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.

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/

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.

Health Risks in Older Homes

When purchasing an older home, whether you intend to renovate with the plan to live in it or “flip it”, there are some risks you should familiarize yourself with before you begin.

Lead- Lead is often found in the paint, plumbing and the settled dust of an older home. Specifically, homes built prior to 1978 all carry the risk of lead based paint. If you want more information I wrote a blog article on the risks associated with this: https://www.tncresappraisals.com/blog/2022/10/14/lead-based-paint-cant-be-that-bad-or-can-it The best way to deal with lead issues is to consult with a certified lead professional before renovating.

Asbestos- Prior to 1980, asbestos was used in insulation, flooring, roof sheathing and even on textured ceilings. The EPA issued a ban on most products containing asbestos in 1989. When the asbestos fibers are damaged or disturbed, the become airborne which is when it poses the greatest hazard as you breathe these fibers into your lungs. This exposure can show up years later in the form of lung cancer and mesothelioma. When you suspect a material contains asbestos, never sand, scrape or drill holes through it. It is best to use an asbestos abatement professional to determine if something contains asbestos and for any type of repair or removal.

Mold- This can be one of the most insidious of the problems as it is a living organism that, when not treated thoroughly, can reoccur continuously. It also can hide and not appear as an issue until it is an overwhelming problem. It is most likely to occur in areas where there is plumbing or water infiltration like a roof leak or poorly sealed window frame. Those with pre-existing health issues such as allergies or lung problems can be overly sensitive to mold spores. In areas where there is more than 100 square feet of affected area, it is strongly recommended that you use a professional to remediate this issue.

While all three of these health hazards can be scary to think about, each of them are treatable with the right kind of professional. Know the risk and evaluate their impact within your decision process.

Is A Convicted Felon Inspecting Your Home?

In recent years, Fannie Mae has been working towards what they call Valuation Modernization. This process involves allowing for the gradual progression of a bifurcated valuation product to make the home valuation process more efficient and accurate. However, what Fannie Mae did not explicitly state is that they were also trying to combat the growing shortage of appraisers in the industry. The increased qualifications to become an appraiser, along with the the numbers of appraisers leaving the profession, contributed to this shortage.

The newest product Fannie Mae just rolled out is called valuation acceptance + property data. This is when someone, most likely not an appraiser, inspects the property for the lender and provides them with the property data. The lender uses this property data in conjunction with valuation models to determine if a traditional appraisal is needed. However, this is unsettling on many levels. For example, did you know that these property inspectors have no oversight or regulations as of right now? It is up to the lender to demonstrate the credibility of these property data collectors.

In contrast, licensed appraisers and their trainees who are bound by ethics, vetted and background checked by their respective states should be used for all property data collections going forward. But that most likely isn't going to happen because then lenders will have to address the entire reason why we don't provide this service - the fee. The dirty little secret in all of this is that lenders use these data collectors because it is cheap.

Here is an example of what can go wrong when using a property data collector that was not vetted. In one such case, a major Appraisal Management Company hired an individual who stated on his LinkedIn page that he was a "videographer." This same individual was convicted along with two other individuals for staging an armed robbery. It is reported that it was during this conviction that he was hired as a data collector. Is this the type of person you want in your house?

https://appraisersblogs.com/amc-hires-a-convicted-felon-as-property-data-collector

https://www.justice.gov/usao-wdmi/pr/2022_1102_Uchendu-et-al

Cases like this one (and possibly others) raise the concern that criminals, convicted or otherwise, will use property data collections as an opportunity to "case" homes for criminal activity. This creates liability for lenders, the GSEs/taxpayers, homebuyers, and others who rely on these products.

In conclusion, while Fannie Mae's Valuation Modernization process aims to make the home valuation process more efficient and accurate, the use of unlicensed property data collectors raises concerns about the security and safety of homeowners. It is essential that lenders and regulators ensure that these collectors are vetted and regulated, to avoid the possibility of criminals infiltrating the industry. Using licensed appraisers and their trainees, who are bound by ethics and vetted by their respective states, should be the preferred option for property data collections going forward.

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.

Can land be worthless, or worse?

Some of our readers from areas where a residential lot can sell for $100,000 will find this question unthinkable. Even in those areas, they may know of “brownfields,” or areas that have been contaminated. Sadly, from my desk, I’m within miles of two such sites, but that isn’t the subject of our topic today. Today I want to introduce you to the historic building in Oklahoma Borough just outside of Apollo Pennsylvania, the Belvedere Hotel (on the left in the postcard above).

