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By Kim, July 8, 2010

There was a Dilbert cartoon a few days ago that was so good I decided to grab the punchline panel and write a post around it. So here it is.

Contracts can be dangerous things. Now, most people don’t deal with contracts on a regular basis, and for those who do – like lawyers – it’s usually their employer’s or client’s money on the line, and it’s their business. In my business, I have to work with contracts for residential real estate every day, but go beyond that and I’m stretching my legal abilities. Not to mention the matter of practicing law without a license, which the state allows me to do in a very, very limited way.

Often one of the greatest challenges even the best Realtors face is managing the transaction once a contract is achieved. Most buyers and sellers have no idea how much work is involved in getting from there to an actual closing. It is difficult to juggle the demands of gathering the necessary documents, maintaining communication with your client and managing the other parties. The 10-page DC area contract is just the beginning. There’s a 6-page addendum for Virginia, plus multiple disclosures and optional addenda on top of that. This creates an unbelievable amount of paperwork to maintain, deadlines to track and requirements to be met. Additionally, licensing requirements make it way too easy for the less-than-professional person to be an agent, further increasing the challenges.

I tell people that every time something goes awry with a contract in Northern Virginia, we get another form, or at least another paragraph in an existing form. Most of my contracts are at least 25 pages of stultifying fine print, a lot of which simply serves as CYA material. Occasionally, however, there occurs a situation proving the importance of knowing exactly what’s in there.

Case in point: I have been working with some very nice people who want to buy a home, but need to sell their own home. According to their lender, they could qualify to carry both mortgages – to which they say, “Sure, but we like to have food with our meals.” They contracted to buy a new home, but because the owners wouldn’t agree to it, they did not include a contingency requiring that they sell their own home. They did, however, include home inspection, appraisal, and financing contingencies, and the state of Virginia requires a contingency for reviewing homeowner association (HOA) rules and finances (that’s important, as it turns out).

They quickly put their home on the market and we (they, me, and the other agent) thought it was so nice we would surely get an offer right away. Two weeks went by with a total of 5 visitors. My clients are getting more nervous by the day, and our contingencies are running out – home inspection’s done, the financing is not a problem, and the appraisal is not within our control. But wait – the HOA packet has not appeared!

The seller’s agent (of 30 years’ experience) was going to drop off the packet on June 16, but for some reason she was delayed or forgot. We received it on June 24 instead, thus giving us until 9 PM on June 27 to back out. On June 25 we received a too-low offer and tried to counter it, but the prospective buyers refused to respond within 48 hours to the counter. The sellers refuse to give my buyers a home sale contingency at this point – perhaps they thought we were bluffing? So, given the constraints, my clients had to use the HOA contingency, inadvertently extended by their seller’s agent, to back out of a contract for a home they dearly wanted. I’d warned the other agent about it, and gave her two days’ notice that we were looking for alternatives, but she still claimed to be “shocked” that we used the HOA contingency to back out when there was nothing wrong with the HOA. Her sellers were upset too, of course – but after the warning we gave them and the opportunity they had to hang on to the contract, I couldn’t be very sympathetic. They had to put their home back on the market, with a month less to sell before they move, not to mention all the negotiations and inspections they would have to put up with all over again.

Fortunately for all concerned, my sellers did get a contract they could work with, and they did come to agreement on a new contract with their sellers (at the same terms), so we made it through that mess unscathed except for deep psychological scars. But it was a very near thing.

In contracts there are some things we can’t control, but we must pay attention to those things we can.

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By Kim, May 13, 2010

One last, long excerpt from Dave Barry’s Homes and Other Black Holes ©1988. Illustrations by Jeff MacNelly.

No matter how perfect your new home seems when you first move in, you’ll gradually discover various shortcomings about it that get on your nerves, and ultimately you’ll come to hate it. This usually takes about two weeks. From that point on, you’ll be thinking about Trading Up.

