Blue Oak Blog

The path to become a Certified Real Estate Appraiser in California is as follow:

First, you need 150 hours of specific appraisal classes. When you finish the education requirement, you can submit, with the appropriate fee, your application for an AT (Appraiser Trainee) license. After the State reviews the application, they have 90 days, they will issue you a letter that lets you take the State test, with the appropriate fee. If you pass the test, you are allowed to submit your application for the issuance of the AT license, with the appropriate fee.

With the AT license, you are allowed to appraise any real estate property in the state. The only provision is that a qualified appraiser must co-sign the report. By co-signing, the qualified appraiser to stating that he/she inspected the property and is taking responsibility for all of the data and conclusion reached in the report. The qualified appraiser must examine all the data in the report, check the comps used and see if there are better ones, check the adjustments and make sure they’re supported, teach the trainee something, and take full responsibility for the report. The process slows down the qualified appraiser’s production. It costs money to take on a trainee.

The Appraiser Trainee is required to get at least 2,000 hours experience. This is about one year of full time employment. The experience must include analytical work. Inputting data onto forms, by itself, isn’t accepted. This experience must include 12 months with work performed. This means you need to show work performed in 12 different months. If you don’t do any work in a month, you can’t count that month. The biggest hurdle is for the AT to find a certified appraiser that is willing to lose time and money to train a potential competitor.

After you have the 2,000 hours experience, can submit your experience list, with the appropriate fee. The list includes all the reports on which you’ve work, signed by the Certified Appraiser associated with each report. The state also wants sample reports submitted. The state has 90 days. They review these reports and if the reports and listings are found compliant, you may submit an application, with the appropriate fee, to upgrade your licensed to AL (Appraiser Licensed).

Now you are a licensed appraiser. You may still appraise any real estate property if it is co-signed by a qualified appraiser. You can also work without a supervising appraiser, but you have limitations. You can appraise any residential property, from 1 to 4 units, where the transaction value is less than $1,000,000. You can appraiser any commercial properties valued at less then $250,000.

Once you have your AL license, you are over the biggest hurdle. For the certified license, you need an Associates of Arts degree or 21 units of specific classes. You need 50 more class hours, 500 more experience hours, and 30 months with experience. Once completed, you can submit your application to upgrade, with the appropriate fee. The state has 90 days. If everything is acceptable, you will receive a letter allowing you to schedule the upgrade test, with the appropriate fee. Upon passing the test, you can submit the application for the certified license, with the appropriate fee.

You then receive the AR (Appraiser Residential) license. You can appraise any residential properties with less than 5 units on them. The shortest amount of time you can do this is 3 years. Typically, you’re looking at closer to 5 years. Much of that time is spent as a trainee where any pay agreement at all is a good deal. The time in classes is not paid and you need to pay for the classes. Every time you deal with the state, there are fees. There are also ongoing education requirements for license renewals.

You can work with a firm or by yourself. Either way, there is overhead to pay. A firm will take a percentage of each job, but you can concentrate on appraisals and you have support. The level of support varies from firm to firm. On you own, there is no office support. This means you also have to handle all the normal office functions of any business. This chews up time. You also need to cover taxes, phone, internet, databases, MLS, and many other expenses. One way or another, you don’t get all of the fee.

There is also an AG (Appraiser General) license. This is has more requirements and allows for the appraisal of commercial properties, from apartment complexes to high rise office building and shopping centers.

The final version of the HVCC, Home Valuation Code of Conduct, has been released and takes effect on 5/1/2009. Here are the highlights in a nutshell.