Built in 1905, the Belvedere sat directly across from the West Apollo rail stop. For the last train of the day arriving at 12:45 am, this served as a wonderful service for those who didn’t want to make any more progress at night. Featuring a candy shop and ice cream parlor on the first floor, these were eventually converted over to a bar. The building eventually got its local nickname, “The Tin Hut”, for its beautiful tin ceilings.

However, as the rail stop was removed and the road widened to accommodate the increase in traffic, which subsequently took away the hotel’s parking, business became far more difficult. Despite plans for revitalizing the spot after the purchase in 1982 for $24,000, the hotel was condemned in 2017 as unsafe.

In 2018 bids were secured for the demolition of the structure, however, these quotes ranged from $200,000 to $500,000 (123-300% of the entire annual budget of the borough this property is in). However, an arsonist seems to have “reduced this cost***” in late 2019 to $48,700. It was in 2019 that the Borough of Oklahoma obtained ownership of this property.

So, how much is this 2.5-acre parcel worth? The owner sold the property to the borough for $1, after the borough and the county spent $48,700.

Let’s take a deeper look though:

1. The property is zoned commercial in an area where there is not a high demand for commercial property

2. The property is basically a cliff- within its width of approximately 300 feet, it drops nearly 200 feet

3. The property is located on a busy road at a busy intersection with no parking

4. The property is located directly across from a railroad crossing- you can see the guard rails that block traffic at the edge of the building in the one picture provided

5. The borough has terraced the land and planted grass, posting no trespassing signs… not for sale signs.

You would think that the borough would want to make some of their money back if they could, but in my opinion, I don’t think they can. In short, there is no market in the area for cliffs. The land is “surplus” with no other use than assemblage with an adjoining property. However, who would pay money to own a cliff and the tax and insurance liability that goes with it?

So if we assume that the land, as vacant is in fact worthless. How much was it worth after the fire? What about before the fire?

Sometimes taking a look at the edges of the spectrum can inform our opinions. Is land always worth something? No. Do structures always add value to a property? No. Sometimes an extreme over improvement (as opposed to the under improvement that we see here) could make a property unmarketable (imagine a multi-billion dollar home in an area of shacks, who would buy it?) Its also an important reminder that while “cost does not equal value,” it can be a useful starting point to extract data from.

***There are serious health and safety questions that have yet to be answered publicly. It was reported that the high cost was in part due to the asbestos in the building. The demolition after the fire was not contained (though, how that would be possible is a hard question), so, where did the asbestos go and how did that affect the surrounding environment?

While the author is an appraiser, this should not be construed as an appraisal. The author uses their experience in the field of property valuation to glean real estate principles for educational purposes.

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.

Spring Cleaning That Can Add Value

It’s that time of year when spring cleaning gets added to your “To Do” list. Here are some tips that can help not only freshen your home but add some value. If you are looking to sell soon, these ideas will make your home more marketable.

• Declutter- A clean and organized home looks more valuable and appealing to potential buyers. Start by decluttering your home and getting rid of any items that are no longer needed.

• Deep Clean - This includes carpets, floors, walls, and windows.

• Upgrade your lighting - Updating your lighting fixtures can make a big impact on the overall look of your home. Consider replacing outdated light fixtures with modern ones and use energy-efficient LED bulbs to save money on your energy bills.

• Fix minor repairs - If I had to point out the most important simple tip for maintaining the value in your home, take the time to fix minor repairs, such as leaky faucets, loose doorknobs, defective paint surfaces and scuffs on walls. These small repairs can make a big difference in the overall appearance and functionality of your home.

• Landscaping - Landscaping can make a huge difference in the curb appeal of your home. Trim bushes, mow the lawn, and plant flowers to make your home look more attractive and well-maintained.

• Paint - We all know that fresh paint does not necessarily add value. However, painting your home can significantly improve its appearance and make it look fresher and newer. Consider painting your front door, walls, and trim in neutral colors that are attractive to most buyers.

• Upgrade your kitchen and bathroom - While this might be one of the more expensive items you would consider, upgrading your kitchen and bathroom can significantly improve the value of your home. For budget friendly ideas, consider replacing outdated fixtures and consider painting cabinets. If you have a little more money in your budget, replacing countertops and floor coverings can make a big difference in the appeal of these rooms.

By taking these steps, you can improve the value of your home without breaking the bank. These minor improvements can make a big difference in the overall appearance and appeal of your home.

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.

