Decoding Knob and Tube Wiring: How It Impacts Your Home's Value

If you own or are looking to purchase an older home, there might be lurking in your home something that could affect its value – knob and tube wiring. Due to the age of many homes in Westmoreland County, I still see plenty of homes with some functioning knob and tube wiring. This old-school electrical setup was once a popular way to install electricity in a home. But now, it's like the outdated ancestor of today's electrical systems, and it comes with some problems.

What Is Knob and Tube Wiring?

Back in the late 1800s to the early 1900s, knob and tube wiring was the go-to for electrifying homes. It used ceramic knobs and tubes to keep wires in place. Fast forward to today, and it's not holding up so well.

Example of Knob and Tube Wiring

The Hidden Dangers

The materials used in knob and tube wiring, like rubber or cloth insulation, have probably seen better days. That means a higher risk of fires. Plus, there's no grounding conductor, which makes the chance of getting a shock higher and incompatible with three prong plugs. Insurance companies see these homes as risky, making it harder and more expensive to get coverage.

How It Affects Your Home's Value

Now, let's get to the point – how does knob and tube wiring impact your home's value?

Safety Worries

People worry about safety when they hear about knob and tube wiring. The fear of fires or electrical problems can make buyers think twice, lowering your home's value due to the smaller buyer pool. This can also have a negative impact on the insurability of the home due to the safety concerns. Many insurance companies will not cover a home with known functioning knob and tube wiring due to the known safety concerns.

Cost To Upgrade

Upgrading from knob and tube to a modern electrical system is a big job and can be costly. Buyers might consider this cost when deciding on a home, potentially lowering its value.

Appraisers Take Notice

When appraisers are on site to look at the property, they're likely to consider the knob and tube wiring in the overall quality and condition rating of the home. Homes that are not updated from systems installed almost 100 years ago have a lower quality and condition rating which, when compared to a home that is updated with newer systems, have a lower value.

If there are safety concerns when it is inaccurately spliced into a more traditional wiring system (I’ve seen this many times), frayed insulation on the wires, or being wired to newer 3 prong outlets, an appraiser might call these out to be repaired as a part of the loan process.

What Can You Do?

If you find yourself dealing with knob and tube wiring, it's not the end of the world. Get a qualified professional to check it out and fix any problems. Upgrading your electrical system can make your home safer and more attractive to buyers.

Will A House With K&T Wiring Qualify For A Mortgage?

The underwriting guidelines for all the major mortgage agencies (Fannie Mae, Freddie Mac, FHA, VA, and USDA) all allow for knob-and-tube wiring as long as the system is deemed to be safe, functional, and typical for the area. Just understand that while many loans will allow for this type of wiring, the house still might not qualify to be insured or there might be safety concerns that need to be repaired in order to qualify.

 In the world of home values, knob and tube wiring is like an old family secret – it can affect things more than you realize. Knowing the risks and doing something about them can make your home safer and keep its value strong. So, whether you're a homeowner or looking to buy, understanding this hidden issue is key to making smart decisions about your home.

Demystifying Square Footage Discrepancies in Real Estate: What You Need to Know

Confidence in the size of your home is a fundamental aspect of real estate, but have you ever wondered why the reported square footage can differ from one source to another? In this article, we will delve into the reasons behind these discrepancies and underscore the significance of precise measurements in the real estate world.

When you bought your house, someone, whether it was a real estate agent, a builder, or a published source, provided you with an estimate of its size. However, this estimate may not always be consistent or entirely accurate. Let's explore the factors that contribute to these variations.

Every source of square footage data follows different standards and regulations when measuring and reporting. Online real estate platforms like Realtor.com, Zillow, and Redfin rely on an IDX system, which aggregates information from regional MLS systems. The square footage displayed on these platforms is typically entered by the listing agent. Unless that agent has been trained in specific measuring standards, the data may originate from sources like tax records or the homeowner.

In Pennsylvania, for instance, assessors are not required to adhere to professional measuring standards like ANSI, leading to square footage estimates based on rounded or estimated measurements. Furthermore, many agents include areas like finished basements or unheated enclosed porches in the square footage, even if they are not considered above-grade space. This is done to represent the property in the best possible light and attract the right buyer.

