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You Better Price Your Listings Right----Appraisal Changes

This week FHA issued a mortgagee letter to respond to declining markets. These changes go into effect for all FHA appraisals beginning April 1, 2009. This aligns the FHA appraisal requirements with FNMA which also requires new reporting as of April 1.

Appraisers are currently expected to note the trend of property values. Are property values increasing, stable of declining? They are to provide conclusions as to the supply of properties in the subject neighborhood. Is there a shortage, in-balance or over supply of homes for sale? Additionally appraisers are to provide data of the marketing time for properties for sale. Is it taking under three months, three to six months or over six months to sell the property?

All appraisals performed beginning April 1 must include the Fannie Mae for 1004/MC, the market conditions Addendum. This form addresses the following data points to determine the current market conditions:

At least 2 comparable sales must be within 90 days of the appraisal date
A minimum of 2 active listings or pending sales in addition to the three closed comparables
Bracketed listing using both dwelling size and sales price when possible
Adjust active listings to reflect the list to sales price ratio
Adjust pending sales to reflect contract sales price when possible
Include original list price and any revised list prices
Reconciliation of adjusted values of active or pending sales with adjusted values of closed comparable sales
Absorption Rate Analysis
Known or reported sales concessions on active and pending sales

As a real estate professional let me encourage you to learn about the market conditions addendum. I am including a link to Fannie Mae’s training for this.

Also included is another link to a video presentation for the explanation and training for this addendum. Click here to view the video presentation.

It strikes me that pricing your listings correctly may be more important than ever. Part of this analysis includes (a) the ratio of list price to sales price and (b) the tracking of include the original list price, any revised list prices, and total days on the market (DOM).

My opinion is this, do not contribute to you market area being deemed a declining market by allowing your sellers to over price their property to today’s market. This will have the effect of decreasing the ratio of list price to sales price as well as increasing the number of days on the market.

An additional opinion, if you are working with low ball buyers, let them know this is having a detrimental effect on the market. Paying a fair price is appropriate, but taking advantage of sellers is hurting everyone and is contributing to the housing difficulties. Maybe you should think of not representing those that continue to make low ball offer after low ball offer.

Real estate agents, I welcome your thoughts and comments on the impact this additional analysis by appraisers may have in your market.

Appraisers, please weigh in on this topic. I am interested in what you know and think.

Jay Williams

www.myhomeloanwithjay.com

Posted by Jay Williams, Mortgage Loan Officer Getting You The Right Loan on 03/28/2009 11:55 AM

Comments (23)

Appraisals in the Mortgage / Finance Channel

fha, fnma, housing prices, price declines, housing market, maket conditions, greenville nc, pitt county nc

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23 Comments on You Better Price Your Listings Right----Appraisal Changes

MAR

Okay -- now I am confused. I was just talking with a lender who said that FHA does NOT care about declining market. Does this mean, the FHA appraiser must address these items and FHA does NOT care... or does it mean that now FHA does care about declining markets? Thanks, I'll check back.

Dear Jay,

The provision of this revision that disturbs me most is the need for 2 comps sold within 90 days. I live in a historic district. 90 comps are rare even when the market is hot!

Have an insight?

Thanks for your post!

Barbara

Thanks for posting this up Jay. Seems like a whole lot more number playing for the FHA appraiser.

Properly pricing listings is important; but, it seems like buyers still seek even lower prices because of the market environment. Until prices stabilize, this market will be erratic.

Joan, I guess you can say this is FHA's way of dealing with the declining market phenomenon. While, to my understanding at the moment, FHA does not require a LTV reduction for declining markets as conventional loans do, obviously appraisers are now tasked tp provide data that may pressure appraised values. Who know if we will soon see a change in guidelines for LTV adjustments,

Secondly, there will be pressure on DE underwriters in terms of accepting the value findings. I am pasting in this comment what the mortgagee letter says about Lender responsibilities.

"Lender Responsibilities

Lenders are responsible for properly reviewing the appraisal and determining if the appraised value used to determine the mortgage amount is accurate and adequately supports the value conclusion.

Direct Endorsement lenders are reminded that if the appraiser they selected provides a poor or fraudulent appraisal that leads FHA to insure a mortgage at an inflated amount, the lender is held responsible, equally with the appraiser, for the integrity, accuracy and thoroughness of an appraisal submitted to FHA for mortgage insurance purposes. "

Jay

Barbara, yes the 2 comp rule can be a problem. A silver lining may be the necessity to go out of the neighborhood to find a similar property within 90 days, provided the appraiser is diligent in finding the best not first sale.

What concerns me most is the ratio of list price to sales price and the history of price reductions over the life of the listing. What are your thoughts?

Jay

Winston, it will require a lot of data gathering and number crunching. Diligence vs expediency may make or break a deal.

Jay

Dear Jay,

List to sales price value has always given bad info! If the appraisers don't do total history they won't know.

If they find it, it still doesn't relate! A seller can list for anything, especially with an "unsophisticated" agent--like my euphemism?