• No one can attempt to influence an appraiser’s value.
• No “Comp Checks”.
• Cannot remove an appraiser from an approved list without cause and written notification.
• Cannot do additional appraisals, AVM, or BPOs for a better value. It is OK to do them as part of a quality program or if the original appraisal is flawed.
• Lender must give the homeowner a copy of the appraisal 3 days before close.
• Only the lender can order appraisals. May use AMCs or appraisal companies.
• Payment to the appraiser must come from the lender, the AMC, or the appraisal company.
• No one in the loan process can talk to the appraiser.
• Anyone selecting an appraiser must be independent of the loan process and must be qualified.
• No one employed by the lender or a company owned by the lender can do an appraisal unless independence can be supported, procedures for adherence to the code are documented, and annual reviews are performed.
• 10% of all appraisals must have a quality check done.
• Establishes the IVPI (Independent Valuation Protection Institute). They will have a hotline for complaints by and about appraisers. They will also publish and promote best practices for appraisers.

The HVCC applies only to Fannie Mae and Freddie Mac loans. These rules do not apply to loans that will be kept in house, FHA loans, or appraisals for non-lending purposes.

There are some important distinctions to be made here. Lenders do not have to use AMCs (Appraisal Management Companies). As long as the appraiser selection is separate from the loan processing folks, a lender can pick whoever they want. That pick may be an AMC or an appraisal company.

The point is that lenders have options. In house appraisers can still be used if you meet the conditions of the HVCC. Quality appraisers can be used so long as the individual that selects them is independent of the loan process.

The biggest impact is on the brokers. No more “comp checks”. They will have to wait until the lender has the appraisal done before they find out that the home is worth $100,000 less than the homeowner’s estimate.

Most of the requirements are good. The IVPI, quality control, and independence are all big pluses for the profession. The exclusion of the brokers, the inability for direct communications, and the requirement to provide the homeowner with the appraisal 3 days before close will all lead to problems. While the communications issue will slow down the process, the 3 day requirement will put more pressure on turn time. For an accurate appraisal, there needs to be enough time to verify information with agents, cities, and counties. Too quick turn times can result in poor appraisals.

Our goal is the same as it has always been, accurate appraisal done professionally while responding to the needs of our clients. Let us know if there is anything we can do to help through this transition.

Well, something new has come up again, and I don’t think we’re near the end of the changes in appraisal world. First, the HVCC comment period ended last April. They were going to re-work it based on the comments and have it out for another round of comments in August. The re-worked version still has not been released. The last update I could find said it will be out in October. Yes, I know.

Last Friday, FannieMae issued Announcement 08-30. A new form is required on all mortgages (for FannieMae) as of April 1, 2008. The new form is a 1004MC, for Market Conditions. There are also provisions for some new requirements. It doesn’t look like much change form the way we do business today, but a lot more detail, a lot more work and the new form forces us to gather data differently.

The 1004MC is a market condition report that addresses the following issues:

• Inventory Section. The absorption rate needs to be provided. The total pool of comps divided by the time frame searched (60 comps/6 months=10 per month), then the total active comps divided by the # per month (120 active comps/10 per month=20 months to absorb the inventory). This needs to be done for current – 3 months, 4-6 months, and 7-12 months. Check boxes for the trends.

There are two issues we need to keep in mind here. First, The 1004 calls for neighborhood trends for all single family homes. The 1004MC is based on comparable properties. Next, when we look at absorption, closed sales are only part of the picture. There are listings of homes that are two high and by people that change their minds. When deciding which way a trend is going, we need to be mindful of the expired and cancelled listings and document how they effect our decision, if applicable.

• Median Sale & List price, DOM, List/Sale Ratio Section. We need to provide the Median, yes, median, not average, Comparable Sales Price, for 7-10 months, 3-6 months, and current to 3 months. This also needs to be done with the Median Comparable Sales DOM, the Median Comparable List Price, the Median Comparable Listing DOM, and the Median List/Sales Price Ratio. There are check boxes for the trends.

This is not just for additional work. This data needs to analyzed and used to support potential required market adjustments.

• Seller/Developer/Builder assistance prevalent. Just a yes or no check box.

• Sales Concessions. This section requires a detailed explanation of seller concession trends for the past 12 months. Concessions include closing costs, points, mortgage terms, buy downs, options, condo fees, etc.

• REOs. Are they a factor? If so, explain; provide trends in listings and sales.

