Appraisal Update April 10, 2013

Agenda Data Update

Legal Update HVCC turns to AIR

State Laws

UAD & UCDP

Appraisal Update What listings tell us in the current market

Unpermitted Space

Concessions

Reduce re-inspection fees

Appeals process

Questions & Answers

Listings & Seasonal Trends

Listings & the Principle of

Substitution • Non real estate example:

o Yesterday I bought bread for $3.50.

o Though I did not purchase it, today the store is selling bread for $3.25.

o What is the cost of bread?

• Listings create ceilings in declining or volatile markets

• Principle of Substitution: a buyer will pay no more for a

property than the cost of an equally desirable

alternative property

Seasonal Realities – Nation’s Capitol

$300,000

$310,000

$320,000

$330,000

$340,000

$350,000

$360,000

$370,000

$380,000

$390,000

2010 Q1 2010 Q2 2010 Q3 2010 Q4 2011 Q1 2011 Q2 2011 Q3 2011 Q4

http://www.gbreb.com/uploadedFiles/GBAR/GBAR_News/SF%201st%2011.pdf

Average Home Prices Contra Costa County

300000

350000

400000

450000

500000

550000

600000

650000

2011 Q1 2011 Q2 2011 Q3 2011 Q4 2012 Q1 2012 Q2 2012 Q3 2012 Q4 2013 Q1 2013 Q2

average sold

average list

Santa Clara County

600000

650000

700000

750000

800000

850000

900000

950000

1000000

1050000

2011 Q1 2011 Q2 2011 Q3 2011 Q4 2012 Q1 2012 Q2 2012 Q3 2012 Q4 2013 Q1 2013 Q2

(4/10)

average sold

average list

Market Changes • Q2 2012 $151,000

• Q1 2012 $135,000

• Q1 2009 $200,000

• Q2 2006 $307,000

GSEs want comps to come from

the past 90 days

DC Metro/Baltimore

Not just a value issue, but a numbers issue.

DC Metro/Baltimore

Data Trends

$700,000

$800,000

$900,000

$1,000,000

$1,100,000

$1,200,000

$1,300,000

Qtr1Qtr2Qtr3Qtr4Qtr1Qtr2Qtr3Qtr4Qtr1Qtr2Qtr3Qtr4Qtr1Qtr2Qtr3Qtr4Qtr1Qtr2Qtr3Qtr4Qtr1Qtr2Qtr3Qtr4Qtr1Qtr2Qtr3

2005 2006 2007 2008 2009 2010 2011

Average Selling Price - Coastal South

Same data – taking out quarters

Market Trends – Santa Clara County

600000

650000

700000

750000

800000

850000

900000

950000

1000000

1050000

1100000

average sold $

average list $

Market Trends - Cupertino

1050000

1100000

1150000

1200000

1250000

1300000

1350000

1400000

1450000

Average sold $

Average list $

Market Trends – Contra Costa County

200000

250000

300000

350000

400000

450000

500000

550000

600000

650000

700000

2007

Q1-2

2007

Q3-4

2008

Q1-2

2008

Q3-4

2009

Q1-2

2009

Q3-4

2010

Q1-2

2010

Q3-4

2011

Q1-2

2011

Q3-4

2012

Q1-2

2012

Q3-4

2013

Q1-4/9

median price

median list

Market Trends- San Ramon

600000

650000

700000

750000

800000

850000

2007

Q1-2

2007

Q3-4

2008

Q1-2

2008

Q3-4

2009

Q1-2

2009

Q3-4

2010

Q1-2

2010

Q3-4

2011

Q1-2

2011

Q3-4

2012

Q1-2

2012

Q3-4

2013

Q1-4/9

median price

median list

Bakersfield– 3 years

Bakersfield– one year

Home Affordability Trends

Data for Fence Sitters

o Payment as a percent of Income:

• National Average was 21.7% in 2007 and is 15%

in 2012 (NAR)

o Home Affordability Index

• Highest levels since 1970s

o Housing Opportunity Index

• Highest since its record keeping began in 1992

o Rates

• Remaining low

Legal Update

Home Value Code of Conduct

• Replaced by AIR o Appraiser Independence Regulations

o Minor changes – Lenders still determine appraisal

ordering process and must certify that no one in

production had a role in selecting the appraiser or

appraisal management company.

There must be separation of a Seller’s sales or Mortgage

production functions and appraisal functions. An

employee of the Seller in the sales or Mortgage production function shall have no involvement in the operations of the appraisal function.

State Laws No person with an interest in a real estate transaction involving an appraisal shall improperly influence or attempt to improperly influence, through coercion, extortion, or bribery, the development, reporting, result, or review of a real estate appraisal sought in connection with a mortgage loan.

does not prohibit a person with an interest in a real estate transaction from asking an appraiser to do any of the following:

(1) Consider additional, appropriate property information.

(2) Provide further detail, substantiation, or explanation for the appraiser’s value conclusion.

(3) Correct errors in the appraisal report.

Uniform Appraisal Dataset

• It’s about reporting & validating

• Approves or denies an appraisal based upon computer submission and rules – limited in focus at this time.

Uniform Collateral Data Portal

• It’s about standardization

• Quality & condition ratings are key

Reasons for UAD • No common set of definitions among all

stakeholders in the appraisal process

Appraisal Update

Unpermitted Space • Bad News

o Additions in which there is no evidence of finaled permits can not be

included in the GLA and will be given very little if any value on the grid.

• Good News o Some lenders will lend on properties with unpermitted space if some or all

of the following criteria are met

• Done in a workman-like manner

• No apparent health or safety issues

• Typical for the area as evidenced by three-like comparables with

similar unpermitted space.

• Does not violate zoning ordinances

• Minimal cost-to-cure to remove the space.

• Bad News o MLS reporting field for unpermitted rooms???

Last thoughts on additions

• Anytime the home’s square footage varies from

public records, the appraisal process slows down.

• Consider researching and providing the appraiser

with permits or explanation of the space on the

front-end.

• Non-contiguous space must also be counted

separately.

Sales Concessions • Example:

o A model match comparable home sells for $200,000 with $10,000 credit

back to buyer from seller. Does the $10,000 adjust off the grid so that the

final adjusted value is $190,000?

• Answer: o Maybe

• Determining factors: o Typical for the market

o Purpose of the concession

o Amount and impact of the concession

o MUST BE REPORTED

Reduce Re-Inspection Fees

Value Appeals Process

• Best offense is a strong defense

• Share information!

• Understand lending constraints

Q & A