Trading Up is the basic maneuver in real estate, dating back several million years to the prehistoric Catalytic Era. In those days, a typical couple would have to start out living in a small cave, but each day they’d go out and hunt for pretty stones, which they’d put in a pile, called Equity, in the center of their cave. When the Equity was big enough, they’d move to a larger cave, where they’d repeat the process and move to a still larger one, and so on until they moved into their Dream Cave, which was occupied by a saber-toothed tiger, or carnivorous humongous (literally, “huge payments”), which ate them. This is essentially the system we use today.

Before you can buy a new house, of course, you need to sell the one you’re in now.

The Best Way To Sell A House

The best way to sell a house is to walk down a city street and have a construction worker who is eating a sandwich fifty-five stories above you accidentally drop his lunch box so that it lands on your head in such a way that you are not seriously injured, but you do lapse into a coma, and you wake up four months later and the nurse says, “While you were in a coma, your house was sold.” This is also the best way to move, have a baby, and attend the opera. But things are rarely this easy. Usually you have to put quite a bit of effort into selling your house, starting with asking yourself the question

Do You Need A Real Estate Broker?

I touched upon this subject back in an earlier chapter, but I am quite frankly too lazy to go back and read what I said. Probably I said that there are pros and cons, because there almost always are, unless you’re talking about hemorrhoidal tissue.

On the one hand, if you sell your home yourself, you avoid paying a large commission*; but on the other hand, you have to deal with people calling you up and coming around to your house all hours of the day and night, pestering you and giving you no peace. I’m not talking about potential buyers. I’m talking about real estate brokers, trying to get your listing. The only way to get them to go away is to sign a contract with them. Then you’ll never see them again.

[* Kim's note:  I cannot let this go unchallenged. A good broker (agent) earns every cent of his commission by getting the best price, avoiding contractual issues, and/or assisting with all sorts of problems along the way to closing.]

Ha ha! Just kidding, of course. In the interest of fairness and decency and, above all, not receiving thousands of concerned letter bombs from the large and powerful real estate industry, let me state that I am sure that virtually all brokers out there are honest and highly competent professionals of the type regularly shown on TV wearing geek-style blazers. And even if it turns out that they’re not, I strongly advise you to use a broker, for the same reason that I’d advise you to pay somebody else to repair your automobile transmission, namely: No matter how incompetent or overpaid this person is, he or she can’t possibly screw things up as badly as you would if you did it yourself.

[Kim's note:  That's better.]

Before you sign a listing contract, you should talk to several brokers, to find out what they think your house is worth. What you want to be on the alert for here is a practice called “highballing,” which is when an unscrupulous broker deliberately overestimates the value of your house, just to get the listing:

BROKER:  Mr. and Mrs. Jones, based on thoroughly walking around your living room here, I would estimate that the market value of your house is a billion gazillion dollars.

YOU (suspiciously):  Wait a minute. Our name isn’t Jones.

BROKER:  Don’t worry about that. This is just a pretend dialogue in a humor book.

Once you’ve selected a broker, you’ll be asked to sign a standard contract, which will read as follows:

Standard Real Estate Listing Agreement

1. The BROKER gets FIVE PERCENT.
2. Even if the BROKER doesn’t do SQUAT.
3. Even if the BROKER is off somewhere like MAUI, drinking EXOTIC TROPICAL DRINKS with names like KAMIKAZE KAHLUA when a WILLING BUYER, acting totally on his OWN, appears on the SELLER’S doorstep carrying a SUITCASE full of CASH MONEY, the BROKER still gets FIVE PERCENT.
4. In return, the SELLER gets to bitch about the BROKER at social occasions.
5. “My damned BROKER couldn’t sell mascara to TAMMY FAYE BAKKER*,” is the kind of snide comment the SELLER is allowed to make.
6. But the BROKER still gets FIVE PERCENT.

[* Tammy Faye Bakker on Wikipedia]

How Much Should You Ask For Your House?

This is a very difficult question, but top real estate experts from all over the world agree that you should ask $127,500 and ultimately settle for $119,250. Also you should throw in the outdoor gas barbecue system with the charcoal-roasted spiders permanently bonded to the grill.

