Current Approach to Appraisals

Past of an article in the Wall Street Journal on August 12, 2011

There is little doubt that home values have depreciated sharply in recent years for the most basic of economic reasons: excess supply of homes on the market and weak demand. The housing bubble that burst a few years ago was inflated, in part, by overly generous appraisals. Now, lenders are pressuring appraisers to come in with lower estimates, some real estate professionals say. Banks also are using less-experience appraisers, who often don’t appreciate factors that make a home worth more, they say. And valuations are being heavily influenced by distressed sales priced at a discount to the rest of the market.

Lenders are “instructing appraisers to be a little conservative, and that responsibility on the one hand is seen as credit tightening and, on the other, as exacerbating the housing problem” says Columbia Business School economist Chris Mayer.

Disputes over valuations are rising. The National Association of Realtors said the 16% of realtors surveyed in June of this year reported a cancelation in June due to a low appraisal.

For decades, appraising a home was both an art and a science, executed primarily by independent professionals who were experts on the local markets. Designed to protect both the borrower and lender, appraisals were based largely on selling prices of comparable homes. But appraisers also combed through property records and interviewed brokers, buyers, sellers, and even other appraisers. Banks selected the appraiser and often had influence over the outcome. Home buyers paid the fee.

In the aftermath of the housing bust, then New York State Attorney General Andrew Cuomo sought to reform the appraisal industry by convincing Fannie Mae and Freddie Mac to bar loan officers, mortgage brokers, or real estate agents from any role in selecting appraisers. Besides combating inflated and sometimes fraudulent appraisals, the goal was to eliminate pressure on appraisers to provide estimates that match the contract price, which would increase chances that the mortgage loan would get approved. The sweeping Dodd-Frank financial-overhaul that went into effect in 2 0 10 went one step further to bolster appraiser independence by regulating both the industry and the fees they are paid.

The result has been that appraisers with less experience or who are unfamiliar with a community, but who work cheap, are getting assignments while more experienced appraisers are going out of business. According to critics, this is producing appraisals that are less accurate.

Some complain those appraisers are using foreclosures and other distress sales as comps when coming up with estimates, on regular sales. Because foreclosures and short sales tend to sell at big discounts from the actual value, some argue they shouldn’t be used to determine value.

Some economists disagree. They argue that foreclosures account for such a large share of housing sales that it’s perfectly acceptable to use them as comps, or use them but adjust pricing accordingly.

Another compliant is that appraisers are increasingly relying on automated valuation models. Computer programs that extrapolate home values based on reams of property data, and public and privately complied databases. The industry began automating in the mid 1990’s but it wasn’t until a few years ago that automated valuation models (AVM’S) took hold in a big way.

One of the biggest complaints is that appraisers, in their haste, are overlooking or missing important elements that could add substantial value to a home. According to Erin Wanner, a sales executive with Stirling Sotheby’s International, appraisers today seem less knowledgeable. Real estate is a neighborhood business. One neighborhood can be hit, and another can be flourishing. She says new laws prevent lenders and agents from contacting the appraiser directly, which has been especially frustrating. Once we get a report, it states that individual’s opinion and that’s that.

When an appraiser is not familiar with an area they can easily miscalculate a properties true value by using erroneous comps.

Bundle of Rights

Had a question today from a principal broker concerning the Oregon Bundle of Rights.

Q. I remember learning all about The Bundle of Rights when you own real property years ago when taking my pre-license courses. I have a client asking me what Oregon Statute covers this, or what other official declaration covers this. I know it’s there somewhere, but can’t seem to locate it. Thought I might see if you know where it is at since you teach it. We are most interested in the part where is says to the center of the earth and the sky above stuff.

A. What you’re referring to are the appurtenances or rights that belong to a property that can be conveyed to another. Both appurtenances and bundle rights are found in Common Law, dating back to the original 13 colonies. Which states that everyone has specific rights in property ownership. Appurtenances include air space, use and access to water, minerals beneath the earth’s surface, emblements(crops) and lateral and subjacent support.

HOWEVER, there can be exceptions. A person may have restricted air space because their property is in a designated flight zone. This would be an easement upon their property from either the state, county or city. This would show up in a title search, since a flight zone is a part of public transportation a property owner cannot contest the restriction. A person could own a property but not the mineral rights.

Many corner lots in towns and cities do not convey minerals right because years ago oil companies with gas stations on the corner bought them. What does that mean. The owner can live there undisturbed and due to the lack of actual “mining operation” the holder of the right could not trespass, or work the property. If someone buys a property with active mining, drilling or pumping occurring they could not stop that operation by buying the property without the mineral rights.

Having the right to lateral and subjacent support prevents the adjacent property owner from drilling underneath the other persons property or along the property line to the point of jeopardizing the stability of the property.

Our Bundle of Rights include the right to possess, use, encumber, license, drill, lease, farm, build, devise, sell, gift or devise. Keeping in mind property use must follow permitted uses, zoning , CC&R’s and future changes in permitted use from the state, county or city.

Statues pertain more to our professional behavior and liability but Chapter 105 of ORS 696 pertains to Property Rights. Also in OAR Section 15 and 25.

Hope this has been helpful. You could goggle appurtenances and Bundle of Rights for more information.

Fingerprinting

The Oregon State Insurance Division and recently the Oregon Real Estate Agency have changed their procedures for obtaining candidate's fingerprints. No longer does the individual have their fingerprints done before taking their state exam. Both agencies have contracted with PSI Exams to take fingerprints after the individual has passed the state exam. This means that all fingerprinting is done immediately after taking the exam at the testing facility. There is a charge for this process to be paid to PSI.

Changes to Pre-license and BASS procedures

The Oregon Real Estate Agency has changed the application procedure for any individual wishing to become a broker or principal broker. In the past one would apply to the agency at any time. The requirement now is that the individual must sign up while taking the pre-license or Brokerage Administration and Sales Supervision (Principal Broker)course. They must also give their social security number to the school at registration and the school directly informs PSI that the student has satisfactorly completed and passed the appropriate course. At the time of application with the Agency all Agency fees must be paid, and should the individual decide not to obtain their license, there are no refunds.

All courses from Superior Schools and Careers Real Estate School have these notices and reminders built into them but hopefully the word will be spread to avoid any misunderstandings at a later date.