August 2010

THE REVIEW APPRAISAL IS BACK
By Charlie Elliott, MAI, SRA, ASA

The time is right for a revival of the review appraisal. By using the review appraisal, complying with regulations will be easier for banks. With all of the technology available and with the many databases of property sales information, we can expect more and different review appraisal formats coming down the pike.

Among the most popular of new and future appraisal-review products will be the Web-based systems, offering additional sales data for the reviewer to use in his or her analysis. This is due to new technological developments, including better software and larger pools of comparable data, which favor quicker and cheaper services at a time when more in-depth review services are in demand.

The above is a condensed version of the Value Nation column that appears in the July 2010 issue of National Mortgage Professional Magazine. All Value Nation columns in this publication are written by Charlie Elliott, president of ELLIOTT® & Company Appraisers. To read this article in full, click here.

MORE FORECLOSURES, MORE VACANCIES
AND LESS HOMEOWNERSHIP

The numbers still aren’t encouraging for the real estate market. A RealtyTrac report in mid-July said that almost 528,000 homes had been repossessed by the lenders in the first half of 2010. If this rate continues, more than 1 million homes will be foreclosed upon in 2010.

“That would be unprecedented,” said RealtyTrac Senior Vice President Rick Sharga, who pointed out that one in 78 homes in the United States were sent foreclosure notices during the year’s first six months.

Along with foreclosures, vacant homes are also on the rise. The U.S. Census Bureau reported about 18.9 million homes were empty in the second quarter this year, up from 18.6 million during the second quarter last year.

“There are a lot of people losing their homes and either moving in with family or renting places to live,” said Patrick Newport, an HIS Global Insight economist.

These factors are also contributing to the decline in the home-ownership rate, which, according to the Census, was down to 66.9% during the second quarter, the lowest it has been since 1999. The record high, which was reached in the second and fourth quarters in 2004, was 69.2%.

PREVIOUSLY REPORTED FANNIE STATEMENT CLARIFIED

In last month’s newsletter, some lines were accidentally left out of the quote by John Forlines, executive vice president and single-family chief risk officer of Fannie Mae, regarding geographical competency of appraisers in the GSE’s Announcement SEL 2010-09. The following is how it should have read:

“Lenders are reminded that appraisers must have the requisite knowledge to perform a professional quality appraisal for the specific geographical location and particular property types. The use of an appraiser who has the appropriate knowledge of specific geographical markets, access to the appropriate data sources, and experience in appraising specific property types within those markets will help to ensure that valuations are accurate and that appraisal practices are appropriate. Although the Uniform Standards of Professional Appraisal Practice (USPAP) allows an appraiser who does not have the appropriate knowledge and experience to accept an appraisal assignment by providing procedures with which the appraiser can complete the assignment, Fannie Mae requires that lenders only use appraisers who have the appropriate knowledge and experience, and does not allow the USPAP flexibility.”

DELINQUENCY RATES HIGHER ON MILLION-DOLLAR MORTGAGES

An industry survey indicates that mortgages on million-dollar-plus properties are more likely to go into default than on those priced below the seven-figure amount. In a study for The New York Times, CoreLogic, a real estate analytics firm, concluded that more than one out of every seven loans involving properties priced in excess of $1 million are in some stage of default. This situation applies to only one of 12 properties valued at less than that amount. On investment properties, 23% valued at over $1 million are delinquent, while only 10% of those valued at less than that amount are in that dubious category.

“I’ve never seen the wealthy hit like this before,” said Ken Lowman, a real estate agent who specializes in high-end properties. “They made their plans based on the best of all possible scenarios: that their incomes would continue to grow; that real estate would never drop. Not many had a Plan B.”

Many industry analysts suspect wealthy defaulters are doing so as a business decision.

“Those with high net worth have other resources to lean on if they get in trouble,” said Sam Khater, senior economist at CoreLogic. “If they’re going delinquent faster than anyone else, that tells me they are doing so willingly. The rich are different. The are more ruthless.”

SUPERMAN SAVES HOUSE FROM FORECLOSURE

Comic books have always had the ability to cheer people up, but rarely has such a book done so to the extreme one did for an anonymous Southern couple late last month. The two had recently refinanced the house they had inherited from the wife’s father in order to fund a business venture. The venture failed in the struggling economy, and they were unable to keep up on their mortgage payments. The bank decided to foreclose.

As the husband and wife were tearfully cleaning out the house, they came across several old comic books, including the first one that the Superman character ever appeared in. This June 1938 issue, Action Comics No. 1, is commonly referred to among collectors as “the Holy Grail of Comic Books.” Even during the recession, copies of this famous issue have sold at auction for $1.5 million and $1 million so far this year. This surprising basement discovery probably won’t reach those figures, but it should easily fetch enough to save the house.

“Superman saved the day,” said Vincent Zurzolo, co-owner of ComicConnect, and Metropolis Comics and Collectibles, the New York company that is handling the sale of the desired item.

ASK MARTITIA

QUESTION:  Is an appraiser, who also teaches appraisal courses subject to USPAP when he or she is teaching these courses?

MARTITIA:  Yes. Since the instructor is acting in the role of an appraiser while teaching these courses, the instructor is engaged in appraisal practice at these times.

 

Martitia Mortimer, Elliott’s executive vice president, answers appraisal questions on a regular basis in Elliott Real Estate News.

QUOTES  

“A man, gazing at the stars, is proverbially at the mercy of the puddles in the road.” – Alexander Smith

“Nothing makes you more tolerant of a neighbor’s party than being there.” – Franklin P. Jones

“My divorce came to me as a complete surprise. That’s what happens when you haven’t been home in 18 years.” – Lee Trevino

“Thunder is impressive, but it is lightning that does the work.” – Mark Twain

“Square meals often make round people.” – E. Joseph Cossman
 

Newsletter Editor: kevin@elliottco.com
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