The housing frenzy appears to be over. Multiple offers above list price, sight unseen all cash purchases, bidding wars, homes contracted prior to the sign installation,
and real estate agents with a listing guaranteed a commission have been the "norm" over the past two to three years, but then April 2022 came along with rising inflation / interest rates / fuel prices. Being an appraiser and owning a real estate appraisal
firm, we are tip-of-the-spear, per say, and we feel the market by changes in volume of orders. This time (April 2022), we were unsure if it was the new Fannie / Freddie desktops or the market slowing, but we quickly noticed the inventory increasing and even
seeing "price drops" on listings. What???? That has not happened for years in Arizona, it was then I realized we have crested the mountain and are now going down the mountain.
This does not necessarily mean "Doom & Gloom" and actually is healthy. Appraisers not only provide lenders with opinions of market value, but we are also mostly real estate market analysts. We see the interiors of multiple homes each day and review interior
/ exterior photos of hundreds of homes per day. We drive to properties, look at the neighborhoods and recognize changes. During the past three years, we seen a market that did not care what the property was, only that there WAS a property to buy. This would
be like starving and when you finally found food, you really would not care what it was if you could eat it. So, why is it healthy? Well, because at the current rate of appreciation, 90% of American families would not be able to afford a home, not to mention
the repair expense of the home they found and had to bid well above market value for. There needed to be a reset, and hopefully the days of appraisal waivers and desktop appraisals are gone. I have firsthand seen so many cases of home owners that chose the
waiver path then went to refi and found out the home wasn't even worth what they paid for it, although the market has went up over 1%, per month, during the past year.
Interest Rates are a leading cause because it decreases the affordability curve in the wrong way for typical families. Rising gas prices hurts us all because everything we eat, use, and consume requires diesel trucks / boats / trains and that transportation
cost raises consumer prices. Companies have shareholders and shareholders want to see profits. In addition, the housing run just ran out of steam, there were too many factors pulling down on the run over the past six months, and in April, it became too heavy
and now down it goes. Do I believe that we are in a 2008-2011 drop? Not even close. Most mortgage loans in today's market, the owner has a pulse and a job and has verified income. But a correction is coming and if you did not pull out 100% equity, it will
just be a hiccup in the long term. I am not going to estimate what I personally believe the drop will be, I will let the market be the market and will just report it as I see it.
So how can homeowners, realtors, investors, etc. get ahead of it. Well, one thing would be to get a real appraisal from a real appraiser. Have them measure the home using ANSI Z765-2021 standards to get a real (Fannie / Freddie) accepted livable square
footage. Ask the appraiser to do forecasting for an acceptable window of time, review all the comparable listings and the marketing times of those listings (along with price drops), get a real market value based on the market as of the effective date (not
using sales contracted in February, March, or April when there was no inventory). This can be a great marketing tool and provide some reality to sellers for Realtors or Investors and even Homeowners. Times are changing and being at the forefront of the change
may save you tens of thousands.
We provide all types of residential valuations, measuring services, market analysis, and neighborhood observations. Visit our website and read the menu, not only does it explain our services it also has self-help guidance tips.
West Valley Appraisal Services
The following transactions are not eligible for the desktop appraisal option:
Desktop appraisals were temporarily allowed during the COVID-19 pandemic and in our experience were about as accurate as could be relying on data (square footage primarily) that is about 80% accurate, the other 20% of the time, the
assessors square footage is substantially incorrect and we will discuss that a little further down in the blog.
The main difference is now is the lender / client is required to hire a third party responsible for gathering measurements to calculate square footage and also include interior walls / doorways / stairwells / exterior ingress / egress along with labels for
all rooms. *INCLUDING THE INTERIOR WALLS IS A NEW REQUIREMENT*
So the big question is, how is the appraiser sitting at his or her desk going to obtain this drawing / sketch / meeting the new guidelines. Well, the way I understand it, the lender / client will now be required to hire third parties to come on site and perform
the measurements / photos / labeling / etc. This third party can be Realtors, appraiser trainees, uber-drivers, home-owner, etc. This sound great, RIGHT? Yes if the house is a single level rectangle with no decorative pop-outs or false walls or arc's or
non 45 / 90 degree angles, etc. This is approximately 5% of homes.
