Existing Home Inventory Hits Record Low

Existing home sales finished out 2016 with a generally expected decline.  Still, the National Association of Realtors® (NAR) said today that 2016 overall was the best year for existing home sales in a decade.

Sales of existing single-family homes, townhomes, condominiums, and co-ops were at a seasonally adjusted rate of 5.49 million in December.  This was down 2.8 percent from an upwardly revised (from 5.61 million) 5.65 million units in November. The month's slide brought sales down to only 0.7 percent higher than they were a year ago compared to a 15.4 percent year-over-year increase in November.

NAR estimated that sales for the year as a whole were 5.45 million units.  This surpasses the 2015 total of 5.25 million and is the highest total since 2006 when sales reached 6.48 million.  

Analysts polled by Econoday had expected sales to slide, but not quite so far.  They were looking within a range of 5.45 to 5.59 million, with a consensus of 5.55, which would have been a 1.1 percent decline.

Single-family home sales were at a seasonally adjusted annual rate of 4.88 million in December, a loss of 1.8 percent compared to from November.  The December 2016 sales were 1.5 percent higher than those in December 2015, a 4.81 million pace.  Existing condominium and co-op sales dropped 10.3 percent to a seasonally adjusted annual rate of 610,000 units, and are now 4.7 percent below the previous year.

Lawrence Yun, NAR chief economist, says the housing market's best year since the Great Recession ended on a healthy but somewhat softer note. "Solid job creation throughout 2016 and exceptionally low mortgage rates translated into a good year for the housing market," he said. "However, higher mortgage rates and home prices combined with record low inventory levels stunted sales in much of the country in December."

Added Yun, "While a lack of listings and fast rising home prices was a headwind all year, the surge in rates since early November ultimately caught some prospective buyers off guard and dimmed their appetite or ability to buy a home as 2016 came to an end." 

The inventory of existing homes shrunk to the lowest level in NAR's records which date back to 1999.  There were 1.65 million existing homes available for sale at the end of December, down 10.8 percent from November and 6.3 percent from the previous December.  Inventories have fallen year-over-year for 19 consecutive months.  NAR estimates that the current inventory represents a 3.6-month supply at the current rate of sales, down from 3.9 percent in December 2015.

The median price for all types of existing homes sold during the last month of the year was $232,200, a 4.0 percent gain from the December 2015 median of $223,200 and the 58th consecutive month of year-over-year price increases.  Single-family homes sold at a median price of $233,500, up 3.8 percent while condo prices rose 5.5 percent on an annual basis, to $221,600.

 "Housing affordability for both buying and renting remains a pressing concern because of another year of insufficient home construction," said Yun. "Given current population and economic growth trends, housing starts should be in the range of 1.5 million to 1.6 million completions and not stuck at recessionary levels. More needs to be done to address the regulatory and cost burdens preventing builders from ramping up production."

Five percent of December home sales were foreclosures and 2 percent were short sales, a slight uptick from the 6 percent share of distressed sales in November but down from an 8 percent share the previous December.   Foreclosures sold for an average of 20 percent below market value in December (17 percent in November), while short sales were discounted 10 percent (16 percent in November).

Investors accounted for 15 percent of sales during the month, up from 12 percent in November, and 59 percent of them paid all cash for the properties they bought. Twenty-one percent of the total transactions in December were all cash. 

Thirty-two percent of home buyers in December were first-timers; unchanged from both the previous month and a year earlier.  This was also the share for the entirety of 2016.  Yun noted that constrained inventory and climbing rents, home prices and mortgage rates mean, "It's not getting any easier to be a first-time buyer.  It'll take more entry-level supply, continued job gains and even stronger wage growth for first-timers to make up a greater share of the market," he said.

NAR President William E. Brown says Realtors look forward to expressing to the Federal Housing Administration why it is necessary to follow through with the previously announced decision to reduce the cost of mortgage insurance. (The reduction was suspended by the incoming Trump Administration.)  Brown said that cutting annual premiums from 0.85 percent to 0.60 percent makes an FHA-insured mortgage a more viable and affordable option for first-time buyers.

"Without the premium reduction, we estimate that roughly 750,000 to 850,000 homebuyers will face higher costs and between 30,000 and 40,000 would-be buyers will be prevented from entering the market," he said.

Marketing time rose in December to a typical period of 52 days from 43 days in November but as six days shorter than typical "days on market" in December 2015.  Short sales were on the market the longest at a median of 97 days in December, while foreclosures sold in 53 days and non-distressed homes took 50 days. Thirty-seven percent of homes sold in December were on the market for less than a month.

Existing-home sales in the Northeast slid 6.2 percent to an annual rate of 760,000, but are still 2.7 percent above a year earlier. The median price was down 3.8 percent year-over-year to $245,900.  

