A Foreign Landscape to Suburban Appraisers

After writing an article about the HVCC program and how it is affecting the home buying process I received an e-mail from an appraiser from California. She asked me to get the word out about the Uniform Standards of Professional Appraisal Practice (USPAP). There are certain guidelines an appraiser must follow while completing an appraisal report. The scope of work depends on the client and the clients needs.

The main concern with HVCC is that appraisal management companies (AMC) are now set in place to order appraisals. Mortgage brokers are no longer allowed contact with the appraiser. The AMCs have raised the prices of the appraisals, but the appraiser makes less on every appraisal. Management companies also do not know the specific areas that the appraiser works in and knows well. An appraiser that lives and works in the suburbs should not be appraising property in the city?it’s nearly impossible for them to understand and know the market well enough to do a solid appraisal. The differences between an urban market and a suburban market are enormous. For example, suburbs do not often have high rises nor do they have building organizations like c0-op. And, needless to say, every neighborhood has its different nuances and boundaries.

Many Non-Local Appraisers Are Not Disclosing

Below is the letter from Barb Torres, reprinted with her permission. Barb is an Accredited Senior Appraiser, a member of the  American Society of Appraisers and a California Certified General Real Estate Appraiser:

Per the Competency Rule of the USPAP, an out-of-area appraiser is required to disclose in the report their lack of geographic competency and what steps they took to familiarize themselves with the “nuances” of the local market. (such as working with a local appraiser, local agents, local MLS, etc.)

Out-of-area appraisers are NOT doing this. If they came from far away and it is not disclosed in the report, they are violating USPAP – and therefore violating the HVCC. The lender ends up with a non-complying appraisal, doesn’t know it, and they also violate HVCC.

The solution: As soon as an out-of-area appraiser shows up to do the inspection, the buyer, the seller, the listing agent, the selling agent, the loan broker – everyone! – should contact the lender immediately. Preferably in writing as well as via phone. They have a right (and perhaps an ethical obligation?) to DEMAND that a local appraiser be used – or else the appraisal violates the HVCC! Lenders need to be informed of this, and the parties to the transaction have a right to protect themselves.”

It’s Up To You To Vet the Appraiser

So, if you are a buyer, a seller, a real estate agent, or a mortgage broker, make sure you stand up for your rights on this issue. Make sure the appraiser is qualified to be doing the appraisal. Ask them where they usually work. Ask them about their knowledge of the local market. Ask them where their last ten appraisals were. If you don’t like the answers, just as Barb suggests above, contact the lender immediately in both writing and by phone and get a new appraiser.

An Opportunity or a Hassle?

Many people out there want to take advantage of this buyer’s market and scoop up an excellent deal. Many are very successful at this, actually buying real estate for pennies on the dollar. Others, have no idea or clue what to do. The first thing one needs to ascertain is? “Am I a short sale or foreclosure buyer?”

What’s a Short Sale?

A short sale is a property that is currently owned by a party that can no longer afford the mortgage payments. In this declining market they also have found that they owe more on the house than the house is worth. Therefore they have decided to try to sell the house for less than the mortgage owed and will negotiate with the bank once multiple offers have been placed on the home.

What’s a Foreclosure?

A foreclosure is a bank-owned property. The home was once owned by someone, but mortgage payments were missed, the bank accelerated the loan and took possession after the equitable right of redemption period had expired.

Both types of deals can be quite lucrative for the buyer looking to get an excellent deal. But?

Caveat Emptor

Buyer Beware! Foreclosures are usually sold, “As Is.” Typically there will be no property history and certainly no disclosures to tell you if something you can’t see is wrong. What you see is what you get. But, you will not know if there are broken pipes behind drywall! You will not know if the basement has flooded in recent years. You will not know the age of the roof. You will not know if the electrical has been updated. Most of these questions can be handled by a professional inspection. However, some problems will not be available to the naked eye of an inspector.

Another question is timing. If you expect to put in an offer on a short sale or foreclosure and expect a timely answer . . . you are probably not a great fit to be a short sale/foreclosure buyer. In the current market, banks are holding more real estate than ever before. They also do not have the systems in place to handle all the inventory. This process is very time consuming and frustrating. Most banks want to see that they have multiple offers on a property before they will entertain any offer. They do not want to see offers with contingencies in them. The cleaner the offer, the more attractive it is to the bank. This goes for short sales as well as foreclosures. I have seen this process take as little as one month and as long as six months. If you are on any kind of deadline, these sales are not for you.