Now there are software developers chomping at the bit to get their teeth in the mortgage dollar. I have watched many videos of drawing tools on a smart phone, or using the old measure wheel, they will not work for homes that are not perfect squares or rectangles
in my opinion.
I started as an appraisal trainee in December of 1996 and was first licensed in May of 1998. I have trained over 15 successful appraisers during my career and the most difficult part of the appraisal process over this time was the measuring process. I take
my trainees to about 2-4 homes a day and have them watch me measure then as they feel confident, have them measure behind me so we both have sketches, and finally after about 10 months or so, will let them measure easy to moderately easy floorplans that I
already have measured either prior to them coming to the property or in the past. Measuring a home to ANSI standards that is not a basic house takes skill and years of experience.
Having Realtors or anybody else (other than experienced individuals, not just appraisers) measure the exterior dimentions of a house (especially in 120 degree heat, rain, or snow) will not only slow the process down, it will pollute the entire market with appraisals
of incorrect square footage. Sure, sometimes it will be only a 100 sf or so, but on large or complex floorplans, one wrong angle can make it almost impossible to reconcile the sketch and when that happens we could see 10 to 20% variations of livable square
Now, lets get into the WHY are they offering this Desktop Appraisal. From what I can gather, it is not a
Cost issue, and that is good because I think this will increase the cost of an appraisal, not just a little bit, but a lot over time. Speed as the mortgage industry wants to make more money faster, I suppose
all of us do, but keep in mind, a mortgage brings the lender between 1-4% of the loan amount (on a $500k home, that is $5k to $20k), not including the interest being paid on the mortgage. The average appraiser is compensated $500 an appraisal for a "typical"
full appraisal, which can take between 3 to 12 hours to complete (including inspection, paper-work, research, analysis, inspecting comparable properties, etc.). Having an appraiser now sit at their desk looking at 3rd party gathered data will lose the "rating
/ feel" the appraiser gathers while doing an interior inspection and reviewing / zooming into photos will actually take more time than the physical inspection. Also, now a 3rd party has to gather that data, sounds easy, but it will be a logistical / scheduling
nightmare. Time will tell. Discrimination is also a reason for the desktop appraisal, keep the appraiser separated from home-owner so there can be no discrimination. I have no doubt there has been cases of this, I haven't personally seen
one, but I feel this would be better weeded out (if thought to have happened) by having a second appraisal. Sure there is some more associated cost, but if it stops discrimination, that is a good thing.
The final reason that I personally believe the Desktop appraisals are here for good is corporate greed. AMC's are appraisal management companies and are one of the biggest components to hurt consumers in the mortgage process. I will give you an example.
Lender Y uses an AMC (AMC X for this example) to handle their mortgage appraisals. Lender Y charges the consumer $600 for their appraisal, then orders the appraisal from AMC X. AMC X collects $250 of the $600 fee and hires an appraiser from their pool of
appraisers. The appraiser gets the assignment, completes the appraisal, and is paid $350. Well this seems okay, except, what appraisers would work for AMC X when they could work for Lender Z, which uses a portal to control the appraiser panel and collects
a $25 fee to keep the separation between Loan Officer and appraiser (which is needed by the way), so an appraiser working for Lender Z, gets an appraisal fee of $575 for the same work. Good appraisers work for Lender Z and perform more detailed appraisals
than for Lender Y, because the best and most experienced appraisers don't need to work for Lender Y. AMC's have created some software on mobile phones to use on these desktops and appraisers who are not on their panel, can't use or buy this software.
