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Florida mortgage brokers and Realtors take note. We’re in full swing now with the new Form 1004MC - “MARKET CONDITIONS ADDENDUM to the APPRAISAL REPORT” – will be required on all Florida appraisal reports for single to 4-family home loans dated on or after April 1, 2009.  If you’ve still not heard about the Home Valuation Code of Conduct (HVCC) – which is tied to the competition of Form 1004 MC – it requires appraisers to provide more information about market trends, supply and demand, marketing times, prior listings, and the like.

There’s a lot to the HVCC, but at the least, Florida mortgage professionals and Realtors should become familiar with it – at least on a cursory level.

Listed below are the most frequently asked questions regarding appraisal-ordering procedures and what now must be included on an appraisal report.

Note: At a minimum, you should know that lenders must order an appraisal through an Appraisal Management Company who in turn, assigns the appraisal order to ANOTHER appraiser- or the mortgage company’s independent person who has nothing to do with the origination of the loan.

1. What is an Appraisal Management Company?

Appraisal Management Companies (AMCs) are third party, independent companies formed for the specific purpose of being a middleman in the appraisal ordering process.   Regulators will tell you that AMCs are set up to provide a layer of “impartiality” between lenders and appraisers.  They’ll also find it difficult to argue that this additional layer of management is already resulting in increased appraisal costs.

2. Can my Florida Mortgage Broker talk to the appraiser?

Lenders and mortgage professionals must provide appraisers with a copy of the purchase agreement but are prohibited from speaking with the appraiser about value.  However, there is nothing in the HVCC rules prohibiting real estate agents from discussing the transaction with the appraiser.

3. What’s the buzz about the fact that “value trending” appraisals must now include a trending analysis on the appraisal report?

In addition to traditional sales comps, appraisers must now provide a “trending analysis.”  It’s a new form where they must include the following information:

• Sales Price compared to Listing Price (shown as a percentage)
• months of housing supply
• days on the market
• sales activity compared to the overall sales
• seller concessions and
• number of sales of foreclosed properties

4. What if the value comes in lower than the sales price?

The real estate agent needs to provide additional information or comps to support the value to the lender.

The lender in turn, sends to the appraisal management company, who gives it to the appraiser.  Sound like a Chinese Fire Drill?  Call it what you will.  In any case, expect delays.

5. Can an appraisal be assigned to another lender?

Yes, but the lender who ordered the appraisal must agree to the transfer.

Given the time and effort involved in jumping through the hoops of this new 3 ring circus, I’m not sure too many lenders are going to be real quick about assigning appraisals for use by their competitors.

6. Can the borrower/client pay for the appraisal at the door?

No, it must be paid by credit card by the lender ordering the appraisal.  The fee will then be added to borrower closing costs.

7. What’s the 3-day appraisal notice to the borrower all about?

The borrower has 3 days to “review” the appraisal and the loan cannot be closed until the 3-day waiting period has elapsed.  However, the borrower can sign a waiver if they wish to close earlier than the 3-day waiting period.

The appraisal report can be sent to them by email or if no email address, a printed copy by the appraisal management company.

8. Are FHA and VA Loans Required to Use the HVCC Appraisal Process?

No.  HVCC applies to conventional loans only. FHA, VA and USDA loans are exempt from this rule.

This said, Lenders that fund FHA loans have the option of requiring an appraisal to incorporate the HVCC process , so banks may choose to have the FHA appraisal orders routed through the same appraisal management companies they already use.

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• How Will The Home Valuation Code of Conduct (HVCC) Impact Las Vegas FHA Loans? (myfhamortgageblog.com)
• New Las Vegas FHA Appraisal Guidelines April 1, 2009 (myfhamortgageblog.com)
• FHA Changes Appraisal Requirements For Declining Markets (fhaloanadvice.com)
• When is a Second Appraisal required on FHA Jumbos? (raincityguide.com)

Technorati Tags: Federal Housing Administration, Florida Appraisers, Florida Home Appraisals, Florida Home Loans, Florida Mortgage, Form 1004 MC, Home Valuation Code of Conduct, HVCC, Uniform Standards of Professional Appraisal Practice

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The Market Conditions Addendum to the Appraisal Report (Form 1004 MC) is coming, and many appraisers are searching for ways to complete it online or at least via a spreadsheet program like Microsoft Excel.   If the 1004 MC is news to you, it’s surely not news to the appraisers you use.  In fact, the 1004 is pretty much the main topic of interest around the Appraiser’s Water Cooler.