So, why do appraisals often reveal differences in square footage? Appraisers must adhere to precise standards that dictate what can be counted as above-grade square footage. Using the ANSI Z765-2021 measuring standards, as enacted by Fannie Mae in 2022, appraisers must measure with precision down to the nearest inch or tenth of an inch. (Let’s not debate that these are two slightly different measurements- I didn’t write the standard.) There are also areas of a structure that cannot be included in above-grade square footage, such as spaces with a ceiling height of less than 7 feet. If any part of a level is not entirely above ground level, it cannot be included in the square footage calculation. Additionally, in homes with two-story ceiling heights, like large open foyers or great rooms, the open area is counted only once for the main level.

If you receive an appraisal report that indicates a different square footage than what you believed your house to be, it's essential to investigate further. Compare the source of your initial knowledge to the sketch in your appraisal report to understand the discrepancies.

In the world of real estate, understanding square footage variations is crucial. It can impact the value of your property, as well as your buying or selling decisions. Being aware of the different standards used by various sources can help you make informed choices and ensure that your home's size is accurately represented.

Does an Appraisal Have an Expiration Date?

Appraisals do not expire. Every appraisal report is required to have an effective date which reflects the date the value opinion relates to. This date is important because it is the date that becomes the benchmark reflecting the research and analysis of the market trends that impacted the development of value. If at any time after that effective date the market trends change, then the value result could be impacted proportionately.

It is important to note that while there is technically no expiration date, lenders may have their own designated time period for which an appraisal is good for. Most accept an appraisal for 90 days, however, in a rapidly changing market, this time period often can be reduced to 30 days.

Dollars and Sense: The Significance of Knowing Your Home's Worth

You would have to be living under a rock or in an area that is completely off grid to not be somewhat aware that real estate prices have been fluctuating and increasing significantly in many areas over the past couple of years. If you have not purchased or refinanced recently, your homes value might have changed from where you thought it was just 12 -18 months ago. Knowing the value of your home can be important for many reasons of which, here are a few:

Financial Planning

The value of your home is a significant component of your overall net worth. Your home is likely one of your most significant assets. Knowing its value allows you to calculate your net worth accurately. Understanding its value helps you make informed decisions about your financial planning, such as determining your assets, calculating your equity, or evaluating your borrowing capacity.

Selling or Renting

If you're considering selling or renting out your property, knowing its value is crucial. It allows you to set a competitive price that aligns with the market, ensuring you don't undervalue or overprice your home.

Refinancing or Home Equity Loans

When refinancing your mortgage or applying for a home equity loan, the value of your home plays a vital role in determining the amount you can borrow. Lenders assess the loan-to-value ratio, which compares the loan amount to the home's appraised value, to determine eligibility and interest rates.

Property Taxes

The value of your home often influences property tax assessments. Local tax authorities use property values to calculate the amount of tax you owe. Knowing your home's value helps you ensure that you're being taxed fairly and can plan for potential increases.

Insurance Coverage

Understanding the value of your home is essential for obtaining the appropriate insurance coverage. If your home is underinsured, you may not receive sufficient compensation in the event of damage or loss. Conversely, overinsuring your home means paying more in premiums than necessary.

Investment Decisions

If you're considering real estate as an investment, knowing the value of your home can help you assess its potential return on investment, evaluate rental income potential, or make informed decisions about buying additional properties.

It is important to note that home values can fluctuate over time due to various factors such as market conditions, location, renovations, or changes in the neighborhood. Therefore, regularly monitoring and assessing your home's value is important for staying informed. If you would like to check out more information regarding the importance of knowing your homes value, check out the following articles:

https://www.homes.com/blog/2017/03/benefits-of-knowing-your-homes-value-whether-you-are-staying-or-selling/

https://www.homelight.com/blog/check-house-value/

Reducing the Stress of Divorce: The Vital Role of an Experienced Appraiser

We understand that going through a divorce is an incredibly challenging experience, both emotionally and legally. In these turbulent times, it becomes crucial to alleviate some of the stress involved in the process. One effective way to achieve this is by engaging the services of an experienced and qualified appraiser who has been established as an expert witness in divorce litigation. In this blog post, we will delve into the significance of hiring an appraiser with expert witness testimony experience for divorce appraisals, offering invaluable support during this trying period.

Understanding the Legal Process

An appraiser with expert witness testimony experience possesses an in-depth comprehension of the legal process involved in divorce appraisals. They are well-versed in the intricacies of presenting their findings in a clear and concise manner, ensuring that their testimony carries maximum weight in the courtroom. Their familiarity with legal procedures enhances the likelihood of a favorable outcome.

