Real estate appraisal - Blog

A PVC farm is an unfinished subdivision of unsold lots abandoned by a development where PVC sewer pipes are protruding from the ground.

As I travel around Atlanta and the surrounding areas I sometimes wonder how the real estate market will pan out. We have a great deal of real estate on the market and now acres of PVC farms.

Many of these massive subdivisions have one or two homes where some unsuspecting out of town buy has purchased. As I appraise some of these homes I notice that the value is rarely near what they paid and most get foreclosed on.

Will these PVC farms ever go from growing PVC to construction growth? What Are your thoughts?

Standing in front of their house, if most sellers were to look left and then right, they will more than likely see a long row of “for sale” signs. During these turbulent times, sellers have to do more than just offer light Hors D'Oeuvres at their open house to attract potential buyers. With the market being so saturated with houses, sellers are not only competing against other sellers, but with new developers as well. They are being forced to come up with offers that will not only make them stand out from each other, but compete against the new developers who are offering home buyers thousands in builder incentives. The solution: offering cars and vacation packages to attract potential buyers.

In the toughest markets, such as Florida cities, Detroit, Stockton, Sacramento and San Diego, incentives are becoming more and more prevalent. One Florida agent offered a Mercedes Benz with the purchase of the home. A home owner in California raffled off tickets to a football game. A Detroit seller even offered a two year lease of a BMW X3 SUV to the agent who finds a buyer for their home.

Although these incentives are becoming a new trend in the market, they are not a guarantee. Even after offering these cars and tickets, the above mentioned sellers and agents still have not found buyers for their homes. This just proves that even freebees aren’t guaranteed money makers.

(Source: MSN Money "When Homeowners Are Desperate To Sell")

Government regulation has always been a sour topic in every industry. As time goes on, the government is beginning to regulate industries that previously were self-monitored at best. This past year, the state of crisis that the real estate industry is in has put it under a large microscope and has opened up it up for much scrutiny. Although some regulation is encouraged in times like these, some fear that once the floodgates open, they will be hard to close. Such is the case with The Mortgage Reform and Anti-Predatory Lending Act of 2007 (this will link to a pdf of the actual bill), a bill currently being considered by The U.S. House Committee on Financial Services.

Proponents of the bill believe that if passed, it will be the demise and eventual extinction of all mortgage brokers. On the other hand, advocates believe that this bill will only ensure that buyers will have all information disclosed to them regarding their transaction in order to be an educated buyer and brokers will have to be more thorough in processing transactions. To understand the bill better, one must first break down the sections of the bill into the most important, more manageable sections (see below for a brief breakdown of a few sections).

Usually bills are never 100% agreed on by anyone. There are often many amendments made to a bill before it is acceptable. This bill is no exception. Most will agree that requiring brokers to become licensed and registered is beneficial to both the buyer and others who work with brokers. Holding people to a high set of ethical standards, helps bring more ethical practices to any industry. However, industry professionals are split on whether this bill will cause brokers to loose money by making them disclose YSPs or requiring YSPs too be the same amount regardless of the loan type will or if will cause higher mortgage closing costs, larger required down payments or fewer available mortgage source.

The one thing agreed on by all is that no bill should be rushed. As industry professionals, we should thoroughly read the bills that will dramatically affect our industry and then make an educated decision when we decide which side of the line to be on.

Section 103

• Originators cannot receive, and a bank cannot pay a greater YSP for certain loan products (i.e. a 30 year loan with no prepay yielding 1% vs a PayOption with no Prepay yielding 3%)
• All YSP and Points not associated with true discount points must be disclosed as an origination fee

Section 104

• All originators must be licensed and registered with the state(s) they lend in, and also the federal government

Section 105

• If laws are not followed appropriately, there is a fee charged to the originator of no more than 3x’s the originator fees plus the client’s costs with attorney fees

Section 106

• This will take effect and be enforced no later than 18 months after the enactment of the bill

Section 201

• The underwriting process must be consistent and a logical decision must be made that the borrower can legitimately repay the loan based on verified and documented information
• The fully indexed rate will be used for qualifying

Section 204

• Originators are responsible for fixing their client’s loan issues
• Meaning, if you violated these laws, you are accountable unless you can provide a cure for them, or you have legal safeguard against this

Section 205

• A third party can sell or assign a loan to an originator and investor/bank to find a cure for the problem

Section 206

• Prepayment penalties are not allowed on subprime loans
• Renters who are living in a foreclosed property will take over the property from the landlord as long as the property was under lease prior to the foreclosure notice
• If the contract was signed after the foreclosure notice, the renters have 90 days to leave the property

(Summary of Sections provided by Andy Scherer, Countrywide)

I was recently reading an article online at MercuryNews.com, when I came across “dialing for dollars”. This term was coined by an appraiser being interviewed who gave light to the new trend. In the past, sellers who succumbed to desperate measures tried to butter up appraisers in hopes of get them to raise the appraisal value. Now, with the Real Estate being in such a state of distress, some sellers have become more bold in their efforts. They have turned to calling around to appraisers with a preset value in mind, trying to find an appraiser that will agree to appraise their property at the amount.

What used to be a rare occurrence is quickly becoming a more common practice among homeowners. In a national survey of appraisers conducted by October Research, an alarming 90% reported that they have been experiencing pressure. Appraisers also reported that they declined 48% of work because of experiencing pressure to restate, adjust or change property values.

 Although getting a high appraisal value may seem like a fix to the seller’s problems, it only deepens the wound in the housing market. After a property is given an inflated appraisal value, it is then sold to the next owner. The new owner is now in the same position as the last, stuck with a loan much higher than the value of the home. In times like these, it is even more important that we as appraisers practice at the highest ethical standards. Not doing so just perpetuates the problems that the Real Estate market is facing today.

data source: home appraisers pushed to inflate values; exaggerated numbers sought to help desperate homeowners; by pete carey; mercury news; article launched: 10/02/2007 01:31:35 am pdt