I just posted an overview of the impact that H.R. 2454 just passed by the House and heading to the Senate will have on all of us involved in real estate- home owners, contractors, builders and buyers may face higher costs and more head aches. It's a long weekend, so relax and take a look:
The entire industry has been buzzing about the Home Value Code of Conduct (HVCC) that was enacted May 1, 2009. The HVCC includes new regulations for residential appraisals completed for home loans that will be packaged and sold to Freddie Mac and Fannie Mae. It is not a "law" exactly, but since it has been adopted by Fannie and Freddie it is pretty much the letter of the law banks and mortgage lenders must now follow on all Fannie & Freddie loan origination's. It's my understanding the HVCC applies only to financing that is not gov't insured such as VA, FHA, and USDA Rural Development loans.
HVCC Rules in a nutshell:
What does this mean to you the Seller?
Once you obtain a buyer and can agree on a sales price and other terms of the contract an appraisal must be completed for the bank to verify the value of the property used for collateral on the loan. In the good old days, the lender or mortgage broker just called up the friendly local appraiser and after giving them some back ground information on the transaction and property info away they went... And just like magic the appraisal would come in right where it needed to be. Always. I won't pretend this didn't create the opportunity for collusion between lenders and appraisers, after all both benefited from a strong relationship with the other. Today the process is much different, the lender must order the appraisal through a 3rd party (AMC) who then assigns the order to an appraiser that can complete the order in the time allowed and for the fee specified.
This sounds swell doesn't it? The crooked mortgage brokers can't pressure the appraiser to support a value that is inflated or otherwise out of line. I agree that's a great idea, many properties that are now being foreclosed and were purchased between 2004-2005 sold for values that are hard to believe even keeping in mind the market at the time. Fast forward to today, the Buyer's ability to obtain financing hinges on the appraisal coming in to support the sales price and the only requirement is who can do it the fastest and for the least amount of money! There's zero quality control that I'm aware of, the only rules that apply are the appraiser must be licensed and contracted with the AMC. They don't need to be local, or even have market knowledge of the area. In fact, we're seeing appraisers come to complete orders here in Seaside, Gearhart and Astoria from the Portland area that can't find this area on a map. One recent scenario that comes to mind as relayed by a broker in my office involved a transaction in Seaside. It took 3 appraisals to satisfy the lender, the first was high (yes high), the second was $500 low (yes $500) and the 3rd was right on the money. There's a few problems that arise from this and the many similar scenario's happening right now: Closing was delayed, and that certainly affects the Sellers plans (especially if they are purchasing a replacement property, each time closing on their home is delayed so is the closing on the other end). The buyer had to pay for all 3 appraisals. It's interesting that 2 of the three appraisers were from the Portland Metro area and likely do not have a good handle on the market trends here or access to MLS data for this area. The real danger to Seller is if the property doesn't appraise at the contract sales price, your choices will be lose the buyer or lose money by reducing the sales price to the appraised value. Neither is good.
Although the idea is good, the implementation is piss-poor!
First the AMC's. These are very similar to BPO mills that few outside of the real estate sales side are even aware of. The AMC's are largely unregulated and mostly owned by banks. They charge the lender (the borrower in the end) a premium fee of often $400-600 for the appraisal, and turn around and find a warm body who can complete the order for the lowest price possible (often $200-300) and keep the rest of the fee for themselves. Because they are truly another profit center for big banks, their incentive is not quality property valuations, complete and accurate reports or superior service but profit. I'm all for profit. I'm all for maximizing your bottom line and minimizing costs but in the end you get exactly what you pay for. Competition is good, and I believe that having appraisers compete for business is great for the consumer. But in this case the consumer still pays the premium price but gets zero benefit that I can see. I don't really see a tangible benefit to the banks either. An appraisal done by somebody unfamiliar with the area or that does not include complete and accurate MLS data has the potential to be just as inaccurate and potentially damaging to the bank as an appraisal that is "influenced" by the lender or real estate agent. I should back up a little... When an appraiser goes out to inspect a property and complete a valuation report they already have the sales contract in hand. They don't truly establish an objective value, they already have the answer to the math problem in hand. Many appraisers will verify a value they believe is accurate for the market, but some will use what ever comps and adjustments work out to the answer the bank is looking for every single time. If you want true independent and objective opinions on value, send the appraiser out armed with the same info we buyer agents must use to establish value for our clients: Sold comps and recent MLS data. Not the answer to the math problem you're asking us to solve.
My other problem with the new program is the added layer of bureaucracy. Each time you add another link to the chain you also add delays and the potential for speed bumps. The lender must place the order with the AMC, who then finds somebody to complete the order, who them submits the order back to the AMC, who then forwards the report back to the lender. This often equals 2 week turn around times for reports, and much longer delays if the report requires clarification or other sold comps be considered by the appraiser. This additional layer also adds cost, there's no way it cannot. The fees are ultimately payed by the borrower, so again the borrower is subjected to additional cost and time constraints. If the property being purchased is a bank owned foreclosure property it's not uncommon for the Buyer to be penalized for each day closing is delayed. Again, another potential cost put on the consumer.
Gee this doesn't sound all that great, who's idea was the HVCC?
