aladdinappraisal

Archive for A1 Tips Just for Realtors

How to Verify the Home You Want to List

5 Steps Appraisers use in a Sales Comparison

(How to Calculate the List Price of a Home)

 

This is part 1a of 6 – How to Verify the home You Want to List

Adam Wiener Aladdin Appraisal

(Please note:  I realized the importance of adding step 1a after writing the first blog in the series. Verifying exactly what we are valuing is the primary step and belongs right here in the sequence, so let’s take a look at how to do that now. – Adam)

Q- Who should be interested in this blog series?

A- This information might benefit anyone interested in home values but I am writing it for you the real estate agent located in Eastern MA with www.MLSPIN.com  access, with two specific needs in mind;

  • a real estate agent doing a CMA to get a potential home value for a listing appointment;
  • a real estate agent with a pending sale who is meeting the real estate appraiser.

Q- Why?

A- In both cases being knowledgeable and learning to apply the techniques will give you certain advantages that can help you to be more successful and effective at serving your clients.

 

This 6 part blog series is as follows:

 

1)      The Introduction Appraisal Techniques for Real estate Brokers

a)  Verify your Subject property

 

2)      Step 1- Selecting Comparables. Finding an initial value range.  How to select truly comparable properties (comps).  MLS filtering and research tips, tricks and techniques.  The importance of bracketing.  Letting go of price per square foot, why this is a truly misleading indicator (don’t tell your competition).

 

3)      Step 2- Data Verification.  GIGO Time saving research methods and shortcut.  free verification websites.  Reading and understanding the clues in assessor field cards.   What to do after discovering a sale is a non-comp because it failed verification (spoiler alert- toss it).

 

4)      Step 3- Sales Comparisons.  Not all differences are valued in your market.  Know which key characteristics impact value.  Understanding cost vs. market value of improvements.  How to explain this to your clients.

 

5)      Step 4- Comparable Adjustments. A brief overview of the methods; matched pairs, sequential percentage adjustment, lump sum dollar adjustments, regression analysis, depreciated cost of new.

 

6)      Step 5- Reconciliation of Comps into one value or a value range.  Never simply average the comps; learn how to do a weighted average.

 

Q- What is the house we are going to value for our hypothetical listing?

 

Campanelli Slab Ranch Home

A-In this series we will value a hypothetical Campanelli slab ranch home in North Framingham.  Why? a ranch is a simple home making explanation of the process less complicated.  Framingham had 94 slab ranch home sales in the past year. This is an adequate supply of data to work with.  Don’t worry if you have a different type of home, the steps work when you are valuing any home.

 

Assessors Field CardBefore I visit a house I always obtain the assessor’s field card and read it carefully.  This is where I begin to figure out what exactly I am valuing.  Here is an actual field card I am using as our fictitious home.  If your town does not have online cards you have to go to city hall to obtain one.  The format and information vary from town to town.

Tip: do not believe field card data, in my experience they are often inaccurate.  If you estimate a home’s the value based on inaccurate data you will not arrive at a reliable value conclusion.  That is why I personally view and physically measure each home I appraise.

Here is the #1 Mistake I see in MLS Listings. How can you value anything before you know what it is?  The most important things you should always do is to measure, or have some else measure, every single house for your CMA.   I use the ANSI Z-765 Square Foot Measuring Standard.  It is the gold standard plus the future appraiser will use it when they appraise for your sale.

I understand there are different financial and comfort levels and skills.   You could pay someone to measure and not get the listing.  If I were doing a CMA I’d have the assessor’s sketch in hand and would at least check the footprint to make sure it is correct.  How many of your competitors do that?

Our field card provided us with a few important clues.

Clue #1: The home was inspected and measured 5 months ago.  What that means to me is key information on the card regarding the living area, bed-bath count, condition and quality are more likely to be correct.  I expect not to be surprised by what I find when I arrive.

Clue #2 is that the home has a condition rating of “A” and a grade (or quality) rating of “F”.   I read that as good condition and below average quality, but quality typical for the neighborhood.  Keep in mind all the slab homes in this area are all of similar lower quality.  After all, these homes were built by for about $12,000 dollars.

Clue #3 is inaccurate information in this field card.  I am familiar with the actual house on this field card.  Error #1 is that there is actually no garage.  This is evident in the field card photo but if there was no photo I would check street view at google maps.  The “312sf garage” was converted to a finished, insulated storage room in 1998.  Error #2 is the garage footprint is deeper.  It actually extends at the rear of the former garage housing the mechanical room and oil tank.  This is not shown on the sketch so the footprint is wrong.   I would point these things out in a sales presentation adds to credibility as an expert, and it is doubtful that competing brokers will have done so.

