The “Serial” Podcast and Your Appraiser

Podcasts are a growing medium for both education and entertainment.  Research shows it has grown over 25% per year for the past few years.  As an appraiser, I find myself spending a lot of time at my computer as well as traveling to and from appraisal inspections.  I discovered podcasting about a year ago and have not turned on talk radio since.  Podcasting allows me to specifically pick the topics I want to hear and listen to them when I have the time to listen.  I love ‘em.

Recently, a few friends of mine turned me on to the Serial Podcast which is produced by This American Life.  Unlike the podcast topics I SerialPodcastAppraisertypically choose (which are mostly informative), this one is entertainment.  It is like reading a John Grisham novel or watching a really great episode of CSI; only this is a true story.

Serial is narrated by a reporter who begins with a true story and attempts to follow it through to the end.  Each episode follows developments in a cold case murder from 1999 in Baltimore, Maryland.  How does it end?  No one knows because each podcast is produced almost as quickly as the creators learn new information.  The conclusion is still yet to be written.    This is a fascinating (and addicting) story.   Trust me, I dare you to listen to two episodes and then quit.  It is like Lays potato chips… you can’t eat just one.

As the case unfolds, I find myself sucked further and further into the drama.  There are times when I am confident I know who did it.  Then, some other piece of evidence comes to light and I am not so sure again.  The podcast is like that.  Back and forth.  Back and forth.  Did Adnan do it or not?  Who knows?

What I find fascinating about the investigation is how difficult it is for witnesses and participants to remember the details of what happened the day Hae Min Lee disappeared.  You would think that on the day your girlfriend, friend, or associate was murdered that you would recall the details of that day.  Not so.  In fact, that is what is so hard about cases like this; even testimonies given just a few days after the event are often contradicted at later times.

So what, pray tell, does this stupid addiction of mine have to do with your appraiser?  Great question.  As I was listening to Serial today, I had a crazy thought about picking appraisers who see the importance of paying close attention to details as well as keeping good records.  An appraisal is a very important document.  It can (and often does) have a great affect on major life and financial decisions.  You are going to want to choose your appraiser carefully.  Look for one who has been in business more than just a few years.  Find a professional who can answer your questions.  Do not take this decision lightly.

Do you listen to podcasts while you work or drive?  Would love to hear what your favorite shows are.  Please comment below.  I am always looking for a new obsession.

-Dustin Harris

Killing a Deal with a ‘Low’ Appraisal

 

Within the first few weeks of becoming an appraiser, I knew I had a choice to make. I was already being pressured by lenders, real estate agents, and others to ‘hit value.’  Other things were being asked of me that I felt were unethical or even bordering on illegal.  It was clear that some of my peers were giving into such pressures and, at least in the short term, they were being rewarded for it.  I made a commitment early on however, to always live true to my conscience and let chips fall where they may.

 

Over the years, I have angered a lot of banks, homeowners, and agents when I have valued real estate where the market would support and appraisalpurchasenot where someone else thought it should be.  In some cases, I have felt like I have done the potential buyer a huge favor by saving them the pain of a financial mistake in paying too much for a home.  They do not always see it that way.  Rather than appreciating an appraiser’s professionalism, we are often viewed as the enemy for ‘killing the deal.’  In a rare moment, the opposite happened to me in early September.

 

I was commissioned by the Veteran’s Administration to do an appraisal for a new construction.  The plans and specs arrived and I began my initial look through.  It was immediately obvious to me that this home was of high-end quality, but had some unusual features.  For example, though the home was made of wood (common in my area), the truss system was steel (not common my area).  The cost of the roof system alone was 4Xs the cost of a normal roof.  To make a long story short, the home did not appraise for the cost of construction.  This was your typical ‘cost does not always equal value’ scenario.

 

Two weeks later, I got a call from the potential buyer.  “Oh boy.  Here we go,” I thought. I prepared myself to be taken to the woodshed for killing his deal.  What came next was surprising.

 

He said, “”I cannot thank you enough for what you did for us.  Where most appraisers would just rubber-stamp the deal, you didn’t.  Your appraisal was honest and kept us from entering into a major financial transaction and already being upside down.  There needs to be more appraisers like you!!”  I was floored and told him as much.  I said that in over two decades of appraising, I had never, not once, had a potential buyer whose sale did not go through due to a ‘low appraisal’ thank me for my services.  I asked him if I could use his quote in the testimonial section of my website and he agreed. In fact, he went on to say that if I ever wanted to send anyone to him for a verbal recommendation I could keep his number on speed-dial.

