The advancement of technology is meant to ease the burden of everyday living by making things more efficient, accurate and less expensive but when it comes to determining the value of real estate, can technology really be better—or, take the place of a certified appraiser?

In a prepared statement by the Nation’s Professional Appraisal Organizations (the American Society of Appraisers; the Appraisal Institute; the American Society of Farm Managers and Rural Appraisers and the National Association of Independent Fee Appraisers– which represent 35,000 real property appraisers in the U.S.), contend that using only computer-generated Automated Valuation Models (AVM) to determine the value of homes can lead to trouble.

“Inadequate home valuation requirements leave taxpayers exposed to unnecessary losses and homeowners vulnerable to improper exclusion from Treasury’s loan modification plan,” the release states.

It further states, “Our organizations applaud the fact that the plan will allow millions of families to remain in their homes. However, we are deeply troubled that the Treasury Department’s $75 billion government-guaranteed modification program fails to protect taxpayers from avoidable losses when reworked loans default in the future, as some of them inevitably will; and fails to protect homeowners from mistakenly being declared ineligible for modification because they are told, erroneously, that the current market values of their homes do not meet plan underwriting criteria.”

According to the released statement, the reason some may not meet the underwriting criteria is because of the way the valuation of the homes is determined by the use of AVMs or Broker Price Opinions. “For reasons we find inexplicable, Treasury’s plan ignores this invaluable “safety and soundness” human resource and, instead, relies on computer-generated values and the opinions of real estate agents who are not subject to nationally accepted appraisal qualifications and standards to safeguard taxpayers and determine whether homeowners are or are not eligible to decrease their mortgage burden.”

To be most effective and accurate, Michael H. Evans of Evans Appraisal and also a member of the American Society of Appraisers says that certified and designated expert appraisers must be used. “It’s kind of a black box,” says Evans about the information that comes from AVMs. “Unless that valuation is done by an appraiser who understands the data and interprets it, we don’t know if it’s accurate or inaccurate,” says Evans.

The appraisal industry is making an effort to ensure that its voice is heard. Earlier this month industry members testified before congress about what it perceives to be structural weaknesses with regulations in the mortgage industry. Evans says, especially now, relying on AVMs is risky, “In a down market it’s really hard for the AVM to analyze listing data or understand that concessions were made on a particular sale and how much they were,” says Evans.

“An AVM can be an excellent tool in the hands of a professional, the problem is the people who are putting that data in are not appraisers, nor are they looking at the data and interpreting it and saying ‘Yes, that’s okay, that makes sense or no, I need to get something better than that,” he added.

Evans says using a certified and designated appraiser provides you with a report and someone who is responsible for the information in it. “The appraiser is tied by his appraisal to the transaction, pretty much, for the life of the loan. If we do something wrong you can come get us for the life of the loan—we’re tied to it,” says Evans.

But part of the attractiveness of AVMs is that they’re cheaper. A traditional appraisal costs approximately $250 – $300 to pay for several hours of evaluation done by a certified appraiser whereas an AVM can cut the cost to about $50 – $100 for a typical single-family home.

The National Association of Realtors supports the call to protect consumers and is recommending that lenders be required to inform borrowers about how their property value was determined as well as provide them with a copy of the appraisal for no additional cost. The National Association of Realtor, President Charles McMillan, had this to say to the House Financial Services Committee’s Subcommittee on Financial Institutions and Consumer Credit, “Realtors believe that a strong and independent appraisal industry is vital to restoring faith in the mortgage origination process.”

P. Chongchua

If there was ever a time to strike a deal on home improvement, remodeling and alteration services for the home, this is it.

A semi-annual survey of 5,000 U.S. homeowners, the”Spring 2009 Remodeling Sentiment Report”, from Sunnyvale, CA-based RemodelOrMove.com, reveals four times as many homeowners answered “probably not” when asked if they will remodel this year, as compared to the 2007 survey.

In this most recent survey, 68 percent of participating homeowners reported that they probably would remodel this year, down from 84 percent in the fall 2008 report and 92 percent in 2007.

It’s the economy, stupid.

