Archive for the 'Closing' Category
The Appraisal Dilemma
The real estate appraisal business has been under increased scrutiny in the wake of the national housing bust. An article in today’s Wall Street Journal highlights the current challenges in securing an independent, yet accurate, property valuation.
Appraisals are an important part of a real estate purchase, helping to make sure that the negotiated purchase price is in line with recent comparable sales. Mortgage underwriters require an appraisal so that they can feel comfortable that the loan they extend to the buyer is adequately secured by the underlying property. Essentially, they want to be sure the deal’s Loan-to-Value Ratio is correct.
During the boom times, appraisals were often seen as an unnecessary step. Some mortgage lenders were more interested in writing the loan than in making sure that the home was a solid asset. They knew that the loans were going to be securitized, so the focus was on doing the deal and then handing off the risk to someone else. Unscrupulous mortgage lenders would have go-to appraisers that they could count on to value a property at whatever price was needed to make sure the deal closed. Appraisers were no longer seen as objective, writing reports that supported whatever value was needed by the mortgage lender that hired them.
These days appraisals are taken more seriously by banks and the unscrupulous mortgage lenders are generally out of business. In the meantime, different problems have emerged. The appraisal industry is being pressured to break the direct relationship between mortgage brokers (though not banks) and appraisers. Regulators want to see Appraisal Management Companies (AMCs) in charge of assigning appraisers to deals, hoping to restore objectivity to the process. As of May 1, 2009, Freddie Mac and Fannie Mae adopted the Home Valuation Code of Conduct, effectively creating a national standard for appraisals in single-family mortgages.
The unintended consequence of creating AMCs is that there are increasing complaints about the accuracy of appraisals. The Journal article highlights a number of examples in California where the appraiser assigned to a deal traveled outside of their local area for a job. Because real estate is a local industry, the dynamics of a market can be quite different one town, or even neighborhood, away. An appraiser not familiar with a market’s specific dynamics could assign a wildly inaccurate value to a property, which could unfairly impact the deal.
Local appraisers we have met who receive business from AMCs echo the concerns expressed in the article. They are being asked to travel further for jobs, do more work for each appraisal, and accept less compensation. It’s putting them in a difficult position, challenging their ability to make a living as an appraiser.
The informal solution to the dilemma seems to be to work around the new rules. Lenders that have underwriting capabilities are still able to hire appraisers directly, so many mortgage lenders are not actually impacted. Full-time appraisers with strong reputations are able to fill their schedules with work from the unregulated lenders, allowing them continue on with business as usual. All sides are watching the regulations closely, waiting to see what happens next.
The current direction of the regulatory activity seems to have two possible outcomes. In one scenario the AMCs increase the appraisal fee charged to lenders, which allows them to pass more money through to their appraisers. The higher fee would very likely be passed on to the buyer, adding to the closing costs associated with a home purchase. The other scenario is that appraisers are forced to find second jobs, or new careers entirely. If enough appraisers were forced out of the business, it’s possible that there would be a shortage of appraisal capacity during the busy spring market.
Neither scenario seems particularly attractive, and the regulation itself feels like it is addressing problems that have already been corrected by market forces. Since the new rules are not uniformly applied across all lenders, and workarounds have already been established, perhaps it would be better to roll back the regulation.
Amy & Kyle Bergquist’s Home Buyer’s Guide
Kyle and I are proud to announce the release of our brand new Home Buyer’s Guide.
We are dedicated to sharing as much information as possible about the real estate markets and the process of buying and selling homes. This website is one way in which we communicate, telling stories, analyzing data, and reporting on real estate related events. We try to make it interesting, and we try to be timely.
The Home Buyer’s Guide is a new way for us to share information. It focuses on challenges that home buyers face as they search for a property in Greater Hartford. The guide is broken down into two sections. The first walks through the purchase process in an orderly manner. It helps buyers plan appropriately and know what to expect each step of the way. The second section elaborates on important concepts and discusses topics that buyers often ask about during the purchase process. It serves as a resource, giving buyers a place to start their research when they have questions.
Our Home Buyer’s Guide is available as both a Preview Edition and a Complete Edition. The Preview Edition provides basic information needed to get started on a home search, and is available to everyone. The Complete Edition is 26 pages and thoroughly covers the entire home buying process, and is available exclusively to our clients.
Kyle and I are both full-time agents that provide a high level of service. In our experience, buyers who take the time to learn about the purchase process have a better overall experience than those who start looking at homes without any preparation. We’re always happy to sit down and talk – feel free to give either of us a call.
And if you know anyone considering a purchase, please pass on the Preview Edition of our Home Buyer’s Guide as an example of how we try to go above and beyond for our clients.
Old Paint in the Basement
Most homes that I show to my buyers have a corner of the basement with cans of old paint. Amy and I probably have more than most in our own home, just in case we need to touch up any one of the rainbow of colors that adorn our walls. We also have a couple of cans containing colors that are no longer in use.
While homeowners may feel comfortable stockpiling reserves, they can become a problem during the sale of a home. Sellers are supposed to clean everything out of the property. Including the old paint. Buyers may ask for certain colors to be left, but sellers should assume that they need to dispose of it all.
Paint is considered a hazardous material, and should not be thrown into the trash. The MDC has a hazardous materials collection program that includes paint and other chemical waste. Check out their complete guide to the program. They list the items that they can accept in addition to those that they cannot.
Oil based paint can be collected by the MDC. Latex paint cannot, which is unfortunate since most household paints are now latex. Their guide suggests cracking the lids on the cans to let the paint dry out. For cans containing a meaningful amount of paint, they suggest using kitty litter to speed the drying process. Once everything is dry, we are allowed to throw the cans (with the lids off) in the regular garbage can.
Collections are held on Saturdays at different sites each week. This Saturday (June 6, 2009) they will be in Windsor from 8:00 to 1:00 at the Poquonock Water Pollution Control Facility. Next week they’ll be in Hartford at Fox Middle School, and the following week they’ll be in Wethersfield at the High School. After those three collections there is a break until August.
I don’t know anyone that enjoys dealing with their old paint. I know that I don’t. But I think it is important to dispose of paint, and other hazardous materials, properly to protect our environment. We’re fortunate to have a collection program in place, even if our opportunities to participate are limited to Saturday mornings. The program is open to residents of most towns in Greater Hartford (see the site for the complete list) and residents of the participating towns can visit any collection site.
Don’t miss your opportunity, especially if you’re considering selling your home.