Getting Your House Ready to Show

Once you’ve signed up with a broker and have decided on an asking price, you need to fix your house up so it looks as though clean and tasteful grownups live there, instead of ourselves. Take a hard look at your house and furnishings, and ask yourself how they’ll appear to prospective buyers. Chances are that with a minimum of time and effort, you can make a number of dramatically superficial improvements. For example, suppose you have an ugly old sofa in the living room with a leg missing from one corner, which you’ve propped up with a copy of The Sex Lusters, by Harold Robbins. You’ll make a far better impression with an acknowledged classic such as Moby Dick, by Jackie Collins. You can also make a big improvement in the appearance of dirty, crayon-marked walls by buying a can of flat white latex paint and using it to stand on while you install a lower-wattage light bulb. And of course, it’s always a good idea to nail all your bathroom doors shut.

The overall effect you’re trying to create with these “homey” little touches is that your house is a warm, welcoming, and—above all—real kind of place, similar to the set of a 1962 situation comedy. You may want to create the impression that, at any moment, Ricky Ricardo might come bursting through the front door and get a great big welcome-home kiss from Mary Tyler Moore.

But the most important ingredient in the home-selling equation is you, the homeowner, because only you have a really inmate, detailed knowledge of the house; only you, who have lived there, know all the interesting little idiosyncrasies it has—all the special features and hidden secrets that make you want to dump it lie a grocery bag full of armpit hair. Your job is to help your broker make sure that prospective buyers view these things in the proper light.

Unfortunately, brokers don’t always appreciate receiving help from sellers. In fact, most brokers won’t even want you hanging around when they show the house. They’ll let you know this by dropping little hints such as, “Please don’t hang around when I show the house,” and “If you hang around when I show the house, I will kill you.” The broker is concerned that if you’re always hovering in the background like some kind of desperate street person, the prospective buyers won’t feel free to speak their minds.

There is some basis for the broker’s concern. The last time we sold a house, whenever I was in the room, the prospective buyers would always describe everything as “interesting.”

“Hmmmm,” they’d say, looking at one of my Home Improvement Projects. “How interesting!” Meaning:  “I can’t wait to tell the people at my office about this!”

So on the one hand, you don’t want to make the buyers feel uncomfortable, but on the other hand, you want to be available to explain features of the home that the broker might not be familiar with. The solution is to hide in closets when prospective buyers come around.

PROSPECTIVE BUYER:  What is this greenish slime dripping from the ceiling everywhere and eating holes in the floor?

BROKER:  Well, it’s, um, er, it’s, ahh . . .

VOICE FROM CLOSET:  It’s nothing to worry about!

PROSPECTIVE BUYER (vastly relieved):  Whew! Because for a moment there, we were concerned!

Sooner or later, if you continue to engage in savvy sales techniques such as these, a buyer will become interested enough to make an offer on your house. The important thing, during these negotiations, is to remain calm. Do not become emotionally involved. Remember that even though you and the buyers are on “opposite sides of the fence,” the odds are that they are just regular everyday human beings like yourself, the only difference being that they’re trying to screw you out of all your worldly goods. So while on the one hand you want to be reasonable, in the sense of frowning thoughtfully at the buyers’ opening offer, you also want to be firm, in the sense of hurling it disdainfully to the floor and inviting friends and neighbors to help you spit on it.

Price is not the key issue in these negotiations. What you’ll do is get into serious, heavy duty negotiations over which side gets to keep various home accessories such as:

• Ugly light fixtures
• Dingy draperies, and above all,
• Minor grease-encrusted kitchen appliances that nobody really wants

These are the areas in which you want to be as petty as is humanly possible, in an effort to establish that you are a Tough Customer Who Will Not Be Taken Advantage Of. You want to stride in a forceful manner around your family room, cigar in hand, shouting instructions to your broker, such as:

“All right, they can have the Veg-O-Matic, but the sons of bitches are not gonna get the optional grape-peeling attachment!”

