There's always a first. First closing, first fall-through, first family transaction...you get the picture. There's always a first and usually it's not the last, just an indicator of things to come or a flashing warning sign of things to never involve yourself in again. Sometimes you see the red flags and despite years of experience, you fail to heed them. Surely, you think to yourself, this can't be what it seems. Well, usually it is. Walks like a duck, quacks like a duck, again, you get it.
Because I deal with clients from all over the world, I have learned that past real estate experiences in other locations tend to color the transaction that the client and I are currently involved in. Sometimes good, sometimes bad. Poor market conditions, including a glut of inventory, plummeting prices and poor professional guidance can create negative residual reactions for future transactions. Stay with me.
Poor market conditions in another state, coupled with life-decisions being made regarding retirement and downsizing made my buyers paranoid about real estate values and rightfully so. Their home, a once stable investment, did not quite bring what they felt it should in today's market, leaving them with a sour taste in their mouths. Per our conversations, their real estate guidance back home was non-existent. When I asked questions about marketing, contingencies, financing options, etc. they looked at me as if I were speaking parseltongue.
Fast forward...we find a house here that meet their needs and is in the price point that they would like to be in. We have viewed over 50 homes in the past year while their home has been on the market, always toying with the idea of buying before the current home sold. Now that it was under contract, time was of the essence in regards to finding a place for them to rest their heads. Now keep in mind, we have viewed tons of homes in a variety of areas, all similar in spatial needs and between a certain range. We have now located one, which according to my past experience, should mean that this is the best home that the buyer has seen, in regards to condition, location and pricing...(that's how homes make it to number one on a buyers' list).
Time to make an offer. Rather than sit down and look at comparable homes that are active (we have seen all of these) or take an in depth look at similar homes sold in the past 90 days, these folks ask for an appraisal. Wow! Didn't see that coming! I am used to negotiating a price based on what the buyer and seller feel the home is worth in today's market, getting it under contract at terms everyone can live with and then "verifying" the price and terms with a certified appraisal. This seemed all backwards--but was it?
The question that I am taking away from this experience is multi-faceted...Who sets the price? What is happening to fair market value in an era of government regulated loans and appraisals? Since when did buyers and sellers not feel like they have the information to make decisions without being dictated by a third party who knows nothing of their personal needs and real estate desires?
The biggest problem I see with this "new" direction is the lack of comparable homes that appraisers have to work with. If there are not three similar homes sold in the past 90 days then appraisers are digging to find homes that are close in proximity but may be quite different for a variety of reasons. You may say "well they are going to have to do it for the bank appraisal anyway" and you are right, but its funny that once a sales price is set between buyer and seller, unless it is way off base, comps are usually found and adjusted accordingly. It's this "pull a value out of the air" using any homes that the appraiser may personally deem reasonable, that I am trying to wrap my mind around.
So the question begs to be asked...What are your thoughts on pre-appraisals and do you see this as something you would consider doing or is the notion that you are buying the best house out there for you and your family's needs enough to base price on?
Until Then...
Brooke
Showing posts with label appraisals. Show all posts
Showing posts with label appraisals. Show all posts
Tuesday, November 29, 2011
Tuesday, September 06, 2011
New Appraisal Changes Effective September 1st May Impact Lending Practices
In an attempt to make appraisals more uniform and accurate new changes and additions have recently gone into place effective first of September. These changes mean that the timeframe in which a loan closes could be impacted as more detail will be required on these reports. This may in fact be one step in the right direction in a real estate world where comparable properties can be scarce at best depending on the market you're in. The new standards will require the below "ratings" to be assigned to the properties used, including the subject. In my opinion, this will "fix" the problem of appraisers using "comps" that may be similar in size and location but don't always accurately take into account the overall quality of construction, condtion and upgrades to the properties involved. How do you think these changes will effect lending? I am especially interested in hearing those comments from those of you directly involved in the industry...lenders, agents and appraisers. Please note, the information provided below is courtesy of an information email sent to me by Luann Davis of Starkey Mortgage.
