Mary Thompson Lake Lanier Appraiser in Georgia

With the recession (I believe we actually had a depression not a recession) comes the law of unintended consequences!

Here is the deal. I want to hear your take on this!

Buyers are so used to price after price after price reductions and LOW, LOW sales prices that their perception of VALUE may be skewed and it may not be in their best interest.

Case in point. I appraised a home where the last sale in the same S/D was just a month prior for $125,000. Very similar style, appeal and quality home. The buyer really wanted to be in this development and there are NO other listings now available. They are willing to pay the same price for this home as the one that just sold (the one that sold however, is 600 square feet larger). The seller has no problem paying $125,000 for this home even if it is smaller, because there were no other homes in this price range that they liked and in the hey day of 2006 this home sold for $240,000. So $125,000 is ONE hell of a deal......or is it?

Based upon that most recent sale and a few others in neighboring developments the appraised value was UUGGHH dare I say $110,000. That most recent sale told the story on value and it was NOT a foreclosure sale either!

So the Realtor calls me to discuss value (how dare he...LOL) and we have a whole discussion about how this was the last home available, supply and demand issues, the home was better in THIS buyer's mind than any other they saw and they really wanted to be in that S/D.

Problem is this: While I totally understand supply and demand impact on value, the principles of substitution, etc. Based upon very recent sales, as well as some listings, this home was not worth $125,000. It was worth $125,000 to this buyer, but does this buyer represent all buyers or the general populous of buyers out there?

Market value is what someone is willing to pay in an open market, working in their own best interest, they are knowledgeable and prudent and there is not any undue stimulus....BLAH, BLAH, BLAH.... So you may say hey this person is willing to pay $125,000. But here is the problem. Are they really knowledgeable about the comps out there? As appraisers we cannot make adjustments on perception, we can only make adjustments on real market data. If we can prove via DATA that perception does equate to a certain dollar figure...GREAT! But good luck on that approach to value!

The Realtor and I discussed about how appraising is an ART not a Science and in this case I should have been able to make an adjustment for the fact that supply is low, demand is high and even if sales don't support the value, PERCEPTION supports an upward adjustment.

The sad truth is if we adjusted on the "ART" of the profession or the perception of value without some SOLID numbers and analysis to back that adjustment up, the Underwriter is going to have a field day with our report!

I then wanted to remind the Realtor, Appraisers are here for the sole purpose of protecting the Lender when we are dealing with a Lender appraisal. We are their eyes and ears and that fact has not changed in all the years I have been appraising, with all the changes in this field. What if this lady purchased the home for $125,000 and God forbid she defaulted and then there were plenty of listings and sales in that same S/D available, all under $125,000! Now the Lender WILL lose money....So that is why it is imperative to provide a current, real and supportable value for the subject. If the lender today loaned $15,000 more in this case than the home is worth, who knows how much money they will lose down the road when they have to put it back on the market, especially in THIS market.

I will end with my favorite Line, that surprises many people still......

APPRAISER'S DO NOT DETERMINE MARKET VALUE FOR A PROPERTY! THE MARKET DOES! PERIOD!

APPRAISERS ANALYZE THE MARKET AND THEN THEY REPORT WHAT THEY FIND IN THE FORM OF AN OPINION OF VALUE FOR THE PROPERTY. WE ARE NOT SO POWERFUL AS TO DIRECT THE MARKET VALUES FOR ANY GIVEN AREA. THE MARKET DOES THAT ALL ON THEIR OWN. WE ARE JUST THE BEARER'S OF BAD NEWS SOMETIMES!

Let me hear from you and what you believe to be true! Times they are a Changing Daily!

Square footage. Should be a pretty simple concept right? Well not really. I spend a good deal of time explaining to Realtors and to Borrowers/Homeowners how Appraisers DIFFER from Realtors when it comes to Square footage.

When Appraisers measure homes they determine GLA (gross living area) and Below Grade or (below ground) square footage and they are calculated at different per square footage rates.

IF you have a 2,000 Square foot ranch on a full finished basement with 3 beds 2 full baths on each level....Realtors will market this as a 4,000 SF home with 6 beds and 4 full baths.

Appraisers will appraise this home as a 3 bed 2 bath with 2,000 SF of GLA and another 2,000 SF of heated space in the basement/terrace level. I can't tell you how many times I get a call from the owner or Realtor upset because we missed bedrooms and baths and total square footage. I have been including a paragraph in my reports on this very issue so they know how we deal with square footage.

Even if the Terrace level is a full walk out and finished as nicely as the upper level/s, we separate this area and usually the value per square foot is lower. WHY? Because the market typically does not pay the same price for the basement area as they do for the main levels. There may be exceptions to this in certain markets where there is no difference in the market for terrace levels.

So the next time your homeowners think HEY that appraiser missed half my house in the appraisal. Look on the GRID page where we make our adjustments and also check the SKETCH PAGE and you will see all the rooms noted and there will be adjustments in the market grid page for the finished basement area.

One other thing! The COMPARABLES that we use are treated the EXACT same way, so we do compare apples to apples.

Okay my job is done here! Please pass this along to all you know because it is perhaps the most misunderstood part of the appraisal report!

