Short answer: the amount of real estate appraiser education and training, as defined by the Texas Appraiser Licensing and Certification Board (TALCB).

Also: the types of properties the appraiser can appraise.

The table linked in from TALCB, above, provides the best summary of the differences in Texas between the licensing levels for a Certified Residential and a Licensed Appraiser (as well as for a General Appraiser, the highest-level of license that also permits the licensee to appraise commercial property.)

Certified Appraiser Licensing Requires More Experience and Education

To obtain the license level of a Certified Appraiser in Texas, a candidate needs more education (both undergraduate education and appraiser-specific education) and more documented hours of appraisal experience, over a longer period of time.

Each licensing level requires the applicant to pass an exam (the National Uniform State Appraiser Examination) specific to that level of licensing. The exams are developed by the Appraiser Qualifications Board (AQB).

The Bottom Line on Certified vs. Licensed

If you want to join the profession: study the differences and talk to appraisers at different license levels to decide which level to pursue (hint: Certified).

One More Thing: How Much Property the Certified Appraiser Can Appraise

“May appraise 1-4 unit residential properties without regard to transaction value or
complexity of the appraisal for federally related transactions (FRT) and non-federally related transactions (Non-FRT).

May associate with a Certified General Appraiser, who must sign the report, to appraise nonresidential properties.”

(From TALCB)

As a Texas REALTOR, I get asked frequently where buyers can find the list of FHA Approved Homes in Central Texas.

If you’re looking for a home that you know you’ll be buying with an FHA loan, you may be asking the same question.

So, where IS the FHA Approved Homes List?

Well, there actually isn’t one.

So How DO You Find a Texas Property for an FHA Loan?

Here is your short list for finding FHA approved homes – details to follow:

1. Find a good real estate agent
2. Find a good mortgage broker or lender (an FHA Approved Lender) – preferably referred by your agent
3. Find a house you can afford with an FHA loan
4. Get the house under contract
5. Get the house inspected to make sure it’s not a total dump
6. Get the house appraised by an FHA Approved Appraiser
7. Negotiate Repairs
8. Close and Move in!

Low Down Payments Mean You Probably Need an FHA Loan

First, if you’re buying a home with an FHA loan, you probably don’t have a lot of money saved up for the down payment and closing costs.

That means you’ll need to find a home that fits within BOTH the FHA loan limits and your own financial means, in other words, something you can afford the payments on.

In 2011, in most areas of Texas, the upper limit on FHA loans is $271,050.

In my experience, most homes that are purchased with FHA loans in the Greater Austin Area are well below that limit.

First Things First: Find the Right Mortgage Lender for an FHA Home Loan

Before you go shopping for your home, you need to talk to an FHA Approved Lender.
By now, you’ve probably already hooked up with a real estate agent. He or she can probably refer you to an FHA approved lender that he or she has worked with well in the past.

If you don’t already have an agent, you can still find an FHA lender by checking on the FHA Approved Lender search page on the HUD website (US Department of Housing and Urban Development, the folks behind the FHA loans).

This step – finding an FHA approved lender – is really important.

You really can’t go shopping for a home until you know how much home you can qualify to buy!

The FHA approved lender will take all of your information (how much you earn, how much you owe, how much you have saved), will check your credit scores and can give you a really good idea of how much house you can go shopping for.

Now What? Go Shopping!

Now that you know how much home you can afford, you can go shopping with your real estate agent.
He or she should ask you a lot of questions, to help you find the right area and the right house, based on what you want the most: schools, commute to work and so on.

When you find a home you want to buy, within the price range you can afford, you can write an offer with your agent.

Although “writing an offer” sounds scary, your agent will be using standard forms used for almost all single-family home purchases in Texas and will be able to walk you through the whole form and answer your questions.

If your offer is accepted, you will first get the home inspected by a state-licensed inspector of your choice. Then, if you decide you still want to buy the property, you will let your lender know and he or she will send an FHA appraiser to the property to see if it is worth what it needs to be worth for the loan you want on the property.

NOW is when you find out of the home will qualify for an FHA loan.

Kind of the long way around for finding FHA approved homes, isn’t it?

Safe and Sound: FHA Loan Requirements

Basically, the home will need to be safe and sound, and if it needs repairs to make it safe and sound, the repairs will need to be made before the loan will be approved.

Who Determines What Repairs are Needed?

The house you have under contract will need two inspections – the first one by a licensed home inspector, and the second one by an FHA approved appraiser who will be a state-certified real estate appraiser.