I’ll go over some of the basics about the 1004 MC here, and I’ll try to lead you to a few resources that might provide some additional information.

Why is Fannie Mae Requiring Form 1004 MC?

Sometime around mid November 2008, Fannie Mae announced that it would begin requiring Appraisers to submit a Market Conditions Addendum to the Appraisal Report (Form 1004MC) with each and every appraisal they complete.

Basically, Fannie Mae purchases or securitizes mortgages in all markets and under all market conditions.  When lenders run out of money to lend, they bundle up mortgages and sell them to Fannie Mae (as well as Freddie Mac) who then turns these “bundles” into Mortgage Backed Securities to be purchased on the stock market.

Needless to say, Fannie wants to over its “Fannie” by making sure that the mortgage they buy up are worth the paper they’re written on!  Form 1004 MC, and the market conditions it requires appraisers to document, is to be the tool appraisers use to make sure that their valuations hold up.

OK. So, Form 1004 MC Helps Appraisers Back Up Valuations.  But How?

When I first wrote about the Market Conditions Addendum to the Appraisal Report, I mentioned that it will be required on all Florida appraisal reports for single to 4-family home loans dated on or after April 1, 2009. However, as explained, a good number of appraisers and lenders are asking for the information found on the 1004MC now!

Basically, the 1004MC asks for more information about market trends, supply and demand, marketing times, prior listings, and the like.

The Market Conditions Addendum FAQ provided as part of my earlier post takes care of a lot of the main questions folks have about it.  So, be sure to check it out. I’ve provided answers to some of the questions I’ve been asked most about the 1004MC.   I hope they help to clear some things up for everyone.

Doesn’t the 1004 MC Just Mean More Work for Appraisers?

For some, yes.  However, long-time Appraisers like Brian Davis, have been collecting the data and performing trend and market analysis as part of their standard appraisal efforts for a long time now.

I popped in over at the Appraisal Water Cooler today and caught a few of the Pros talking shop about the 1004 MC.  Here’s what some of them had to say…

Reply by Bill Cobb on November 15, 2008 at 8:46am

Brian, I attached the draft I was sent in August 08 (the whole page). When looking at all of the detail of this new form, it would take at least 1 hour to fill out just this form. Not to mention that lenders and AMCs have demanded we add more market analysis, 2-3 listings adjusted to list-2-sales price ratios with listing photos, much more commentary on the reconciliation section, etc.

All of these add-ons are adding 1-2 extra hours to complete this thorough of an appraisal report. MY BEEF is that they don’t want to pay a dime more for all of this extra work and time.

Reply by Brian Davis on November 15, 2008 at 9:05am

Bill – Thanks. I also provided a link to the final document (bottom of original post). I’ve also uploaded the announcement pdf as well as Fannie’s FAQ sheet on the new form.

Over my career, I’ve seen many of these initiatives. Most often it’s a reaction to appraisers not doing what they should have done in the first place.

I can remember when we did not have to include photos of the comps. Why? Because it was presumed that all appraisers were doing their job and were at least driving by them. To make SURE . . . they began requiring photos. It was their insurance that we HAD visited the comp.

There’s case after case of that happening. More recently we’ve been required to report on the historical sales and listings of the subject and comps. YEAH . . . we should have been analyzing that all along . . .but many were not. NOW . . .we’re all required to “report” that analysis.

That’s what I see in this latest Addendum. Because they feel that many appraisers were not doing the proper analysis . . .we now have to “report” those findings.

I agree . . . It take a LOT longer to “Report” those findings than it takes to just do the “Analysis”. Primarily because we have to get it into THEIR format and not just a series of MLS, Assessor, or personal charts and graphs.

So, we can see that appraisers are looking at this much as any other professional might.  Most of them have already been doing the work that a few of them look at as “extra,” so no big deal there.  It’s just a pain to get the analysis into the format the lenders are looking for.  I imagine I’d share that sentiment.

What are Some Solutions Out There to Make Completing the 1004 MC Online a Possibility?