Sales also dipped in the Midwest, falling 3.8 percent to an annual rate of 1.28 million in December.  The pace remains 2.4 percent ahead of last year. The median price in the Midwest was $178,400, up by 4.6 percent on an annual basis.

Sales in the South were unchanged from November at an annual rate of 2.25 million and were 0.4 percent higher than in December 2015.  The median price in the South was $207,600, a 6.5 percent annual increase.

The West saw sales decline by 4.8 percent for the month and 1.6 percent annually to a rate of 1.20 million units.  The median price in the West was $341,000, up 6.0 percent from December 2015.

Why the supply of homes for sale is the lowest since 1999

Existing home sales fall 2.8 percent in December  

House hunters out this spring will have to pound more and more pavement to find their home sweet home.

The number of for-sale listings fell again in December to the lowest level since 1999, according to the National Association of Realtors. There were just 1.65 million homes for sale at the end of December, which at the current sales pace would take only about 3 ½ months to exhaust. A normal, balanced market has about a six-month supply.

Brendan McDermid | Reuters

This, as the busy spring market is already on the verge of starting. "To say early buyer demand is strong in early 2017 is an understatement — it is titanic. Redfin data shows that buyers are out touring in droves, ready to pounce on new listings that fit the bill," said Nela Richardson, chief economist at Redfin. "The only thing missing is homes for sale to satisfy demand, because there just aren't a lot of homes available to buy right now. We are in a real estate black hole until those listings show up again."


In some local markets, the situation is more dire. The share of communities with supply at less than three months jumped from about 13 percent to more than 20 percent in the past year, according to a survey by Proteck Valuation Services, a real estate appraisal and analytics company. For example, in Dallas, the supply of homes for sale dropped by nearly 41 percent from December 2015 to December 2016. 

"This means fierce competition for homes, where buyers that are able to act fast and pose less risk to the seller have the advantage. These 'favored' buyers would include those already pre-approved for a mortgage, those with larger cash down payments and those with no contingencies (like the sale of another home)," according to the Proteck report.

The shortage is being driven by surging demand and weak home construction. Single-family housing starts continue to rise, but very slowly each month. Builders are still operating at well below normal construction levels, and that doesn't even account for pent-up demand from the housing crisis and growing household formation. 

"The homeownership rate is at a near 50-year low, and it could remain at this level," said Lawrence Yun, chief economist at the NAR. "I'm not sure if this is the trend that America wants."

"We are in a real estate black hole until those listings show up again."-Nela Richardson, chief economist, Redfin

The older edge of the millennial generation is finally looking toward homeownership, but finding nothing but frustration in their neighborhoods.

Tight supply is pushing home prices past their peaks in some markets and well past income growth nationally. Mortgage rates were historically low in 2016, helping to offset the higher prices, but that is not the case this year. Rates are already up significantly since the election and are expected to continue higher. Only a few of the big volume home builders are putting resources into the starter home market.

"I continuously say that the industry and the first-time buyer need more homes priced below $250,000, but the high costs of lots, labor and regulations puts tight margins on this price point. In coming months we'll watch to see what influence the rise in rates had," said Peter Boockvar, chief market analyst at The Lindsey Group.

First-time buyers continue to make up less than a third of the sales market; historically they are usually at about 40 percent. Affordability is weakening, but mortgage credit availability also continues to be difficult.

As rates rise, fewer potential borrowers qualify for the strict debt-to-income levels lenders now require. Some are looking to the Trump administration to loosen regulations on lenders, but that could take time and is unlikely to happen before the spring season. The administration already froze a last-minute cut in the FHA insurance premium by the outgoing Obama administration, which might have opened the market to more homebuyers. 

"Constrained inventory in many areas and climbing rents, home prices and mortgage rates means it's not getting any easier to be a first-time buyer," said Yun. "It'll take more entry-level supply, continued job gains and even stronger wage growth for first-timers to make up a greater share of the market."


AMCs and Appraisers: Be on Your Best Fee Behavior

IMAGE: AdobeStock

Appraisal management companies are an essential element in a fully compliant mortgage industry. While many appraisers currently chafe at the idea of sharing revenue with these firms, many of the same appraisers were calling for help when appraiser pressure was making it difficult for them to fulfill their responsibilities. There are many reasons for the existence of the AMC. I'm not here to debate that.

Having established that AMCs perform an essential task, we should agree that they deserve to be paid. I'm not here to advocate for one business model over another. There are a number of ways it can be done, but if they perform a useful function, as we must agree that they do, the AMC deserves to be paid.

The question at hand is how much AMCs should be paid.

This isn't the first time this question has been asked. As the CEO of an AMC, I've fielded this question many times over the years. In every case, the question has come to me from working appraisers who are eager to keep more of their fee. I respect that. We have, as a company, supported the efforts of the various states to set minimum fees for working appraisers, and expect to see more states do so in the future.