Direct lender's who use appraisal portals like the Mercury Network, Appraisal Shield, Lender X, Appraisal Port, etc. will now have to order another job from another vendor and manage the timing of everything. AMC's know this will bog down the direct lender
appraisal departments, and force them to join AMC's and again reduce the quality of overall appraisals, making the profit margins even greater for the AMC's.
The hypocrisy now is Fannie Mae will require all appraisers to measure homes using the ANSI Standard Z765-2021 starting April 1st 2022. This is actually a great thing, my firm and the previous firm I worked for and trained many appraisers have always used
ANSI Standards to measure a home, so this is not a change that really effects our firm. There are appraisers however, that use the assessors dimensions when providing the lender a sketch and again, as I have discussed in previous blogs can often times be
off greater than 10-20% or just incorrect floorplans all together. So on one hand, Fannie Mae is cracking down on appraisers to ensure all appraisers are using the same standard and on the other hand, they are allowing Uber drivers to measure homes and have
consumers rely on that square footage for one of the biggest purchases of their lives.
In summary, the Desktop appraisal will not make the appraisal process any faster or any less expensive, but will more than likely increase the overall time and cost more to provide this service. An excellent example is the Judicial system, there are only so
many judges and there is time required to perform the judicial system analyze the facts, and make a decision. Should the courts go out and hire grocery store clerks to hear cases to speed up the process? No of course not. This is an extreme example, but
if Fannie Mae and Freddie Mac want to speed up the appraisal time, the following steps could be done that are not currently being done:
These three things should get the speed from ordering an appraisal to delivering an appraisal down by 50% and keep the UAD data base accurate as can be.
If you are now reading this, you have read a lot of opinions by me and my take on this. As a firm we have and are willing to adapt to technology and provide the best possible appraisal valuations and the most accurate measurements of homes (as this is not
an OPINION). Remember, an opinion of value is an opinion. The measurements of the home are facts, we can't rely on a phone app and an Uber driver for the fact. By the way, Uber driver references are just to make a point and refer to anybody that will be
measuring a home that is not properly trained to ANSI standards.
Here are some links for more information:
Desktop Appraisal Fact Sheet
Fannie Mae Article
Everything you must know about VA Home Loans
by: Myriel Legaspi / Phil Georgiades, VA Home Loan Centers (877) 432-5626
What began as an act by Congress meant to reward the effort of our brave men and women in uniform returning home from World War 2 has become one of the best, if not the best, home loan programs available. The acclamation of these home loans stems from the fact
that they offer incentives that are not available in any other home loan.
VA Home Loan History
The first iteration of
VA home loans happened on June 22, 1944, as part of the Servicemen's Readjustment Act, signed into law by President Franklin D. Roosevelt. This version of the VA loan was exclusive for Active Duty Service Members and Veterans as long as they used it within
two years after their military service ended.
About twenty-six years later, the VA loan went through some more changes with the Veterans Housing Act's signing on October 23, 1970, by President Richard Nixon. This new law saw the removal of the two-year termination date. Eventually,
on October 28, 1992, the Veteran Home Loan Program Amendments were signed into law by President George H.W. Bush. This new law saw the extension of benefits to members of the National Guard and military reserves.
The most recent changes made to VA home loans happened on June 25, 2019, by the signing of the Bluewater Navy Veterans Act by President Donald Trump. This law saw the removal of loan limits, which the VA placed depending on
the county. The law also made some changes to the VA funding fee by increasing it for Active Duty Service Members and lowering it for members of the National Guard and military reserves.
VA Home Loan Benefits
The constant changes made to VA home loans have allowed 22 million borrowers to become homeowners. This is because these loans have some great benefits, including:
No Down Payment Requirements.
Lower Monthly Payments.
No Mortgage Insurance Premiums
No Prepayment Penalties
Additionally, the VA loan can also be used to finance the funding fee itself. They can also be taken out in either 15 or 30-year fixed-rate mortgages.