To highlight- There is data on the field card for this house which is is wrong even though it was recently inspected and re-assessed.  This proves my earlier point,  not to believe field card data.  I do believe the 1,415 sf of living area is correct, but there are only 6 rooms inside the house not 7 rooms, and there are 3 bedrooms and 1.1 baths.

 

Floor planThe fastest way to sketch is to pre-draw the house footprint (from the field card) on the back of my worksheet before I go to the home.   I draw freehand using a pencil but used graph paper for this blog.  I recommend graph paper when you are new.  Upon arrival I measure the house and circle the correct dimensions correcting the bad dimensions, and then recalculate the actual gross living area.  I fill in interior rooms and label them as you see here.  Later I use software to make a professional sketch and calculation sheet.

Here is a tip, ask your potential clients to dig up a copy of their last appraisal and look at the sketch.   Most people had an appraisal to purchase or refinance, most appraisals include a sketch.  if they agree and provide it this accomplishes four important things for you.

  • First, their cooperation is a positive buying sign.
  • Second, if no one else asked for this they see that you think and act differently.
  • Third, if the appraisal was relatively recent you see a value which you know they have in their minds as a reference for their home’s current value.
  • Fourth , the sketch may help you expedite drawing your own sketch 

Last tip, look at the deed for the last sale in order to verify the lot size.  It is sometimes possible to see the surveyors plans if you spend the time to learn how to research the online registry.

 

At this point we have defined our subject property.  It is a typical quality, 1960 slab ranch in good condition on a 20,000sf lot with a patio.  It has a 6 room, 3 bedroom, 1.1 bathroom layout, and the ½ bath is en-suite.  There is a finished storage/laundry room with a mechanical room at the rear and it has Central Air.

To be continued, thank you for reading.

 

PS. I am seeking requests for possible blog topics, and if you have any real estate or appraisal related problem or question email me at Adam@AladdinAppraisal.com

If you found this article helpful or informative, I would be grateful if you would use the social buttons below to share, like and Google+1 it.

5 Steps Appraisers us in the Sales Comparison- Part 1 of 6

Part 1 of 6 – Appraisal Techniques for Real estate Brokers

Real Estate ValuesWelcome to the first of a six -part blog series which shows how residential appraisers value real estate using comparable sales.  I will take the methods we use and break them down into simple terms using real life examples.

 

Who should be reading this series? This information might benefit anyone interested in home values but I am writing it for you the real estate agent located in Eastern MA with MLS-PIN access, and with two specific needs in mind;

  • a real estate agent doing a CMA to get a potential home value for a listing appointment;
  • a real estate agent with a pending sale who is meeting the real estate appraiser.

In both cases being knowledgeable and learning to apply the techniques will give you certain advantages that can help you to be more successful and effective at serving your clients.

 

This series might also benefit you if you have ever;

  • Bought or refinanced a home and want an understanding as to how the sales comparison portion of your appraisal works;
  • Checked your home’s assessed value;
  • searched for a Zestimate or any other of automated “free home value estimator”.

 

The 5 steps in the Sales Comparison approach are as follows

1)      Study the market then select sales and listings most comparable to the subject (the residence being appraised).

2)      Collect and verifydata for each property e.g.; listing and sale prices and dates, physical and locational characteristics plus any special relevant conditions.

3)      Analyze and compare each comp with the subject. Consider the time of the sale, location, physical characteristics and conditions of the sale.

4)      Adjust the sales price of each comp up or down for any key differences that impact value and/or marketability.  Adjustments are derived from the market using matched pairs, regression analysis and other techniques (hang in there this will be to be demystified in part 5).

5)      Reconcile the “adjusted sales price” of the comps into one indicated value for the subject.

 

If you are a real estate agent with a pending sale who is meeting a real estate appraiser, how important is it to for you to know the steps appraisers use?  I always “comp out” my subject property but I respect and am interested in the broker’s opinion.  My usual experience is that the broker provides “comps” are unusable for reasons that will become clear.  you will be able to provide good quality comparables for use in your appraiser package.

 

If you are a real estate agent doing a CMA for a listing appointment, how important is it for you to close the appointment and leave with listing in hand?  You will be able to not only determine and support the correct listing value for your presentation, but will also be able to cut a competitor’s CMA comps to shreds.

 

This 6 part series will be as follows:

1)      This Introduction – Appraisal Techniques for Real estate Brokers

2)      Selecting Comparables- Finding an initial value range. How to select truly comparable properties.  MLS filtering and research tips, tricks and techniques. The importance of bracketing. Forget price per square foot, why you just have to let this truly awful and misleading indicator go (don’t tell your competition why).

3)      Data Verification- GIGO Time saving research methods and shortcut.  the most valuable free websites.  reading and understanding assessor’s field cards.  What to do after discovering non-comps because they failed verification (hint- toss them).