This question is more interesting, however, from the perspective of the home loan borrower. The lender places the order and is the true client of the AMC and the appraiser, but the Consumer Financial Protection Bureau's TILA-RESPA integrated disclosures rule has put the appraisal report into the hands of the borrower. The cost has always been passed on to the borrower, which is why lenders don't often pressure the industry for lower appraisal fees.

If an AMC can convince an appraiser to work for a lower fee, either through the promise of future work or by threatening to take future work away, should those savings be passed back through to the party that actually pays this fee? Is the AMC doing more work to deliver an accurate and fully compliant appraisal report to the lender? If not, how can the AMC justify pocketing those savings?

AMCs were not established as a mechanism to enable some parties to profit from arbitrage on a service the consumer is forced to pay for without the benefit of vendor selection.

I don't know the reasonable amount for an AMC to earn on an appraisal report, but if we don't find a way to prevent certain bad actors from bilking both appraisers and borrowers out of money, a legislator or regulator will be happy to step in and do exactly that for all of us.

Frank Danna is the co-founder and CEO of the appraisal management company Appraisal Logistic Solutions

Will Mortgage Interest Deductions Become Extinct In 2017?

Written by Peter G. Miller
on January 18, 2017No Comments
 Categories : Blog ViewFeatured

BLOG VIEW: The mortgage interest deduction (MID) has been an unquestioned part of our tax legislation for so long that it’s widely considered an untouchable part of Washington, a sacred monument to lobbyists and special interests held in place with the fear of election-day defeat. Nevertheless, the MID is not what it once was and may soon be a lot less.

As things now stand, the MID has two general forms. First, you can write off interest costs for as much as $1 million in first- and second-home financing. Second, you can write off the interest on as much as $100,000 in other debt that is secured by a personal residence.

However, for a growing number of homeowners, much, if not all, of the MID is irrelevant. What has diminished the MID’s value is the combination of reduced interest rates and bigger standard deductions.

On the interest front, mortgage financing was priced at around 4.2% at the start of the year. That’s not as low as 2012, when rates reached historic lows, but it is remarkably good: According to the National Association of Realtors’ (NAR) chief economist Lawrence Yun, mortgage rates in the 1970s “averaged 8.9 percent; in the 1980s, 12.7 percent; in the 1990s, 8.1 percent; and in the first decade of the new century, they came in at 6.3 percent. The in-and-around four percent rate is only a recent phenomenon, from the year 2011 to today.”

In 2004, the standard deduction for a married couple filing jointly was $9,700. For 2017, the standard deduction is $12,700. During the same period, the typical interest rate went from 5.84% to 4.2%. For a borrower with a $150,000 mortgage balance, the 2004 interest cost was $8,710 versus $6,251 this year. Combine the $3,000 standard deduction increase with a lower interest cost, and for many households, there is no MID worth deducting, especially in jurisdictions with no state income tax, such as Texas, Florida and Washington.

As fewer and fewer people bother with the MID, the electoral price politicians might pay to reduce or eliminate the MID declines. That’s a big deal when you consider that the MID reduced federal tax collections by $75.3 billion in 2016.

How the MID can be reduced

Nobody in Washington is going to launch a frontal assault on the MID – that’s too risky politically. Instead, the idea is to chip away at the MID so the “cost” to Uncle Sam – that $75.3 billion in uncollected taxes – is reduced as much as possible.

One way to cut the MID is to redefine what is deductible. The bipartisan National Commission on Fiscal Responsibility and Reform – known generally as the “Simpson-Bowles Commission” – argued in 2010 for a smaller mortgage interest write-off. Under Simpson-Bowles, homeowners could deduct interest on $500,000 in mortgage debt secured by a prime residence. The proposal – which has gone nowhere – would halve the current mortgage debt limit and eliminate deductions for second homes and home equity lines of credit.

Another approach comes from House Republicans who have offered a “Better Way” proposal to create a “pro-growth tax code.” The proposal outlines an evolutionary approach to reducing the MID.

“This blueprint will preserve a mortgage interest deduction for homeowners,” says the proposal. “The Committee on Ways and Means will evaluate options for making the current-law mortgage interest provision a more effective and efficient incentive for helping families achieve the dream of homeownership. For those taxpayers who continue to itemize deductions, no existing mortgage will be affected by any changes in the tax code. Similarly, no changes will affect refinancings of existing mortgages. But just as importantly, because of the other provisions included in the new tax system, far fewer taxpayers will choose to itemize deductions, with the vast majority of taxpayers finding they are better off by taking advantage of the larger, simpler standard deduction instead.”

Existing mortgages under the plan will continue to enjoy current MID write-offs, but the fate of future mortgages is not explained – an important matter because the typical home loan is now outstanding just 5.5 years.