Credibility and Reputation

One key aspect of hiring an appraiser with expert witness testimony experience is the credibility and reputation they bring to the table. By engaging such an appraiser, you can rest assured that their testimony will be taken seriously by the court. Having established a track record of providing objective, unbiased opinions, I have successfully demonstrated my expertise in numerous courtrooms located in Armstrong, Westmoreland and Indiana Counties, thereby earning the reputation of a reliable and trustworthy appraiser.

Crucial Role in Court

In my professional opinion, the importance of hiring an appraiser with expert witness testimony experience cannot be overstated in divorce appraisals. The appraiser's opinion often serves as pivotal evidence in supporting one party's claims over the other, making it imperative for their testimony to withstand rigorous cross-examination. By selecting an appraiser with this specific experience, you minimize the risk of having your clients' arguments weakened or dismissed.

Reducing Stress During Divorce

Navigating through a divorce is an emotionally taxing experience. By ensuring that you choose an appraiser with the necessary qualifications and expertise to provide expert witness testimony, you can alleviate some of the stress associated with the process. The knowledge that your appraiser is capable of delivering accurate and unbiased valuations to support your case will provide you and your clients with peace of mind, allowing you to focus on other crucial aspects of the legal proceedings.

In the event that you require an appraisal during the course of a divorce, we invite you to contact our office, where we guarantee the utmost standard of excellence in appraisals, coupled with the professionalism necessary to deliver expert witness testimony, should the need arise.

Gratitude and Triumph: Celebrating Two Consecutive Gold Badge Wins in the Best of Westmoreland Contest!

At Town & Country Residential Appraisals, we are overflowing with appreciation as we extend our sincerest thanks to those who have supported us throughout our journey. It is with immense pride and joy that we accept the honor of being awarded the Gold Badge for the second time in a row in the highly regarded Best of Westmoreland contest.

Our success wouldn't have been possible without the support of our nominators and voters, the trust given to us by our valued clients, and the faith placed in our services by the community we serve. Your confidence in our expertise drives us to continuously raise the bar in providing exceptional residential appraisal solutions.

While this is only the 2nd year for the contest, it grew exponentially for 2023 and we faced formidable competition from six other distinguished appraisal offices. However, we secured our position as the reigning champions for both years.

Such a momentous achievement is truly a cause for celebration, and we couldn't be prouder to share this milestone with you all. It is a testament to our unwavering commitment to delivering accurate and reliable appraisals and a reminder of the exceptional team behind Town & Country Residential Appraisals.

Thank you for joining us on this incredible journey. Your continuous support and trust inspire us to reach even greater heights, and we look forward to serving you with the same passion and dedication for years to come.

We can’t say thank you enough.

Our goal is to continue providing the best in real estate appraisal services

throughout the entire County of Westmoreland.

Our services include appraisals for divorces, expert witness testimony, bankruptcy, estates, pre-listing, consulting for subdividing large parcels, pre-construction, renovations and lender work.

Choose the two-time Gold Badge Winner in the Best of Westmoreland contest for your residential appraisal needs, and discover the difference that sets us apart, where excellence meets recognition, results exceed expectations and as we say here “Where Values Matter!”

VA's Tidewater Process- Riding the Waves to Appraisal Fairness

When it comes to appraising homes for buyers using VA-backed financing, the Tidewater process plays a crucial role in determining fair market value. This procedure, implemented by the Department of Veterans Affairs (VA), aims to protect the interests of veterans.

What is the Tidewater process and what is its significance in VA-backed home appraisals?

The Tidewater process, also known as the Tidewater Initiative, is a specific procedure used by the Department of Veterans Affairs (VA) when appraising a home for a buyer using VA-backed financing. Its purpose is to protect the interests of veterans and ensure fair market value. The Tidewater process primarily applies when the appraised value of the home is believed to be lower than the agreed-upon purchase price.. Here's how it works:

A VA-approved appraiser, impartial and unaffiliated with the transaction, is randomly chosen to conduct the appraisal. The appraiser works to value the property, considering its size, condition, location, and comparable sales in the area. If the appraiser determines that the appraised value appears that the estimated market value might be lower than the purchase price (this can happen at any point in the process), they promptly inform the lender, which initiates the Tidewater process.

