Our friend Jay Vorhees at JVM Lending has posted another great blog recently about appraisers. I have taken some liberty with his original blog and modified it to some of my personal experiences. Check it out below!
Lenders are not ever allowed to communicate directly with appraisers. They are only allowed to order appraisals through an Appraisal Management Company, which in turn contacts the appraiser. This arose out of the mortgage meltdown in the efforts to prevent fraud. Overall, I think it hurt the buyer because the cost of appraisals rose.
Realtors, however, can communicate directly with appraisers and I highly recommend that they do so. I meet the appraiser at the home, provide them with the comps I used to come up with the list price and let them know how many offers I had and the offer price of them. It is important to be nice, and not tell them ‘how’ to do their job, but provide them with data that they may not have.
Below is the criteria appraisers use for Comparable Sales Data guidelines.
1. Size: Comps need to be within 20% of the size of the subject property. For example, they usually cannot use a 1,300 square foot comp for a 1,000 square foot subject property. Likewise, they cannot use a 700 square foot comp for a 1,000 square foot property.
2. Distance: Comps need to be within one mile of the subject property, and not over any major barriers like a freeway or a river.
3. Same Town/City: Comps need to be in the same city as the subject property in most cases, even if the comp is less than a block from the subject property.
4. Closed: Comps need to have closed in the last 90 days. Pending sales and listings are not acceptable.
5. Lot Size: Lot sizes must be accounted for too. If the subject property is on a small lot of 6,000 square feet, for example, a comp and a 12,000 square foot lot will have to be downwardly adjusted significantly in most cases.
6. Adverse Influences: If the subject is on a busy street or abuts a school, a freeway or an industrial area, valid comps will need to have similar adverse influences or they will make adjustments to equalize the value.
7. Bracketing Comps: Valid comps need to “bracket” the appraised value. Hence, at least one comp needs to be priced higher than the appraised value, and one should be priced lower.
At the end of the day. Appraisals are still subjective based on the appraiser’s interpretation and experience. Most of the time they are trying to do their best, and as markets shift, they have to adjust. They do not always have some inside information about a neighboring sale or a credit and if you can make their job a bit easier, I find everybody’s job becomes a bit easier.
I should also note that Mortgage Bankers have AMC – Appraisal Management Companies, where they can cherry pick the appraisers that are in the pool, even though they can’t talk to them about value. These are usually much better than the big banks and that is a whole other story that only frustrates me….
Our friend Jay Vorhees at JVM Lending came up with another relatable blog recently: Tax Transcripts and 4506-T forms. It generally explains how those forms work, and reminded me of an experience of my own. First, a summary of Jay’s blog:
Every time a lender gets a loan from a borrower, they also have to get the last two years of tax returns. This is why borrowers sign IRS Form 4506-T as part of their disclosures. It formally authorizes lenders to request tax transcripts, which then show the filer’s status and income information.
Lenders are required to request transcripts from the IRS before a borrower can (borrowers can only request them directly if the IRS reject’s a lender’s request). If there is a minor error between the 4506-T and the tax return, this rejection may occur, so it happens pretty often.
That covers the basics of how the 4506-T form works and the role it plays in a real estate transaction. It’s a more subtle part of the process, but can cause huge headaches when done incorrectly. Take, for example, my experience with a property at Madeira in Pleasant Hill last year.
I represented the seller, and the buyer had their lender in Oakland, with a Bank out of L.A. Unbeknownst to us, the bank was being bought out and the new bank was called Bank of Hope – yes, really. But it turned out to be the Bank of Hopelessness.
Processes changed, the lender in Oakland was let go and nobody knew what they were doing. Communication was terrible. One of the balls that got dropped was getting the tax returns. We closed almost two weeks late and the only way this ended up closing at all is by the processor who I had been speaking with regarding other issues. They actually went down to the IRS office and got the tax returns. She went beyond what is required (and probably got tired of our phone calls), but my seller is an attorney and also made multiple phone calls as they had already purchased a new home that was about to close.