“Whatever Washington ultimately decides to do with the mortgage interest deduction should be part of a larger, carefully executed program of tax reform,” says Rick Sharga, executive vice president at Ten-X.com, an online real estate marketplace. “Home buyers – and homeowners, for that matter – have built this tax deduction into their affordability equations, much like they’ve factored in rising or falling interest rates, and the cost/benefit of 30-year, fixed-rate loans compared to adjustable-rate mortgages. Simply eliminating the deduction could have the unintended consequence of slowing down home sales in a still-recovering market.”

The implications of the Better Way proposal are significant. One of the traditional attractions of homeownership is the ability to write off mortgage interest, and without the MID – or with less of a MID – some renters may conclude that tenancy is more attractive than ownership, especially if home values are not strong, which is a view that would lead to fewer first-time buyers, less real estate demand and reduced pressure to raise prices.

“The blueprint calls for the standard deduction to be almost doubled from its current levels,” said NAR in a Dec. 16 letter to Speaker Paul Ryan and Rep. Kevin Brady, Chairman of the House Committee on Ways and Means. “The plan also includes the repeal of the deduction for state and local taxes paid, as well as the elimination of most other itemized deductions. Either of these monumental changes alone would marginalize the value of the current-law tax incentives for owning a home.”

A related issue is that now at center stage in Washington are two mortgage “extenders” left dangling with the end of the last Congress. Legislation to make mortgage insurance payments tax deductible and to avoid taxes when a mortgage is not fully repaid has not been extended past Dec. 31.

Will Congress pass the extenders, or will they vanish in the far bigger battle over tax reform? Right now, a lot of people who expected to write off mortgage insurance in 2017 may be in for an April surprise. Worse, people who cannot fully repay their mortgages in 2017 because of a foreclosure or short sale may find that unpaid balances are suddenly taxable.

So, get set for the 2017 Clash at the Capitol. If the current tax system is uprooted, then a number of real estate write-offs might be lost. Whether that’s good or bad for home prices and property sales will depend on the new system that emerges and if it produces smaller overall tax bills.

Refis Drive Mortgage App Activity as Rates Drop: MBA

There was a slight increase in application activity driven by consumers taking advantage of a downturn in mortgage rates to refinance.

Loan application volume increased 0.8% on a seasonally adjusted basis for the week ended Jan. 13 over the previous week, as refinance activity increased by 7% during the period, according to the Mortgage Bankers Association.

The results for the week of Jan. 6 were adjusted for New Year's Day.

On an unadjusted basis, total application volume was up 29% over the prior week. The share of refi apps increased to 53% from 51.2% during the same period.

Seasonally adjusted purchase application volume was down 5%, but up 25% on an unadjusted basis from the prior week. Compared to the same week in 2015, purchase applications were down 1% on an unadjusted basis.

The share of Federal Housing Administration applications increased to 13.1% from 11.7% the prior week, while Veterans Administration program app volume fell to 12.1% from 12.8%. U.S. Department of Agriculture loan apps remained at 0.9%.

While interest rates increased in the period following the presidential election, in the last few weeks they have declined as the stock market has paused in its run-up and 10-year Treasury yields fell from their peak.

The average rate for the 30-year fixed-rate conforming mortgage, those with balances of $424,000 or less, fell five basis points to 4.27%, while jumbo mortgage rates also fell five basis points to 4.22%.

The 15-year FRM had a 5-basis-point rate drop to 3.51%.

FHA mortgages with an 80% loan-to-value ratio saw a 2-basis-point increase in the average rate to 4.1%. The 5/1 adjustable had an increase in the average rate of 12 basis points to 3.44%.

Housing Outlook 2017: Eight Predictions From The Experts

Posted on:   3


Unity Homes founder Tedd Benson weighs in on 'home building's elephant in the room' debate on automation.


We've stirred up, we think, a healthy new debate on a fundamental change at work in home building.

We say the change is "at work" because we know--at least in this country--the solution remains elusive. But it doesn't mean the change is not going to happen, nor that the right people, the smartest, most enterprising people are not working on the solutions as we speak.

The change has to do with a role that automation plays in the complex process of building--or manufacturing--a home, and a new-home neighborhood.

Industries of all stripes that have adapted automation have gone on to achieving productivity, quality, and efficiency levels that have generated entirely new generations of profitability for their principle players.

Home building and automation have a star-crossed, pocked history, and one that has caused almost permanent skepticism among truly experienced, truly dedicated home builders who are also good businessmen.

We've been exposing a raw nerve in the conversation lately, because, amid the recent past, present, and, likely, foreseeable future in home building operations, labor capacity and labor productivity are going to weigh increasingly heavily against builders being able to construct homes--for-sale, for-rent, attached, detached--for costs that produce solid, predictable margins.

Too, land use costs, regulatory burden, local fees, expensive delays in approvals, and other lot acquisition and development expenses are unlikely--whatever the national policy agenda says or does--to decrease over time.