If you are patient and have the time to wait and have access to the plumbers, electricians, and contractors to fix the problems you uncover, you can certainly find that perfect deal!

We would like to thank Jeff Turner for kindly sharing today’s photo via the Creative Commons License.

Windmills at Devon Bank of Wheeling

For those of you looking to follow the series, I am sorry that I did not have a post ready for last week. I was preparing for and taking the United States Green Building Council?s (USGBC.org) Leadership in Energy and Environmental Design certification test. I passed, and now carry the designation Accredited Professional (LEED AP).

What is a LEED Accredited Professional??

LEED Accredited Professionals are experienced building industry practitioners who have demonstrated their knowledge of integrated design and their capacity to facilitate the LEED certification process. It demonstrates an understanding of green building practices and principles, and familiarity with LEED requirements, resources, and processes.

In the last article, I took a very detailed look at mechanical systems and insulation as related to cost and return on investment for upgrading to gain more efficiency. I think I effectively demonstrated that the costs are not unreasonable, and in almost every case the additional cost of the more efficient upgrade could be recovered in two seasons or less. Every year forward, those additional savings, and the decreased carbon output, mean more money in your pockets and less wasted energy.

Resources for Starting to be Being Green

The next question to answer is ?how in the world do I figure out where to start?? There is quite a bit of green washing out there. It seems that every magazine I read or junk mail flyer I get has something ?green? to say. In one respect I think that having the green movement become more mainstream is a benefit. The more people see it and hear about it, the more likely they will be to ask for it. In medicine, the mantra is ?see one, do one, teach one?.

We are definitely seeing green in more and more places. If you want a really nice example of a mainstream green building, the Devon Bank in Wheeling, Illinois is a LEED Gold certified building, with solar panels and a beautiful sculpture garden that has six wind mills as its focal point. I watched this building being built, and never knew it was a green project until last week! Also, if you live in the Chicago, the Chicago Center for Green Technology is a nice place to get a handle on what can be done. And the Museum of Science and Industry has an ongoing exhibit of a green home.

Now, its time to get more people doing green in their everyday lives. My tenet is that there is a shade of green for every project and every budget. Demonstration projects like the Green Technology Center, the MSI Green home, or my own River Hill Conservation Community Project purposefully push the envelope on implementing green building practices. The idea is to demonstrate as many types of green products and practices to showcase how individual pieces can be worked into any project.

When you are ready to tackle your next home project, consider using green products in the process. From a bathroom or a kitchen remodel, a simple paint job, or an addition, the opportunities to go green are immediately available and often not more expensive. You can search product catalogs on line like www.greenhome.com, or www.buildinggreen.com, and others, or go to The Home Depot and look for their EcoSpec line of products.

An Energy Audit Is a Strong Starting Point for Going Green

But for any major project, like discussed in Article 1, then you need a road map. Let?s face it, budgets are tight. If you are going to do a once-in-ten-years project, you want to do it right, and you should get the most bang for your buck. If you do not want to use a green consultant (like me) to help wade through the choices, the very least you should do is a home energy audit. This is very much like a home inspection, but focused on the mechanical systems, their efficiency ratings, the building envelope, windows, doors, and insulation. The audit will give you a very detailed picture of how well your home functions as a system.

It is the system approach that I alluded to in the first article. There are trade offs for everything, whether going green or not. Every sub-system in the home affects every other system in the home to some degree or another. One of the key pieces of information you get from a home energy audit is the amount of air exchange per hour you are getting. While fresh air coming into the home in some amounts is a good thing, air infiltration through window seals, door seals, outside wall electrical outlets or leaking air out through recessed lighting are all problems. The more air that is leaking in or out of the house, the harder the heating and cooling system have to work to control temperature and humidity.

So improvements in the building envelope through insulation, caulk, weather stripping, and duct sealing, will lead to increased efficiency in the heating and cooling systems. This may lead to better hot water delivery, since the pipes won?t be as cold, which leads to water savings since you won?t run the tap for 2 minutes waiting for that hot water to come. See??

A Sample Energy Audit

Here is a sample of a home energy audit. This one was prepared for a client by eZing, Inc (708-848-3066) and shows the type of information we get from it. After the 4 hour survey, the audit provides concrete, scientific information about how your home performs right now, and how you can improve its performance. The most valuable data it gives it an itemized action plan ? a list of to dos, their potential costs, the probable return on the investment, and the time it will take.