If you read our article about FHA Appraisals, you will know what you need to know about how the home you have under contract will be appraised. You will also find information about what “safe and sound” means in that article.

You and your agent will need to find the licensed home inspector – your agent might have a list but you should do your own research on this one.

The appraisal on the property – to determine the actual market value – will be ordered by your FHA approved lender.

The House is Safe and Sound!

Now, if all has gone well, the house you want to buy is both safe and sound, in other words, in decent shape, AND it has been determined to be worth as much as the purchase contract amount.

When that happens, AND you have finished your loan approval process so both you and the home have been approved for an FHA loan, your home purchase transaction can close – be finalized, and you can move in!

The real estate agent you choose to guide you through this process is critical , so make sure you do your research and pick one that knows the area you want to buy a home in, and is willing to explain the things you need to know to buy your FHA approved home!

No List, But You’re Still HOME

When you first stopped by, you were looking for the list of FHA approved homes.
We hope this article helped you understand the basic steps for finding a home that meets FHA loan requirements.

If you still have questions, give me – Alison – a call at (512) 585-4758 and I can help you find the answers to the rest of your questions.

Once upon a time, Savings and Loans (S&Ls) ran amok. FIRREA (Title XI of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (aka “Title XI”)) was passed in 1989 in response to the Savings and Loan Crisis after it bankrupted the Federal Savings and Loan Insurance Corporation (FSLIC).

American taxpayers footed the bill for over $75 billion (according to Mortgage News Daily).

Definition of “Federally Related Transaction”

FIRREA (Title XI)

and

The Texas Appraiser Licensing and Certification Act (Section 1103.001) of the Texas Occupations Code (Chapter 1103) define a Federally related transaction to be a real estate-related transaction that:

Requires the services of an appraiser; and

is engaged in, contracted for, or regulated by a federal financial institution regulatory agency.

What are Federal Financial Institution Regulatory Agencies?

According to Section 1103.003.6-b of the Texas Occupation Code, these are:

The Board of Governors of the Federal Reserve
System;

The Federal Deposit Insurance Corporation;

The Office of the Comptroller of the
Currency;

The Office of Thrift Supervision;

The National Credit Union Administration; or

The successors of any of those agencies.

Why Should You Care?

A real estate appraisal used in a federally related transaction must be performed by a state-licensed or state-certified appraiser to be considered valid.

Who Regulates Texas Appraisers?

The Texas Appraiser Licensing and Certification Board (TALCB) licenses, certifies and regulates real estate appraisers in Texas. Other states have similar licensing boards.

As A Homeowner, Do You Really Need to Know This?

The good news for you if you are a homeowner is this: you won’t be the one ordering the appraisal for a federally related transaction. The person ordering the appraisal is usually a mortgage broker or lending institution and the appraiser receiving the appraisal will need to certify that he or she is properly licensed by his or her state to perform the appraisal for the property in question.

Shadow inventory is a real estate term that estimates:

the number of properties owned by banks, PLUS

the number of additional homes that have been foreclosed but are not yet on the market, PLUS

properties where the owners are behind on their payments and will probably end up in foreclosure.

As real estate professionals and homeowners we care about the numbers of properties in the housing shadow inventory because it gives an idea of the amount of time it might take before the housing market returns to “normal”. I put that in quotes because we’re not convinced that there IS such a thing as a normal real estate market anymore.

(For a detailed look at how Selma Hepp, a Research Economist for NAR, the National Association of Realtors estimated the national shadow inventory, please see the in-depth article posted on NAR’s Economists’ Outlook website, State by State Estimate of Shadow Inventory.)

Shadow Inventory in Texas

According to Hepp’s analysis, Texas ranks at #5 in sheer (estimated) numbers of properties in the shadow inventory, coming in behind Florida, California, Illinois and New York and slightly ahead of New Jersey and Ohio.

Hepp’s report indicates that it may take as many as 11 months to clear Texas’ shadow inventory, compared to a high of 51 months in New Jersey down to a low of 7 months in Nevada.

Two other interesting points to note, taken from NAR’s Mortgage Delinquencies by State Presentation (for 2010) is that in Texas, 1.9% of mortgage were in the foreclosure inventory for the 4th quarter of 2010 (below the median rate) and that 5.1% are considered to be seriously delinquent, which is also below the median.

What does the Texas Shadow Inventory Mean to Texas Homeowners?

If you’re planning to sell your home, you may be competing with properties that were foreclosed that are now on the market.

New foreclosures may hit the market after you list your home for sale.