And:

“They want the ice cube trays?! Over MY DEAD BODY!!”

Using this aggressive approach, you should be able to retain possession of many of your prized home accessories, which will fetch you a handsome $1.85 when you hold your garage sale.

How You Will Feel After You Finally Sign The Agreement Of Sale

You’ll experience a feeling of almost unbelievable elation, even better than the way you felt the time Geraldo Rivera opened Al Capone’s vault on national TV and it was empty. This feeling will last for as long as seven tenths of a second, at which point you’ll remember the clause in the sales agreement, put there by some writhing little insect of a lawyer, that states:

The SELLER agrees that if, at ANY TIME prior to the actual sale of the house, SOMETHING BAD happens, like for example let’s say that on THE VERY MORNING OF THE SETTLEMENT, through NO FAULT OF THE SELLER, a TREE ROOT that for 127 years has been totally benign, suddenly, as if guided by DESTINY, decides to block the MAIN MUNICIPAL WASTEWATER LINE in front of the SELLER’S HOUSE, causing a veritable VOLCANO OF RAW SEWAGE to erupt right in the SELLER’S GUEST BATHROOM and quickly flow THROUGHOUT THE ENTIRE HOUSE while the SELLER is out at the SUPERMARKET picking up a bottle of WINDEX so as to put the last few finishing touches on the HOUSE so that it will be neat as a PIN for the NEW OWNERS, then HA HA the SELLER has to give the BUYER all his DEPOSIT MONEY back and the SELLER can now kiss the whole deal GOOD-BYE.

So for the two months, or whatever, between the time you sign the contract and the time you actually close the deal, you’ll experience a condition that famed psychologist Sigmund Freud identified as Agreement of Sale Paranoia. You’ll be afraid to use the heating or air-conditioning systems; afraid to use the water faucets, turn on lights, or close doors firmly; afraid even to speak too loudly, for fear that you might set off some kind of sympathetic vibration that will cause the whole house to fall down. In short, you will become a crazy person. “YOU FOOL!” you’ll shriek, leaping out from behind your hedge and tackling the UPS man just as he’s about to ring your doorbell. “Are you trying to KILL US ALL?”

This is a natural reaction, but the truth is, you probably have nothing to worry about. The odds are that nothing bad will happen, and when you finally get to the Ritual Closing Ceremony, when you realize that the whole thing is going to work out after all, you’ll experience a feeling of relief, a feeling that will grow stronger and stronger until, moments before the sale is legally finalized, you are knocked to the floor by the shock wave from the gas main exploding directly underneath your house.

But you’re not gong to let a little thing like the total destruction of your house, seconds before you were about to sell it, get you down. No, you are made of sterner stuff than that; you are a Homeowner. You’re not a particularly bright one, given the fact that you bought this book, but nevertheless you are going to pick up the pieces of your life, as soon as they come down out of the sky, and get on with your life. Because you know that you’ll have plenty more homes to own before you finally shuffle off what we in the real estate profession call “this mortal coil” and go up to that Great Subdivision in the Sky. I’m willing to bet there will be nothing in your price range.

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By Kim, March 22, 2010

Buying, selling or just changing apartments? Here’s a great idea for when you have to move.

These specially printed box tapes, available from UHaul, clearly mark and color-code where your boxes are supposed to go, and can help you remember which boxes have the stuff you need as soon as you arrive.

They come in one- to four-bedroom kits, and rolls are also available in “Fragile”, “Open First” “Storage” and “Office” rolls.

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By Kim, January 21, 2010

The Federal Housing Administration (FHA) just announced a set of policy changes to strengthen the FHA’s capital reserves, which have declined to dangerous levels. FHA will take the following steps: increase the mortgage insurance premium (MIP); update the combination of FICO scores and down payments for new borrowers; reduce maximum seller concessions to 3%, from the currently allowed 6%; and implement measures to enhance enforcement of FHA policies on lenders.