Rating Description
C1 The improvements have been very recently constructed and have not previously been occupied. The entire structure and all components are new and the dwelling has no physical depreciation.
Note: Newly constructed improvements that feature recycled materials and/or components can be considered new dwelling provided that the dwelling is placed on a 100% new foundation and the recycled materials and the recycled components have been rehabilitated/re-manufactured into like-new condition. Recently constructed improvements that have not been previously occupied are not considered "new" if they have any significant physical depreciation (newly constructed dwellings that have been vacant for an extended period of time without adequate maintenance or upkeep)
C2 The improvements feature no deferred maintenance, little or no physical depreciation, and require no repairs. Virtually all building components are new or have been recently repaired, refinished, or rehabilitated. All outdated components and finishes have been updated and/or replaced with components that meet current standards. Dwellings in this category either are almost new or have been recently completely renovated and are similar in condition to new construction.
C3 The improvements are well-maintained and feature limited physical depreciation due to normal wear and tear. Some components, but not every major building component, may be updated or recently rehabilitated. The structure has been well-maintained.
C4 The improvements feature some minor deferred maintenance and physical deterioration due to normal wear and tear. The dwelling has been adequately maintained and requires only minimal repairs to building components/mechanical systems and cosmetic repairs. All major building components have been adequately maintained and are functionally adequate.
C5 The improvements feature obvious deferred maintenance and are in need of some significant repairs. Some building components need repairs, rehabilitation, or updating. The functional utility and overall livability is somewhat diminished due to condition, but the dwelling remains usable and functional as a residence.
C6 The improvements have substantial damage or deferred maintenance with deficiencies or defects that are severe enough to affect the safety, soundness, or structural integrity of the improvements. The improvements are in need of substantial repairs and rehabilitation, including many or most major components.
Rating Description
Q1 Dwellings with this quality rating are usually unique structures that are individually designed by an architect for a specified user. Such residences typically are constructed from detailed architectural plans and specifications and feature an exceptionally high level of workmanship and exceptionally high-grade materials throughout the interior and exterior of the structure. The design features exceptionally high-quality exterior refinement and ornamentation, and exceptionally high-quality interior refinements. The workmanship, materials, and finishes throughout the dwelling are of exceptionally high quality.
Q2 Dwellings with this quality rating are often custom designed for construction on an individual property owner's site. However, dwellings in this quality grade are also found in high-quality tract developments featuring residences constructed from individual plans or from highly modified or upgraded plans. The design features detailed, high-quality exterior ornamentation, high-quality interior refinements, and detail. The workmanship, materials, and finishes throughout the dwelling are generally of high or very high quality.
Q3 Dwellings with this quality rating are residences of higher quality buildings from individual or readily available designer plans in above-standard residential tract developments or on an individual property owner's site. The design includes significant exterior ornamentation and interior that are well finished. The workmanship exceeds acceptable standards and many materials and finishes throughout the dwelling have been upgraded from "stock" standards.
Q4 Dwelling with this quality rating meet or exceed the requirements of applicable building codes. Standard or modified standard building plans are utilized and the design includes adequate fenestration and some exterior ornamentation and interior refinements. Materials, workmanship, finish, and equipment are of stock or builder grade and may feature some upgrades.
Q5 Dwellings with this quality rating feature economy of construction and basic functionality as main considerations. Such dwellings feature a plain design using readily available or basic floor plans featuring minimal fenestration* and basic finishes with minimal exterior ornamentation and limited interior detail. These dwellings meet minimum building codes and are constructed with inexpensive stock materials with limited refinements and upgrades.
*Fenestration – the design and disposition of windows and other exterior openings of a building.
Q6 Dwelling with this quality rating are of basic quality and lower cost; some may not be suitable for year-round occupancy. Such dwellings are often built with simple plans or without plans often utilizing the lowest quality building materials. Such dwellings are often built or expanded by persons who are professionally unskilled or possess only minimal construction skills. Electrical, plumbing, and other mechanical systems and equipment may be minimal or nonexistent. Older dwellings may feature one or more substandard or nonconforming additions to the original structure.