I can’t imagine what it would be like to take paper and pen mortgage applications every time I interviewed a new applicant.  Luckily, I don’t have to.  Whether in person or by phone, I can easily use my Encompass software to get the job done swiftly and professionally.  Obviously, it also helps that I provide a way for customers to securely apply online for a Florida mortgage with a few easy clicks and some keystrokes.

But are their online 1004 MC solutions out there for Appraisers to use?  You bet.  Here are a few I’ve found.  If you know of any more – please share.

1004MC Total Solution©

It’s no secret among Appraisers that Brian Davis, over at the AppraisalScoop blog, is one of the top authorities on pretty much all things “appraisal.”  If you’ve spent any time at all on his site, you’re now very aware of an electronic 1004 MC solution that is aptly named “The 1004MC Total Solution©.” Devised by Automated Valuation Technologies, Inc. (AVT), this solution claims to streamline the various trending and analysis tasks required to complete the 1004 MC, running on the popular Microsoft Excel (2003 or 2007) spreadsheet platform.  My guess is that if it’s sold at ScoopGear.com and backed by Mr. Davis – Florida appraisers concerned with completing the 1004 MC correctly should most definitely check it out.

MLS_Analyzer^TM

I found the MLS AnalyzerTM through surfing around on Appraisers Forum for news about how appraisers are dealing with the 1004 MC.  According to the site, GeorgiaAppraiser.com, MLS AnalyzerTM MLS Analyzer analyzes downloads from various MLS services and provides appraisers with the appropriate entries for the FNMA 1004MC.

I don’t know much about this provider.  Perhaps some of you can help out by way relaying your first hand experience with it.

S.M.A.R.T. APPRAISER

Billed as “The Best Fannie Mae 1004MC Solution,” the creators of the S.M.A.R.T. Appraiser claim that it allows a real estate appraiser or an agent to define the market (i.e. zip code, city, or by geographical boundaries) and download all activity for the previous 3 years.

They also claim that it allows you to breakdown and analyze 1,000′s of records with a few clicks – as the software converts MLS data into “drill down” graphs and pre-populates and creates the new 1004MC automatically.

As with the previous software solution, I don’t know much about this provider.  Any insight you might provide is greatly appreciated.

Final Thought

I’m sure the 1004 MC means a bit of extra work for appraisers, and I empathise with the fact that extra time and effort tends to translate into higher labor costs.

There do seem to be some viable tools out there to assist appraisers with the completion of Form 1004 MC.  I do know this – if I’m paying for the appraisal, I hope the appraiser is using something to speed up to process (and still do a solid job, of course), as many out there are already stating that without an automated solution, the work required to complete the 1004 MC may cause prices may go up by as much as $150.

Related article

• Appraisers brace for industry change (appraisalnewsonline.typepad.com)

Technorati Tags: 1004mc on line, Appraisals, fannie mae 1004mc, Florida mortgages, Form 1004 MC, Market Conditions Addendum to the Appraisal Report

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Starting May 1st, third-party Appraisal Management Companies (AMCs) will be charged with eliminating pressure applied to appraisers by lenders – urging them to inflate housing values.

Under the new Home Valuation Code of Conduct – drafted under the “supposed” watchful eye of James B. Lockhart (left), director of the Federal Housing Finance Agency, which oversees Fannie and Freddie – lenders and mortgage brokers will be prohibited from communicating directly with appraisers.   Instead, appraisals will be ordered via AMCs, who will farm the work out to appraisers they have either contracted or retained on staff.

Is it a Buffer? Or a Sponge?

In theory – at least thus far – I’m fine with AMCs being put in place as a third-party “middle man” type buffer between lenders and brokers and the appraisers working on any given loan.     It’s warranted, and we need but look at the way Banks (Washington Mutual) and Appraisal Companies (See Cuomo vs. First American Appraisal Group) cajoled and pressured their way through numerous deals in order to get appraisal numbers where they needed to be in order to close deals.

But what really stinks is that there is at least one case where and AMC – Lender’s Service, the country’s largest AMC – is reported to have passed along statements to appraisers from lenders and borrowers urging for higher valuations in order to close loans.   Ex-squeeze me?

AMCs Won’t Be Regulated! Where are the Watchmen When We Need Them?