At this point, the lender has the opportunity to provide the appraiser with any relevant information that might influence the property's valuation, such as recent comparable sales or a list of property improvements. This information can be provided by any party to the transaction whether the buyer, seller, agents or the lender themselves. The appraiser reviews any additional information and when appropriate, uses this information within the appraisal. Even if this information has already been considered and it did not make any substantial changes to the value, the VA requires the appraiser to make comments within the report reflecting this.

From the buyer’s perspective, if the appraised value remains below the purchase price, the lender informs the buyer. The buyer can then decide whether to renegotiate the price, bring additional funds to closing, or terminate the contract.

The Tidewater process is a vital step in VA-backed home appraisals, ensuring fairness and protecting the interests of veterans. By incorporating additional information and allowing for adjustments, this process strives to establish an accurate appraised value. It also allows those who are parties to the transaction to provide valuable information that most often assisted them in making their purchase decision. Ultimately, it empowers buyers and sellers to make informed decisions based on the appraisal outcome.

For more information take a look at the VA link on their page by clicking on the following link:

https://www.benefits.com/va-loans/tidewater-initiative

ADU's- What are they and how do they impact the appraisal process?

Accessory Dwelling Units (ADUs) are secondary residential units on the same property as the main dwelling. They provide homeowners and potential buyers with opportunities to enhance property value, generate income, or accommodate multi-generational living. It's important to understand how ADUs can impact property value and financing options, particularly considering the restrictions set by Fannie Mae and FHA lending guidelines. Let's explore further.

First, what is an ADU? An ADU is a separate living space, often with a kitchen, bathroom, and sleeping area, located on the same property as the main residence. It can be a detached structure, converted basement or garage, or an addition to the primary dwelling.

Benefits of purchasing a property with an ADU:

• Extra income potential through renting the ADU as long as there are no zoning restrictions.

• Flexibility for multi-generational living arrangements especially when they might be older and need some moderate assistance.

• Versatile space for personal use, such as a home office or guest suite.

• It can have the potential to increases property value.

There are some financing fonsiderations that need to be considered when attempting to purchase or build a property that has an ADU with money from the bank. Fannie Mae Restrictions and FHA have very similar restrictions. These include:

• The ADU must have its own entrance, kitchen, and bathroom.

• The property must be appraised as a single-unit with an additional value attributed to the ADU. (The living area of the ADU cannot be combined with the living area of the primary residence.)

• The rental income from the ADU may be considered for loan qualification purposes, subject to specific criteria.

If you are considering a property with an ADU, they are a powerful asset that can increase property value and offer financial opportunities. However, it's important to consider the restrictions imposed by lending guidelines. By understanding these guidelines, buyers can make informed decisions about financing options and ensure a smooth transaction when purchasing a property with an ADU. With the ability to generate income, accommodate changing needs, and contribute to affordable housing, ADUs remain an attractive feature in today's real estate market.

Why Does the Appraiser Need the Sales Contract?

When it comes to appraising a property, appraisers must take into account all agreements of sale. According to Standards Rule 1-5 in the Uniform Standards of Professional Appraisal Practice (USPAP), we are required to analyze any contracts for sale. That's why it's important for the appraiser to receive a copy of the sales contract.

 By viewing the contract, the appraiser may be able to identify irregularities and comment on them. For example, if the contract includes provisions for concessions, non-real property items included in the sale, or other unusual conditions, the appraiser may need to comment on these provisions in the appraisal report to explain why there is a difference between the indicated market value of the subject property and the contract price.

 The appraiser is likely familiar with the local real estate contract forms, customary terms, and conditions of real estate transactions in the area. This familiarity enables the appraiser to better understand the specifics of the contract and identify any unusual terms that may need to be addressed in the appraisal report.

In summary, providing a copy of the sales contract to the appraiser is essential to ensure an accurate appraisal. Appraisers are required to analyze all agreements of sale. Understanding the specific provisions of the sales contract is critical to producing an appraisal report that accurately reflects the property's value. By providing the appraiser with the sales contract, homebuyers can help ensure that the appraisal report is reliable and based on accurate information.

