers were allowed to choose the appraiser. This creates an obvious bias. The appraiser feels obligated to satisfy the loan officer in order to receive additional work. And loan officers used that power to coerce the appraiser to come in at a higher number. I have had loan officers tell me "if you can't get it to $X I will never send you any more work and I will tell others here at my mortgage company not to send you work". Why would mortgage company management allow this to happen? Because they are all on commission and if the properties do not appraise the loan can not go through. So you have a reverse standard - the bad appraisers are the "good appraisers" and the good appraisers are the "bad appraisers" - in the eyes of the loan officers. Finally, through federal mandates, this is all changing. Two years ago mortgage bankers (lenders with banking division - therefore regulated by the federal government) had to go to a round robin type of assigning process and loan officer not only could not choose the appraiser - they were strictly prohibited from talking to appraisers. Come May 1st the an even more strict program will be rolled out for mortgage brokers (non-bankers, regulated by the state). They will have to turn in their loans to the lender and the lender will order the appraisal (slight variations in policy base on specific lender). Most mortgage brokers have no idea it is coming. I also forecast that many mortgage brokers will go out of business if they can not control the appraisal process.
3) Can I sell my home for the price you give me?
That is the point of an appraisal. We are to estimate the current market value - what the client could turn around and sell the house for. However, we are in a declining market and my appraisal uses sales which have occurred in the past. We do the best we can to utilize active listings and adjust sales for depreciation but a market value appraisal today is a moving target and often a "best case" scenario. We do a lot of pre-listing appraisals and advise our clients to list at or below our appraised value. Visit our website, www.dsmurphy.com for a great article about pricing your home in this market called "Chasing the Market".
4) What qualifications do appraisers have?
Appraisers are licensed by the state. There are three tiers to licensing; Register - basically they have taken the introductory classes and passed an exam - they are now allowed to work as an apprentice to accumulated the required 3000 hours of experience in order to advance to the Licensed level. Licensed appraisers generally have minimum 2-3 years experience and can now sign MOST of their appraisals on their own. The final level is Certified - you can be Certified Residential or Certified Commercial - qualifying you to appraise the respective property types. Beyond that, there are designations - such as SRA or MAI. Those who obtain these credentials have extensive experience and demonstrated a high level of competency. However, no matter how credentialed an appraiser is - local knowledge is extremely important.
5) How much does an appraisal cost?
A typical residential appraisal cost between $350-500 (I have done some complex properties where the fee exceeded $5000) and generally takes about a week to complete. A typical commercial appraisal is $1500 - $5000 (fees on commercial property can be far greater than this) and takes about 30 days to complete.
6) How long are they good for?
An appraisal estimates the value of the subject property as of a certain date in time. Lenders used to feel the value was good for ~6 months; however, with the declining market most require some type of update after 90-120 days.
7) I know what my neighbor paid for their house. Why should I get an appraisal?
There are many good answers to this. If your neighbor just sold their house yesterday and it is the EXACT same model with the EXACT same upgrades - sure, you don't need an appraisal. However, more typically you neighbors house sold 6 months ago and it has a finished basement and you do not - it has brick siding and yours is stucco - you get the idea. Most homes are so different and the market is changing so quickly that it s imperative to get an honest, unbiased opinion of value at the time you list your house. You might say - "well I have an appraisal here from a refi 14 months ago - can't we use that?" I think if you have read this blog to this point, you can answer that question. Or you might say "Barry, you are a real estate expert, can't you just run one of those CMA things and tell me what to list my house for?" With all due respect to Barry, he is a fantastic agent and can probably tell you pretty well what you home is worth - but he is not the VALUATION expert - he is the SALES expert - no one can do a better job SELLING your home than Barry - but he defers to the VALUATION expert - me - to zero in on the exact right number. I do this all day - day in and day out. I am trained to interpret buyer and seller actions in order to make the correct adjustments - and here is the biggest thing - I have access to proprietary data that most agents do not. Do you know that that physical data on almost every tax record is incorrect. Furthermore, most tax records do not have basement space on them and none have finished basement space. This is the only source of physical data available to agents. But appraisers have a database with our appraisal data. We measure every house by hand and use strict standards so we can share this physical information.
8) Who hires an appraiser, me or my lender?