Murrysville 2022 Market in Review

The year 2022 was a year of historically low inventory and high demand, unlike anything Murrysville has seen in recent history. Interest rates have been a major player in the market this year and definitely caused some of the historic gains to cool off towards the last quarter of the year. As rates rose, activity slowed- at least to a certain extent. As you look through this report, you will notice that the rise in mortgage rates corresponds to other market data events.

The annual median home sales price rose from $330,000 in 2021 to $374,100 in 2022 which is a 13.4% increase. Compare that to the year 2020 when the median sale price was $300,000 and the increase was at 10%.  In looking to this coming year, it is safe to say that these increases will cool down. To what degree will depend on mortgage interest rates, inflation, demand and market saturation.

The general trend in the median sale price over the past year has been increasing with the peaks in those increases showing up during the summer months.

The supply has been historically very low in 2022 and this chart shows that there was a build up right around April. It is typically between March and April that sellers list their properties in anticipation of the height of the buying season.

The marketing times (expressed in DOM- days on market) has also been extremely low. However, in the past few months, this has been rising due to a cooling in the market most likely attributed to seasonal cyclical events during winter months and compounded by the rising mortgage rates. A rise in marketing times should be viewed as a possible indicator that listing prices are at a peak point and/or demand is starting to balance.

As is expected, the quantity of sales is most active in the months May through September.

The current number of active listings is also decreasing. We will have to wait to see if this starts to increase when the market typically experiences seasonal cyclical events around March or April when sellers like to place their properties on the market.

Not only as demonstrated in the previous chart which showed the number of actives decreasing, the median list price is also decreasing. This could be significant to keep in mind. As the marketing times increase and the list prices decrease, this could have a direct impact on the median sale price going forward. Only time will tell how all of this will affect 2023 sales.

Greensburg 2022 Market in Review

The year 2022 was a year of historically low inventory and high demand, unlike anything Greensburg has seen in recent history. Interest rates have been a major player in the market this year and definitely caused some of the historic gains to cool off towards the last quarter of the year. As rates rose, activity slowed- at least to a certain extent. As you look through this report, you will notice that the rise in mortgage rates corresponds to other market data events.

 The annual median home sales price for all residential properties in Greensburg rose from $149,950 in 2021 to $173,450 in 2022 which is a 15.7% increase. Compare that to the year 2020 when the median sale price was $135,000 and the increase was at 11.1%.  In looking to this coming year, it is safe to say that these increases will cool down. To what degree will depend on mortgage interest rates, inflation, demand and market saturation.

The general trend in the median sale price over the past year has been increasing with the peaks in those increases showing up during the summer months.

The supply has been historically very low in 2022. The supply appears to have had a sharp increase towards the end of the year which is counter intuitive to cyclical seasonal historical data.

The marketing times (expressed in DOM- days on market) has also been extremely low. However, in the past few months, this has been rising due to a cooling in the market most likely attributed to seasonal cyclical events during winter months and compounded by the rising mortgage rates.

As is expected, the quantity of sales decreased in the last quarter of the year.

One point of data I was surprised to see pertains to the actual number of transactions year over year for the last 3 years. The years 2020 and 2021 had a high number of transactions with 2022 showing a slight drop off. This is conversely affected by the fact that with fewer transactions, there was a higher median sale price.  

The current number of active listings is also decreasing. We will have to wait a few months to see if this starts to increase when the market typically experiences seasonal cyclical events around March or April when sellers like to place their properties on the market.

Not only as demonstrated in the previous chart which showed the number of actives decreasing, the median list price is also decreasing. This could be significant to keep in mind. As the marketing times increase and the list prices decrease, this could have a direct impact on the median sale price going forward. Only time will tell how all of this will affect 2023 sales.

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.... Pardon our Interruption

Part 2 has been written and was ready to drop today except for the necessity to provide you important information regarding fast approaching upcoming hearings. Earlier this year, the CFPB’s (Consumer Financial Protection Bureau) Fair Lending Director, Patrice Alexander Ficklin, stated that they were going to prioritize resources to focus on the role of racial bias in home appraisals

The CFPB has announced that they will be holding a hearing with the ASC (Appraisal Subcommittee) specifically to discuss this issue. This hearing is open to the public but it requires an RSVP.

For information regarding this hearing and to RSVP, visit the CFPB’s website or click on the image below to follow the link:

Rear View Mirror or Crystal Ball?

Appraisals are a report that indicates an opinion of market value for a property. It is a reflection of what has been happening up until a certain point (our effective date) and not what is going to happen or might be continuing to happen.