Clean and Green- From the appraiser's point of view

Clean and Green is a preferential tax assessment program enacted in 1974 under the stated goal of “protecting the Commonwealth's valuable farmland, forestland, and open spaces.” It bases property taxes on use values rather than fair market values. This ordinarily results in a tax savings for landowners..

https://www.agriculture.pa.gov/plants_land_water/farmland/clean/pages/default.aspxPA Clean & Green Program

Once enrolled, the general rule is that the landowner is obligated to continue using the land in a qualified use indefinitely or face the penalty of roll-back taxes for the most recent seven years, PLUS 6% of that difference per year. If a landowner sells a property enrolled in Clean & Green, the buyer will be obligated to continue using the land in a qualified use or pay roll-back taxes and interest.

Clean & Green also has limitations as to subdividing the property. No more than 2 acres can be split off (3 acres where municipalities require a 3 acre minimum lot size) per year for the purpose of building a residence. The total of these types of subdivisions can never exceed a total of 10 acres. These split offs would be subject to the roll back tax but only for the portion that is being split off.

A subdivision can can be made dividing the property into parcels that are more than 10 acres minimum. As long as they remain the same use, it would then not be subject to the roll back taxes.

While enrolling in the Clean and Green program may be free and save thousands in taxes in the short run by reducing the annual tax rate, make sure you are aware of how this impacts your land value. It will limit the use of the property unless you take the steps necessary to remove the enrollment and pay the mandatory differences in the taxes plus a 6% interest rate. If you are thinking of selling the property, it could also limit the size of your interested buyer pool.

Who are reverse mortgages for?

As the Baby Boomer’s retire, an increase of advertisements offering “reverse mortgages” are hitting the airwaves, leaving homeowners (and their children) asking, “Is this a good idea for us?” Due to the ramifications of reverse mortgages, parents should never make these decisions alone without consulting the family who will have to finish the process upon their passing. Today we’ll break down what a reverse mortgage is, and who it might benefit.

“What Is a Reverse Mortgage?
In a word, a reverse mortgage is a loan.”

— Investopedia

A “reverse mortgage” s a financial agreement between the bank and the borrower in which a homeowner relinquishes equity in their home in exchange for regular payments, typically to supplement retirement income. It is in essence a mortgage but instead of receiving the full equity at one time and then paying the bank back over time, you receive the equity in small quantities over time, and pay the bank back at the end - and its that last part where homeowners need to know the dangers of a reverse mortgage.

A reverse mortgage may be a good idea for you if:

You are at least 62 years old

A homeowner must be at least 62 years old to qualify for a reverse mortgage.

You have enough money/energy to maintain your home throughout the remainder of yur natural life

As the homeowner, you will be expected to keep the home in good order over the course of the reverse mortgage. If you fail to keep the home and property up to local codes and the lenders standards, the lender will have the right to foreclose on the property and remove you from the home.

If you can’t afford to have someone else maintain your home, this means that you’ll need to do it yourself until the borrowers date of death.

You have enough money to pay the taxes on your home without the extra money.

Again, as the homeowner, the lender will expect you to pay the taxes associated with the property. If you do not, the lender again retains the right to foreclose on the property and remove you from the home.

You don’t have any heirs.

At the end of the term of the loan, the lender looks to the estate to fulfill the mortgage. Typically this means that the home is sold and the assets used to pay the debt. In the case of jumbo reverse mortgages, the estate may be liable for any shortfall in the debt.

You plan on being healthy and never leave the home until your date of death

Many reverse mortgages have a clause that allows the bank to foreclose if the homeowner is no longer residing at the home for a span of time - regardless of the reason - such as illness.

Sadly, we’ve seen more reverse mortgage foreclosures than we wish, and the story is always tragic. The family is left holding difficult decisions at the same time as the death or extended illness of a loved one. Be careful, there are many ways for a reverse mortgage to end poorly, and only one way for them to suceed - with the help of the whole family.

For more information:

https://www.wtae.com/article/investigation-finds-reverse-mortgages-can-be-risky/30029369

https://www.consumerfinance.gov/ask-cfpb/what-is-a-reverse-mortgage-en-224/

https://www.usatoday.com/in-depth/news/investigations/2019/12/18/reverse-mortgages-leave-families-battling-property-after-death/2597369001/

Does a manufactured home that has been moved more than once qualify for a loan?

