Declining Market - need help

[taurus6]

I'm not an appraiser. Just an average person trying to purchase a home. Can any professional appraisers please give their opinion on the following?

The home is an REO home in Volusia County, FL 32713. Appraisal came in at $355k noting declining market and surplus of homes. Now of course the 100% financing I was well qualified and pre-approved for is reduced to a 95% LTV. This is what I would like to know please.

1. The goal of the appraiser is to accurately place a value on the specific property they are contracted with to do so. Is this correct?

2. Based on my research, Announcement 07-11 explains how notations for declining markets should be noted. I've heard there is some "place" on the appraisal for such notations. The intent of these new pieces of data is to reduce the risk to lenders should the buyer default. Is this correct?

3. It appears that lenders seeing an appraiser's notation regarding a declining market will reduce the LTV to 95%, 90%, or in extreme cases 85%. This would be to give the lender a "cushion" to help reduce losses in the event of foreclosure. Is this correct?

Assuming the above 3 statements are true? If a particular appraisal on a specific home (mine for example) was appraised at $355k as noted and specified as declining, would you reconsider restating the declining market note as stable if the lender disputed the appraisal based on the facts above and the loan value of the home is actually only $275k. Since the purpose of declining market notation is to protect the lender, and they want from 5-15% downpayment to cover the declining value should it actually occur, would you as an appraiser look at it this way? "The loan value of $275k is only 77% of my appraised value of $355k. If the bank wants a buffer of 5-15%, I can see that even if this area is a declining market, this home has a much greater "buffer" than that 5-15% and therefore the accurate appraisal of THIS property will NOT be affected by the declining market notation and I feel the lender is still protected and my information is correct to change my notation to STABLE?"

It seems to me that some appraisers are trying to appraise a state or MSA instead of the specific home they were contrated to appraise. Any help or thoughts on this are greatly appreciated.

Thanks, Tracy

 

[Chris Colston]

I'm just south of Volusia County and there are Volusia County appraisers on this forum.

Appraisers, as a rule, appraise any particular subject property to the market that it is in. We are supposed to report what the market is doing on that particular day. If the market, where your intended purchase is located, is truly in decline, we are obligated to report THAT. We can not just change the report to STABLE for your individual property, since your property is a part of the whole.

Appraisers have only recently become aware of the 5-15% LTV restrictions that have been imposed on the lenders, by their investors, for declining markets. However, there isn't much we can do about those restrictions. We just analyze and report.

There are many, if not most, counties in Florida that are on the lender's watch lists as declining. Volusia County is one of them. I am not in favor of "broad brush" market conditions as some areas in a county, or even a community may no longer be declining but beginning to stabilize. That being said, the appraiser, has to now present strong evidence to the lender if they state the subject's market is STABLE when the lender has a chart that states DECLINING.

 

[taurus6]

Chris, thanks for the reply. I understand most of what you are saying. But...the main point of my question is this. You are contracted to appraise a property. Not a market area. No one is lending money on a market area. Only on a specific property. Shouldn't the declining market have to have an effect on that specific property in order to say so? It makes no sense to just give a blanket statement of declining. I don't believe that was the intent of 07-11. I believe the intent was the "effect" of a declining market, if any, on the subject property.

 

[taurus6]

Also, in this specific neighborhood, recent sales of new homes within several blocks of this subject home have NOT been flagged as declining. Is is possible the majority of the appraisers are correct and have been able to substantiate the stable market and the one for my home was not?

 

[Randolph Kinney]

Assuming the above 3 statements are true? If a particular appraisal on a specific home (mine for example) was appraised at $355k as noted and specified as declining, would you reconsider restating the declining market note as stable if the lender disputed the appraisal based on the facts above and the loan value of the home is actually only $275k. Since the purpose of declining market notation is to protect the lender, and they want from 5-15% downpayment to cover the declining value should it actually occur, would you as an appraiser look at it this way? "The loan value of $275k is only 77% of my appraised value of $355k. If the bank wants a buffer of 5-15%, I can see that even if this area is a declining market, this home has a much greater "buffer" than that 5-15% and therefore the accurate appraisal of THIS property will NOT be affected by the declining market notation and I feel the lender is still protected and my information is correct to change my notation to STABLE?"

It seems to me that some appraisers are trying to appraise a state or MSA instead of the specific home they were contrated to appraise. Any help or thoughts on this are greatly appreciated.

Thanks, Tracy

Tracy,

Welcome to the forum.