 

It can be frustrating at times to wonder if our good deeds ever get recognized or appreciated.  Sometimes we might wonder what others think of us.  In the end, I believe that no good deed goes to waste.  What we put into the universe comes back to us.

Are Egress Windows Required in Basements for FHA Appraisals

I get the question all the time, “Do I have to have egress windows in my basement if I am getting an FHA loan?”  The answer is not a simple Yes or No, but it is also not as complex as some make it out to be. Basically, it depends on how much you want the basement to contribute to the value of the home.

If you want the appraiser to count the basement area as livable space, you will need to have at least two ingress/egress points.  This can be two sets of stairs, a stairway to the main level as well as a walkout door, or a stairway and at least one egress window.

If you want a room to be counted as a bedroom it must have an egress window.  What is an egress window you ask?  Here are the requirements from HUD:

Egress Window

  • “The windowsill may not be higher than 44 inches from the floor.
  • The windowsill must have a net clear opening (width x height) of at least 24 inches by 36 inches.
  • The window should be at ground level; however, compensating factors may allow less.

In all cases, use reasonable care and judgment. If these standards are not substantially met, the basement area cannot be counted as habitable space.”

 

There you go.  If you do not have two ingress/egress points, the FHA appraiser may not count the basement as habitable space (thus there is likely not much value there).  Putting an egress window in is usually not that expensive.  The cost to do so is likely less than the value you will lose by not having one.

Should the Home Owner Accompany the Appraiser on the Inspection?

The doorbell rings.  On the front porch stands the appraiser you were expecting.  She explains that she will first measure the home from the exterior and then will need to walk through each room on the inside.  The questions in your mind are: What do you want me to do? Do you need help? Should I go with you?  These are all great questions, and the answer is: it depends.Viewing Property

Appraisers are used to doing things on their own.  A fair number of homes we inspect are vacant, so our tools are set up for solo use.  Everyone at our firm has a laser measuring device so there is not even a ‘dumb end’ of the tape to hold.  In other words, we appreciate the offer for help, but it is not usually needed.

On the other hand, it is nice to have someone with us who knows more about the house than we do.  Pointing out updates and features that are not readily seen can be helpful to the appraiser.

Every appraiser has a personal preference when it comes to home owner participation.  Some of us like to have them in tow and others would prefer to focus on the task at hand without interruption.  It is simply a matter of preference.  However, it is not really about our opinion when it comes to this matter.  It is more about you.

Having a stranger walk through your home can be an intimidating experience.  Some desire to accompany the appraiser and others would rather the appraiser just do it alone.  At Appraisal Precision and Consulting Group, we want you to do whatever feels best to you.  There are pros and cons to both.  In the end, it is your home.  You are in charge.

An Appraisal is Not a Home Inspection

Appraisal vs Home InspectionWhen purchasing a house, there are two, main inspections that typically take place: One is an appraisal for the purposes of lending and the other is a home inspection for the purpose of peace of mind.  Do not mix the two up.  They are not the same thing.

If you are not paying cash, the lender will probably require an appraisal be completed.  Consequently, an appraiser will most likely come to the home and do an ‘inspection.’  The purpose of this inspection is for data gathering to start the valuation process.  He or she will likely measure the home, walk through each room, take pictures and write notes.  Depending upon the size of the home, the inspection will take anywhere from 20 to 60 minutes (possibly longer).  Most of the appraiser’s work takes place back at the office.

An optional service that is usually ordered by the buyer is a home inspection.  The purpose of this service is to have an extensive and complete look at a home and property for any red flags or repairs that may be needed.  The home inspector will likely spend a much longer time at the house because he or she is looking from foundation to rafters.  A written report is then made, but most of the home inspector’s work takes place on site.

Some make the mistake of thinking an appraiser is also looking in depth at the house and will also report on any defects.  Though appraisers will certainly mention any defects that might affect value, they are not home inspectors.  An appraiser looks at a home in much the same manner that a potential buyer would.  Whatever is readily observable will be noticed, but do not expect the same detail from an appraiser that you will see in a home inspector’s report.  They are different services for different purposes.