The changes directly impacting home buyers and sellers using the FHA program include:

• The mortgage insurance premiums (MIP) will be increased to build up capital reserves.
  • The first step will be to raise the up-front MIP by 0.5% to 2.25% and request legislative authority to increase the maximum annual MIP that the FHA can charge. If this authority is granted, then the second step will be to shift some of the premium increase from the up-front MIP to the annual MIP. This shift will allow for the capital reserves to increase with less impact to the consumer, because the annual MIP is paid over the life of the loan instead of at the time of closing. The initial up-front increase will go into effect on April 5, 2010.

• Update the combination of FICO scores and down payments for new borrowers.
  • New borrowers will now be required to have a minimum FICO score of 580 to qualify for FHA’s 3.5% down payment program. New borrowers with less than a 580 FICO score will be required to put down at least 10%. This allows the FHA to better balance its risk and continue to provide access for those borrowers who have historically performed well. This change will be posted in the Federal Register in February and, after a notice and comment period, would go into effect in the early summer.

• Reduce allowable seller concessions from 6% to 3%
  • The current level exposes the FHA to excessive risk by creating incentives to inflate the appraised value of the home. Private lending standards have limited seller concessions to 3% for many years. This change will be posted in the Federal Register in February, and after a notice and comment period, would go into effect in the early summer.

The increased enforcement on FHA lenders includes, for example, publicly reporting lender performance rankings, enhanced monitoring of lender compliance with FHA guidelines and standards, and enhancing  the enforcement of indemnification provisions. This would require all approved lenders to assume liability for all of the loans that they originate and underwrite.

What does all this mean for homebuyers? Well, first off, if you don’t want to pay the higher mortgage insurance premium, buy before April 5! Check with your lender, but my understanding is you have to have a property identified before a FHA case number can be assigned, and that’s the critical action to beat the April 5 deadline. As for the FICO score minimum of 580 to get the 3.5% down payment, most FHA lenders already require scores of 600 to 620. And, allowable concessions from the seller being reduced to 3% really just reflects the realities of the Northern Virginia market – sellers are not going to accept such an offer, because they know that the appraisal will be too low to support the higher sales price they would have to get to compensate for it. And if you need a low down payment, you probably don’t have the cash to waive the appraisal.

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By Kim, January 21, 2010

In an effort to stabilize home values and improve conditions in communities where foreclosure activity is high, HUD and FHA announced a policy change that will expand access to FHA mortgage insurance and allow for the quick resale of foreclosed properties. This is great news for both buyers and sellers.

The policy change will permit buyers to use FHA-insured financing to purchase HUD-owned properties, bank-owned properties, or properties resold through private sales (known as “flips“). This will allow homes to resell as quickly as possible, helping to stabilize real estate prices and to revitalize neighborhoods and communities. FHA borrowers have often been shut out from buying affordable properties. This action will enable more buyers, and especially first-time buyers, to take advantage of this opportunity.

As a result of the tightened credit market, FHA-insured mortgage financing is often the only means of financing available to potential homebuyers. But with certain exceptions, FHA has prohibited insuring a mortgage on a home owned by the seller for less than 90 days. Often, and especially in Northern Virginia, these are homes acquired by investors through auctions, bank resales, or “short sales,” that have been upgraded and repaired with the intention of making the investors a profit on the resale.

FHA found that acquiring, rehabilitating and reselling these properties to prospective homeowners often takes less than 90 days. Prohibiting the use of FHA mortgage insurance for a subsequent resale within 90 days of acquisition adversely impacts the willingness of the sellers/investors to allow contracts from potential FHA buyers because they must consider holding costs and the risk of vandalism associated with allowing a property to sit vacant over a 90-day period of time.