In addition to these great benefits, VA home loans are now free from loan limits allowing borrowers the opportunity to purchase a property anywhere in the country without having to limit themselves based on a limit created by the VA.
The only limit now is the borrower's ability to make their monthly payments with lenders like VA Home Loan Centers having loan limits as high as $5 million for eligible applicants.
However, the loan limit removal is meant for first-time borrowers only. Any borrower with more than one active VA loan is still required to adhere to the VA loan limit, which as of January 1, 2021, at $548,250 in most counties. Although
to enjoy these benefits, the borrower is required to meet the loan eligibility requirements.
VA Home Loan Eligibility Requirements
VA loan requirements depend upon the applicant meeting military service, property, income, and credit score requirements.
Military Service Requirements
In addition to the applicant being an Active Duty Service Member, Veteran, or a qualifying spouse, they must also meet service requirements set up by the VA. These include:
Ninety consecutive days of active duty service during wartime or 181 days during peacetime.
Six years of service if the applicant served on the National Guard or military reserves.
An eligible spouse must have lost their loved one while in active duty or as a direct result of a service-related disability.
Having a qualifying income requires the applicant to have an income that proves their ability to make their monthly mortgage payments and any outstanding debts. Another eligibility requirement for income is making
sure that the applicant meets the VA compensating factor requirements. Moreover, an eligible income must come from one of the following:
Part-Time Job, for at least two years.
Self Employed for at least two years.
1099 for years.
Retirement or Pension.
Seasonal Job for at least two years.
Child Support for three-years.
Alimony with a three-year continuance.
Rental income reported to the IRS.
Other forms of income, such as unemployment, GI Bill basic housing allowance, cash payments, and workers compensation, are not deemed eligible by the VA.
Credit Score Requirements
The VA does not have a set credit score requirement, and it is up to the lenders. Most lenders have a credit score requirement of 640. However, some of them are willing to assist applicants with low credit scores.
How willing lenders are to give out a loan to someone with a low credit score depends on the applicant's late payment history, mortgage payments, and possible collections.
Properties that are eligible for the VA home loan must meet specific requirements like being a:
Single Family Residence is safe to move into without any health or safety hazards present at the time of purchase.
A Multi-Family Dwelling of up to four units, without any health or safety hazards. The applicant must also occupy one of the rooms.
Condos and Townhomes, but the VA must approve the condo. If the applicant is unsure or if the condo is not approved, they can submit it for VA approval.
Manufactured Homes and mobile homes, but mobile homes must be doublewides, and both of them must be set on a permanent foundation.
Some properties do not qualify for the VA home loan, and these are homes located in flood hazard areas with no flood insurance and Airport Noise Zones 3 (Very Noisy). Other properties that are not eligible are
cooperatives, timeshares, and non-VA-approved condos.
VA Refinancing Loans
The VA Home Loan is not only for applicants looking to purchase a home. The loan can also be used to refinance an existing property. The VA offers two types of refinancing loans: Interest Rates Reduction Loans
and Cash-Out Refinance Loans.
Interest Rate Reduction Loans (IRRRL)
These are sometimes called Streamlined loans, which can help in refinancing an existing loan on a property with a new lower interest VA loan. The refinancing process is straightforward and can also lower out-of-pocket
expenses due to its ability to finance both fees and closing costs. This loan cannot be used for cash-out on equity, and borrowers can borrow up to 100% of the current loan amount.
Eligibility for this loan requires the applicant to prove that they are currently occupying the property. They must also prove that all mortgage payments have been made on time for the last 12 months.
Cash-Out Refinance Loans
The VA also has loans that are meant for borrowers who want to cash out on home equity from either a conventional or a VA home loan. The VA Cash-Out Refinancing loan can be used on any property regardless of
whether the original loan was administered by the FHA, USDA, VA, or conventionally. The cashed-out money can be used to pay off debt, finance home improvements, or finance an emergency.