Previous Remodeling Sentiment Reports indicate three times more homeowners than two years ago say that the economy is affecting their remodeling plans greatly, and 82 percent report that the cost of the remodel is a major concern.

The report is inline with research from Harvard University’s Joint Center for Housing Studies, which says, in most parts of the country, home prices are falling, discouraging discretionary home improvement spending and diminishing the amount of equity owners have in their homes.

“Earlier this decade, the ability to borrow against equity created by rising home prices fueled remodeling activity, as well as broader consumer spending,” says Nicolas P. Retsinas, director of the Harvard Joint Center for Housing Studies.

“Now that prices have softened, owners cannot finance home improvement projects as easily. Even those with equity find credit harder to obtain due to tighter standards,” Retsinas added.

The good news is that homeowners who choose to remodel their homes could find this is a good time to get the work done.

With new home construction at low levels, more materials and labor are available for remodeling than several years ago, resulting in shorter project schedules and often lower project costs.

Planning now to get in a contractor’s pipeline of work orders for the spring could also give a homeowner a negotiating edge.

What’s more, in a market with declining home values, home improvements are a good way to protect the value of your home and position it as a good value when it’s time to sell.

The Sentiment Report also found homeowners are:

• Excited about remodeling – 52 percent

• Dreading remodeling – 12 percent

• Planning to hire a general contractor – 65 percent

Homeowners’ remodeling plans include:

• Kitchen remodel – 52 percent

• Bathroom addition – 55 percent

• Bathroom remodel – 45 percent

• Addition of one or more bedrooms or den – 35 percent

• Enlarge or add a garage – 19 percent

• Finish a basement – 13 percent

Harvard’s Joint Center also suggests the best home improvements can help save money and the planet because they are “green.”

If we are going to meet the nation’s energy goals, we have to continuously search for ways to improve the residential built environment. The report demonstrates that maximizing energy-efficiency in existing housing may be one of our greatest challenges, but also one of our greatest opportunities given that homes account for almost a quarter of energy consumption in our economy,” says Mohsen Mostafavi, dean of the Harvard Graduate School of Design, where attention to green design is a growing focus in the classrooms and studios.

“Consumer demand for sustainable design is on the rise,” Mostafavi added.

B. Perkins

Washington continues to wrestle with one of the thorniest issues of both the housing boom and the housing downturn: What’s a piece of real estate really worth, and who says so?

At a House financial services subcommittee hearing last week, appraisers complained that pervasive attempts to interfere with their work — by loan officers, Realtors, builders and others –distorted home valuations in some areas during the boom years.

They asked Congress to pass reform legislation that would create federal rules banning pressure on appraisers and increasing penalties on anyone who interferes in a property valuation.

But at the same hearing, the president of the National Association of Home Builders took appraisers to task for being a major part of current problems in pricing unsold inventories of houses.

Joe Robson said appraisers in 2008 and 2009 “have often used sales of homes in foreclosure or other distressed property sales as comparables for new homes without making the appropriate value adjustments.”

Failure to make those adjustments, he said, depresses the true value of newly constructed houses, worsens the downward spiral in new home sales, and unfairly devalues entire neighborhoods.

Meanwhile controversial new rules governing appraisals are scheduled to take effect May 1 for all loans originated for sale to Fannie Mae and Freddie Mac, unless a federal lawsuit filed in U.S. District Court in Washington blocks them.

The suit by the National Association of Mortgage Brokers challenges Fannie’s and Freddie’s “Home Valuation Code of Conduct” because it bans mortgage brokers from any involvement in the selection or hiring of appraisers.

The association, which represents 20,000 brokers around the country, wants the court to throw out the new code, charging that it would “directly reduce the ability of mortgage brokers to provide consumers with an efficient and cost-effective means of (shopping) for a mortgage.”

In a conversation with Realty Times, mortgage broker association president Marc Savitz said absent an injunction, after May 1 home buyers and refinancers may need to pay for appraisals from every mortgage company or bank they shop. Under current rules, by contrast, a broker can obtain one appraisal at the consumer’s expense and use it to shop multiple wholesale lenders for quotes.