What has happened could be different from what is going to happen. There is a place in real estate valuation for forecasting, but when completing appraisals for mortgage lending, divorce, estates, bankruptcy and listing work, we look at the sales and trends leading up to our effective date. Most often, our effective date is the day we look at the house, but there are times when our effective date is a retrospective look at a prior date such as a date of separation for marital dissolution purposes or date of death for estate purposes.

In any of these cases, the effective date that reflects the estimated market value is a culmination of the data analysis in the market leading up to that date. In other words, we are always looking in the rear view mirror to determine our opinion of value.

Over the past year, appraisers ran into situations where our rear view mirror was not equaling the rapidly changing markets. Houses were being listed and within less than 24 hours, sellers had multiple offers to choose from. Some of those offers included a percentage above the list price that seemed ludicrous, but buyers were desperate to get into a house and were getting discouraged by running into rejection after rejection so they were making very attractive offers. Inventory was low and this created the perfect storm. If you had cash and didn’t care about value, no problem. But if you needed a mortgage, the appraisal needed to reflect that it was worth what the buyer was willing to pay for it. In many instances, the history of sales did not make this possible. It either forced the buyer to bring the cash to the table to make up the difference or go back at the drawing board and start searching again.

Market value looks at how these actions between buyers and sellers have affected the climate in the market and use the sales that have closed as indicators of value for the property being appraised. It isn’t until you have an accumulation of data points that indicate buyers and sellers are reacting in concert that you have the ability to point to a changing market. In rapidly changing markets, it is challenging to correctly interpret the data and accurately reflect those changes. Those changes being reflected are not to be understood as an indicator that they will continue to happen, only that they have happened.

Lead Based Paint Can't Be THAT Bad... or Can It?

Homes built prior to 1978 have the potential to have lead based paint contained in it. In many of the areas I appraise such as Greensburg, Delmont, Export, Derry, Irwin, etc., that is a lot of homes. Probably 80% or more of the homes in these areas were built prior to 1978.

When lead based paint peels and cracks, it creates paint chips and dust. You can tell a deteriorated paint surface possibly contains lead when there is a pattern to the cracking termed “ alligatoring”. It creates a pattern that looks a little like scales or a grid. Another sign is if it creates a chalky residue when it rubs off. Also, any surface covered with lead-based paint where the paint may wear by rubbing or friction is likely to cause lead dust including windows, doors, floors, porches, stairways, and cabinets.

When performing appraisals for loans that are for FHA/USDA or VA financing, one of the issues that we as appraisers need to pay specific attention to is what is termed “defective paint surfaces” in houses that were built prior to 1978. Any paint that is found to be peeling, bubbled, flaked or chipped needs to be called out as a necessary repair to be professionally addressed due to the risks associated with lead based paint. To some it sounds like overkill. In fact, I used to think years ago, how can it be that bad?

So, why is this so concerning?

Is this something you should even be concerned about?

The very short answer is yes.

If you don’t read anything further in my article, please click on this link to read what the Cleveland Clinic has to say about lead poisoning. If you are like I was, this information might change your mind about the seriousness associated with lead poisoning.

https://health.clevelandclinic.org/lead-paint-dangers/

When lead is absorbed into the body, it can cause damage to the brain and other vital organs like the kidneys, nerves, and blood. Lead may also cause behavioral problems, learning disabilities, seizures, and in extreme cases, death. While it is harmful to all ages, lead presents the most danger to children. Infants and young children are more likely to be exposed to lead than are older children. They might chew paint that flakes off walls and woodwork, and their hands can be contaminated with lead dust. Young children also absorb lead more easily, and it's more harmful for them than it is for adults and older children.

According to The Cleveland Clinic “For a child, even the smallest amount of lead can cause developmental problems.” If there is one thing that is most important to understand about the risk of lead poisoning, it is this… The effects of lead poisoning CANNOT be reversed. The best way to avoid the danger is to minimize the exposure to the risk.

How do you limit your risk to lead poisoning when it pertains to real estate? You can avoid it almost entirely by choosing to purchase or rent a home that was built after 1978. If that isn’t possible, then you can either have all the lead based paint removed or treat existing lead based paint by using an encapsulent. Encapsulants are materials that are applied over lead-based paint to seal the paint to a surface and prevent the release of paint chips or dust. The material may be either a liquid or an adhesive. Encapsulation provides a barrier between the paint and the environment. Conventional paint is NOT an encapsulant. There are specific types of paint that are classified as an encapsulant.

In short, know the risks and be informed. Living in a home built prior to 1978 has the possibility of having lead based paint. You can limit your risk for the potential of having lead poisoning by having a good maintenance program addressing any known existing lead based paint, having it removed and/or having it encapsulated.