Up to 100% of the current home value can be refinanced, and it can be used to finance the funding fee and the closing costs. Additionally, applying for these loans also requires applicants to follow underwriting
guidelines established by the VA.
Using the information provided above will allow current and former military members to make an informed decision when using a VA loan on their future home. These loans have helped more than 22 million people
achieve the dream of homeownership.
West Valley Appraisal Services has posted this informative Blog to help Veterans better understand their VA Home Loan benefits. This article was created by a "for profit" 3rd party mortgage broker specializing in VA home loans. West Valley Appraisal
Services does not endorse VA Home Loan Centers or any independent mortgage broker.
Jason Clow (Owner)
West Valley Appraisal Services
Appraisal Waivers (Risks & Rewards)
by Jason Clow, owner and founder of West Valley Appraisal Services
I am going to preface my blog, stating that any information, examples, etc. are regarding residential properties from my area of expertise in Maricopa County Arizona (the fourth largest county in the United States). For reference, I have been an appraiser
in Maricopa County for over 20 years and a Realtor in Maricopa County for nearly 20 years.
Appraisal Waivers for residential properties really started in early 2017 for low Loan to Value (LTV) mortgages. Currently they are being used in a much wider range of mortgage products and for a larger pool of borrowers. Currently (taken from the Fannie
Mae website (dated 08/07/2019). The following link shows the list of the criteria regarding qualifying for an AW (appraisal waiver):
Fannie Mae has been collecting information / data from appraisers for years on all mortgage transactions that appraisals were performed to assist in the AVM (Automated Valuation Model). What is an AVM? Well it is a computer-generated appraisal to provide
a quick risk assessment based on what the AVM states the value range is of a specific residential property. Basically, borrowers with good credit, good equity (based on the AVM) for refinances, and a typical down payment putting the loan to AVM value ration
in a low risk scenario.
Why would Fannie Mae allow loans to be funded without an appraisal? Well the simple answer is simplification of the mortgage process, a reduction in cost associated with the loan to the consumer, and confidence in collected data from previous appraisals
over the years. It is basically an accepted risk tolerance for a specific borrower.
What are the risks associated with appraisal waivers on the overall real estate market (regarding Maricopa County, but could possibly be applied to other cities and counties throughout the U.S.)?
What are the benefits associated with appraisal waivers for individuals involved in a transaction an appraisal waiver was allowed?
Below is a list of three real life examples I have personally had in the past six months regarding failure of appraisal waivers. Two are as an appraiser and one is as a Realtor.
I was representing a client to sell their home, so I have my Realtor hat on. As a Realtor my job and obligation is to assist my client to obtain the best sales price for their property as possible and protect the interests of my client. I am going to use
false numbers, but similar % differences for reference.
I took the listing and we discussed the initial list price. This home was in a strange market with differing quality of homes located basically across main / different streets. 3,000 sq.ft. homes on one side of the street would typically sell for $500,000+-,
3,000 sq.ft. homes between the two main streets the same quality of home would typically $400,000+-, and 3,000 sq.ft. homes to the south of the main street would typically sell for $325,000+-. This is all with-in about a two-mile radius, with limited (recent
sales in the middle section, but historic data coupled with current data showed these differences. The market data in the exact micro market was showing a list price of approximately $425,000 on the high end. I showed my client all the market data and they
decided to list the home on the lower side of the historically superior neighborhood. So, we listed the home, with the understanding, they would be willing to lower the price after a few weeks on the market to a price point that would attract more foot traffic.
With-in the first week we had a few showings, and we received an offer. The offer was negotiated and an agreed upon sales price was made. This contracted price was well above market value; however, automated AVM’s free to the public (just google find your
homes value), showed a value close to the contracted price. I told them that is due to the neighborhood on larger lots with superior community amenities, better setbacks, and better architecture and I prepared her for the appraisal process. We had a plan
in place, but again, my job as a Realtor is to obtain the highest sales price available. As an appraiser, the contracted price was well above market value. Well, in a few weeks, we found out that the buyer had an appraisal waiver, and the home was never
appraised and closed at the contracted price. This now created a recent arm’s length sale in this community like the historically higher priced community, just across the street. Since this sale, there has been another home that has been listed and not yet
contracted. This micro market just jumped 10%. Sure, this can happen with all cash buyers also, so this isn’t the first time I have seen this, but the first time with a buyer that needed a mortgage. Who does this hurt? Well it hurts all buyers in the near
future, the buyer of this house, etc. Had they had a professional appraisal; it is very possible the home could have been purchased for tens of thousands less.
This example is as an appraiser. Recently, I was assigned to appraise a property for a home equity line of credit. The owners / borrowers recently purchased the home with over 20% down and received an appraisal waiver. Now they wanted to get a HELOC (home
equity line of credit).
As I do on all residential appraisals, I physically measured the home. I immediate noticed that the square footage of the home was off. This happens all the time, that there are large discrepancies in square footage. The home was 15% smaller than what
they thought they were buying. Not only did the owner pay more than the home was worth with the marketed square footage they thought they were buying, now the home is 570 sq.ft. smaller. The market value of the home was well below what they purchased the
home for just a few months ago, as there was no appraisal / measurement made on the property.
This example is as an appraiser. Recently, I was assigned to appraise a property for a home equity line of credit. The owners / borrowers recently purchased the home with over 20% down and received an appraisal waiver. Now they wanted to get a HELOC,
very similar to Example 2.
I physically measured the home like always and performed my appraisal (and the physically measured square footage was very similar to the assessors square footage). The home was sold in average condition with minimal remodeling / updating performed in the
past 15 years (this home was built in the early 80’s) but priced like a remodeled home, while the market norm and all other sales near the price point this home was purchased at were complete remodels. There was a lot of market data available in the community,
and the range of sales for the same floor plan was $190,000 to $300,000 (this also including things like site size, pools, etc.). Homes that were in very average condition similar to the Subject property were selling at the very low end, while the remodeled
homes with new surfaces (quartz / granite counter tops, new flooring, new bathrooms, new trim, new roofs, newer dual pane windows, etc.).
Needless to say, my appraisal utilized comparable properties in similar condition (not remodeled) and was much less than the original purchase price a few months ago, while the market was slightly increasing.
There are other examples of the damages that can be caused by appraisal waivers, as computers can’t replace professional experienced appraisers who examine all aspects of the property including but not limited to condition, quality, location, site size,
site amenities, curb appeal, square footage, garages, etc.
So in summation, this is just a blog entry to try to inform any readers that in my opinion, if you are buying a home regardless of what the “public” information states or what AVM’s say the value is, purchasing a private appraisal (in an instance where you
quality for an appraisal waiver) would be a small price to pay if something is not noticed or misrepresented in the buyer’s research. I also recommend always getting a home inspection on any home you purchase to find out if there are any major issues that
can cause what seems like a value to be a nightmare.
If getting a private appraisal takes an additional week, so be it, when making the largest purchases in a typical person’s life, gathering information can only help the situation. Just like finding your future spouse, you don’t meet and get married in 30
days, you have an “inspection period” for better terms to determine if this is the best decision.
by Jason Clow, owner and founder of West Valley Appraisal Services
Through my 22 years of residential appraisal experience in the Maricopa County market, I have been asked countless times, “Should I get an appraisal before listing or buying a home?”. The short answer is “YES”. In this month’s blog, I will go over the pros
and cons of ordering and having a private appraisal for each instance, and you can decide what is best for you.
Selling a home, why is a professional private appraisal a good idea?
Buying a home, why is a professional private appraisal a good idea (especially when paying cash)?
Think of it this way, getting a private appraisal on a property you are selling or buying is like taking a used car to a mechanic prior to selling or purchasing. Knowing the most information about the property can and will assist in making the
best financial decisions regarding that property.