Well we do appraisals for all types of reasons; divorce, estate settlement (death), tax abatement (every one of you are probably over assessed - we can help you fight the county and get your taxes reduced, mortgage, relocation, pre-listing, foreclosure, REO, etc. Most of those we prepare for you, you order the appraisal and you are my client. If you are applying for a mortgage, the lender must order the appraisal. Some people call and want to get an appraisal and then go shopping lenders - you can't do that - the lender must order the appraisal. As a matter of fact - in a mortgage transaction they are my only client. You are not my client; I can not discuss the value with you or even give you a copy of the report without their permission. Wait a minute you say.... I paid for this appraisal - it is my property!! No, you went to the lender to get a loan. They said - we might give you a loan but we need to do some research; I need to pull your credit, look over your financial, get your collateral (you home) valued so I know how much I should lend you, etc. You are simply reimbursing them for THEIR expenses. Up until about 10-12 years ago, you were not even entitled to a copy of the report. It is none of your business. It was prepared for the lender so they could make a lending decision. On a commercial loan, even today, you are not entitled to a copy of the report.
9) What process is used to determine a home's value?
As I mentioned above we use three approaches to value. The most important to a residential single family home is the sales comparison approach. What did other homes in your neighborhood sell for - and we compare them to yours. We make adjustments based on what the typical buyer would pay for a particular item. For instance, if you have a 3 car garage and the sale has a 2 car garage - we extract from other sales in the area that the typical buyer would pay an extra $10,000 for that and we add that to the sales price of the "comparable". We make similar adjustments to all the other features of your home and arrive at an "adjusted range of value". Once the "comps" are adjusted the resulting range is say $232,500 to $241,300. We look at all the sales, but weight on the most similar or most recent and arrive at a value somewhere in the middle. Refi's coincidentally tend to always fall at the upper end of that range. I do not "push" values - many loan officers say I am conservative. Don't think so - I am just honest. I am not doing you any favors if I "push" you value and then you lose your job and have to sell. Now you are upside down in your house and can't sell for what is owed on the house.
10) Why can't I just use the value on my tax bill?
If you are not over assessed this year - I can almost guarantee you will be next year. Values have dropped 10-30% throughout Atlanta and most of the country. Furthermore, Atlanta is plagued with mortgage fraud which artificially inflates assessments. Assessors are not decreasing assessments. Counties are already loosing so much money based on this bad economy, drop in sales tax dollars - their biggest revenue stream is property taxes. I have worked so many clients who are so blatantly over assessed but the county refuses to reduce the taxes and forces them to take the county to court. Just this week I completed an appraisal in Clayton county. Property is assessed for $271,000 appraised value $30,000!!! Clear as day but the county would not budge. So if you think you are just going to send a letter in and get the $20,000 or $30,000 deduction in assessment that you feel is due - forget it. Remember, assessment cycles are typically 3 years - so a reduction can go a long way.
Do you have more questions? Simply post your comments and questions below.
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10 Tips for First Time Home Buyers
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10 Common Home Inspection Related Questions Answered By The Experts
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In a typical year, the five of the larger metro-Atlanta counties (Cobb, Fulton, DeKalb, Gwinnett and Clayton) see about 9,000 challenges to property taxes. With the deadline to file in Gwinnett and DeKalb having just passed on March 2, more than 22,000 property owners have filed challenges. The deadline for Clayton, Fulton and Cobb is April 1 and officials expect the already 10,000 petitions to soar as the deadline approaches.
This year Gwinnett has 14,376, with the most from Gwinnett homeowners filing 12,451 requests for lower tax appraisals. The returns seek an average reduction of 25 percent. Gwinnett's gotten another 1,925 from business owners who are seeking an average assessment cut of 32 percent. Those numbers put 5 percent of Gwinnett's residential parcels and 14 percent of its commercial ones in dispute and promise substantial reductions in the amount of taxes the county will collect.
Georgia law gives property owners, depending on where they reside, until either March 1 or April 1 to file a return. The document allows property owners to contest the value placed on their property the preceding year by stating what they believe their property value was as of Jan. 1. Over the past decade, values have climbed year over year. So returns were rarely an issue for assessors.
However, this year the avalanche in returns gives a glimpse into what home and business owners feel values have fallen during the real estate crisis. Returns also give a warning to local government officials how much less they might collect this fall.
"This just puts more pressure on what's already going to be a tough year," said Jim Glass, Atlanta's chief financial officer. DeKalb's return period ended with Gwinnett's. The county got 8,125, more than four times the normal number. They are beginning to look at how to count foreclosures and bank-owned sales, which are normally not counted against tax values. And, since state law requires uniformity - like properties having like values - tax assessors who lower values for some homes or business have to resolve whether they will lower values for a much broader area.
"What we are trying to do is revalue the entire neighborhood," said Steve Pruitt, chief appraiser for Gwinnett.
Whatever values are set, in turn, will be used by local governments to set taxes. And lower tax appraisals could force many governments to consider raising rates during a recession just to avoid losing money.