Hear me on this folks – AMCs as they move forward will not be under any sort of formal regulation.   Yup.   You heard it here.   Zip, Nill, Nada Zilch.   Not even Freddie or Fannie – who will then try to make lenders pay them back for toxic loans sold for cash down the line.

Don’t get me wrong – lenders shouldn’t be approving or passing along or passing forward bad loans.   It just strikes me as odd that Lockhart, the FHFA, and Fannie/Freddie worked to pass the Good Conduct act – will only accept loans that have been duly certified by its measures, yet haven’t bothered to set up any sort of formal oversight body to make sure things are done properly on the side of the AMCs.

Forget ongoing oversight! What about the “Driver’s License from a Cereal Box” – like approvals they are at least tacitly granting by letting a bunch of “Known Entity Dopes” form and run these AMCs?

Oh yes.   As the BusinessWeek article linked below sates – there’s nothing to stop former sub-prime mortgage companies and even appraisers who lost their licenses for erroneously reporting home values from… are you ready?     RUNNING AMCs THEMSELVES!

Hello Fox? Meet Mrs. Hen and Mr. Rooster. You’ll be watching over them for a while.

Related articles

• Housing Appraisals: Still Blowing Bubbles? (businessweek.com)
• Appraisers Continue to Speak out against AMC Loopholes in the HVCC (appraisalnewsonline.typepad.com)
• FHFA Announces New Mortgage Data Requirements – Tracks “Appraisers’ Performance, Negligence and Fraud” at the loan level (appraisalnewsonline.typepad.com)
• Fannie Mae Issues “Home Valuation Code of Conduct” Updates and FAQs (appraisalnewsonline.typepad.com)
• Inflated Home Appraisals Come Under Fire (mymortgageinsider.com)

Technorati Tags: AMC Loopholes, AMCs, Appraisal Management Companies, Federal Housing Finance Agency, James B. Lockhart, Washington Mutual

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The appraisal of acreage – whether it be raw land or forty acres upon which sits a family estate, is something I’ve not quite been able to fully understand.   Realizing this, I decided to reach out to my network contacts in search of some clarity.

My first stop was to LinkedIn, where I found what I feel is a pretty good explanation offered up by Rosie Hetman, a Jacksonville, Florida Real Estate Professional.     I want to take a moment to say here that I voted Rosie’s response as the best one received.

Thanks for your help, Rosie!

Here’s the question I posted, along with Rosie’s response.   I hope it provides some insight if you too were wondering how land appraisals factor out:

I’m also curious as to how homes on large acreage lots appraise out if there are no comps nearby. Is the land valued in the same manner as it would be if it was raw land, or does the fact that it has a house on it automatically shift it into a higher valuation?

A: The most common appraisal approach to Land is the comparable sales method. Of course, depending on the region and area, recent comparable sales may be hard to find.   In this case, adjustments are made with time, condition and zoning. Every piece of property – vacant or not – is unique.   It’s the process of adjustment that makes the comparables price the subject property.

For Example: If you have a subject property of vacant land zoned agricultural that is 5 acres, typical appraisal guidelines in lending will allow for a property to be comparable if the size is within 20 percent   of the subject.

The property will also need to have been zoned at the same, be within 5 miles of your subject property, and will have to have been sold in the last 6 months.   If there is no comparable sale that meets these criteria, then the search is expanded incrementally through size, distance to subject and finally – time.

Often times, a property when securing a mortgage will be appraised at the lands highest and best use.

For example: If a property is zoned rural residential and has a contract on it subject to changing the zoning to neighborhood commercial for a shopping center, the appraisal would be based on neighborhood commercial instead of rural residential.

In response to the residential property with large parcel of land –   the approach is much the same.

If there are no comparable properties that are a similar to the subject property,   then a piece of vacant land will be used to justify a price per acre or square footage and then added as an upward adjustment on comparable sales to equal the subject properties additional land value.

In the end, appraising is just the process of matching and or adjusting properties to be the same as the subject property in order to arrive at a true value.   However, an appraisal is an opinion and may differ with the appraiser and the adjustments used.

I hope you found this information helpful. In my market area (Jacksonville, Florida), we come across this frequently given the size of our area and urban sprawl; therefore, finding the accurate value is often a challenge. Occasionally, multiple appraisers are asked to participate in the process.