Some of these homes are being sold by the bank, and some are being sold by investors who bought them at auction, fixed them up a bit and are hoping to make a return on their investment.

Investor-owned homes are usually priced to sell quickly, a little below actual market value.

Foreclosures being sold by banks are also frequently priced below market value.

What Can Texas Home Sellers Do?

For your specific situation, your best bet is to talk to one or more knowledgeable Realtors who are very familiar with your local market.

You will want to set aside several hour-long appointments with different agents so that you have time to review the numbers with them before selecting an agent to represent you if you decide to sell.

Some markets in Central Texas are selling very well this spring, and yours might just happen to be one of them.In other words, the shadow inventory might not make much difference to your chances of selling your home at a decent price. Or, local foreclosures might be a serious problem in your area. How do you figure out which is which?

If you are someone who likes to know hard numbers, some questions to ask might include:

What do you consider to be the local market area for my home (which neighborhoods, subdivisions, areas)?

How are homes selling in this area (for this first quarter of 2011, compared to the last 6 months of 2010)?

Specifically for homes that would be considered competition for YOUR home if you were to list it for sale:

How many comparable homes are currently for sale?

How many have sold in the last couple of months (3 months, 6 months) and how does this compare with the number of homes that sell in a typical month?

(What you’re asking about is the absorption rate and inventory. If 6 houses sold in the last 6 months and 3 are currently for sale, then your absorption rate is 1 home per month (6 in 6 months) and your area has 3 months of inventory. You care because if you want your home to be the one most likely to sell in a given month, it has to be the best one for the best price.)

Tell me about the foreclosures that are considered to be comparable to my property and how they might affect the ability of my house to sell quickly and for top dollar.

The agent you decide to work with will need to know and understand the answers to the above questions and should be able to explain the answers to you in simple terms.

He or she should also be able to show you real numbers for how homes are selling in your area, and more specifically – homes that are similar to yours, so that you have an idea of how easily your home might sell (or not).

Yes.

A condo loan requires both the buyer and the condo association to qualify. Even a highly qualified buyer may not be able to purchase a condo, if the condo development is not as financially stable as a lender requires.

Some Austin Condos Won’t Qualify

Austin has a lot of condos, including older developments and newer ones dotting the downtown skyline. In August of 2010, the Austin Business Journal reported on the failure of the Pecan Place Condominiums near 183 and Texas 45 in Northwest Austin. Half of the 29 townhouse condos had sold but the remaining ones were in various states of completion. Other developments have also made the news, in different stages of failure or distress.

In situations like those, even if a borrower had really really wanted to buy one of the condos, condo financing would have been impossible to obtain – the financial health of the developments was not ok.

Other condo developments, of course, are doing just fine. Make sure you know which is which when you go shopping for a condo so your condo mortgage will be less likely to stall the deal. FHA loans for condos are also different from regular home loans, or non-FHA condo mortgages.

Work with an Experienced Lender for Your Condo Mortgage

Because a condominium loan is more complicated, make sure that both you real estate agent and your mortgage broker or bank are experienced in the ins and outs of condo financing.

Qualify real estate agent and mortgage professional by asking questions like these (and take notes!):

1. How many years have you been in this business?

2. How many condos have you sold? (Or, how many condo loans have you done?)

3. Are you familiar with this particular development? What can you tell me that you think I need to know?

4. Can you describe the condo financing and condo buying process and how it is different than the home buying process?

5. How will you make sure we have good communication about my purchase?

6. How many units are rentals and how many are owner-occupied? Does that make a difference in whether or not I can get a condo loan?

7. What are the fees in addition to my condo mortgage payments that I will have to pay (upfront fees, on-going or monthly fees)?

8. If you don’t understand any of the answers, ask them to explain their answers and keep asking questions until you’re sure you understand!

Have you heard of a la mode?

If you haven’t, you might check on the bottom of any real estate-related paperwork you’ve handled recently – you may very well find a la mode’s name on some, or a lot of it.

We use a la mode’s Xsite software (ordering), as well as WinTotal (actual appraisals), Davinci (sketching) and our hands-down favorite line-up in the bunch: the Mercury Network (Appraisal Vendor Management Platform), which is now handling in excess of 10,000 appraisal transactions a day, without the mark-up typical of transactions handled via AMCs. This milestone was announced earlier this week by a la mode and we are thrilled to see their success.

(We have zero affiliation other than very happy customer.)

If you’re a lender reading this, you really really really need to read that press release linked above. If you’re an AMC, you should, too, because you need to know this: although we’re grateful to have your business in a down economy, the fees we receive that are lower than “reasonable and customary” hurt us, badly, both business-wise and personally. More work for less compensation isn’t a sustainable business model when our expenses are running so high.

The Mercury Network is a runaway hit and if AMCs want to keep up, they need to offer a comparable level of service, compliance, reliability and cost to their customers and business partners.

Why Sign Up for the Mercury Network?

In a nutshell, as we’ve blogged before, the Mercury Network lets lenders keep compliant with the myriad of changing appraisal regulations while still keeping control of where their appraisals are routed. Lenders can concentrate on their own business while trusting that the folks at a la mode are on top of the regulatory aspects of appraisal ordering and processing.

If you aren’t convinced, just give it a chance and sign up (it’s free for lenders). If you’re in the Greater Austin Area, add Appraisal IQ (Orlando Masis) to your roster and see how fast you get an exceptional report from us for your client.

What are Normal Appraisal Fees?

Ah, good question and one that is getting asked a LOT since the HVCC/AMC debacle of 2009 (and most of 2010) that skewed the fees appraisers receive to the ridiculously low while at the same time hiking the fees consumers were charged.

So the question really is, when the industry gets back to “normal”, what might be a typical fee charged by an experienced appraiser to perform a typical, single family residential appraisal?

Appraisal Fees, Researched and Presented

To answer this question, a la mode released the Appraisal Fee Reference (AFR) in February of 2010.

From the announcement:

“Using the data from hundreds of thousands of verified and validated appraisals, the AFR reports the median appraisal fees for each of the 3,221 counties and districts in the 50 states, the District of Columbia, Puerto Rico, and Guam.”

In other words, the Appraisal Fee Reference is an incredibly detailed publication, much needed by the appraisal industry.

Appraisers need to be paid what the work is worth, based on the complexity of the assignment, the appraiser’s level of expertise, and the area of the country. No one can (or should) set industry-wide standard fees because that would run afoul of too many laws to list, but knowing what others charge for a service is a valuable piece of information. We hope that HR4173 (the Dodd-Frank Financial Reform Bill) helps set the industry back on track and that it will be a win for independent fee appraisers.

You Rarely Get What You Don’t Pay For

If you are looking for an appraiser and are shopping for the lowest fee, be warned that if you shop too low, you may not get the quality of work that makes the appraisal worth ordering in the first place.

Do you want that question in the back of your mind? Do you want your client wondering if their deal went south because of a $50 fee differential that resulted in an out-of-area appraiser coming in from a less-expensive area to do the assignment? Experienced (and ethical) appraisers will pass (forgo) assignments that don’t compensate adequately for the work involved to assume the professional liability for the report.

I would love to open up the discussion on this topic, so if you have a rant, a question, or an observation, please post your comment and we can get the conversation going!

The Best Appraisal Tools

This year we have focused on integrating the newest and the best appraisal software and appraisal tools into our property appraisals business.

Before we talk about modern appraisal tools, let’s take a trip down memory lane.

Quick Clicks For Article Sections:

• Appraisal Tools: 1990s
• Appraisal Tools: 2010
• The Appraisal Tools We Use Everyday
• Our Favorite Toys

Appraisal Tools: 1990s

I remember when I first started appraising, way back in 1991 or so: the days of 386s, DOS and Windows 3.1.

We used Total (now called WinTotal) from a la mode, took 35mm (film!) pictures and waited for them to get developed. We used microfiche to look up comp data and were so excited when the comp data became available on CD ROMs!

Appraisal assignments back then certainly took longer to complete and to deliver – we hand delivered or sent them by postal service or messenger services! Appraisal practice has definitely come a long way since the 1990s.

Appraisal Tools: 2010

Now use high-resolution digital cameras and on-line systems such as the MLS, tax records, and mapping and zoning information databases.

And, of course, we have Google. What did we do before we could Google everything? We are far, far more efficient than we used to be, but the art of appraising has become more complicated at the same time. Clients demand (and rightfully so) more data, the analysis of comparables has become more sophisticated and lenders require more substantial information about market areas.

Now, we get an appraisal orders through email or from appraisal management portals. Surprisingly, we still get most of our confirmations by fax.After hours of patient and methodical research and adjustments, aided by the fantastic new tools of the trade, reports are uploaded and delivered to clients online, in the blink of an eye.

The Appraisal Tools We Use Every Day

Our office looks like the office of people that love love love computer equipment: wide-screen monitors (two per desk), cables hanging out everywhere, little gadgets plugged in to charge or upload or download data.

Our Favorite Toys (aka Tools):

We use an Apple iPad with the DaVinci sketching app. I can sketch a house with the software as I am measuring on site, as opposed to sketching it out by hand and then entering it into the computer later when I’m back at the office.



With the Disto D5 Digital Laser Rangefinder from Leica, I can measure accurately and efficiently at the property, enter the pertinent measurement and property condition data into my iPad and then sync it with my desktop later.

A Canon Digital Point and Shoot Camera (the latest being a pair of PowerShot SD1200 cameras with Image Stabilization) make taking photos a snap and the quality is outstanding.

Why does this matter to you? You ask? We can provide you with more accurate data (the rare mis-measurement is readily apparent on the software sketch) and the use of these tools improves the turn times on appraisal reports.

Better, faster reports from us, means better client relationships for you.

Will Independent Fee Appraisers Recover Under HR4173?

The Dodd-Frank Act may help appraisers and mortgage professionals re-gain some of the footing they lost with last year’s implementation of the HVCC.

We certainly hope so. 14 months and counting into the HVCC and mortgage professionals and appraisers are struggling. Many appraisers lost their businesses and many others are working like dogs just to keep their heads above water. Appraisals routed through AMCs cost customers more on average and the independent fee appraisers make (significantly) less per report, and frequently have less than 48 hours to turn reports around. Sounds like whining, but is it?

This does not lead to the best quality reports, or the most qualified appraisers selected for assignments. And even with the rush on appraisal orders, we’ve heard that many loans are held up waiting for the reports to come in.

Why is this supposed to be good for the industry? Is it good for your business?

The best summary we’ve found on the portions of the Dodd-Frank Act and how they relate to the real estate appraisal industry can be found in Appraisal Insight’s excellent article called Here’s What You Need to Know about HR 4173, posted the date the bill was signed into law as the Frank-Dodd Wall Street Reform and Consumer Protection Act (HR 4173).

Get Ahead of the Competition

Are you ready to try something different? Can your business survive another year if you don’t? Keep reading!

We are independent fee appraisers and we want to earn your trust and to earn your business. We don’t think your business or your customers should be suffering for the mis-deeds of a few rogue banking industry members.

The HVCC Sunsets in November of 2010

Although the HVCC sunsets in November of this year, we expect that many lending institutions will still route their appraisal orders through some sort of appraisal management company, or vendor management platform. Many of the intentions of the HVCC were reasonable, such as the desire to eliminate pressures on independent fee appraisers to “come in at value” for a transaction (in order to stay on someone’s appraiser roster).

We’ve been signing up mortgage professionals this week for the Mercury Network, a vendor management platform (VMP) from a la mode. A la mode, if you’re not familiar with the name, is behind a huge percentage of the transactions in the real estate industry across the country. We use a suite of software from them to manage our appraisal orders for Austin & Central Texas Real Estate.

The Mercury Network for Appraisal Management

A la mode’s entry into the AMC-alternative appraisal ordering management market is the Mercury Network. This well-crafted appraisal ordering and management platform lets mortgage professionals better manage their own business by giving them pin-point control over the routing of their appraisals and provides real-time status information.

Some of the benefits of the Mercury Network include:

• We pay the fee, on a per-appraisal basis and we don’t pass this on to you or your customers. This means that our normal appraisal fee is the same whether you order your appraisal directly from us, or via the Mercury Network. If you send us a lot of business, we can also negotiate a discounted rate.
• You can add us to your appraiser roster, still keep the appraisers you already know and trust and still maintain regulatory compliance. Give us a try – you will be impressed with our professionalism, turn around times and the quality of our appraisal reports.
• This service is web-based and uses the latest in work flow technology to keep your orders in order. Have you had any deals go south this year because of appraisal problems?
• The Mercury Network can help you navigate the mountain of regulatory compliance for each appraisal order: HVCC, FHA, GLBA, Interagency Appraisal and Evaluation Guidelines, FHFA’s MISMO XML requirements, etc.

Collateral Valuation Policy

We’re also impressed by the article written for Mortgage Banking Magazine by Adam Calvery, President of the Mortgage Solutions Division of a la mode.

This article, called Three Legs of the Appraisal Management Stool serves to remind mortgage professionals that “lenders need a common sense approach to collateral valuation policy that embraces three key components: regulatory compliance, quality assurance and fraud management“. With all of the fuss about HVCC compliance this last year, some of the other critical aspects of lending have been receiving less attention than necessary.

Is Your Business Ready for the Future?

If you need a certified residential appraiser for Austin & Central Texas Real Estate, you need Appraisal IQ.
We can set you up on the Mercury Appraisal Network in as little as 45 minutes by calling (512) 541-2107, or you can call a la mode at 1-800-434-7260. We’ve had nothing but positive experiences with their client service staff, and we expect that you will receive the same great service, too.

What have you got to lose? What have you got to gain?

Take control, call Appraisal IQ TODAY at (512) 541-2107.

The Federal Housing Finance Agency announced the HVCC in December of 2008 in a brief news release: FHFA Announces Home Valuation Code of Conduct.

Where did the HVCC Come From?

The HVCC is intended to protect appraiser independence by enacting a figurative “firewall” between appraisers and lenders to prevent lenders from pressuring appraisers into arriving at pre-determined (usually higher) property values.

Comprehensive information about the HVCC can be obtained from Freddie Mac. We particularly like the HVCC Fact Sheet.

It is the result of an agreement between the New York State Attorney General, Andrew Cuomo, Fannie Mae, Freddie Mac and the Office of Federal Housing Enterprise Oversight (OFHEO). In November of 2007, the New York Attorney General filed a class action lawsuit against First American Corporation and its appraisal management subsidiary, eAppraiseIT. An brief overview of this lawsuit can be found in this article called Washington Mutual Faces Class Action Lawsuit. In a nutshell, the lawsuit accused them of allowing Washington Mutual to pressure appraisers to change appraisal values (usually to a higher value, to support more lucrative loans), as well as to select which appraisers would be used for Washington Mutual’s appraisal reports.

The original lawsuit is still playing out in the New York courts. An update can be found in the June 8th, 2010, Reuters article entitled, NY court allows Cuomo suit over bogus home appraisals.

Ultimately, regulators seized Washington Mutual in September 2008 after it had amassed about $176 billion of home equity, adjustable-rate and subprime home loans on its books. As reported in the NY Times, the seizure of WaMu represents the largest bank failure in American history.

Effective Date of the HVCC

The HVCC became effective on May 1st, 2009 and dramatically changed the face of the appraisal industry in the United States.

We are now 14+ months into appraising under the HVCC. Although the intentions of the HVCC were noble, the impact to the real estate industry has been staggering.

The Unintended Consequences of the HVCC

Many, of not most, lenders that are in compliance with the HVCC have maintained compliance by routing their appraisals through Appraisal Management Companies (AMCs).

AMCs receive appraisal orders from lenders (including mortgage brokers), and send them out to appraisers that are on their approved appraiser roster. Because AMCs take a haircut of the fee charged to the consumer, an amount that can be as high as 50%, the appraiser that performs the appraisal receives a lower fee than he or she would have before the HVCC.

Many experienced appraisers have found that they cannot cover their business expenses on 50% of the fees that they used to receive for the same work. Many experienced appraisers have shuttered their businesses as a result.

Many of the appraisers on the AMC rosters are newer, and/or they are willing to drive longer distances to perform an appraisal. This means that many appraisals are being done by appraisers that may not be familiar enough with a local market area to truly understand the subtle differences in the market values in a neighborhood.

“Subtle differences” in value can make or break a home purchase, or a refinance. Values that come in artificially high may induce a homeowner to take on more debt than the true value of the property can support. Values that come in artificially low can break a purchase deal, or force a buyer or seller to bring more money to the table to keep the deal together.

For the real estate market to work, it depends on market values that are indeed set by the actual market values of the properties that are selling. The best appraisers to determine the market value of a property are the ones who are intimately familiar with a neighborhood or a market area.

Unpredictable Order Volumes

Another unintended consequence is that appraisers now have no way to gauge the volume of business they may do in a month. An AMC that sent them 20 appraisal orders last month may send 2 this month. Pre-HVCC, the appraiser would have had a working professional relationship with the lenders that send him or her business and would have a better idea of the likely monthly volume, with seasonal fluctuations. This makes it difficult for licensed appraisers to take on appraiser trainees, and since trainees are the appraisers of tomorrow, this may lead to a shortage of qualified appraisers a few years from now.

An article written in January of 2010 raised the alarm about the potential Future Shortage of Appraisers in Massachusetts.

Alternative to Appraisal Ordering Through AMCs

Although we’re on the approved roster for dozens of AMCs, we expect more of our business going forward to instead come to us via a la mode‘s Mercury Network. The Mercury Network provides HVCC appraisal ordering through an easy-to-use interface that provides the necessary communications firewall for appraiser independence.