This further pressures builders' ability to build and deliver homes at prices many would-be home buyers could swing. As interest rates climb, as they're going to do, monthly payment capabilities become, for many, a carrot just out of reach.

Very smart people figure that automation--specifically automation that could be achieved off-site in factories, where assemblies, integrated components, even Lego-style modular pieces are built to high-degrees of precision by, increasingly, robotic tools--must play a part in builders solving for the cost and price consequences of both labor capacity constraint constraints and the expense-burden of bringing land online for residential development.

Equally smart people have seen and heard about automation's promise for decades, and conclude that all the talk about it is just that, talk. Since the post-World War II era, business models for factory-built homes have mostly defined the lowest baselines of quality and code compliance, and mostly miss the mark when it comes to local code in many locales.

Despite progress in off-site home construction business and operations models, most home builders view what happens in those factories as an entirely different kind of business, with entirely different kinds of outcomes.

Still, the economics, the relentless advance of technologies, use of data, precision engineering, robotics, materials science, integrative engineering, computer aided design, building information modeling, etc., and the ongoing un-served and under-served market for homes beg us to imagine a breakthrough will come. Not to mention that in some countries, like Sweden and The Netherlands, those breakthroughs are not the future. They're the present.

We've been talking for more than a couple of years about how computer-aided technologies are ripe to bring factory-fabrication and assembly of home sections and systems into a new era. That's admittedly "desk speculations." We're also working now on finishing up a special report profile for our February issue on how Maryville, Tennessee-based Clayton Homes--whose history is firmly based in off-site manufacturing of double-wide style prefabricated homes--is working to transform both what it builds and how it builds by acquiring highly-respected site-built, stick builders in a number of markets.

We're believers change is upon us, and this year and next, and the one after that will surface breakthrough technologies that will challenge site-built models to their core. By 2020, site-built will be different.

Recently, our friend, operations guru, and home building veteran columnist George Casey has surfaced a compelling business case for and vision of how modular construction and automation need to play a role in home building's legacy practices getting out of the way of progress.

In two provocative pieces, here and here, George looks at the "200-year-old industry unimpeded by progress" as necessarily ready and ripe for technological and automation platforms as solutions for chronic labor and skills shortages, and unmanageable costs.

Comments to George's piece reflect the spectrum of our readership. Some buy in to signs that transformation toward automation technologies are out there. Others look at what's come down in technology, and they gut-check what they've seen over the years, and they can't fathom how what could happen in a factory will ever replace the quality, the code compliance, the nimbleness, the variability of a home that one gets with skilled builders on a job site.

Are there not specific structures and particular processes that happen as a rule in stick-building and on job sites that are irreplicable, not possible in factories? Despite the ability to control for straight lines, temperature, moisture, and lighting inside, aren't there fundamental deep-trade practices that can only happen on the home site? Builder Mike Carol calls talk of any widescale move to modular, factory-assembled construction practices "desk speculation." He writes:

First you have the limitations of the building code--easier to meet code with stick built. And it's cheaper because you have a lot less engineering. With panels and trusses you have to engineer everything and waste a lot of blocking and bracing material to make the modular stuff meet the engineering requirements. Look at hip roof trusses, you burn up a truckload of lumber filling in everywhere. Where you have offsets on the front walls for aesthetics, stick framing just cuts around them. Trusses require triple and quad girder trusses and huge lvl beams because they all have to bear on the same line. And storm damage experts and inspectors will tell you, trees go right through a truss roof, not so with real rafters. Modular requires more lumber because the perimeters where the panels join need extra lumber, just like modular houses will have ceiling joists and then floor joists above them, wasting lumber. Shortages of good framers force the use of panels and trusses, which can be assembled by lesser carpenters. Large corp. builders could grow a force of good framers if they didn't insist on cutting pay to the quick so that they continually lose the quality workers.

Mike Carol's experience speaks to the view of many builders, good builders, and addresses two issues--1. what can and can't happen in a factory, and 2. what home building companies should do to improve their access to skilled labor (pay them better).

Tedd Benson, Unity Homes and Bensonwood Homes founder

We asked Tedd Benson, founder of Walpole, N.H.-based Bensonwood and Unity Homes to add his comments to the commentary, and we believe they're worth calling to note. Tedd's pedigree is as a timberframe builder, with deeply artisanal and ancestral values built into each home. His remarks, in a sense, reframe the debate because they focus on where human skills remain necessary to homes that people love to live in, even as technological capabilities run their rapid course of improvement and transformation. Tedd writes:

Modular and panelized methods (off-site fabrication) can also enhance quality and can be done in such an efficient and quality-oriented way that the benefits can significantly outweigh the problems. Historically, many American modular builders drifted to the bottom of the market, and got stuck there. For reasons I don't understand, the modular industry has tended to be extremely slow to adopt technologies and processes that would enhance efficiency and quality. Instead, they essentially just took the tools and methods of on-site construction indoors, eschewing the benefit of being in a controlled environment and exacerbating the deficiencies of being away from the site. Under those circumstances, something had to give, and it ended up being quality. It doesn't have to be that way. It was always just a choice. For decades, the Swedes have built nearly all their very-highest-quality homes by optimizing the benefits of off-site fabrication, using state-of-the-art technology, applying manufacturing efficiency, AND using highly trained and skilled workers; not compromising, optimizing. The same is true of many homebuilders in Germany and other European countries who are using off-site manufacturing to improve quality, not diminish it.