• Provide Sources. Enough said

• Summary. You need to summarize the information and use it to support the Neighborhood Section of the 1004.

Once again, the Neighborhood Section data is supposed to be based on single family homes and this form is based on comparable homes. I don’t know the intended fix for this perceived discrepancy.

There is a condo section also, which is shorter.

The new requirements that take effect on January 1 are:

• Supervisory Appraisers must inspect the property and view the comparables from the street.

• Sales contract must be supplied to the appraiser by the lender.

• If comparables are used outside the subject’s neighborhood, the explanation must be sufficient for the client to understand why.

• “As Is” appraisals are permitted so long as repairs needed do not affect “the livability, soundness, or structural integrity”. Other repair items are to be considered in value, but the report can go out “As Is”. Items that do affect “the livability, soundness, or structural integrity” must be stated with the report done per completion and a re-inspection after the issues have been resolved.

• They want to clarify that previous listings within the past year include each occurrence with prices, dates, and source.

• Appraisals must include the entire site. Lender cannot have a 20 acre site appraised as if there was only 5 acres.

• They also want to clarify that if adjustments are made based on effective age, the appraiser must provide an explanation and the condition of the property.

• If you are provided information about a comparable by a party with a financial interest in the transaction, the data needs to be verified by someone without an interest in the transaction. In the case of only builder information available, it is acceptable to use the builders HUD-1.

• The neighborhood boundaries are identified by analysis based on the actions of typical buyers. Not where comparables area found. If comparables are used outside the neighborhood, explain the need to go to competing areas.

• Time adjustments can be positive or negative, but must be based on market conditions.

• The lender may rely on the appraiser’s estimate of cost new for insurance estimates.

American Housing Rescue and Foreclosure Prevention Act (H.R. 3221)

This bill was passed by the Senate and yesterday, it was passed by the house. President Bush said he will reluctantly sign it. The bill does a few things that will impact our industry rather quickly.

An amendment was added to the bill in the house that prohibits Nehemiah type purchase assistance. This was a process where the seller would gift money to a third party that would then gift the money, less a handling fee, to the buyer for down payment assistance.

Some, but not all, of the other things this bill does is:

• Establishes the Federal Housing Finance Agency to oversee Fannie Mae and Freddie Mac.
• Gets rid of the Federal Housing Finance Board and puts those responsibilities on the hands of the new Federal Housing Finance Agency.
• Gets rid of the Office of Federal Housing Enterprise Oversight (OFHEO) and puts those responsibilities ion the hands of the new Federal Housing Finance Agency.
• Increases the FHA loan limits to 155% of the area’s median home price up to $625,000 a/o 12/31/2008.
• Sets up housing trust funds for low income families with monies from Fannie Mae and Freddie Mac.
• Sets up grants for community development or housing non-profits.
• Sets up grants for homebuyer education.
• Raises the minimum asset level for Community Financial Institution Members from $500 Million to $1 billion.
• Establishes Hope for Homeowners Program (HOPE) which sets $300 billion aside for homeowners to re-finance to fixed rate loans. The homeowner must be the primary resident, must have greater than 31% debt to income, and the lender must lower the principle owned.
• Establishes mandatory licensing requirements for mortgage loan originators.
• Adds manufactured homes for low and moderate income families to Fannie Mae and Freddie Mac.
• Sets up foreclosure counseling and extends the time period to 9 months for foreclosure processing when a returning veteran is involved.
• Sets aside $4 billion for communities to purchase foreclosures to avoid blight.
• Expands the disclosure requirements for mortgages.
• Gives up to $7500 to first time home buyers. Lots of restrictions and must be repaid over 15 years.
• Give a property tax deduction to non- itemizers of up to $500 ($1,000 for married couples)
• Provides $11 billion in tax exempt bonds for new loans and refinances.