The requirement for HVCC compliance is changing the way Appraisers, Lenders, Mortgage Brokers, Clients and REALTORS® interact to get the deal done. HVCC Compliance and appraiser independence can be maintained while still permitting Lenders and Mortgage Brokers to work with their preferred local appraisers.

The Mercury Network

The Mercury Network, from a la mode, provides a well-executed appraisal order management solution for Lenders and Mortgage Brokers and eliminates the need for appraisals to be run through AMCs.

Best of all, it is FREE.

What is the HVCC?

The HVCC (Home Valuation Code of Conduct) mandates that all lenders separate anyone on the sales side of the business (loan originators — the loan officers and loan processors) from appraisers, or that they put in place “prudent safeguards” to ensure that a commissioned employee can’t influence an appraiser in any way.

AMCs Are Not the Answer

In early to mid-2009, many lenders began funneling their appraisal orders through Appraisal Management Companies (AMCs) and all but abandoned the relationships they had cultivated over the years with local appraisers in each area where they did business. By early 2010, however, it had become clear that although AMCs can provide a buffer layer between Lenders and Appraisers, this service frequently comes with a whole host of undesirable problems. Many real estate transactions fell through, to great detriment of the industry (and, of course, to the buyers and sellers). This failure has widely been attributed to AMCs sending appraisals to the cheapest appraiser, or the one that could get it done the fastest, as opposed to sending the orders to the appraisers with demonstrated expertise in a market area or type of dwelling.

Out of area appraisers may be cheaper than local experts, which makes them attractive to AMCs, but they rarely know the characteristics of the local market that add (or detract) from the value of property. One key item to note is that although AMCs demonstrably send appraisals to lower-priced appraisers (or to those appraisers who will accept less than their established, or traditional fee), that cost savings is not passed on to the consumer. Consumers (buyers of real estate) are paying the same, or higher fees for appraisals than they were prior to the passing of the HVCC.

Customers Pay Higher Appraisal Fees – Appraisers Earn Less

Yes, you read that right: the Appraisers are getting paid less per appraisal, yet the Consumer is paying more. The fee taken by an AMC can be 50% (or more!) of the amount paid by the consumer for the appraisal.

Better Option for HVCC Compliance?

The Mercury Network IS the Answer: Stay HVCC Compliant and Choose Appraisers with the Market Area Experience that permits Effective, Defensible Valuation of Property

The Mercury Network solves this problem (protecting appraisers from undue pressure from lenders to come in at value, among other things) by operating in a “double blind” mode that hides the identity of the appraiser and the lender, making it easy for the two to communicate while still maintaining HVCC compliance. The Mercury Network has tens of thousands of appraisers already registered and ready to accept orders. The appraiser selection system lets you take into account factors like turnaround time, percentage of orders selected, proximity to subject and more for maximum flexibility.

For lenders that still allow loan originators to communicate directly with appraisers (which is allowed in many situations) they’ll appreciate Mercury Network’s audit trail of communications that ensures complete transparency during the entire process. Simply put: It’s a solution that meets your needs as a lender no matter what level of separation you decide is prudent. And with Mercury Network, a lender can use the same appraisers they’ve known and trusted for years.

In addition to HVCC compliance, Mercury Network includes numerous time saving features to make the process of managing appraisal orders more efficient. One example is the delivery system used by the appraiser which incorporates a customizable set of review rules that run before the appraiser sends the report, thus increasing loan production staff efficiency with fewer re-sends.

a la mode’s Real Estate Services are Everywhere You Want to Be

You Probably Already Depend on a la mode technology.

Over 50% of all appraisal reports today come through a la mode in some way. Since 2002, a la mode’s servers have managed tens of millions of appraisals for over 200,000 mortgage professionals. That same reliable backbone that has been behind thousands of appraiser’s business websites is what’s driving Mercury Network today. Of course, if you simply look at the bottom of your appraisal reports, chances are at least half of them have “a la mode” in the footer. So rest assured a la mode which has been producing real estate software since 1986 is no newcomer to the industry.

To learn more about how Mercury Network uses technology to streamline your workflow and allows you to remain HVCC compliant, visit Mercury Network at www.mercuryvmp.com. Or contact a la mode, creators of the Mercury Network, at 1-800-434-7260.

Add Orlando Masis to Your Appraiser Panel

Please remember, when you join the Mercury Network, add Orlando Masis (Appraisal IQ) as one of your local appraisers for Austin and Central Texas. We guarantee that you will be satisfied with the quality of the analysis and the quality of the report – we adhere to the highest of standards, professionally, ethically, and personally.