The waiver begins February 1, 2010 and is effective for one year, unless otherwise extended or withdrawn by the FHA Commissioner. To protect FHA borrowers against predatory practices where non-rehabilitated properties are quickly resold at inflated prices to unsuspecting borrowers, this waiver is limited to those sales meeting the following general conditions:

• All transactions must be arms-length, with no identity of interest between the buyer and seller or other parties participating in the sales transaction.
• In cases in which the sales price of the property is 20 percent or more above the seller’s acquisition cost, the waiver will only apply if the lender can document the improvements and repairs justifying the selling price.

Update – May 20, 2010:  The 20% rule noted above is being treated liberally, according to my lending sources. Rather than requiring the seller to “document the improvements and repairs justifying the selling price” with receipts, lenders are more simply requiring a second independent appraisal, also allowed under FHA rules.

Other details of this new policy are in the text of the waiver, available on HUD’s website.

This is likely to further increase the use of FHA over conventional mortgages with less than 20% down, because most lenders still have the “flip rule” on their own minimum down-payment programs.

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By Kim, January 21, 2010

1,349 homes sold in December 2009, an 11% decrease from December 2008 home sales of 1,510. I believe this was the result of two specific circumstances: (1) there was a huge push for buyers to complete their purchases by November 30 under the $8,000 tax credit act (which was extended at a very late date to the end of April 2010) and (2) the available homes for sale (“inventory”) is astonishingly low.

Active listings decreased by over 29% from last year, with 5,421 active listings as of December 31, compared with 7,688 homes available in December 2008. In fact, it’s the lowest end-December inventory we’ve seen since December 2004′s ridiculous 1,645. And I suspect, with the tax credit extended (and a new credit available for move-up buyers), we are going to see hot sales and low inventory numbers for the next 4 months at least. If interest rates (see historical chart) stay under 6%, buyers are going to be facing even more multiple-offer situations than we have now, which would be saying something.

The average days on market for homes in December 2009 decreased by 38% to 57 days, compared with 92 days a year ago. No surprise there. And 58% of homes sold in under 30 days.

Sales prices rose compared with last year. The average sales price in December increased by about 12% to $474,104, and the median price also rose in December to $385,000, an increase of 13% from last December’s $340,000.

I cannot emphasize this strongly enough – those who need or want to sell must get their homes ready and on the market no later than March.

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By Kim, September 18, 2009

Notice anything different?

Over the past week I have moved from my old wordpress.com blog site to a new platform where I can (a) use my domain kimhannemann.com (formerly a rather bad template site) and (b) incorporate a great search tool called RealBird and other new features.

I’m still in the process of working all of this out, but I think you will find the changes worthwhile.

Let me know if you like or dislike anything about the new site.

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By Kim, July 13, 2009

June 2009 home sales activity for Fairfax and Arlington counties, the cities of Alexandria, Fairfax and Falls Church and the towns of Vienna, Herndon and Clifton:

A total of 2,169 homes sold, 14.2% more than  June 2008 home sales of 1,900 and the 11th consecutive month of higher year-over-year sales.

Active listings decreased by 27 % from last year, with 7,617 active listings in June, compared with 10,440 homes available in June 2008.  The decrease in “inventory,” as we real estate people refer to homes for sale, is becoming somewhat alarming – that’s only 3 1/2 months of inventory.

The average days on market (DOM) for homes in decreased to 71 days, compared with 83 days in June 2008. However, more than half the homes sold in under 30 days.

The average sales price in June fell by 7% from June 2008, to $451,354, while the median price fell 6% to $392,367. These prices are, however, again higher than the preceding month.

And for the 15th straight month, the number of pending home sales increased 17% over the same period last year.

Kim Hannemann, Real Estate Consultant/Realtor®, Samson Properties

It’s Good To Have A Friend In The Business®

If you would like to discuss real estate questions, sell or buy a home in Northern Virginia – including Alexandria, Annandale, Arlington, Burke, Centreville, Chantilly, Clifton, Fairfax, Fairfax Station, Falls Church, Kingstowne, Lorton, McLean, Reston, Springfield, or Vienna – contact Kim today.

4.5% Listings with First-Class Service — Cash Back to My Buyers!