4)      Sales Comparisons- Not all differences are valuable in your market.  what are the key characteristics that impact value?  Understanding the cost vs. the market value of improvements. How to explain this to your clients.

5)      Comparable Adjustments- Matched pairs, sequential percentage adjustment, lump sum dollar adjustments, regression analysis, depreciated cost of new.

6)      Reconciliation of Comps- Why you never simply average the comps, and how to do a weighted average.

 

Do not worry if these terms are unfamiliar or seem math-scary.  appraisers have our own lexicon just like any profession.  The purpose of this series is to demystify and simplify what is going on under the hood of a sales comparison approach to value.  And to provide a simple method you can use for your CMAs and appraiser meetings.

 

See you on Monday 3/31/14 for Part 2 – Selecting Comparable

 

Tags, Real estate appraisal, sales comparison analysis, estimating home values, what is my home worth, real estate appraiser

Real Estate AppraiserI am seeking your requests for possible future topics, and if you have a real estate or appraisal related problem or question email me at Adam@AladdinAppraisal.com

If you found this article helpful or informative, I would be grateful if you would use the social buttons below to share, like and Google+1 it.

 

 

 

 

The 7 Most Common Issues and Errors with Real Estate Appraisals

The Art of Deciphering Appraisal Reports

I conduct appraisal review assignments for attorneys, accountants, banks, lenders, appraisal management companies and other clients as part of my appraisal practice.

There are two types of real estate appraisal reports which I review; FNMA or lender reports and market value or non-lender reports.  For this article I will focus on the 7 most common issues and errors with market value appraisals.  All errors are violation of the requirements set forth in an ever-changing  set of quality control standards called the Uniform Standards of Professional Appraisal Practice (USPAP) to which all appraisers are bound.

The 7 Most Common Issues and Errors with Market Value Real Estate Appraisals

  1. Using the wrong appraisal form
  2. Missing highest and best use analysis
  3. Excluding an approach to value with no explanation
  4. No reconciliation between various value approaches
  5. Lacking time adjustments
  6. Incorrect date of value
  7. Factual errors

 

Using the wrong appraisal form

Sometimes I see forms that were designed by FNMA for use with federally insured loans being used for divorce, probate, pre-listing, tax or other non-lending appraisals.  So how does this cause a problem? These lending forms have pre-printed scopes of work, certifications and intended uses and intended users that are not appropriate for non-lender assignments. 

 

Missing highest and best use analysis

Highest and best use is always that use which would produce the highest value for a property, regardless of its actual current use. It is necessary for the appraiser to develop an opinion of the properties highest and best use and then to report a summary of the analysis within the appraisal report.

No reconciliation between various value approaches

There are three approaches to value;  the cost approach, the income approach and the sales comparison approach.  When an appraiser uses more than one approach usually they won’t lead to exactly the same value.  So how does an appraiser arrive at one final opinion of value?  the process is called the reconciliation between value approaches.

 

Excluding an approach to value with no explanation

An appraiser does not have to develop all three of the approaches to value as long as the resulting conclusion is not compromised and can be relied upon for its intended use. However, the appraiser is required to explain why any of the three approaches  was excluded.

 

Lacking time adjustments

When the real estate market has increased (or decreased) since the time a comparable was sold a date of sale adjustment will help to bring the old comp up to date with the current market.  The lack of an adjustment in this case is likely to affect the final valuation.

 

Incorrect date of value

Each appraisal has an effective date of value. It can be current, retroactive (past) or prospective (future).  I primarily see this error with tax abatement appraisals.  When homes are assessed for 2014 taxes the values were based on the fair market value of the home as of January 1st 2013.  In that case the appraiser must complete a retrospective appraisal using only sales that closed before January 1st 2013, the effective date of value.

 

Factual Errors

Most appraisals tend to rely on the sales comparison approach to value. This means that fact checking comparable sales is perhaps the most important parts of the appraisal process.  The MLS data is entered by individual brokers and not policed by MLS or anybody else.  As a result it is full of errors.  As the saying  goes “garbage in, garbage out” meaning that  the use of inaccurate data will lead an appraiser to arrive at an inaccurate valuation.

 

If you have any questions or think your firm would benefit from a presentation on any appraisal issues please feel free to contact me.  If you found this article helpful or informative, I would be grateful if you would like and share it with others.

And please let me know if there is any real estate or appraisal related topics that you are interested in.

Adam Wiener, CRA

Adam Wiener

Adam@AladdinAppraisal.com

 

Tags: real estate appraiser, real estate appraisal, appraisal errors, appraisal issues

 

 

Tips Just For Realtors

Tips for Appraisers Coming Soon

%d bloggers like this: