South West Florida Real Estate

Hurricanes aren't the only source of flooding in SW Florida. Heavy rains hit south east Cape Coral on Monday January 15th, causing widespread street flooding. Radar and weather stations reported 6" to 9" of rainfall in a few hours.Tow trucks operators reported approximately 155 stalled cars were towed.

I post this information to remind buyers to consider location and elevation when buying a house, and to inquire about the flood history.  Hurricanes aren't the only source of flooding in this area. And don't park in the street or swale when heavy rains are forecast. 

                                              North 1 Project Area Cost

The city has announced the cost or installing city water, sewer, and reclaimed irrigation water to properties in the North 1 West project area, the area west of Del Prado Blvd.  The current cost is $33,367 per 10,000 square foot site. This includes a $6,750 Capital Facility Expansion Charge.  The cost of the construction is assigned to the property receiving the services, and connection is mandatory once available.  The construction cost may be paid up front or financed for 20, 25, or 30 years and paid annually as part of the property tax. At a 6.5% interest rate the 30 year cost will approximately $76,000.

Construction of past extension projects has taken one to two years.  Roads are dug up and may remain unpaved for six months as water and sewer lines are installed and tested.  Homeowners in the should be prepared for rough, unpaved roads and a dusty, noisy two years.

1. When will the appraisal report be completed?

Most lenders and AMCs are giving appraisers 3-7 days to complete an appraisal report. Because of the erratic nature of incoming orders and sometimes inspections (think procrastinating tenants or out of town owners) the time to complete a report will vary. Generally 48-72 hours after inspection is reasonable. Sometimes I will inspect a property the day after the order is received but not start the report for two or three days due to inspections already scheduled or other deadlines. Keep in mind the AMC and/or lender will be updated with an expected due date. Once delivered the appraiser has no control over lender reviews or the progress of the loan

2. Where did you come from?

No, I generally don’t look like I came from Mars. As a business decision I restrict my coverage area to Lee County to focus on areas I appraise most frequently. In the past some appraisers were working neighboring cities and counties that they were not familiar with. This was especially common in the years after the housing collapse, and was often blamed for appraised values coming in below contract price. The truth is that distance from an appraiser’s office does not automatically impact the quality of the report or disqualify him or her from completing an appraisal. Many neighborhoods 20-30 miles from my office are very straightforward and easy to appraise in. Since I hear this question often, it appears there is still some concern on the part of realtors and consumers.

3. Isn’t the buyers purchase offer the market value?

Well, maybe. The most commonly accepted definition of market value assumes typically informed buyers and sellers acting in their own best interest, without undue influence or pressure to buy or sell, with the sale completed as of a specific time and financing in terms of cash or a cash equivalent. The appraisal analyses the actions of buyers and sellers in the market place, looking specifically at recent sales of houses similar to the subject house, and taking into consideration changing market conditions. So if the buyers purchase offer is reasonable and supported by the actions of other buyers in the market then, once the sale is settled, it will be used as a comparable to support other purchases (market value). Until then the offer is a relevant piece of market data but not automatically market value.

4. What do you mean you can’t discuss the report? I’m paying for it!

Appraisers have a legal, ethical, and contractual obligation to discuss a report only with the person or entity that engaged the appraiser. For lending purposes, the lender or management company that engages the appraiser is the appraiser’s client in a mortgage transaction and the only entity that the appraiser can disclose the results of the appraisal to. Payment is not a consideration in this matter. Borrowers can obtain a copy of the appraisal report from their lender.

I have written several articles on market value in recent years because the term is widely used but often poorly understood.

In a broad sense buyers determine values with their ability and willingness to pay for a house.  We can list our houses for $1 million but if no one is willing or able to pay that much then the list price is simply speculation. 

So isn't a buyers purchase offer market value for a given property?  Maybe.  Some buyers are not well informed, and make purchase offers not supported by other similar sales.  And buyer preferences play a part. 

Consider a house listed for sale for $150,000.  A buyer makes a full price offer based on the property's location adjacent to a school.  They like the fenced back yard, and the fact that the house has a well and septic system so they don't have to pay for city water and sewer. Unfortunately the buyers credit is questionable, and they cannot get a mortgage. The house is relisted for the same price.

Now a 2nd buyer views the house.  They need to purchase since their house is under contract.  They don't like the location next to the school, and hate the fenced back yard. And they really wanted city utilities. Since they need to move and the house is in their price range they offer $145,000 and the deal closes a month later.   

So what is the market value of this property?  From an appraisal perspective the market value is likely $145,000.  I say likely because other factors may come into play including concessions and creative financing.  But assuming other similar houses sell in the range of $145,000 then that is market value on the date of sale. 

Buyer perception and motivation plays a major role in determining values.  Changing interest rates, housing inventory levels, new construction, and local and national business and economic factors come into play.  So the next time some one uses the term market value, ask which definition they used and how they arrived at their conclusion!