If you plan on purchasing a property that is a manufactured home using financing, find out if the unit has been placed there from the manufacturer/dealer or if it was moved after previously being located at another location. In order to qualify for most lender financing, a manufactured home can only be moved ONE time- from the factory or dealer to its original location and permanently attached to an approved foundation system. If a manufactured home is moved a 2nd time, it is ineligible for ANY type of financing other than owner carry or a VA loan. Even then, it would require a special approval from the VA in order to do the loan.

Fannie Mae guidelines state that the unit must not have been previously installed or occupied at any other site or location, except from the manufacturer or the dealer's lot as a new unit. Moving it would mean it wasn't attached to a permanent foundation and therefore, is viewed more as personal property and not real property. Additionally, the manufactured home must be a one-unit dwelling that is legally classified as real property and cannot include an accessory dwelling unit.

This becomes important from a value standpoint because a buyer’s purchasing power affects the value of a property in a market where the predominance of financing a property is through a lending institution. When a property disqualifies a buyer from obtaining mortgage financing, it requires the buyer to purchase using cash. In short, relocating a manufactured home can reduce the value of the property simply for the reason that it would limit the buyer pool to those who have cash.

Are You Housing a Silent Killer?

Radon is a naturally occurring radioactive gas that is colorless, odorless, and tasteless. It is considered to be the leading cause in lung cancer deaths in non-smokers and the second cause amongst those who smoke which is why it is referred to as the silent killer. It is formed by the decay of uranium and thorium, which are present in most rocks and soils. The U.S. Environmental Protection Agency (EPA) recommends that homes be tested for radon, and that homeowners take steps to mitigate radon levels if they are found to be high.

The Environmental Protection Agency (EPA) recommends that homes be remediated if the radon level exceeds 4 picocuries per liter (pCi/L) of air. However, the World Health Organization (WHO) recommends a lower action level of 2.7 pCi/L. It's important to note that while the recommended action levels vary, there is no safe level of radon exposure. Radon is a known carcinogen, and the risk of lung cancer increases with higher levels of exposure. Even radon levels below the recommended action level can pose a risk over time.

Reducing radon levels in buildings can help to reduce the risk of lung cancer and other health problems associated with radon exposure. The process of radon remediation involves identifying the source of the radon, typically through testing, and then taking steps to reduce the amount of radon in the air.

Radon remediation can include sealing cracks and openings in the foundation, improving ventilation, and installing a radon mitigation system, such as a fan or other equipment that can help to vent the radon gas from the building. The specific approach used for radon remediation will depend on the nature and severity of the radon problem, as well as the characteristics of the building.

Overall, radon remediation is an important step to protect the health and well-being of those who live and work in buildings that may be affected by radon.

What Makes a Room a Bedroom?

This question is one of the most common questions I get and there is much confusion as to what qualifies a room as a bedroom. While there is no official definition, there is only one requirement a room needs in order to legally qualify it as a bedroom- a window of adequate size so as to allow for ingress/egress.

Most think a bedroom requires a closet which is a misnomer. There are plenty of older homes I have been in where the bedrooms don’t have closets. Think about it… there was a day when most people only owned a few articles of clothing. During these times, when there weren’t closets, many owned an armoire which doubled as a closet and dresser.

So lets put to rest that a bedroom NEEDS a closet.

With that in mind, in todays markets, most expect closets so that they have a place to store their clothing, shoes, bags and whatever else people put in their closets. Here are some other things to consider when classifying a room as a bedroom:

1. Is it of adequate size? A bedroom should be large enough to accommodate a bed and provide some space for movement around the bed, room for dressers, et.. The minimum size for a bedroom may vary depending on local building codes or regulations.

2. Is there a door? A bedroom should have a door that can be closed to provide privacy. A door can also be an added safety feature. It is best to sleep with your door closed in the event of a fire.

3. Where is the room in proximity to a bathroom? A bedroom should be located within close proximity to a bathroom. If all your bedrooms are on the 2nd level of the home and the only bathroom is on the first level, this could be viewed as a functional obsolescence. No one wants to get up in the middle of the night to stumble in the dark through the rest of the house.

These are the basic features that make a room a bedroom. The only feature that is a requirement is a window. However, depending on local building codes, there may be other requirements that a room must meet to be legally considered a bedroom and typically, the market might be expecting more.