It's also true with us. Having learned more from our timberframe experience and European colleagues than the American typical off-site methods, we think the recipe for good homebuilding is technology + manufacturing efficiency + skilled professionals & tradespeople + dynamic work culture. The secret again is optimizing instead of compromising; therefore, finding every way possible to improve building quality while also reducing cost. There are now many off-site fabrication companies on that path, and more coming. There's no doubt that industry will be altered by the impact as we define a new era of off-site fabrication in homebuilding. We will see increasing numbers of good "prefab" (we call it Montage) companies deploying that recipe to create buildings that consistent bring: highest quality, compressed time, and competitive cost.

If that's seen as a threat to the industry, that's unfortunate. The important thing is that it's seen as a promise our industry should be making to the American public: You deserve a home of much better standard quality than code minimums, one that is worthy of your hard-earned dollars, and one that enhances the quality of your lives. Nothing should be off the table as we, as an aligned industry (not infighting and competing), attempt to deliver on such a promise.

Optimizing, not compromising. That's a different debate altogether. This is not about eliminating human skill and talent. It's about improving human skill's capacity to make homes better, and make them more accessible to more people.


At the other end, Illinois suffers greatest population outflow Utah’s population crossed the 3.0 million mark as it became the nation’s fastest-growing state over the last year. Its population increased 2.0 percent to 3.1 million from July 1, 2015, to July 1, 2016, according to U.S. Census Bureau national and state population estimates released today.

“States in the South and West continued to lead in population growth,” said Ben Bolender, Chief of the Population Estimates Branch. “In 2016, 37.9 percent of the nation’s population lived in the South and 23.7 percent lived in the West.”

Following UtahNevada (2.0 percent), Idaho (1.8 percent), Florida (1.8 percent) and Washington (1.8 percent) saw the largest percentage increases in population.

North Dakota, which had been the fastest-growing state for the previous four years, mostly from people moving into the state, fell out of the top ten in growth due to a net outflow of migrants to other parts of the country. Its growth slowed from 2.3 percent in the previous year to 0.1 percent.

Nationally, the U.S. population grew by 0.7 percent to 323.1 million. Furthermore, the population of voting-age residents, adults age 18 and over, grew to 249.5 million, making up 77.2 percent of the population in 2016, an increase of 0.9 percent from 2015 (247.3 million).

Eight states lost population between July 1, 2015, and July 1, 2016, including PennsylvaniaNew York and Wyoming, all three of which had grown the previous year. Illinois lost more people than any other state (-37,508).

Two states that had been losing population in the previous year, Maine and New Mexico, saw increases in population of 0.15 and 0.03 percent respectively.

In addition to the population data for the 50 states and the District of Columbia, the new estimates show that Puerto Rico had an estimated population of 3.4 million, a decline from 3.5 million in 2015. Estimates of the components of population change (births, deaths, and migration) were also released today.


Hint: Not necessarily where one might think.

SmartAsset.com, a financial advice site, is out today with a report pinpointing where millennials score the highest rates of home ownership. The top spot? Souix Falls, S.D.

Among the key findings of the study:

  • Wide variances – In some cities, home-ownership rates for millennials are actually quite high. For example, in Elk Grove, California, the home-ownership rate for millennials was 60% in 2015. That number can drop as low as 11% in places like Orlando, Florida or Cleveland, Ohio.
  • Northeast not so much – Only one Northeast city – Springfield, Massachusetts – cracked the top 25. The Northeast contains some of the worst cities on the list for millennial home ownership. In New Haven, Connecticut, for example, only 5% of millennials own their homes.
  • Sacramento satellite cities - Two smaller cities in the Sacramento metropolitan area, Elk Grove and Roseville, are in the top 5 places where millennials are buying homes. Perhaps attributable to the strong STEM job market in Sacramento, the area is one of the best in the country for millennial home ownership.