More fun facts to follow in my Appraisal Reality Series.

Stay Tuned for my next BLOG on how Perceived VALUE may or may not equal MARKET VALUE.

Have a great day!

Mary Thompson

Certified Appraiser

http://www.marytappraisals.com

I was doing an appraisal in a fairly nice development in Cumming, GA near Lake Lanier. price range in the upper $300,00 to low $400,000 range. Much to my surprise I saw several homes being built, NEW homes, new construction, Construction trucks in the street that I had to drive around, lots of workers framing, roofing, etc. Not just one or two but several homes being built. It was like a trip back to 2005 -2006 and earlier.

I remember the Ol days with fondness. Sometimes not so fond as I had a few flat tires driving over nails and such in the new developments, but this was a wonderful sight to see. Is there hope on the horizon? We certainly are seeing more sales than we have in the past year. There of course are still alot of foreclosures and short sales but not as many.

A fellow Appraiser friend of mine in the Atlanta Metro area said some Realtors are actually getting homes under contract in days as they are in limited supply. These are homes that have already been renovated. People looking for homes that have already had the work done as they do not have the money or the time to invest in this undertaking. So this is GREAT news for investors out there.

I have also seen more homes that were purchased cheap fixed up nice and a tidy profit made in a few months time. So all good signs.

The FDIC is talking about requiring a 20% down payment for home purchases. OUCH, if you don't have the 20% then you have to pay a higher percentage rate and MI insurance rates may rise. We will know first week of June when the decision is supposed to take place.

But anyway, just wanted to share my discovery about the new construction. I hope I see alot more of this kind of thing and if I do I will report.

Mary Thompson

Certified Appraiser

Lake Lanier Specialist

http://www.marytappraisals.com

In case you missed the start of my Reality Series, Here is a link to it below. If Active Rain decides to Feature this Blog, maybe more eyeballs will be able to take advantage of all the information I plan to provide, so you can pass along to your Sellers and Buyers and fellow Realtors!

Reality Series Part I

Part II: When appraisals are completed and sent to the lender, they are reviewed by Underwriters. These people may not be Appraisers at all and many times they do not even live in the same state as the appraiser....so needless to say sometimes their reviews lack expertise and some of the requests of appraisers go beyond crazy. Just ask an appraiser about the wildest underwriter or reviewer question of their appraisal reports and you will get an ear full!

Well I have been appraising for 17 years and this week I had a review that really takes the cake...

Here goes:

The first question was what is the difference between Average+ and Good condition!! To me this is Appraiser 101, but this will be good information for you as it will show you how we make adjustments for condition of a property. First of all you have the ACTUAL age of the home. It could be 30 years old. Then you have what we call in the appraisal world the EFFECTIVE age....That is the age that we decide the home appears to be based upon how well the home has been maintained and if there were any renovations performed. Typically the labels we use for condition range from Poor to Good. Poor, Fair, Average, Average+, Good. You might see a Very Good or Excellent label, but most times you will not see Poor or Excellent on a report.

Poor: Well the home is in really bad shape cosmetically and structurally too and it may be one to PUSH over and start over again. Fair: needs work, mostly cosmetic, it shows its age plus some, but it can be renovated. Average is just as it seems, it appears its ACTUAL age. Average+ it is above this Actual age to a certain degree, because the home has been taken care of and maybe there was some new carpet or appliances along the way. They don't have to be upgraded or top of the line renovations. That falls under the QUALITY rating and that will be the subject of another series. Good: The home has not only been taken care of but renovated, so it appears like new or it may be new. I am sure you have seen a 2 or 3 year old home that is trashed, so just because it is only 2 or 3 years old, does not mean we will would rate that GOOD condition. It depends on maintenance and renovations along with age. Excellent is BRAND spanking new.....many times appraisers will just call this GOOD. There is some leeway between appraiser's but overall, the condition labels should be fairly consistent. As for the adjustments for the variances, well they can be wide and varied, depending upon the price range, age of home, amount of renovations, etc.

I think the poor reviewer in my case (which by the way per new regulations is supposed to be someone trained in appraisals or an appraiser, not just some employee who has no clue about appraisals) was confused because I was calling a few 30 year old homes Average + and Good and she was thinking a 30 year old home cannot be good! Well it can be if it has been renovated and maintained and it is in like new condition.

Then the reviewer really threw me for a loop.....She asked why is there a need for an electronic fence "see photo of mailbox" which had a sign saying there was an electronic fence ... I about fell off my chair....HELLO....The owner has a dog! Common thing here in Georgia and everywhere! So I told her they have a dog, no other reason for fence. So I am trying to understand why such a question would be asked. Only thing I could come up with was the reviewer (in another state) must think this is one BAD A_ _ neighborhood to require an electronic fence! LOL Maybe they don't want to do the loan if there are issues with marketability, etc. I think they are going off the deep end here. If that was the case, we are supposed to report all market and neighborhood issues! Of course there were no issues, so nothing was noted in the appraisal.

So that is my second series for this week. Look for Series III next week,

Thanks for stopping by.

Mary T. Thompson

Certified, FHA Approved Appraiser

http://www.marytappraisals.com