For Better or For Worse? FNME vs GPAR

Over the years, I have provided appraisals for properties owned by individuals going through divorce proceedings and have had the opportunity to be used in several counties as an expert witness. Whenever I am providing an appraisal for marital dissolution purposes, there are a few things I keep in mind. Most important is the possibility that my report might end up being used as part of expert witness testimony in a formal court proceeding. For this reason, it is important to know the correct form to use.

Most appraisers complete their reports on Fannie Mae produced forms as the majority of the work completed is for lending purposes. It is important to understand that these forms were created by and expressly for Fannie Mae purposes. There are pre-printed certifications which clearly indicate the use of and purpose for these forms.

Unfortunately, using Fannie Mae forms for litigation work is a mistake. While an appraiser should be aware of this, I have found in reviewing opposing counsels “expert” appraisal reports that many use the wrong form. Legal authorities have advised and forewarned that the use of the 1004 URAR appraisal form for litigation purposes carries the risk of having that report thrown out and ultimately, that side losing their case.

Per Jody Bruns, CDLP, using the wrong form could be a costly mistake and can jeopardize a case. Check out the full article here:

http://digitaleditions.walsworthprintgroup.com/publication/?i=286075&article_id=2358305&view=articleBrowser

In the future, if you are looking to have an appraisal completed for divorce purposes, be sure that you engage the services of an appraiser who has the experience and knowledge to know that using the correct form can make all the difference in your case.

Neighborhood vs Market Area

One of the foundations that determines the value of a property is the well known mantra- location, location, location. But what does that really mean? Simply put, the value of a property is in direct relation to where it is located- both its neighborhood and the market area it is located within. An appraiser should be able to define the neighborhood along with the market area in order to research and accurately report those factors that affect the value of a property.

What defines a subject’s neighborhood? A neighborhood is a group of complementary land uses, a congruous grouping of inhabitants, buildings or business enterprises. It focuses on four sets of considerations that influence value: social, economic, governmental and environmental factors. Sometimes, a neighborhood is well defined- consider some housing plans and subdivisions or even small towns. In more rural areas, the neighborhood is less easily defined and could encompass an entire municipality.

So then, how is the neighborhood different from the market area? A market area is the geographic or locational delineation of the market for a specific category of real estate. It is an area in which alternative similar properties effectively compete with the subject in the minds of potential purchasers, often referred to as the buyer pool. A market area is often much larger than a neighborhood. A property located in a subdivision could have a market area that includes additional alternative subdivisions that would have a similar appeal based on the location, school district, access to local amenities, median price range, etc.

Within any given market analysis is a term referred to as market segmentation. This is the process by which submarkets within a larger market are defined. Specifically, it is taking a look at the market data and determining segmented portions such as retirement communities, condominiums, investment properties, etc.

One example would be a sub-market for condominiums in Murrysville. Condominiums in this market area make up less than 10% of the overall real estate but there is a well defined buyer pool for these types of properties. In order to analyze the impact of value on a condominium in Murrysville, you would need to first analyze the plan it is located in (the neighborhood), then analyze Murrysville as a whole (the market area) and then further extract that data to analyze other similar condominiums in Murrysville (segmented market area).

As you can see, the location of any given property can be directly influenced by its direct neighborhood, the larger market area and the segment of the market that it is classified as.

In the near future, I’d like to take a very real but hypothetical look at an example property and how knowing both your neighborhood and market area has a direct impact on the data needed to be analyzed and the comparables chosen.

Appraisal Racial Bias (part 3)

I’ve been discussing the topic of real estate appraisals and the allegations of racial bias that has the possibility of creating issues for some homeowners or potential homeowners. There have been a few cases that have had the spotlight shown on them and the scenarios are all relatively similar.

It starts with an appraisal that is completed on a home where the occupant is of a minority race- whether the appraiser meets the occupant in person or there are pictures and other personal contents that elude to the persons race within the home. When the appraisal is completed it is perceived to be “low”. A subsequent appraisal is completed in which the home has now been “whitewashed”. If you haven’t heard of the term, it refers to the process of removing all indications of minority race within the home and even having a white person stand in as the fake homeowner. Some of the current cases out there are real life examples and others are experiments in which the entities conducting these are doing it for the sole purpose of trying to prove that the appraisal process is inevitably biased.

In either case, these are serious allegations.

I’d like to ask a few provoking questions that don’t have easy answers.

Does a value that comes in lower than what someone was expecting or desiring automatically mean the value is wrong?