Here are the top-10, and why they are on the list:

1. Sioux Falls, South Dakota
The largest city in South Dakota ranks first in this year’s study of where millennials are buying homes. From 2006 to 2015, Sioux Falls saw home ownership among young adults rise from 40.4% to 45%. For millennials thinking about starting a family, Sioux Falls may be one of the best places to lay down roots. Previous SmartAsset research has shown that Sioux Falls is one of the best places for children, with a particularly impressive educational record.
2. Elk Grove, California
For a long time, Elk Grove was a small agricultural city. Since 2000, however, the population has increased by over 100,000, with many people attracted to Elk Grove’s relative affordability and proximity to jobs in Sacramento and San Francisco. The median value of a home in Elk Grove is $350,300. That’s not bad compared to San Francisco’s $941,400. Elk Grove had the highest rate of millennial home ownership in 2015 in the study at 60.8%.
3. Bakersfield, California
Bakersfield, the ninth-largest city in California, is located in the San Joaquin Valley. Under-35 homeownership in Bakersfield increased from 35.2% in 2006 to 40.3% in 2015. That’s an increase of 5.1%, the second-largest in the study. For a somewhat large city, homes here can be relatively affordable. The median home value is $237,600.
4. Roseville, California
Located about 20 miles from Sacramento, this city is a good place for millennials looking to buy a home. Roseville had the 13th-highest rate of under-35 home ownership in 2015 at 41%. This was up 4.2% from 2006, the fifth-largest increase in our study.
5. Peoria, Illinois
Peoria, Illinois takes fifth place in the ranking of where millennials are buying homes. In 2006, 26.9% of young adults in Peoria owned their homes. In 2015 that number jumped 8%, the highest increase in the study, to 34.9%. Millennials are probably attracted to the affordable homes which can be bought here. The median home value is $132,000, the second-lowest in our top 10.
6. Cary, North Carolina
Cary, North Carolina recently ranked as one of SmartAsset's best cities of 2016, due to its safety and booming economy. Those two factors may partially explain why millennials are buying homes here. Cary’s home-ownership rate among young adults fell a bit from 35.9% in 2006 to 35.5% in 2015. Despite this slight decline, Cary made our list because a 35.5% millennial home=ownership rate is still quite high.
7. Fort Wayne, Indiana
Fort Wayne maintained its high rate of young adult home ownership between 2006 and 2015. The rate dipped 0.9% from 37.7% to 36.8% over that time. Like Cary, the small decrease in millennial home ownership may sound counterintuitive until you consider the entire country. Overall 179 cities in the study saw millennial home ownership rates decrease more than 0.9% over that time period. Fort Wayne also has the most affordable homes in the top 10. The median home value is $105,900.
8. Chattanooga, Tennessee
Chattanooga is one of the few cities in which under-35 home ownership rose from 2006-2015. In 2015, 30.8% of millennials in Chattanooga owned their homes. That is the 38th-highest rate in the country and is a 1.9% increase on 2006’s figure of 28.9%. That 1.9% increase was the seventh-largest in our study.
9. Anchorage, Alaska
Anchorage millennials may be some of the most financially savvy. Despite the city having one of the highest median home values at $302,500, millennial home ownership in 2015 was up 0.5% from 2006. These new homeowners appear to have made a fairly sound investment as Anchorage house values are up 5% over the past year, according to Census Bureau data.
10. Omaha, Nebraska
Omaha is the largest city in the top 10 and like other large cities, the number of home owners is relatively low. In 2015, 29.5% of millennials in Omaha owned their own homes. That number is a jump from 28.1% of under 35s owning their homes in 2006. In fact, it’s the 10th-largest increase in the study.

The study mined Census Bureau data, looking at home-ownership rates among households where the head of the household was less than 35 years old. It gathered data on the percentage of those households who owned their homes in 2006 and in 2015 for 200 of the largest cities and then ranked the 200 cities according to the under-35 home-ownership rate in 2015 and the change in the under-35 home ownership rate between 2006 and 2015. Finally, it averaged those rankings, giving equal weighting to both factors, then assigned a score based on the final average ranking. The city with the highest ranking received a score of 100 and the city with the lowest ranking received a score of 0.

Good News – Fannie Mae Announcement Regarding Revised Sales Contracts


As we develop new products for appraisers, compliance with industry standards is always front and center. Our objective is to help improve appraisal quality and provide efficiencies to the process. Everybody wins by connecting industry needs with appraisal reporting techniques through technology, industry guidance, and practical advice. This is ACI’s contribution to the industry – and we hope you find it informative and helpful. Enjoy.


You’ve likely been there. The sales contract is changed after the effective date of the assignment and the client then asks you to reflect the revised information in your (new) report. You must then review the new contract and summarize your (new) analysis. I’ve blogged on this scenario in the past regarding whether this constitutes a new assignment or just a new report. Perhaps now this nuisance issue will largely become a thing of the past.