How the process works
Georgia law gives homeowners the chance to contest their taxable value in most counties up until April 1 by filing a property tax return. The return allows a property owner to suggest a value as of Jan. 1. Assessors can accept or reject the value. If they reject, the assessors would notify the owner of the county's value. That notice could be appealed by homeowners and would follow the normal course.
Many counties have instructions and forms for filing returns on their respective Web sites. Others can be found by calling the property owner's local assessing office:
FULTON: http://www.fultonassessor.org/ Phone: 404-612-6440 phone
DEKALB: https://dklbweb.dekalbga.org/TaxAssessor/default.asp Phone: 404-371-0841
GWINNETT: http://www.gwinnettcounty.com/cgi-bin/gwincty/egov/ep/gcbrowse.do?channelId=-536881973&pageTypeId=536880236 Phone: 770.822.7200
CLAYTON: http://www.co.clayton.ga.us/tax_assessor/index.htm Office: 770-477-3285 Fax 770-477-4566
COBB: http://www.cobbassessor.org/Main/Home.aspx Phone: 770-528-3100
SEE THESE RELATED POSTS:
Georgia House Passes Bill To Freeze Property Tax Increases For Two Years
Click here to read the original article.
Back on Febrary 22, 2009, I posted my concerns regarding H.B. 261. While good intentioned, that bill had the potential to cause more harm than good. I applaud the Georgia Assembly for taking matters into their own hands and considering and creating a bill that will get the Georgia housing market back on track.
H.B. 261 went through some revisions and passed the House yesterday 162-4. I believe the changes in the bill make it a much more effective stimulus tool and could re-start the stalled Georgia housing market.
The key features of the bill, as I understand them are outlined as follows:
What Does This All Mean?
First of all, this tax credit is good for ALL buyers not just first-time home buyers as is the case with the federal goverment's $8000 Tax Credit. Also, this tax credit is a direct reduction of taxes owed which is like the federal credit. If you are a first time buyer, you can qualify for both of these credits resulting in a maximum of $11,600 in tax credits. That's a nice chunk of change even if you have to wait three years to get it all.
Since this credit is not limited to owner occupied homes, investors can take advantage of the tax credit and help reduce our excess inventory. If you combine already discounted prices with historically low interest rates and this tax credit, now becomes a very compelling time to buy a home or rental property.
One of my major problems with the first draft of this bill was that it limited the purchase price of the home to $40,000 to $300,000. Now, that restriction is gone which will help all homeowners as well as buyers.
Overall, I give a lot of credit to the sponsors of this bill: State Rep. Ron Stephens,164th, State Rep. Tom Dickson, 6th, State Rep. Cecily Hill, 180th, State Rep.Terry Barnard, 166th, State Rep.Jay Neal, 1st, and State Rep. Butch Parrish, 156th.
I encourage you to read the bill for yourself here. It's only 1.5 pages!
As always, things can change. The bill is before the Senate and may get altered. Hopefully, it will be passed and signed into law quickly by Governor Perdue. If things change, I'll be there to let you know what happens.
Write your representatives and urge them to pass this bill. You can find your legislator here.
Related Posts:
First Time Home Buyers To Get $8000 Tax Credit On 2009 Home Purchase
Georgia House Considering It's Own Housing Tax Credit Stimulus - H.B. 261
General Information for Buyers
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ASK THE EXPERTS will be an occasional feature where I interview industry professionals and get their insight to the most commonly asked questions in their field.
This post features Brodie Brown with Browntree Inspections and Scott Berlyoung with Alpha Home Services. I asked both of them to provide answers to these questions. Click on read the rest of the story for the full interview.
1) What does an inspector do?
Scott: An ASHI Residential inspector completes a visual review of the general house, lot and all systems keeping safety and health in mind. A New Home Code inspection has the added value of checking state building codes using the ICC, NEC and others as the Georgia qualification for minimum building standards.
Brodie: He does a visual, point in time inspection of a property and then conveys the information to a home buyer or seller. The inspection is meant to give the buyer the information they need to make a more informed purchase decision.
2) How long does an inspection take?
Scott: Most inspections take a half day, or about 4 hours depending on house size and the number of systems to run, e.g. more than one kitchen or 3 HVAC units may require 4-6 hours. A new home framing inspection may take only 2-3 hours again depending on the size of the construction.
Brodie: The average inspection will take between 2 to 4 hours.
3) Do you guarantee your work?
Scott: Yes, we guarantee all our work and customer satisfaction.
Brodie: I guarantee customer satisfaction. If a customer attends the inspection and decides that they are not satisfied, I will refund 100% of the fee they paid. My inspection is not a guarantee on the house or items in the house.
4) What do you inspect in a home?
Scott: The home is reviewed from outside in, top to bottom so that all plumbing and moisture concerns can be properly checked. All systems are run and normal controls are opened including electric panels, water mains, and furnace controls.