Of course, either one of these services may be ordered without a home purchase.  If you are curious on the value of your home or would like to be made aware of any defects you might have, please contact our office.  It would be our pleasure to complete a thorough and professional appraisal or recommend a good home inspector for you.

The Law of Diminishing Returns on Idaho Real Estate

Idaho Real Estate, is subject to a phenomenon called “The Law of Diminishing Returns.”  Actually, the law exists in Wyoming as well.  Okay.  Okay.  The law exists everywhere, but we are only concerned with Eastern Idaho real estate and Wyoming real estate on this blog.

The principle basically goes like this: the more you get of something, the less per unit it is worth.  Let’s first look at it with something other than real estate.  If you go to the bakery and order a donut, it might cost you $.75.  On the other hand, if you buy a dozen maple donuts with creamy pudding oozing out, the cost might be $3.99.  How can that be?  How can a donut be worth 75¢ alone, but only 33¢ when purchased in a box of twelve?  The answer is The Law of Diminishing Returns.

The same principle of economics applies to real estate.  As an appraiser, I hear comments like this one all the time; “My neighbor just sold his land for $15,000 per acre.  Since mine is 10 acres, the land alone ought to be worth $150,000, right?”  Well . . . wrong.  Actually, I am usually a bit more PC about how I answer, but this statement is just not correct.  Just because your neighbor sold his two acre tract of land for $30,000, does not mean land is worth $15,000 per acre.

With land, your initial building lot is always going to be worth more than the subsequent acres.  In other words, your neighbor’s property was probably worth about $25,000 for the first acre and another $5,000 for the additional acre.  Furthermore, as you sell more and more acreage together, the cost per acre diminishes .Usually.

Here is a recent study I conducted on land sales in the Island Park area.

Average Sale Price for Island Park Vacant Land Sales 2005-2014

 

0-.99 acres = $48,781                      Initial Building Lot           Difference          Additional Per Acre Difference

1-1.99 acres = $93,094                    -49,000                                 $44,000 $44,000

2-2.99 acres = $91,598                    -49,000                                 $43,000 $21,500

3-3.99 acres = $87,446                    -49,000                                 $38,000 $12,600

4-4.99 acres = $68,986                    -49,000                                 $20,000 $5,000

5-5.99 acres = $91,361                    -49,000                                 $42,000 $8,400

6-6.99 acres = 111,875                    -49,000                                 $63,000 $10,500

As you can see statistically, initial building lots in Island Park of less than an acre average an estimated $49,000. An additional acre may add approximately $44,000, but acreage beyond the initial two is subject to the law of diminishing returns and only averages $12,000 per acre.

Of course, the law does not just apply to land sales.  Typically, two decks are worth less per deck than just one.  Four fireplaces may be worth $10,000, while a single fireplace may be worth $3,500.  A 4,000 square foot home will sell for less per square foot (all other things being equal) than a 2,500 square foot home on the same street.

As you deal with buying, selling, or simply valuing real estate in Idaho, Wyoming, or across the country, remember the Law of Diminishing Returns.  It can greatly enhance your decision making abilities.

Divorce Appraisal in Idaho

Regardless of the circumstances, going through a divorce can be a painful and complicated process.  In addition to the emotional trauma, there are attorneys, monetary concerns, compex laws, and mountains of paperwork to deal with.  If real estate (either primary, secondary, or investment) is involved, your headaches get much bigger.  Where do you start?  Who do you hire?  How do you know you are being treated fairly?  Here are a few points to consider when getting a divorce appraisal in Idaho Falls, Pocatello, Blackfoot, or any of the surrounding Eastern Idaho areas.

Choose the Right Appraiser

It is not always the attorney who chooses the appraiser.  Certainly, you will want to seek the advice of your lawyer, but if he or she does not know who would be best, do your homework.  Appraisers come with various levels of expertise and abilities.  You should know how experienced, educated, and trained your appraiser is.  Most importantly, choose someone who has been appraising in your area for a long period of time.  Knowing the market is the biggest criteria when choosing an appraiser.

You will want to find an appraiser who has had expert witness experience.  In other words, find someone who knows how to handle him or herself on the witness stand.  The best appraiser in the world can ruin a case if he or she cannot present well in front of a judge or jury.