Thanks again, Rosie.   Hope to return the favor very soon!

Technorati Tags: Appraisal, Appraisal of Acreage, Florida, Real Estate, Real estate appraisal, Residential

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So, What Can I Expect with My Florida Home Appraisal?

It’s the question all Florida Realtors and Mortgage Brokers should be able to answer as the new year approaches.   Things   with Florida home appraisals are changing.   Read on to find out how…

Fannie Mae is establishing additional appraisal requirements to go along with the existing Uniform Standards of Professional Appraisal Practice (USPAP).   The NEW Form 1004MC - “MARKET CONDITIONS ADDENDUM to the APPRAISAL REPORT” – will be required on all Florida appraisal reports for single to 4-family home loans dated on or after April 1, 2009. However, as I will explain, many appraisers and lenders are asking for the   information found on the 1004MC now!

Basically, the 1004MC asks for more information about market trends, supply and demand, marketing times, prior listings, and the like.

I’ve provided answers to some of the questions I’ve been asked most about the 1004MC.   I hope they help to clear some things up for everyone.

As a Florida Realtor or Florida Mortgage Broker, Why Should I Care?

You should care because the new information requirements of the 1004MC can cause significant delays in closing your client’s Florida home loan on time.   It’s not enough to say “Hey, that’s the Appraiser’s job, not mine!”

Folks, this falls into the “Help the Appraiser Help You” category.   I’m not suggesting that you try to influence their decision in any way whatsoever.   I’m just saying that customer service matters as much to our internal customers as it does to those we service externally.

Streamlining the Florida Home Loan Process by Helping Out Your Appraiser

You need to bone up on this addendum so you can be sure your client’s Florida home loan comes through with as few glitches as possible.   Here are some points to keep in mind:

• Banks and other lenders are becoming more stringent than ever, and as an informed Realtor or Florida Mortgage Broker, YOU can do a lot to be sure your client’s loan goes smoothly.

• The 1004MC requires detailed information that hasn’t previously been requested.   Keep in mind that this issue pertains to both Fannie and Freddie products.
• You need to understand how appraisers reach their   conclusions about the area’s market conditions AND how these conditions affect the value of your client’s property.   Knowing what appraisers must include on their reports will help you understand why a value (versus the sales price) has increased or decreased.
• Collecting this information early on not only helps the appraiser, but can help you when listing homes.
• YOU can help provide the necessary information to speed up the appraisal and the entire lending process. Be the Super Hero!

Here are some answers the most frequently asked 1004MC questions I have received from my Realtor clients to date:

When will the Market Conditions Addendum go into effect for Florida home appraisals?

Lenders are already requiring much if not all of the information listed on the 1004MC.   However, the “official date” for the addendum to take effect is April 1, 2009.

Note: If your Florida home appraiser isn’t already requesting this additional information, you can expect them to start any time now.

What if my client’s Florida home has been listed more than once within the past 12 months?

Appraisers are required to report details if the property has been listed multiple times. As a Florida Home Loan provider or Realtor, you can help make sure this information is readily available ahead of time.

Note: Even now, Florida home loans are being held up at closing when this information is not available.

Is it necessary to disclose seller concessions for use on the Florida home appraisal?

Yes.   All concessions, whether seller or third-party of any kind, must be listed on the appraisal. This also applies to any concessions updated or added AFTER the appraisal completion.

Note: You will have a big problem at the closing table if the concession dollar amount on the HUD-1 does not match the figure in the appraiser’s comments.

Can the Florida appraiser still parse out smaller acreage totals for comps if my client’s is buying or selling the only large lot in the area?

No.   If large acreage is not normal for the area, appraisers can no longer parse out a small acre total from a larger one to make a comparable analysis.   For example, they may not take out 4-acres from your client’s 24-acre parcel to determine value against another nearby 4-acre parcel.

Appraisers must count the entire value of the land, which might really mess up its value.   However, you can remedy any pricing difficulty by successfully applying for a new land parcel description that legally separates the home’s lot from the rest of the acreage prior to closing.

Will Florida Appraisers still have to check with third parties to evaluate Florida homes listed as new construction?

