An Appraiser's View

Ok, now that I have your attention, no, the market is not declining in most areas, but I guarantee you it will. When? Well, if I knew the answer to that I would be sipping a beverage on the beach of a tropical island instead of trying to help people prepare for the coming market decline. That said, when asked, my magic 8 ball responds with "Without a Doubt" and "You may rely on it" instead of the  "Cannot predict now" it was coming up with just a few months ago. Given the accuracy of the 8 ball I myself have decided to prepare for the decline. I recommend you do the same. 
But how do I "prepare" for a market decline? I recommend three things. #1 Refinance out of a variable rate 1st mortgage. #2. If you have a HELOC balance either pay it off or refinance it into your 1st *Note* If when refinanced you will not be able to afford payment do not refinance. and #3. If you are considering investing in distressed sales by tapping into your home equity, increase the value of your home so you can get the lowest rate possible on monies borrowed. 
Which brings us to the meat and potatoes. How do you increase the value of your home in a declining market when with a few exceptions, remodeling currently  increases home value by only 70%-85% of the cost? Yes, I have seen all the tv shows and even know a few contractors who specialize in flipping properties. They have a spreadsheet that shows what they paid, what their costs were, and how much they sold it for, usually showing a 15-20% flip profit. But they are leaving out two important parts of the formula, their own labor costs and the time factor of an increasing market. (The home would have increased in value during the time they were remodeling whether they remodeled or not). Plus, if they are acting as the real estate agent they leave their 3-6% sales commission out as well! When these are added profit usually drops down below 10%. Which means the exception is, if your home is in need of repairs and/or significant updating, taking care of your home maintenance, finishing those projects, and updating your home can increase the value by as much as 10% in a declining market!  
My magic 8 ball says the market decline is coming "Without a doubt" so my advice is don't wait. Prepare your home today. 

Posted by Jeff Pickerel on September 21st, 2022 3:25 AMLeave a Comment

Subscribe to this blog
July 12th, 2022 10:11 AM
Did you know? In mortgage lending you are never the appraiser's client? That doesn't mean that you are not someone's client. You are the client of your lender/loan officer, the lender/loan officer is the client of a 3rd party, and the 3rd party is the appraisers client. Confused? Wait until I get into intended users! Maybe I'll save that for another day.... 

My point is, even though you are not our client, you are the client of a client, and without you we would not have the income from appraising your house, nor the pleasure of meeting you. So even though you are not OUR client, we want you to know we will treat you and your property as if you were our client, to the extent the law allows, and that we appreciate you . ??

Posted in:Lending and tagged: appraisallending
Posted by Jeff Pickerel on July 12th, 2022 10:11 AMLeave a Comment

Subscribe to this blog
May 9th, 2019 7:49 AM
Fannie Mae recently announced they are testing a change in the appraisal process which would involve having appraisers rely on a 3rd party data collector for the data elements they normally collect when they inspect a property. 
One can surmise the idea for this came about through a meeting between Fannie Mae and the CEO of a certain large property acquisition company who pioneered a similar idea during the last market downturn. The meeting happened at the suggestion of President Trump who is a huge proponent of technology and innovation. One can also then surmise that this is not the only change that is planned. When you consider that Blackstone used automated valuation models coupled with their property inspection data to make decisions on how much to pay for a foreclosed property, the intellectual partnership would surely be planning a similar move in the future. The only question that remains is will it actually work? 
I could bore you with the reasons it would work in tract homes that have typical updating, no deferred maintenance, no view, and typical locations, but would be marginally to highly inaccurate in all other instances, but instead let me state simply that data collected by 3rd parties that have zero liability is unreliable. Real Estate agents will stretch photo's to make a room look bigger, exaggerate views, quality, and condition just so they can get a buyer to look at a house. 3rd party photographers are more likely to get more work if the pictures they take make a house look better than what it is. And 3rd party data collectors are likely to miss many critical value details as they rush through a property because they have no liability for the missed item and they have 10 more inspections booked that day (using Blackstone's data collection model a 3rd party inspector will make $25-$35 per inspection, you do the math on how long they can spend on a property and still earn a living).  Based on this, in my opinion, the answer to whether this will work or not is "Not a chance." But that won't stop them from implementing it. 
Big Data is here. How it is used will not only determine the fate of the appraisal, real estate, and loan industries, it will determine the size of the next bubble, and the people affected by the fall when it bursts.  
 

Posted by Jeff Pickerel on May 9th, 2019 7:49 AMLeave a Comment

Subscribe to this blog