Finally, many divorces never go to trial.  Find an appraiser who is willing to do the appraisal report for one fee and a separate billing for retainer and/or testimony.  Your overall costs will be much lower using this payment model.

Be Involved in the Appraisal Process

You do not have to be at the home or property when the appraiser inspects, but it is advised.  You know the real estate best and being there can assist the appraiser in getting the most accurate information he or she will be relying on for value.  Also, if you know of comparable homes which have recently sold in your neighborhood, you may wish to bring them to the attention of the appraiser.

Check the Appraisal for Accuracy

You and your attorney should look over the appraisal report for accuracy.  Appraisers are only human and do make mistakes.  If you have a sprinkler system, but you do not see it listed on the report, communicate that.  Do not wait for a deposition or trial for these things to come up.  You do not want the other side challenging the integrity of the appraiser for small things.  This can hurt the overall credibility of the case.

Communicate with the Appraiser Openly and Often

Appraisers are not used to talking to home owners once they have left the inspection.  This is because a large majority of appraisals are completed for lending purposes and there are convoluted laws regarding communication with the borrower.  This is not the case in a divorce situation, however.  An appraiser should remain an unbiased, disinterested, third-party—of course—but they can be a sounding board and a source of information regarding the market, your home, and your property’s value.

Summary

For over 20 years, Dustin Harris has been an appraiser in the Eastern Idaho market.  His experience with attorneys and litigation work is extensive.  He will remain neutral and respectful of both sides and is a professional in every aspect of this difficult process.

If you have any questions or items we can help you with, do not hesitate to call our office.  The precarious road through the divorce process should not be traveled alone.

What Constitutes a “Good” Appraisal or the “Best” Appraiser

5_Star_Rating_SystemWe live in a world where finding out about a product or service before we buy is usually quite simple.  When we are looking at a potential purchase on Amazon.com or other Internet sites, there are star ratings and reviews to read.  Want to try out a new restaurant?  Try using Yelp or Google Reviews.  Hiring a plumber or house keeper?  Angieslist is the place to go.  But, what about appraisers and appraisal services?  There really is no centralized review website for appraisers.  In my opinion, that is not all bad, because it is likely that ratings on appraiser and appraisal services would not reflect actual quality of work.  Allow me to explain why.

The problem with rating appraisers for their abilities and quality of work is in how appraisals are done and why.  The most probable individual to rate an appraiser (either as a praise or a complaint) would be a borrower.  Unless they were reviewing him or her strictly on professionalism, punctuality, customer service, etc., ratings from this source may be skewed.  Here is why:   Appraisals are not written to be easily deciphered by the average homeowner. This should not insult the intelligence of a homeowner, but they are just not written in “layman’s terms”.  Due to new regulations, there are codes and terms that must be used in the report which would confuse anyone not familiar with the ‘inside baseball’ of appraisal writing.  We pride ourselves on providing great customer service to the individuals whose homes we are appraising, but most are not trained in appraisal reading.

The reading of the report is minor, however, compared to the issue of bias.  It is my experience that most homeowners care more about whether the appraiser ‘hit the value’ they were looking for (or needed for their desired loan) than how well the appraisal report was put together.   In many home owners’ minds, a ‘good appraisal’ is one that comes in as high as or higher than what they believe their property is worth.  If they think their house is worth $320,000 and the appraiser comes in at $315,000, the appraiser is often branded a ‘bad appraiser’ and this is a ‘bad appraisal report.’  Conversely, an appraiser who hits a value of $350,000 must have done a stellar job and deserves the highest of commendations.

What some do not appreciate is that the quality of an appraisal report actually has very little to do with the final value.  I perform a fair number of peer reviews each year (looking at other appraisers’ work for quality compliance).  The most important criteria I am evaluating is the detail of the subject’s description,  choice of comparable sales/listings, supportability of the adjustments, reasoning of the final reconciliation, and how well this was all explained.  Final value is backseat to all of these (and stems from them all), and cannot logically be used to determine the overall quality of the report.

I am not suggesting that it would be wrong for a homeowner/borrower to rate an appraiser’s performance, but it should  be remembered that a ‘good appraiser’ is not one who consistently comes in higher than the borrower’s estimate of value and an appraisal is not ‘bad’ because it fails to ‘hit the number.’  For more understanding on this or other topics, our office welcomes your comments or contact.