The suit also asks the court to declare the entire process followed by Fannie and Freddie in devising the code illegal. Both companies and their federal regulator have declined to comment on the suit, but note that they routinely issue guidelines to lenders on all underwriting and appraisal procedures, and the code is no different.

K. Harney

Plenty of people are concerned about the cost of bailing out Main Street – the people who stand to lose their homes in the midst of the current financial crisis. Many feel that it’s not the job of the federal government to bail out homeowners who cannot afford their monthly mortgage payments. After all, those people took out risky loans. They are the ones who signed the loan documents. They are the irresponsible borrowers running this country into the ground.

For a moment, let’s ignore the question of who’s at fault. There’s plenty of blame to go around. For now, let’s consider what it costs when homeowners are allowed to lose their homes to foreclosure and who ends up with the bill.

According to a report by the Joint Economic Committee of Congress, the average foreclosure cost amount to about $151,000, with several parties picking up the tab:

Homeowner: $7,000

Lender: $50,000

Local government: $19,000

Impact on neighboring home values: $75,000

Estimated total cost of one foreclosure: $151,000

This doesn’t even account for other potential costs, including the cost of lost productivity, a reduction in a family’s purchase power, lost federal income taxes, and the emotional and psychological costs of losing a home and losing friends and neighbors.

Although neighboring home values usually take the biggest hit as a group, the lender stands to lose the most as an individual party. The Mortgage Bankers Association (MBA) released a policy report in May, 2008, in which it supports the fact that lenders are often the biggest losers in foreclosure: “While losses can vary widely, several independent studies find them to be generally quite significant: over $50,000 per foreclosed home or as much as 30 to 60 percent of the outstanding loan balance.”

Multiply these losses by the estimated 250,000 homeowners who are likely to lose their homes to foreclosure every three months, and we’re looking at over $120 billion in losses annually.

Now, bailing out Main Street doesn’t seem like such a costly proposition. In fact, not bailing out Main Street could be the most costly option of all.

R. Roberts

Small-scale real estate investors got a pleasant surprise last week when Fannie Mae and Freddie Mac said they’d refinance potentially thousands of mortgages on rental and second homes as part of the Obama administration’s massive housing relief effort.

The White House had announced last month that its refinancing effort would be for owner-occupied principal residences whose loans are either owned or have been guaranteed by Fannie or Freddie in mortgage-backed securities.

But when the two companies sent details of their upcoming programs to lenders last week, investor loans and mortgages on second homes WERE included among those eligible for refinancings.

A Freddie Mac spokesman, Brad German, explained that investors loans were included because refinancings can “help reduce renter evictions by putting landlords in a (more affordable) refi that improves their chance of success.”

That’s excellent news for some investors, but it won’t help out everybody.

Here’s a quick overview of who’s eligible and how to apply:

First, your investment property or second home loan must be owned or guaranteed by either Fannie or Freddie. Ask your loan servicer. Or you can go to websites set up by the companies to speed the process – Fannie Mae or FreddieMac.

If your mortgage is in some other institution’s portfolio … or in a private mortgage security, this program isn’t for you.

Next, make a rough estimate of your current loan to value ratio on the property. If your mortgage balance does not exceed your property value by more than five percent, you’re eligible.

Say you bought a rental duplex a few years back for $500,000 with a first mortgage of $400,000 at seven and a half percent that was acquired by Fannie Mae. You’d love to refinance that to today’s much lower rates in the fives or sixes to increase your cash flow.

Because of local property value declines, say your duplex is now worth about the amount of your loan balance. That precludes you from refinancing from most sources, but under Fannie’s special program, you’ll be eligible … PROVIDED your loan balance does not exceed the property value by five percent.

There’s another hoop to jump through: Your payment history on the mortgage needs to be just about flawless — no thirty day late payments during the past 12 months — or you won’t get a refi.

Two additional, positive details to be aware of: Your credit score WON’T be a problem because Fannie and Freddie have agreed to waive their usual minimums, and you WON’T have to pay for new mortgage insurance.

K. Harney