This is one of the best reasons to get fully underwritten before you start to write offers. If all the documentation is in upfront, there won’t be any surprises or delays once you get into contract. Selecting the right lender can be the difference between smooth sailing and dark nightmares.
Our friend Jay Vorhees at JVM Lending wrote a blog recently about Apprisal Management Companies (AMC’s) that I found really interesting. Jay wrote about the mess that usually comes out of a broker-lender relationship due to appraisal issues.
After the mortgage melt down the laws changed that required lenders to use AMCs instead of cherry picking their appraisers directly. This past practice created an opportunity for dishonest practices. However, creation of AMC’s created a separate list of issues and caused the cost of appraisals to increase. The AMC’s usually paid the appraisers too little and decreased motivation by appraisers to do a good job or they hired inexperienced appraisers because the seasoned appraisers got out of the business as their salary decreased. Initially there was no parameters in place for the appraiser you got. Many times, I got an appraiser from Sacramento appraising a property in the Walnut Creek School District and would get a low value because the comps they pulled were parts of Walnut Creek not in the school district. As you can imagine, this led to some huge problems
As time passed, mortgage brokers such as JVM have moved to a “mortgage banking channel” to avoid using AMC’s and now utilize their own internal AMC that is still compliant but staffed by competent, local, highly-skilled appraisers of JVM’s choosing. The lender still can’t talk to the appraiser, but at least they have control of the quality of appraisers and know the area they are appraising.
Have you recently purchased a home and been thrown off by getting bills about “supplemental property taxes?” Our friend Jay Vorhees at JVM Lending breaks it down for you:
Supplemental property taxes often create significant confusion for new homebuyers. When someone purchases a property in California, the County Assessor is required to immediately re-asses the property for property tax purposes. This re-assessment usually correlates to the purchase price and can take up to six months to complete.
When a home is purchased, property taxes are usually based on the property tax bill of the current owner or seller. But usually, their property tax bill correlates to the price the seller paid for the property – often much less than the buyer is paying. Then, buyers mistakenly believe the property tax payment estimate when they purchase is an accurate reflection of their actual property tax. Usually, that’s false.
Anywhere from three months and beyond, buyers should expect a “supplemental tax bill” from the County Assessor. Even if a buyer has an escrow or impound account, they have to pay for the supplemental taxes, which can be sizable. As soon as a supplemental bill is received, a buyer should contact their loan servicer.
Also, when new buyers refinance into a new loan less than a year after a purchase, supplemental tax bills can cause confusion. Even if a borrower is refinancing into a lower rate, the housing payment can appear to increase. This is because lenders are basing the new housing payment on the new property tax liability, while borrowers are still basing their housing payment on the seller’s property tax liability, which is too low.
We’ve seen rates increase since Donald Trump won the election. Now, the Fed is saying they’ll do three rate hikes instead of the expected two in 2017. This caused rates to bump up about half a percent. What do interest rate increases mean in regards to a buyer’s payment and the overall market?
According to The Wall Street Journal, if we adjust for inflation since 2006, housing prices are actually 16 percent below their 2006 peaks in most areas. Many economists are saying the demand for housing remains as strong as ever and that recent rate increases will have a minimal effect.
However, people usually make home purchases based on payment. So as interest rates increase, somebody thinking of purchasing should know a 1/2 percent increase in rates for a $500,000 loan, increases the payment about $140-$150 (and even less after “tax benefits”).
Should buyers and borrowers wait to see if rates fall before moving forward with transactions? Jay Voorhees of JVM Lending says absolutely not. Borrowers can easily take advantage of no-cost refi’s if rates fall.
And, as Gary Shilling wrote in a Forbes column on Dec. 6, he thinks the markets massively overreacted to Trump’s election. He points out that the root causes of weak economic growth (that have kept rates low) will remain. He also says that Trump’s proposed tax cuts and stimulus programs will be watered down by Congress; the expectations of an economic boom are overblown.