This is all more trash that an "unsophisticated" underwriter can use to cause problems!

"Unsophisticated" for me means "dumb as dirt!"

Barbara

Steve, some of these "buyers" are wasting everyone's time. They need to know that this infomercial mindset is hurting the market and may impair their investment. If they ever make one.

Jay

MAR

Jay, this is such important information. I am waiting, at this moment for an appraisal back on a property where we offered more on the list price to get a sellers assist, providing needed money for closing.

Barbara, that was exactly my thought. A seller has an unrealistic value at which to list coupled with a listing agent that doesn't properly advise the seller. The results being more days on the market and a greater percentage reduction of list to sale. Both actions will be leading to declining market designations.

Get the word out to brokers in charge for agent training.

Jay

Janice, I was thinking about you just the other day. Good luck with your appraisal . We will be pulling for it to come in at a level to make your transaction work.

Jay

Jay -- thanks for addressing my question. This is all getting a bit confusing. Regarding using the list price to sales price ratio... I don't think this is a good tool .. at least in New Hampshire. 2 identical houses in the same neighborhood can have very different value depending on what the overall condition the existence or non existence of upgrades... I think this often produces very misleading information.

I have a listing that is quite a challenge to price. So the owner decided to get an appraisal done on the property. The appraiser echoed the concern that because the property is unique (large home, cottage and duplex on a large lot) he may have a difficult time coming up with comps and justification for his analysis.

The owner has already told me that we will have to base the list price not only on the appraisal, but the cost of the major repairs as identified in the pest and property inspections.

It's not going to be easy.

Joan, it is getting confusing and I'm afraid it may lead to a lot of erratic appraisals. The more I think about it.

Jay

Pacita, it does sound challenging. I commend you for being pro-active with the appraisal and inspections completed upfront.

Good Luck!

Jay

Jay, Thanks for the informative post! Seems like the new market conditions addendum will have a dampening effect on home values as appraisers focus on the addendum and may be reluctant to come in higher when a property is in excellent condition but located in a market flooded by REOs and short sales. If condition can't overcome market condition, there's little incentive to go to the expense of updating and repairing homes before selling them. I'm waiting on such an appraisal now and know the appraiser has to walk a fine line.

MAR

Lots of info in there. Great post! I am really not a fan of the new appraisal requirements especially the HVCC!

JP Lowry--President--Preferred Financial Funding

MAR

Ila, good luck on the appraisal that you are waiting on. Another item I've had come up this week was an appraiser that incresed his fee because of the additional work the market conditions addendum requires. I expect more of that to come.

Jay

APR

JP, The new market conditions addendum concerns me as well. We just saw a lower than expected appraisal come in over a newly listed price. Owner was a mortgage broker. Appraiser admitted to placing greater weight on the list price because it was coming from a "real estate insider".

My question is does he know the motivation of the potential seller? Of course not, he has never spoken to them.

Very troubling.

Jay

APR

I find it ironic that the somone would tell a licensed professional to encourage potential buyers not to try and pay the least amount possible for a property in a declining market. These same folks are the realtors that told people that they had to pay above asking price if they wanted the house. In turn, they would provide appraisers that would use time adjustments and market conditions to justify the sale price, that would be routinely higher than any other sale in the area, thus causing a bubble. Couple this with FED induced artificially low interest rates, fraudulent credit rating agencies and alleged default insurance and we find ourselves with 500 trillion in inflated derivatives leveraged of 10 trillion in deposits.

Not allowing potential homeowners to decide what they will pay will cause reform and realtors will end up splitting their commissions with the lister / broker / and buyer agent. Let it alone, you telling folks to pay a fair price will not stop the decline in housing prices. The decline will only traunch when the family income ration over existing home value settles in at 2.6 -2.8. This is an historic level that through the years provided fair pricing in the housing market. Satted income programs allowed this attrocity because investors would buy the shit with the AAA rating, unknowingly.

The markets will bottom in 2011 with a median home value of 153,900, (figures 3% wage growth). We may overshoot as with any slide, but this is the area when we will see increased lending again.

I can forward the research if anyone would like to review such.

Jim D

APR

Jim D.,I would love to see your research, thanks. Debbie

MAY

I recently listed a home in mid march. This home had a contract 2 years ago for 112K. It is in a non conforming unrestricted neighborhood near a major freeway intersection. Very hard to comp due to the size of the house as well. A 1023 sqft on 3/4 of an acre. It has horses on one side and a junkyard on the other. We listed at 103k, and dropped the price to 98k within three weeks. Suddenly we had tons of showings and activity. We accepted an offer at 93k. The appraisal came in at 91250. Based on the location and this can be used as commercial, I think this is low. The buyer rep is now trying to get us to lower the price to 91250.00. There are comparable nearby houses listed for 98-100k and a 1/2 acre lot in the same subdivision ( a little closer to Freeway) for 106k. The highest sold within 2 miles and 6 months is 75k on a 1/4 acre. Any opinions?

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