I wasn't in the room when the idea surfaced, nor was I involved in crafting the new regulations so all I have to go on is the many, many reports floating around the blogosphere. The story goes that the NY Attorney General threatened to investigate lending practices of a large mortgage originator that made many bad loans in the State of New York that partially contributed to the mortgage melt down. The bank didn't like that idea, so instead they agreed to implement some new regulations to protect the consumer. A good old fashioned shake down, Chicago style.
The system is broken.
I won't argue the point that lenders and appraisers should be able to do whatever they want and not shoulder some of the risk. However hastily drafted regulations that do not take into account the experience of those trenches don't solve anything. Right now there's a push to repeal the regulations or at least place a moratorium on the HVCC for the time being. In the mean time, Buyer Seller beware.
I get asked by both active buyers and homeowners I know on a regular basis about what the market is doing and where are prices going. Yes prices have declined, but we're not seeing 1980's pricing any place, at least not yet. However, not long ago if somebody was looking for a home under $200,000 there wasn't many to pick from and that included the 'tear down' types. That's changed, and when cruising the MLS today for comps to complete a CMA I forgot how many homes had closed for less than $150k in recent months. But for less than $100k if the house will survive the next winter storm I don't think you can go wrong.
Award winning historic Astoria craftsman that has been thoughtfully
renovated while retaining the classic charm and original integrity.
Natural fir floors, tastefully updated kitchen, extensive use of tile,
and updated mechanicals make this home stand out from the rest. Home is
designated historic by the City of Astoria, and was awarded honorable
mention for the 2009 Dr. Edward Harvey Historic Preservation Awards.
Finished square footage includes formal living & dining rooms,
spacious kitchen and powder room on the main floor. The upper level
includes 3 bedrooms each with large closets, original built-ins and a
full bath. The former daylight basement is now fully finished to
include a utility/storage area, full bath, bonus room and a bedroom.
Details:
1061 14th St., Astoria OR 97103
4 Bedrooms
2 Full & 1 Half Bath
Finished Sq-Ft: 2100 (approx)
$239,000
Contrary to what the 5 o'clock news reports each night, the real estate market isn't completely dead. Homes that are priced appropriately are selling in 60 days or so, and we're even seeing multiple offers on some of these properties. Here's a quick look at the numbers:
For all areas of Astoria, Oregon 97103:
For all areas of Warrenton & Hammond, Oregon 97146/97121
You can see real estate market stats for Gearhart and Seaside here.
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source: Clatsop MLS. Info deemed reliable but not guaranteed accurate. As reported 6/21/09.
More specifically in Knappa/Svensen on Hillcrest Loop Rd. A sloped 2 acre parcel with marketable timber, utilities nearby and ready for your new home to be built! Listed at just $107,000.
The $8000 tax credit for eligible first time home buyers may be used to cover part or all of the Buyer's FHA closing costs according to the National Assoc. of Realtors. We've been receiving small bits of information about this over the past couple of weeks, I haven't posted much of it because I have yet to receive complete details from a verifiable source. The program works by using the tax credit as a short-term bridge loan, monetizing the credit so a Buyer can use the proceeds at the closing table instead of waiting for next years taxes to be filed. By using the first time buyer tax credit of up to $8000 the buyer does not escape the 3.5% down payment required by the FHA (although 100% financing is available from the USDA), but may be able to buy a property they otherwise could not.
More Reading:
This classic 50's daylight ranch offers much more than meets the eye. The current owners totally renovated the interior and updated all mechanical systems in the past 2 years. On a 1 acre lot, this 4100+ sq-ft home has much to offer at a attractive price.
Living room and 1 of 3 fireplaces in the home.
Brand new kitchen
Den/Office off living room.
Large master suite includes bedroom, sitting area, walk-in closet and private bath.
Family room on lower level.
Lower level guest suite with private bath.
Essential Details:
Large kitchen combines some modern conveniences yet retains the classic charm.
While this home has been updated throughout, most of the original integrity remains.
Essential Details:
Call for a private showing today!
From time to time I like to take a look at the various market stats here in Clatsop County, some mostly for entertainment value and a few actually have some concrete impact on buying and selling homes in our market. The stats I follow the closest are SFR (Single Family Residence, ie houses not land or commercial) because that's the segment of the market I have the heaviest involvement. I pulled data together for the entire county, which includes Astoria, Gearhart, Warrenton, Hammond, Seaside and Cannon Beach homes for sale.
The most telling statistic that paints a pretty accurate picture of what's happening today is the YTD sales figures and median sales price when compared with the same time period one year ago.
SFR Closed Sales YTD
2009- 86
2008- 137
SFR Median Sales Price* YTD
2009- $243,000
2008- $284,900
* one important thing to keep in mind when talking average or median sales prices is that no two homes are the same, it's not that the same home is worth $50,000 less than last year- It's what part of the market is most active. Although values have certainly declined in the past year.
I'm a chart kind of guy, so here's a couple of charts that show the where the inventory is and trends in that regard:
On a side note the weather forecast for the upcoming holiday weekend is fantastic! Enjoy the weekend everybody!
source: Clatsop MLS. Info is deemed reliable but not guaranteed accurate.