Rating Description
C1 The improvements have been very recently constructed and have not previously been occupied. The entire structure and all components are new and the dwelling has no physical depreciation.
Note: Newly constructed improvements that feature recycled materials and/or components can be considered new dwelling provided that the dwelling is placed on a 100% new foundation and the recycled materials and the recycled components have been rehabilitated/re-manufactured into like-new condition. Recently constructed improvements that have not been previously occupied are not considered "new" if they have any significant physical depreciation (newly constructed dwellings that have been vacant for an extended period of time without adequate maintenance or upkeep)
C2 The improvements feature no deferred maintenance, little or no physical depreciation, and require no repairs. Virtually all building components are new or have been recently repaired, refinished, or rehabilitated. All outdated components and finishes have been updated and/or replaced with components that meet current standards. Dwellings in this category either are almost new or have been recently completely renovated and are similar in condition to new construction.
C3 The improvements are well-maintained and feature limited physical depreciation due to normal wear and tear. Some components, but not every major building component, may be updated or recently rehabilitated. The structure has been well-maintained.
C4 The improvements feature some minor deferred maintenance and physical deterioration due to normal wear and tear. The dwelling has been adequately maintained and requires only minimal repairs to building components/mechanical systems and cosmetic repairs. All major building components have been adequately maintained and are functionally adequate.
C5 The improvements feature obvious deferred maintenance and are in need of some significant repairs. Some building components need repairs, rehabilitation, or updating. The functional utility and overall livability is somewhat diminished due to condition, but the dwelling remains usable and functional as a residence.
C6 The improvements have substantial damage or deferred maintenance with deficiencies or defects that are severe enough to affect the safety, soundness, or structural integrity of the improvements. The improvements are in need of substantial repairs and rehabilitation, including many or most major components.
Rating Description
Q1 Dwellings with this quality rating are usually unique structures that are individually designed by an architect for a specified user. Such residences typically are constructed from detailed architectural plans and specifications and feature an exceptionally high level of workmanship and exceptionally high-grade materials throughout the interior and exterior of the structure. The design features exceptionally high-quality exterior refinement and ornamentation, and exceptionally high-quality interior refinements. The workmanship, materials, and finishes throughout the dwelling are of exceptionally high quality.
Q2 Dwellings with this quality rating are often custom designed for construction on an individual property owner's site. However, dwellings in this quality grade are also found in high-quality tract developments featuring residences constructed from individual plans or from highly modified or upgraded plans. The design features detailed, high-quality exterior ornamentation, high-quality interior refinements, and detail. The workmanship, materials, and finishes throughout the dwelling are generally of high or very high quality.
Q3 Dwellings with this quality rating are residences of higher quality buildings from individual or readily available designer plans in above-standard residential tract developments or on an individual property owner's site. The design includes significant exterior ornamentation and interior that are well finished. The workmanship exceeds acceptable standards and many materials and finishes throughout the dwelling have been upgraded from "stock" standards.
Q4 Dwelling with this quality rating meet or exceed the requirements of applicable building codes. Standard or modified standard building plans are utilized and the design includes adequate fenestration and some exterior ornamentation and interior refinements. Materials, workmanship, finish, and equipment are of stock or builder grade and may feature some upgrades.
Q5 Dwellings with this quality rating feature economy of construction and basic functionality as main considerations. Such dwellings feature a plain design using readily available or basic floor plans featuring minimal fenestration* and basic finishes with minimal exterior ornamentation and limited interior detail. These dwellings meet minimum building codes and are constructed with inexpensive stock materials with limited refinements and upgrades.
*Fenestration – the design and disposition of windows and other exterior openings of a building.
Q6 Dwelling with this quality rating are of basic quality and lower cost; some may not be suitable for year-round occupancy. Such dwellings are often built with simple plans or without plans often utilizing the lowest quality building materials. Such dwellings are often built or expanded by persons who are professionally unskilled or possess only minimal construction skills. Electrical, plumbing, and other mechanical systems and equipment may be minimal or nonexistent. Older dwellings may feature one or more substandard or nonconforming additions to the original structure.
Subscribe to:
Posts (Atom)