We request all buyers to accompany the inspector and learn about the home, asking questions along the way. Our camera brings pictures from roof tops and the bottom of crawl spaces where most people don't visit.
Brodie: I inspect everything that affects the normal, safe operation of the house. i.e. structure, plumbing, electrical, HVAC, etc.
5) Should I get a Radon test?
Scott: Radon should always be considered and tested if a previous test is not available. Radon is on the property disclosure for family health and value of all Georgia property. The test is simple; we use quick turn around electronic monitors to speed the process.
Brodie: The EPA recommends that a Radon test be done on all new purchases. You don't know if you have a Radon problem unless you test.
6) What's an ASHI certification?
Scott: ASHI, or the American Society of Home Inspectors is the leading national certification group for professional residential inspectors. An ASHI inspector has passed some of the highest qualifications and must maintain over 20 hours of yearly study to maintain membership.
Brodie: ASHI certified inspectors meet the following requirements:
1. pass a test on the ASHI code of ethics and standards
2. the inspector agrees to follow those ethics and standards
3. pass the national home inspectors exam
4. submit their reports to be review by ASHI to ensure they contain the proper information
5. submit an affidavit of at least 250 fee paid inspections
6. complete 20 hrs of continuing education per year.
7) Can you also repair any problems you find?
Scott: The standards of practice for an ASHI inspector do not allow this conflict of interest. We may not directly refer or conduct a business that is contingent on the outcome or sale of the home.
Brodie: No, that can be seen as a conflict of interest.
8) How much does an inspection cost?
Scott: An average ASHI half day inspection costs $375 and has many benefits, always well worth the time and money for an individuals largest life investment.
Brodie: It depends on the details of the house. The average cost is around $300.00
9) Can I pay you at the closing?
Scott: Typically, we get paid at the end of the inspection. However, in special situations, we will retain a credit card number but get paid at the closing. In these case, we do charge a service fee in addition to the inspection fee.
Brodie: No, the inspection needs to be paid at the time of the inspection. Paying at the closing may give the appearance that the inspector being paid depended on the closing being finalized.
10) Do I have to have an inspection?
Scott: No one is required to inspect their homes for safety and value, but it is always strongly advised for all the above reasons.
Brodie: You do not, but it is highly recommended. You need to know what you are buying, both the good and the not so good.
Do you have more questions? Simply post your comments and questions below.
Related Posts:
10 Tips for First Time Home Buyers
10 Common Mortgage and Financing Related Questions Answered By The Experts
Click here to read original post.
The Cobb County School District is considering moving the starting date from August 10 to August 17 for the Fall 2009 school year. Many are asking where the extra five days are going to come from. The state mandates at least 180 days of instruction. State school Superintendent Kathy Cox has said calendars are a local decision. A bill to require a later start date for all public schools failed in the state Legislature in 2005.
Time for standardized tests has to be factored in, along with time for state high school graduation tests. Teacher work days, Advanced Placement exams and block scheduling also must be considered. Many districts are now off the week of Thanksgiving. In the past, schools had high rates of absenteeism on Monday and Tuesday of Thanksgiving week. Absentee rates are monitored and used with test scores to determine if public schools comply with the federal No Child Left Behind Act. According to some board members, it's possible for the district to start school later than other metro districts and still finish the first semester before the holiday break. But a later start date could mean:
In addition to the later start date, Cobb school board member John Crooks wants the school year to end before Memorial Day. And many, including Crooks, contend the first semester should be completed before the winter holidays.
"I think it's fair to students, especially high school students, that they have a winter break. A clean break," said Sanderson, Cobb's superintendent.
Paulding County plans to start on Aug. 17, but the first semester won't be completed until January, according to district spokesperson Sharon Roper.
While many metro districts will start the 2009-10 school year on the same day, the last day of school varies, based on such factors as the number of student holidays and teacher planning days. Some districts have a week off for Thanksgiving, and some have a week-long break in mid-February.
2009-2010 School Start and End Dates
District First day Last day
Atlanta Aug. 10 June 4
Cherokee Aug. 3 May 28
Clayton Aug. 10 May 28
DeKalb Aug. 10 May 21
Fayette Aug. 10 May 28
Forsyth Aug. 10 May 28
Fulton Aug. 10 May 21
Gwinnett Aug. 10 May 26
Marietta Aug. 10 May 21
Paulding Aug. 17 June 4
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I specialize in North Atlanta and cover these counties (and cities): Cobb (Marietta/Kennesaw/Acworth/Smyrna), Cherokee (Woodstock) and N. Fulton (Roswell/Alpharetta). I work with buyers and sellers.
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