What do you believe? Are you bullish or bearish? This election reinforced the notion that nobody has a crystal ball and sitting on the fence waiting for one outcome or another may be the worst thing you can do.
I thought this might be interesting to share. Traditionally, there is very little on the market as we enter the holiday season. The last couple years, sellers listing in December and the beginning of January tended to have multiple offers because there isn’t much inventory (meaning, people don’t like to have Open Houses or showings during the holiday season as they are usually entertaining family or friends).
With the Presidential election around the corner, many agents are getting the feel the market has softened. It will be interesting to see how this year’s election will affect our market. Here are some insights from my friend Jay Vorhees at JVM Lending:
Trump = Lower Rates; Clinton = Same or Higher Rates
We have blogged several times about how rates are not held artificially low prior to major elections. It is a myth that they are. Presidents, in fact, like to see proof that the economy is getting stronger, and these signs usually push rates higher. Presidents hope for positive signs like GDP growth, job growth, lower unemployment, etc. These signs usually push investors into stocks and out of bonds, causing rates to go up.
(Quick reminder: When investors demand more stocks, rates go up; when investors demand more bonds, rates go down.)
With respect to Donald Trump and Hillary Clinton, it is all about “stability.” Stock market investors like “stability” as much as they like growth. Worries about instability or shakeups send investors away from stocks and into the safety of bonds (pushing rates down).
Investors believe that Clinton will follow President Obama’s course, and this is perceived as “stability.” So, signs that Clinton might win will probably keep investors in stocks, which will ultimately keep rates largely the same.
Investors are not sure what Trump might do, so signs that Trump might win will probably push investors to the safety of bonds, pushing rates lower.
This is very similar to the uncertainty the Brexit vote created and its influence in pushing rates lower.
The idea of saving enough money for a 20 percent down payment to buy a home in the Bay Area can be a daunting thought, especially because our average prices are so much higher than the rest of the nation. How can 20 or 30-something’s save that much money and still afford rent and basic living needs?
I posed this question to my favorite lender Jay Voorhees, Co-Owner at JVM Lending.
“Buyers often need less money than they think to buy a home, as long as their loan amount is lower than the conventional and FHA maximum of $625,500. Buyers can either take advantage of FHA financing and buy with as little as 3.5 percent of the purchase price for a down payment, or with conventional financing, purchase with as little as 5 percent down. Both options above, however, require mortgage insurance, or an additional fee that borrowers have to pay every month when their loan-to-value ratio is over 80 percent.”
What does that mean from a real estate perspective? With interest rates and inventory low, it means you will probably be competing for a property. The good news is most buyers will have similar financing; however if one has 20 percent down or all cash, that may be the deciding factor on whom the seller selects.
What can buyers do to avoid mortgage insurance? According to Jay, put down 20 percent, or 10 percent down and get a second mortgage on top of their first mortgage (“80/10/10” financing). This option requires excellent credit and very low “debt ratios.” Jay says that many borrowers are forced to use FHA financing no matter what because FHA is much more flexible with respect to credit and debt ratios.
Jay had a couple final thoughts on the topic:
“Buyers can also get gifts from relatives to use for down payment funds or closing costs. Buyers cannot use borrowed funds for a down payment. Whoever provides “gift funds” will have to provide a signed “gift letter” attesting to the fact that the funds are in fact a gift.”
“The total closing costs for a purchase can range from $6,000 to $18,000, depending on the type of loan, the loan amount, and the place of purchase (some cities have high “transfer taxes”). If gift funds are not available and buyers are tight on cash, they can, however, ask their lender to increase their interest rate in exchange for a credit to cover some or all of their closing costs.”
If you have specific questions or would like to discuss your options and want to speak with JVM Lending, call them at (925) 855-4491 and ask for Jay, Heejin (both owners), or one of their talented associates. They are in downtown Walnut Creek at 1850 Mt. Diablo Blvd., Suite 530. Give them a call and and tell them you saw this blog on WalnutCreekLifestyle.