Declining Markets

There is some confusion as to how declining markets are determined in an appraisal report. The first step is to determine the subject’s neighborhood. This is the area that has some commonality with the subject and is affected by similar market forces. Often a zip code can be used. Sometimes a school district may define the boundaries and some homes are defined by the development. Lake of the Pines or Sun City cannot be considered similar to the areas around them.

Once the neighborhood is determined, the market trends can be researched. Web sites like trulia.com, cyberhomes.com, and dqnews.com can give the trend data for a zip code or city. When using these sites would be inappropriate, the MLS needs to be used.

An example would be Sun City, Lincoln. The zip code for this area shows a declining market, which provides accurate data for the Twelve Bridges area and Lincoln Crossing, but not for Sun City. Statistics can be taken from the MLS by drawing the search borders around only Sun City. Then checking the statistics, by month or quarter, you will find the low, median, average, and high prices for each time period. These can then be graphed to show the trend and the raw numbers can be used to show the change in value by month, quarter or year. The appraiser needs to explain this in the report so that a reviewer unfamiliar with the area will understand why you have different conclusions than the web site data they are using.

Do not assume that all areas are declining. There are some neighborhoods that are stable, and there are actually some neighborhoods that show some increase in value. The appraiser needs to make sure that the subject home and it’s neighborhood are the focus and that they support that in the report.

I have attached a recent article regarding Fannie Mae and declining markets.

Fannie Mae Scraps “Declining Markets” Policy

As of June 1, Fannie Mae has adopted a new, single down payment policy in all communities across the nation for conventional, conforming mortgages the company will purchase or guarantee. This new national down payment policy, announced May 16, will supersede the “Maximum Financing in Declining Markets Policy” Fannie Mae adopted in December 2007, which required higher down payments in markets where home prices are declining. That policy typically added 5 percent to the down payment needed in 8,000 to 12,000 ZIP codes where home values were dropping. Many of Fannie's critics saw it as a long-overdue dose of fiscal castor oil necessitated by too many shaky loans to borrowers who had little of their own funds on the line.

Starting with loan applications taken on June 1, 2008, Fannie Mae will accept up to 97 percent loan-to-value ratios for conventional, conforming mortgages processed through its Desktop Underwriter® automated underwriting system, and 95 percent loan-to-value ratios for loans underwritten outside of Desktop Underwriter, in all geographic locations in the United States.

The new policy now equalizes down payment requirements across the country, regardless of local market conditions. Fannie said the change was possible—and sound—because its automated underwriting programs were upgraded to assess loans more precisely.

Welcome to our site.

We will use this blog to keep you updated on changes to our local markets and changes in the industry. This blog will be updated weekly.

I would like to use today’s posting to talk about the HVCC. This stands for Home Valuation Code of Conduct.

Background: Andrew Como, NY State Attorney General, filed suit against Fannie Mae and Freddie Mac over the bundling and reselling of mortgages without ensuring the value of the collateral. They have settled by agreeing to establish the Home Valuation Code of Conduct (HVCC), also referred to as the “Code”.

The code does a number of things, including:

· Forbids any form of valuation pressure, including providing an estimated value.

· Forbids lenders from accepting an appraisal ordered by a mortgage broker or a realtor.

· Forbids lenders from using appraisals prepared by employees of the lender, except for reviews,

· Establishes quality control requirements, and

· Establishes an Independent Valuation Protection Institute (the Institute) to handle complaints.

The process called for input from industry and the public until the end of last April.

There was quite a bit of comment. Concerns about the relationship between brokers and appraisers, the apparent encouragement of Appraisal Management Companies (AMCs), the ability to skirt the requirements by using AVMs or BPOs, and the direction it seems to push the industry toward an emphasis on turn time and cost as opposed to accuracy and quality.

There will be some adjustments made based on the input, a new version of the HVCC, and another comment period. The HVCC takes affect 01/01/2009.

None of this is cast in stone yet, but there are guys with chisels waiting. For more information, the appraisal institute has copies of the agreements, the HVCC, and many of the organizations letters of comment on their web site. I have included the web address.

Appraisal Institute, New & Advocacy