No.   And this should be seen as good news!   Appraisers may now use information provided from the Builder or Realtor instead of verifying with a third party service.   The only stipulation is that there must be HUD-1′s available to verify sales prices associated with new construction comps. (Check with your title company for help with this.)

So… You Got All of That?   To Help Keep Things Straight – Here’s a Short Recap of What Florida Appraisers Will Be Looking For:

• The percentage of listings vs. actual sales over the past 6 months
• Number of days on the market
• Information on all seller concessions in relation to what is “usual and customary” for your area
• The area’s median sales price vs. list price
• The average listing price vs. sales price
• The extent of foreclosures in the area

So do yourself, and your Florida home loan clients a great service by collecting as much of this information for your appraiser as possible. They’ll thank you for it!

Referenced: Leslie Petersen – MortgageCurrentcy.com

Additional Resources

• Back To Basics – How Do We Make Appraisals More Reliable? (appraisalnewsonline.typepad.com)
• Fannie Mae Relaxes Standards For Refinancing [Refinancing] (consumerist.com)
• The Appraisal Foundation Offers Online USPAP Course (appraisalnewsonline.typepad.com)

Technorati Tags: Fannie Mae, Featured, Florida, Florida Home Loans, Florida Homes, Home Appraisals

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The Square Footage Calculation.   It’s one of the most seemingly influential aspects of selecting your Florida home, yet it’s a mathematical function that sometimes seems a bit, well… “flexible” in terms of how different professionals in our industry calculate it.

Many times, when I talk with clients and ask them about the Florida home they wish to finance – they’ll eventually ask me whether there is a standard formula to calculate a home’s square footage?

It’s not uncommon to find varying square footage totals for the same property.   For example, the Polk County, Florida Property Appraiser website may list a house as having 2,500 square feet, but a sales sheet for the same house may state that it has brochure will say the same house has 3,000 square feet. Do finished garages figure into the calculation?   Are they considering the glassed in porch that was added last year? What about hallways? It all seems a bit confusing – and it’s sometimes difficult to tell which source to consider most credible.

Now, I don’t think that the there is some sort of conspiracy out there to purposely confuse you or lead you astray when it comes to accurately figuring your Florida home’s square footage.   However, I do believe that different professionals calculate square footage in different ways.

Different Ways to Calculate Square Footage

According to a Realtor.com article on the subject, The American National Standards Institute has developed the only formal method for measuring square footage – the ANSI Z765-2003 method.   Jeff Patterson, owner of Residential Appraisals in Alfred, Maine does a great job of detailing this complicated standard.

Because of its exacting nature and the fact that each part of the ANSI standard must be followed in order for it to hold up, some builders, contractors, or other real estate professionals do not use it.   However, through comments posted to a blog article written by D. Hamp Thomas – Carolina Appraisers & Real Estate, I happily found that many actually do subscribe to the ANSI method.

A lot of professionals use he American Measurement Standard. Hardly new, this standard dates back as far as the 1900s. Many real estate practitioners and builders use the AMS, so perhaps it makes sense to set it as the universal standard.

I’m still trying to find out what measurement standard most Florida appraisers and Realtors use.   If you know, please comment here to share!

Outside, Inside, all Walkable Spaces?   Which Way is Best?

Sometimes real estate appraisers measure the outside of a home to total up the gross living area.   Using this method, a home that measures 40 feet by 30 feet would have a total square footage of 1,200 square feet. Because this measurement is taken from the outside of the home, the calculation includes hallways, closets and wall space.

In some cases, real estate agents might consider all finished “walkable” areas in their square footage calculations.   Other times, real estate agents may turn to the square footage amounts listed in county tax records for use in their marketing materials.

This becomes a bit fuzzy, however, as many times these records will not include say – a home’s finished garage space that now serves as a living room. Realtors realize that this discrepancy may exist, and you will most often see a disclaimer on home listings that states that the square footage information provided is considered reliable but is in no way guaranteed.   It may also say something to the effect of “Buyers are encouraged to verify square footage,” which may actually be your best bet.

If you find a Florida home you like, and you want square footage totals that mesh with your understanding of what “square footage” means – then it’s best to arrive on site yourself – with pencils, paper, calculator, and tape measure in hand!

Technorati Tags: Florida, Florida Appraisals, florida real estate, Florida Real Estate Market

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