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By Kim, May 18, 2009

Saturday’s Washington Post Real Estate section featured an article by Ken Harney entitled, “New Appraisal Rules Come With Costs,” in which he posits the following scenarios:

• The real estate appraisal that used to cost you $325 now costs $450, even though the appraiser doing the work is getting only $175 or $200.
• Your appraisal-related charges may now be subject to add-on fees – such as $50 to $100 extra in “no show” penalties if you get stuck in traffic and miss your appointment with the appraiser, or an extra $50 to $150 if the property is worth more than $500,000.
• Your mortgage loan officer requires you to pay for the appraisal upfront with a credit or debit card, rather than including the fee with the usual lender origination costs at settlement. Your card may be charged more than the anticipated cost of the appraisal – leaving debit-card holders in a potential overdraft situation.
• The person conducting your appraisal may be new to the field – willing to work for a cut rate – and may not be as familiar with local value trends and pricing adjustments as an appraiser with more experience.
• If your mortgage application is denied by one lender, you could be forced to pay for a second full appraisal because the new lender may not accept the first one.

The “new appraisal rules,” which go by the name Home Valuation Code of Conduct, were imposed May 1 by Fannie Mae and Freddie Mac, and are intended to improve the accuracy of appraisals by eliminating pressure on appraisers from loan officers. The code pushes most large lenders to use third-party “appraisal management companies” that contract with networks of independent appraisers around the country who thus are not in direct contact with retail loan officers or mortgage brokers. The Code came about as a result of an agreement made between the Federal Housing Finance Agency and the New York State Attorney General. The intent of the agreement was made to enhance the independence of appraisers. The most relevant part of the code seems to be the following:

The lender or any third party specifically authorized by the lender (including, but not limited to, appraisal companies, appraisal management companies, and correspondent lenders) shall be responsible for selecting, retaining, and providing for payment of all compensation to the appraiser. The lender will not accept any appraisal report completed by an appraiser selected, retained, or compensated in any manner by any other third party (including mortgage brokers and real estate agents)

It used to be that a mortgage professional – whether working for a specific lender or as a broker – might have a “stable” of appraisers he or she could call on to provide services. Most of them just wanted a reliably thorough and competent job. However, and this is the reason for the new rules, some only wanted appraisers who were willing to find the right “comps” to hit a specific valuation necessary for the loan to go through. Under pressure to produce that number or perish, many appraisers buckled.

But are the new rules helpful or harmful to the more ethical mortgage lenders and brokers out there? Are they seeing big increases in appraisal costs? How about appraisal quality, now that they can’t choose one of their go-to guys? I asked several of the mortgage professionals I work with every day in Northern Virginia to give me their impressions about whether they find the scenarios suggested in Harney’s article to be happening here:.

We’ve actually been working under these rules for many years . . . All appraisals have been ordered through a 3rd party management company, and while we did have some communication with the appraiser (although not encouraged), we cannot any longer . . .

This is actually a good thing that is happening. Too many times appraisers have been bullied by agents, mortgage lenders and borrowers for not having the same opinion. This [code] will take that opportunity away. This does NOT mean that you can’t call the appraiser, still meet them at the home, etc . . . this is so that lenders cannot contact the appraisers directly – even for a status, as this is seen as undue pressure. These appraisers are professionally trained, educated and have to uphold ethical standards just like all of us; yet no one challenges our decisions like these people.

[The fees and time requirements] are the same, for now. I bet the appraisal costs will go up, and they should. The appraisers can’t live on a “cut” and they have been required to do so many more compliance checks etc . . [Turnaround times] are longer due to volume.

This won’t change the quality . . . if anything the quality will improve because the lenders and agents are now separated from any undue influence.

Jennifer Duplessis, Prosperity Mortgage

Interesting article and I am happy to say we have not had the issues mentioned. [Local] appraisers have only added $25.00 to their fees due to some additional addendums that required extra research. Appraisal fees have ranged from $350 to $375 and now are $375.00 to $400.00 for under $1 million sale price, and they have always charged more for above $1 million – that is not new. Yes, loan officers are no longer allowed to directly pick the appraiser – it is an automated random selection of a pool of known appraisers in our local area.