Homeowners are often concerned about the appraisal process, especially first time buyers, for good reason. A home purchase is typically the largest purchase most of us make. Understanding the appraisal process, and some steps you can take to aid the appraiser and appraisal process, can alleviate some of the anxiety.

An appraisal is an opinion of value developed in accordance with state and federal guidelines. Don’t let the word opinion mislead you. It is an opinion that must be supported by credible and verifiable market data and analysis. To develop an opinion of value an appraiser must gather as much information regarding the subject property as possible, and federally regulated mortgage transactions will require a visual inspection of the interior and exterior of the property. For a purchase transaction the appraiser is typically retained by the lender’s appraisal management team or a third party appraisal management company. This is the entity that communicates with the appraiser, sets turn times and fees, and completes an initial review of the appraisal.

Most appraisers are given 3-5 business days to complete an appraisal, and have no control over the report once submitted to the client. If you have questions regarding the appraisal, send them to your lender, who will pass them along to the management company and appraiser as required.  The appraiser may not legally discuss the value of your property with any one but the person or entity that retained his services, so don’t be surprised if your appraiser doesn’t discuss value with you.

Do….

1. Make sure the appraiser has access to all areas of the property, including the garage, closets, storage areas, and extra buildings such as storage sheds. For FHA inspections make sure the windows can be opened and there is access to the attic hatch if in the garage.
2. Make sure the utilities are on and working. These are frequently turned off in vacant houses. Many lenders are requiring this for conventional loans. The utilities must be on for FHA appraisal inspections. Your appraiser likely won’t turn on water mains or set breakers, so if these are off it may require another inspection by the appraiser.
3. Repair items that present a safety or health hazard. Exposed wiring and missing railings are two common problems. Complete additions or renovations before applying for a refinance. I have been to inspections where the house was unlivable due to an ongoing renovation. The loan application was of course denied.
4. Provide any information available on major repairs, additions, or renovations that you have made to the house, the date completed and the approximate cost. This is for major projects, not replacement of ceiling fans or faucet washers! Provide permit and inspection information if available. Be ready for the appraiser to take photos of the interior of the house. Most lenders require interior photos of at least the common living areas including the kitchen and living room, as well as the baths.

Don’t…

1. Expect the appraiser to give you their opinion of value at the time of inspection. The appraiser can only discuss their opinion of value with the company that hired him once the report is complete.
2. Delay the inspection so you can clean house. The appraiser is looking at the physical attributes of the real property, not the clutter. As long as the appraiser can see all aspects of the property your personal property should not be an issue. Don’t worry about minor cosmetic issues. Most houses, unless new or just renovated, show some wear on the carpet and walls. These are not major issues if the house is well maintained otherwise.

Providing the appraiser with additional information about your property can help him expedite your report, providing for a faster and more accurate appraisal. Take few minutes to look around your house. See any minor items that could be a safety issue? Take care of them before the appraiser arrives!

There are plenty of myths regarding appraisals and what we look for when inspecting a house.  I've broken the inspection down into five very broad categories to help homeowners and other users understand the process. 

 

1.  Design and Quality - Does the house fit in with other houses on the street and neighborhood?  Is it a similar quality?  In my area ranch homes dominate the market, but two story homes are present and accepted by many buyers.  Are there enough bathrooms?  A five bedroom house with one bath may sell for a lower price than a two or three bath house. 

Quality refers to the quality of construction.  Is the house a basic house with few features and inexpensive materials?  Does it have higher quality windows, doors, tile roofing, many offsets, 10' ceilings? 

2.  Condition is the next item I address.  This ties into the age of the property, and addresses the depreciation present.  I look at the flooring, cabinetry, counter tops, bath fixtures, and other systems to see if they have been well maintained, or updated. Updates and renovations can have a significant impact on the sale price of houses, especially older houses. 

3.  Amenities include items such as a fireplace, swimming pool, spa, extra rooms, decks, sheds or barns, fencing etc.  Again these items may have a significant impact on values.

4.  Living Area is the total area used for living space. Living area is heated and cooled in most areas of the country.  Fannie Mae does not generally consider a basement as living area even though it may be finished and heated/cooled.  However, a finished basement may contribute to the value of the house and likely will be considered in an appraisal.  For single family housing the living area is determined by measuring the exterior of the house, excluding porches and garages.  Condominium living area is measured from the inside of the unit. 

5.  Safety and habitability refers to any hazardous or unsafe conditions or features in the house and surrounding neighborhood.  Exposed electrical wiring, mold and mildew, pool fencing or screening, missing railings, broken windows all can be considered a hazardous condition and may have to be repaired before closing.

These are just a few of the items we look for when appraising a house.  There are too many items to list individually.  By making sure your house is safe and accessible the appraisal process will be quick and easy!