Q: SHARRON KELLEY CRS,
CDPE, The Sharron Kelley
Team, Coldwell Banker
Buffalo Grove, 847.465.3638,
sharron@northernillinoshomes.com

Q. How has the appraisal process changed
and why are appraisals coming in low?

A: SHERYL ACKERSON, Vice
President of Mortgage
Lending, Guaranteed Rate,
Inc., Skokie Branch, 847.972.5707,
Sheryl.Ackerson@guaranteedrate.com

The prevalence of foreclosures in the
current market is the major reason
for the decline in appraised values. In the past 18 years,
when there was a foreclosure an appraiser would typically
be able to explain that this property was an uncommon
exception to the market. In other words, both appraisers
and lenders ignored this comparable. Now, nothing can
be ignored and short sales and foreclosures are dominating
the marketplace. Not only are appraisers using three
sold comparables, but typically most also will show three
current listings. If one of the new, current listings is a REO
bank-owned property, it is there to serve as an indication
of where the market is going.

In addition, in the past, upgrades or improvements to
a home such as a finished basement or a new state-of-the
art kitchen could easily add $35,000 to $50,000 to a home.
Now upgrades seldom matter. In this manner, every house
is affected.

Q. How do we get buyers to understand the appraisal process
in today’s market?

When working with a potential buyer, we educate them
that an appraisal is an independent, impartial evaluation.
Only facts and figures matter; square footage and above
grade bathroom counts have more to do with determining
the appraised value than if there is a finished basement,
new carpet and custom paint. Additionally — the timeliness
of the sale — the closing date — is a principal,
controlling factor. In today’s market, a comparable sale
over 90 days is old news. In the past, lenders would allow
comparables up to a six month period.

Another issue is the concept of “declining market.”
An appraiser states that a house is in a declining market
or in a market with an oversupply of inventory. In these
instances, some investors are requiring an additional 5
percent down payment. This is happening more in the
high-end market.

If you are looking to buy or sell a home in Buffalo Grove, Vernon Hills, Long Grove or anywhere else in the Lake County Illinois area please contact me, I would love to help you out.

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Northern Illinois Home Sales

The majority of our towns are stated a declining market which in fact reduces the appraisal by an additional 5%. Out of the last five homes we have put under contract only one appraisal came in at purchase price. Basically the banks do not want to lend money and are reducing the value of everyones home and who created this horrible mess? I am suggesting to all my clients that they have an appraisal prior to putting the home on the market so they can see how the banks are looking at the value of property.

Please read the Northern Illinois Home Sales Report [PDF] and call me with any questions.

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Don’t let the U.S. Government Keep Your $8,000
Earlier this year, the government offered an unprecedented $8,000 to prospective home buyers just like you to help them get into a home.
And on November 30th, they’re taking it off the table.

It’s up to $8,000 that you can use for a downpayment or closing costs on your next home purchase:
No Repayments if you live there for 36 months
No Interest, because it’s not a loan
No Strings Attached, you can even get the money up front
They couldn’t have made it any easier for you to get the money. The only problem is that in less than 80 days it goes away forever.
What’s worse is that if you don’t act soon, you could lose out all together.

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Please do read the enclosed letter that was written as I do believe that this will help you understand some of the changes that we are experiencing in the lending side of our business. I do realize this is all very confusing as to how it affects you home value today. I hope this will help you have a better understanding of what the issues are in the market that we are in.

Please read

Dear Real Estate Professionals,

To quote a friend of mine, “I see a light at the end of the tunnel…just not sure if it is a way out or a freight train”. Certainly there has been a great deal of opinions of late as to the state of the housing market and which direction we can expect to go in the near future. Personally, I am not convinced any of these sources have a clue. But I do believe that those of us in the field everyday will know before any of the experts who produce these opinions and never get into the field.

I saw yesterday that prices increased of late. I suspect that is based on some macro market stat that is meaningless. As I have noted in the past, tracking average price is NOT an indication to either increases or decreases in prices. It is rather an indication as to WHAT is selling. I wish it were that simple but we professionals know that considerably more work must go into these kind of conclusions. I always use as an example several years back when smaller/older homes were been purchased for their land value and newer/large homes built in their place ($400,000 tear down replaced with a $1,500,000). The average sale price in the area would likely have increased significantly, but is that appreciation? No, not any more than the current market where many of the sales are short sales, foreclosures, distressed sales. Those appraisers and underwriters relying on that data to determine market change adjustments are being misled.

This brings me to my EDITORIAL:

A lot of blame has been placed on the appraisal industry for the current housing market debacle. Some of it fair…not all. The new HVCC (Home Valuation Code of Conduct) was implemented to take pressure off appraisers. While it may accomplish that issue, it has not improved the residential appraisal profession. Adding another layer of bureaucracy seldom improves anything but can and does add to timing and costs. Many complaints evolve around appraisers coming greater distances to areas they are not familiar with to complete appraisal assignments. But then this is not a new issue. I have heard this from many of my real estate agent friends for years. What has become a growing issue is that these appraisers do not take the time to gather the information to properly complete the appraisal assignment.

This can be attributed to several issues. While the cost of the appraisal may have likely increased due to the HVCC, this increased fee in many cases has not filtered down to the appraiser. Those lenders using management companies to comply with HVCC must charge a fee to operate their management business and make their profit. Therefore, the appraiser must make a “Business Decision” if they want that work as some of these management companies are taking part of the appraiser’s fee to run their business. Many qualified appraisers may pass on these assignments and prefer to develop clients where their profit margin is more in line with their business plan.

But my opinion is that this in itself, while a problem, is not the real issue. The essence of the problem with Professional Residential Appraisers is the lack of training and education. When the government chose many years back to require appraisers to be licensed/certified after the Savings and Loan debacle, it gave instant credibility to that appraiser. Membership to professional organizations diminished as a result (not that all designated appraisers are beyond these very same issues). Requirements to meet minimum guidelines for comparables (comps can’t be over 6 months and must be within 1 mile as examples) became misunderstood by lenders and appraisers alike. Adjustment guidelines were implemented. But these were guidelines and never meant to be mandatory. What has occurred is many residential appraisers have felt the pressure to meet these guidelines on every appraisal and in some instances, overlook data that could be more reflective to the value of the subject property being appraised.

Appraising is an Art….Not a Science.

But when was the last time we heard that? This was as common as location, location, location.

The appraisal forms have changed dramatically over the years with appraisers required to provide much more extensive information allowing the lender to make a solid lending decision. That is good. But what has been lost is the “Art” of the appraisal. Everyone is looking for a formula to develop the value, i.e. what is an extra bedroom or garage space worth? But that changes from market to market and house to house. There is not one answer. We professionals must develop those answers on every assignment differently. What we have today is a generation of “form fillers”. Lender guidelines may have been met but the real question that should be asked ……is the value correct?

Unfortunately, everything that has been done in attempts to improve the appraisal industry has done little more than increase costs and frustrations. The answers lie within improving the professionalism of the appraiser through education and training.

Once again, I thank those of you who have remembered me for the valuation needs of your clients. I am always available to provide training to your office should the need arise.

Sincerely

Bob

Robert E. Headrick, SRA, SCRP
Robert E. Headrick & Associates, Inc.
Real Estate Appraisers and Consultants
Specializing in Relocation, Litigation & Lending Appraisals Serving the Chicagoland Area since 1977

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