I think the worst [problem] is the extreme pressure the appraisers are [receiving from the lenders] to include the foreclosures and short sales when determining values. During the recession In the early 90’s foreclosures and short sales were considered distress sales and discarded as [comparable to a] homeowner selling their property. In my opinion, this change in [guideline] has escalated the erosion of home prices. They should have allowed for an adjustment upward on the distress sale, but they did not, they are requiring the appraisers to use them thus providing for lower and lower values – how unfair to the normal seller is that?

Shirley Jones, First Savings Mortgage

I haven't experienced any true horror stories yet, but the new system will definitely change things. I think the appraisers will feel empowered to bring in property values at whatever they feel the value is, regardless of what it may mean for the transaction. The old system had a conflict of interest where (I believe) appraisers didn't want to ruin too many deals with a low appraisals since they were hurting their referral sources (potentially their future income) by bringing in the low appraisal. This new system will potentially change that, which ultimately will be a good thing, but could be painful. I think that will be the biggest change. I believe we will see more low appraisals (meaning appraisal comes in below contract price).

In the past we could choose appraisers and go with ones that we felt were "good appraisers." We now have less of a say. It also adds a layer to the process which usually means more time. I do agree with what the article said about the costs of the appraisals being higher. Mortgage brokers definitely kept costs down with the old system. Appraisals have gone up by about $100 over the past year I believe. I haven't noticed a big difference in the quality of appraisal, but it is still early in the process.

Overall I don't love the new system but the old system definitely had it's flaws also. I'm not sure I would want to go back to the old system even if we could.

Kevin Haddon, Wells Fargo Home Mortgage

So on balance, it seems, in the Northern Virginia area the new rules are seen in an overall positive light by people who I believe to be in a position to know. Yes, costs my have increased slightly, and there may be a somewhat longer turnaround – especially as the system gets established – but I think the horror story scenarios drawn by critics are not reflected in the actuality. I do agree with Shirley's view about separating the distress sales from the normal sales – it's unreasonable, but it's not a part of the new rules, just a lender-imposed requirement. Appraisers should be able to reflect adjustments for condition, given the lousy condition of most foreclosures, but it's unlikely to fill the gaps.

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By Kim, May 15, 2009

April 2009 home sales activity for Fairfax and Arlington counties and the cities of Alexandria, Fairfax and Falls Church and the towns of Clifton, Herndon and Vienna:

• A total of 1,544 homes sold in April 2009, an increase of 6% over April 2008, and the ninth consecutive month of higher year-over-year sales. Terrific, but look at this – pending home sales, based on signed contracts, are 2,692, up 25% from last year! Pending sales have been up double-digits year-over-year for 13 consecutive months.
  
• Active listings – homes on the market – decreased by 23% from last year, with 8,234 active listings at end-April. Fewer homes on the market usually means prices are poised to start rising. The supply of homes remains in the less-than-six-months “seller’s market” range.
• Another sign of strong activity – the average days on market (DOM) for homes in April 2009 decreased by 15% to 85 days, compared with 100 days in April 2008.
• Sales prices continue to remain lower than those realized last year. The average sales price in April fell 16% percent from April 2008 to $405,514, while the median price was $356,750, a decline of 14%. The average and median sale prices are again both higher than last month, however.
• Agents continue to see a lot of multiple-offer situations on attractive well-priced homes in good condition, particularly in price ranges under $475,000. If you are looking for such a home, be prepared to act decisively.

It’s Good To Have A Friend In The Business®

If you would like to discuss real estate questions, sell or buy a home in Northern Virginia – including Alexandria, Annandale, Arlington, Burke, Centreville, Chantilly, Clifton, Fairfax, Fairfax Station, Falls Church, Kingstowne, Lorton, McLean, Reston, Springfield, or Vienna – contact Kim today.

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