When a homeowner or occupant is of a minority race, if the appraisal value is lower than what someone feels it should be, does that mean racial bias came into play?

Is it possible that the lower value was accurate and that the higher value was a case of reverse bias?

There is one case in particular that took place for a black couple out of northern California where the homeowners make this statement to CNN- “What that appraisal did is what we were actually asking the appraisers to do, to not consider race, to not consider neighborhoods and or the lines that have been drawn and perpetuated by redlining.” Based on this statement, if an appraiser stays within the neighborhood and the neighborhood happens to be primarily occupied by a minority group, does this indicate racial bias was a factor in completing the appraisal?

In the future, I’d like to discuss more the idea of neighborhoods and market areas. For now, I hope these questions have been thought provoking and at least given some pause to consider different angles.

Appraisal Racial Bias (part 2)

As mentioned in part 1 of this series, Federal Fair Housing Laws states in clear terms that when it comes to real estate, an individual cannot discriminate based on protected factors. These protected classes include race, color, national origin, religion, sex, gender identity, sexual orientation, familial status, or disability.

As of this writing, the current edition of USPAP is even more detailed when it pertains to the profession of appraising and it states “An appraiser must not use or rely on unsupported conclusions relating to characteristics such as race, color, religion, national origin, gender, marital status, familial status, age, receipt of public assistance income, handicap, or an unsupported conclusion that homogeneity of such characteristics is necessary to maximize value.”

USPAP is a document that is continually being revised. This task is accomplished by members of the Appraisal Standards Board which is an independent board of The Appraisal Foundation. They have been arduously addressing the matter of bias and as part of the current revisions being proposed, are conducting a comprehensive look into the Ethics Rule. As part of their process, they even consulted with antidiscrimination experts in July 2022.

Currently, the proposed changes to USPAP is in its 4th exposure and while I am not going to disclose the contents of these proposed revisions, it seems very apparent that the goal of the current board is to make it abundantly clear within USPAP that unethical and illegal discrimination is explicitly prohibited. If you are interested in reading the draft, you can find it on The Appraisal Foundation website of click on this link: https://appraisalfoundation.sharefile.com/share/view/s80c9bc7163694f5a809cb401316d53cf

Even though USPAP has for a long time always required appraisers to be unbiased, I am proud to be included in a profession that has chosen to continue taking this matter seriously and clearly spell out where we stand. The public needs to be assured that our profession has not, does not and will not tolerate unethical and illegal discrimination.

A Most Embarrassing Experience

I might not look like the picture of health, but over the years, I have tried to take my health seriously. Since I’m not a morning person, I like to find simple ways to balance rushing around in the morning that includes getting my caffeine intake and breakfast. The caffeine is mandatory. Breakfast tends to be optional. One of those options includes protein smoothies since they are healthy and portable.

One particular morning, I made myself a smoothie that included a protein powder and fresh blueberries. My dual cup holder in the car is perfect for this. Driving to my first appointment, I alternated between the two. By the time I arrived at the house, I was happily caffeinated and the smoothie was gone. Perfect start to my day…. Or so I thought.

As is customary when I pull up to a house, I knock on the door and introduce myself as the professional that I am, do my best to make them feel comfortable by informing them of how I will be proceeding with the inspection and giving them a rough estimate of how long I expect it to take me. Traditionally, I do my measurements and take my pictures of the exterior first. Once completed on the exterior, I proceed to the interior. I will start with the main level, work my way up if there are more levels and then conduct my inspection of the basement last. Once I’ve seen everything, I will set my tablet up on a kitchen counter where I work my way through my checklist while asking them all the important questions such as when they might have replaced the roof last or how old the furnace is. This conversation usually lasts about 5 -10 minutes long. While having this conversation with the owner, it usually involves a small amount of chit chat just to be personable and this was no different. Once completed, I thanked them, gave my typical “have a good day” and walked back to my car.

As I get back into my car, I caught a glimpse of myself in the mirror and to my horror, saw myself staring back at me with bits of blueberry skins from my smoothie stuck all in between my teeth. I couldn’t help but laugh at myself and wondering about what must have gone through their mind. If it had been me in their shoes, I would have argued intensely with myself as to whether or not to say something. Say nothing won the argument. Lets just say that I look in the mirror before leaving my car now.

If you have a real estate funny story to contribute, please send it to me and I would be more than happy to add it to my blog.