With this list you can then prioritize your project or projects. Don?t want to do windows this year? Ok, take care of the weather stripping, caulk, and insulation. Just did your water heater five years ago? Then tackle the 18 year old furnace. You will know exactly what to do and have a plan to do it that you can refer back to over and over again until the jobs are done.

I recommend this type of audit as part of a pre-purchase home inspection as well. There are a number of home inspectors who can add this service to a traditional inspection, and give you some real understanding of what you will be getting into, energy-wise, before you buy your next dream home. It?s a shame to buy that dream home, only to find out you can?t afford to live in it because it costs $500 a month to heat! To find an energy auditor go to www.resnet.us for a complete listing of certified auditors.

In the next article, I?ll go over some of the ways to finance these upgrades. From mortgages specifically geared to energy efficiency, to federal grants, state rebate programs, and tax incentives ? I?ll try to cover as many options as possible and provide valuable links to sources.

In the meantime, Go Green!

Going Green Series

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A very, very common building block in modern Chicago homes: the split face block

Split face blocks are manufactured by combining two or more blocks together as one larger unit. After a curing period, the units are put through a machine that cuts the stone in half to expose it’s interior aggregates. The amount of  aggregate varies from block to block. There are many different sizes and colors available.

Advantages of Split Faced Block

Split face block is easily combined with many exterior finishes. The initial costs can be higher than other exterior finishes, however the longevity makes the block a good value. Insurance companies often offer policy discounts on properties due to the lower risk of fires and termite infestation.

Disadvantages of Split Faced Block

Split faced block is a very porous material, so if not properly installed and maintained, it tends to lead to costly repairs. The durability of split faced block often causes the homeowner to over look the preventative maintenance needed to help prevent the block from absorbing water which can lead to interior wall damage and mold. The installation of the block is also important. Due to the permeability of the block and poor installation methods such as lack of wicks and weep holes to allow the water to exit  from behind the block, damage to the interior can often occur.

Should I Purchase a Property with Split Faced Block?

Like all exterior finishes, proper installation and maintenance are needed. Split faced block is an attractive, long lasting finish that given preventative maintenance and proper installation can last for many years. I recommend that a proper water repellent is applied approximately every 3-7 years.

I would not hesitate to purchase a property with split faced block.

Make Sure to Look Carefully Before Buying

When out with buyers for the first time, I explain that there is much more to a home or condo than meets the eye. Here’s a list of items I suggest you look at. I simply look for whatever may look like a potential problem that will cost money. I’m not an inspection or construction expert, but if I see something that looks suspicious, I always recommend having a professional look at the problem, especially if my client is thinking about making an offer.

Outside

• Windows I typically like to look at windows to determine if they have been replaced recently. I like to see double- or triple-paned glass and tight seals for energy efficiency.
• Tuck Pointing On a brick building, I like to see if the property has had the mortar between bricks repaired recently (this repair is called tuckpointing in Chicago). I look to see if the mortar is crumbling or if it’s still solid.
• Split-Face Cinder Blocks If the property is built of split-face cinder block?which many new buildings in Chicago are?I look for weeps (cotton cords sticking out of the walls and under windows) to allow for drainage of moisture. Also, always ask the listing agent for the last time the building was re-sealed. If they do not or cannot get you an answer, find out why. These blocks need to be resealed about every seven years and it’s a bit pricey.
• Roof If the roof is visible, I look to see if the shingles are bubbling or if there is more than one layer of shingle. You can sometimes determine this by seeing more than one color of shingle at the edge.

Inside

• Heater I typically like to head to the basement or utility room first. I want my client to see if the gas-forced-air heater has been updated recently, and whether the area is clean and relatively free of dust and clutter.
• Electrical I also will find the electrical panel and check to see if it provides 100- or 200-ampere service. The average home today has to support many electrical and electronic devices. The more amps a home has available, the better.
• Water Heater The next item on my list is the water heater. I look on the label to see how many gallons it is and if it has been replaced recently.
• Water Marks In a single-family dwelling with a basement, I look for water marks to determine if the property has had water in the basement at any time. If the property has had water, it’s relatively easy to smell mold or must as well.

I suggest looking at these items first and foremost because these are problems that are likely to cost  clients the most money should they purchase the property, and in today’s economy, tt’s important to save every dime. Having a newer roof, energy efficient windows, and a properly maintained heater along with a well maintained exterior structure can save thousands. The cosmetic items in a home are important, but they will not likely cost the buyer money?cosmetic issues can be repaired, replaced, or restored with less expense as compared to a new roof, etc.