Three Approaches to Value are used by Real Estate Appraisers to Determine the Market Value of Property:

• The Sales Comparison Approach
• The Cost Approach
• The Income Approach

1. The Sales Comparison Approach

The most frequently-used and accepted approach to determining value in real estate appraisal practice is the sales comparison approach. This approach bases its opinion of value on what similar properties (otherwise known as “comparables”, or “comps”) in the vicinity have sold for recently. These properties are adjusted for time, acreage, size, amenities, etc. as compared to the property that is being appraised. Understanding which (and to what extent) adjustments are reasonable for a given market area (for a given property) relies on the experience of the appraiser. A property characteristic that is highly valued in one neighborhood may not be valued to the same degree in a different area.

2. The Cost Approach

The second approach to determining the value of a property is the cost approach. This approach seeks to determine how much a property would cost to replace (meaning, rebuild) after subtracting accrued depreciation. Accrued depreciation is the reduction in actual value of property over a period of time as a result of wear and tear or obsolescence. The term reproduction cost is used if an exact replica of the original property is produced. The term replacement cost is used if a property is rebuilt with comparable utility, but using current design and construction methods and materials.

The cost approach is considered to be more reliable when used on newer construction. The methods and results of the cost approach are considered to be less reliable with older construction.

The cost approach is frequently the only approach that is considered to be reliable when appraising special use properties such as commercial/industrial properties or public properties such as libraries, schools or churches which are not traded on the open market.

3. The Income Approach

The third approach to value is called the income approach. When a property generates income for it’s owner, that income, or potential for income, helps to substantiate, calculate or identify the market value of the property. Apartment buildings and duplexes are examples of income-producing properties. Appraisers use the income derived from the property as part of the assessment the market value of the property.

An Appraisal Inspection Determines Property Size and Condition

An Appraisal Inspection is a visit to the property being appraised to collect information that is used to determine the Market Value of a property in a real estate appraisal report.

For a detailed list of the steps of an appraisal, including the appraisal inspection, please read our page on Appraisal Steps: Determining Market Value of Property.

Before the Appraisal Inspection

Prior to the appraisal inspection, the appraiser will research information about the property and the neighborhood. This includes confirming that the property details (lot, block, street address, etc.) are correct, which establishes that the correct property (called the subject property) is being appraised.

The Appraiser Visits the Property

The appraiser will then visit the property to perform the appraisal inspection.

This inspection will include the following basic steps:

1. Determination of the square footage of the property by measuring the exterior dimensions of the home for a single-family residence). The calculated square footage will include all interior, conditioned space and will not include covered patios, balconies or walkways. The square footage of the garage will also be determined and reported, but is not considered to be part of the square footage of the home.
2. Observation of the condition of the property, to assess if the property is in poor, fair, good or excellent condition. This observation step will include taking photographs to document the condition of the subject property. These photos will include, at a minimum, a street scene (a photograph taken looking down the street, i.e., through the neighborhood), front and rear elevations, and interior pictures of the kitchen, bathrooms, fireplace(s) and living spaces. When the appraiser is assessing the condition of the property, he or she is checking for conditions that could affect the value of the property.
3. Verification of upgrades that have been provided to the appraiser that may support additional value.
4. Notation of permanent elements or features that could affect the value of the property. This may include built-in cabinetry, built-in appliances, built-in BBQs, and other permanent items that may not be removed from the property. The fact that an upgrade cost a certain amount does not necessarily mean that the property value will have increased correspondingly.
5. Notation of the size and condition of the basement, including whether or not the basement, or a portion of the basement has been updated or finished. Although updated basements may affect the value of a property, the basement square footage is not included in the overall square footage reported for the property. Basement value is calculated separately from the main level(s) square footage.
6. Verification that the property has a furnace and that the furnace appears to be in working condition. Please note that this is not a furnace inspection of the type a home or HVAC inspector would perform. The appraiser needs to determine that the furnace turns on, not that it functions as intended, which is out of the scope of a property appraisal. If the furnace does not appear to be in working order, the appraiser will not that on his report and an additional furnace inspection may be required to confirm the furnace is in good working order prior to the lender making the loan on the property.
7. Confirmation of the number of rooms contained within the property. A room must have a closet and a window to be counted as a bedroom.

After the Appraisal Inspection

After the appraisal inspection, the appraiser will use this information to compare this property to comparable (similar) properties that have recently sold (or are for sale) in the market area and will analyze the available market data along with the specifics for the inspected property to make his determination of market value in his real estate appraisal report.