Appraisers are charged with the responsibility to accurately give an opinion of value that is not misleading along with any part of the appraisal report, including market conditions.

Lenders will loan on the appraised value or purchase price, whichever is lower. Then they factor in their adjustments for the loan amount. It really is a lending decision, not an appraiser decision.

 

[moretti]

what your loan to value ratio is has no effect on the outcome of the appraisal, or at least it shouldn't. Your lender imposed restrictions to your loan is independent of the appraisal process.

The appraisal is performed and it is with that information that the lender makes a decision whether to do the loan or not. Manipulations of neighborhood characteristics to suit your loan don't really make sense in making a fair, supported, unbiased report?

Chris, thanks for the reply. I understand most of what you are saying. But...the main point of my question is this. You are contracted to appraise a property. Not a market area. No one is lending money on a market area. Only on a specific property. Shouldn't the declining market have to have an effect on that specific property in order to say so? It makes no sense to just give a blanket statement of declining. I don't believe that was the intent of 07-11. I believe the intent was the "effect" of a declining market, if any, on the subject property.

I don't follow how you are ignoring conditions within your market area?

If your home you are purchasing is located in a declining market, that means that logically in a few months, your home will be worth less then what you paid for it now. Its called the theory of substitution. A buyer will not pay more for one property than for another that is equally desirable.

Do you see how that relates specifically to your property?

It doesn't have anything to do with how much you are putting down and how much you owe. What if the property drops 50% and you think its worth it just to let it go and rent someplace much cheaper? Thats happening in my part of Florida. Who knows how that will work with you, but the point is that your house is effected by its market area trends so it has to be noted in the report correctly.

 

[Randolph Kinney]

Also, in this specific neighborhood, recent sales of new homes within several blocks of this subject home have NOT been flagged as declining. Is is possible the majority of the appraisers are correct and have been able to substantiate the stable market and the one for my home was not?

I am attaching a graphic image file JPG format showing the median sales price for the county and zip code 32713 that I captured from Zillow.

You will note that both are declining. That is not to say a particular neighborhood can't be declining in value. It could be stable, however, it is up to the appraiser to present the data in a clear manor with a discussion of what s/he did as a comparison using what criteria and how your neighborhood market is different from the county and zip code markets.

 

[taurus6]

Thank you all for your replies. I guess what I was unable to articulate was what Randolph had said. The appraiser can show an area within a declining area as stable. That's what I was looking for.

Like any occupation, some people are better at their jobs than others. I would assume the same is true for appraisers as well. Can anyone in the Debary, Volusia area suggest how to substantiate data to show a stable subset of a declining area? Is is possible the appraiser used did not take the time to verify stability or possibly took the easier route of just saying it's in a declining MSA therefore it is declining? I don't want to say anything negative or assume that he is wrong, I just want a second opinion. None of the 8-10 new homes sold in the past 8-9 months in this subdivision have been noted as declining according to the homebuilder and their mortgage company.

I just want to be sure the appraiser did his best to verify this specific area.

Thanks again, Tracy

 

[TJSum]

Taurus, I am sort of confused of all the facts in the case. You keep mentioning new homes and buidlers, etc. Is the home you are purchasing a new home as well? You did mention it was a REO, so I am thinking it is not a new home.

The builders you mention, are they charging the same prices they were getting three months ago, six months ago, a year ago, etc. ? Even if the prices are holding relatively stable, are they offering other types of incentives such as more closing help, "free" upgrades, etc?

If your home is not new, what are the resales doing in this market? They are the best indicators of value for your house if it is not new. In many subdivisions when homeowners need to compete with builders to sell their homes that can put downward pressure on values.

Just mentioning that you are purchasing a REO, I know one house does not make a market, but being able to buy a REO can indicate what is going on in your neighborhood as well.

You stated that the builder and the builder's mortgage company state the market is stable, but they are both salesmen with a vested interest. An appraiser who works with builders on a routine basis, MAY not be the best independent source as well because they rely on these businesses to keep sending them work. I have not seen any of the data, nor know the area, so I am just speaking in general here. From personal experience, I had to fire every builder's mortgage company that I tried to have a working relationship with.

 

[Lee in L.A.]

The loan amount and LTV doesn't enter into the appraisal process. That's the underwriters department.

The value is what it is, and the market as well.
If your market area is declining, your house is too.
The appraiser just has to do the analysis and report what it is. Sometimes that may amount to an obituary for the deal. That doesn't mean I killed it. It was DOA.