On December 6th Fannie Mae published announcement SEL-2016-09 which should make life a little easier for appraisers. Essentially, if the sales contract is changed regarding the sales price or seller concessions, the lender is no longer required to forward that information to the appraiser. Fannie Mae is apparently recognizing that changes to seller concessions or sales price don’t affect the opinion of value. If, however, the contract “is amended in a way that affects the description of the real property used by the appraiser, then the lender must provide the updated contract to the appraiser and the appraisal should be updated.” Note that “updated” in this context would amount to a new assignment, not just a new report. Here’s an excerpt from the announcement.

Currently, we require the lender to provide the appraiser with all amendments made to a sales contract, including amendments that are made after completion of the appraisal. With this update, we have clarified when the appraiser must be provided with updates to the sales contract and circumstances that warrant updates to the appraisal. For example, if the contract is amended in a way that affects the description of the real property used by the appraiser, then the lender must provide the updated contract to the appraiser and the appraisal should be updated. However, minor updates to the contract, such as changes to seller paid closing costs or changes to the contract price, do not require an updated appraisal. In addition, we have updated the policy to require disclosure of changes to financing information (such as loan fees and charges, and subordinate financing provided by interested parties) to the appraiser only for purchase transactions.

So, does this mean you will never again get a request to review an amended contract and issue a new report when the sales price is renegotiated? Probably not, as lenders and their agents often take time to become aware of announcements like this. But it means you will have an opportunity to educate those individuals who ask you to unnecessarily issue a new report. Simply refer them to Selling Guide Announcement SEL-2016-09 issued December 6, 2016. Reference item number 4, “Disclosure of Information to Appraisers.” We suggest you download a PDF copy now, for future use. Here’s the link: https://www.fanniemae.com/content/announcement/sel1609.pdf

Zillow Names Nashville Hottest Housing Market in 2017

Nashville, Tenn., tops the list of the hottest housing markets in the country for 2017, according to Zillow.

Zillow created the list by ranking cities based on rising home values, low unemployment rates and high income growth. Nashville came out ahead of other cities largely thanks to its growing health care sector, which pushed project income growth to 1.1% and the predicted unemployment rate down to 4%.

Beyond Nashville, many of the usual suspects from the Western part of the U.S. made the list, including Seattle, which came in second. Other Western metropolitan areas to make the top 10 include Utah's Provo, Ogden and Salt Lake City, Portland, Ore., Sacramento, Calif., and Denver.

Also on the list were Knoxville, Tenn., and Orlando, Fla.

"Zillow's 2017 list highlights that jobs and opportunities are increasingly growing in smaller markets away from the coasts," Zillow Chief Economist Svenja Gudell said in a news release.

"Midsize cities like Salt Lake City, Portland and Nashville are desirable places to live, with good employment opportunities and steady economic growth. The growth and demand for housing will drive up home prices in 2017, and these hot markets are experiencing change as more people discover them."

What's in store for housing market in 2017?



Mortgage »

What's in store for 2017?
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We got spoiled in 2016. Mortgage rates fell below 4 percent at the beginning of the year, and they spent the summer flirting with record lows. And then, just after the election, mortgage rates skyrocketed past 4 percent.

It's a good idea to keep things in perspective, though. For most of the past 50 years, homebuyers would have been delighted to get mortgage rates in the 4 percent range.

Higher mortgage rates might result in slower increases in house prices in the first quarter of 2017, but it will still remain a seller's market in most of the country.

Here's what's in store for housing in the beginning of 2017, from a look at interest rates to a set of New Year's resolutions for millennial homebuyers.

Homebuyers and mortgage refinancers had a nice run this year: The average 30-year fixed-rate mortgage was under 3.75 percent all summer. Then it shot upward after the presidential election and began December well above 4 percent.

Forecasters are split on whether mortgage rates will remain above 4 percent. The Mortgage Bankers Association and Freddie Mac predict that the 30-year fixed will stay above 4 percent in the first quarter. Fannie Mae, the National Association of Realtors (or NAR), Wells Fargo and other organizations predict that they'll be below 4 percent during the period.

Matthew Carbray, a certified financial planner for Ridgeline Financial Partners in Avon, Connecticut, says he urged clients to refinance throughout 2016 to lock in low mortgage rates. Now he's telling clients that early 2017 is a great time to buy a home -- again, because mortgage rates are still low, even if they're in the 4s.


"For those who have been contemplating a purchase, it may be as opportunistic a time as you're going to get to lock in a rate," Carbray says.

For a long time, the real estate industry waited for millennials to start buying houses in big numbers. They finally arrived. In 2016, people under 35 made up 61 percent of first-time homebuyers, according to NAR.

Lisa Ford, a Realtor and a board member of the Orlando Regional Realtor Association in Florida, has a list of New Year's resolutions for anyone (especially millennial first-timers) who want to buy in 2017.

  • Prepare and file income taxes early, because lenders want to see the latest information about borrowers' income and taxes. Doing your 2016 taxes helps you gather the documents you need.
  • If you get a tax refund, set it aside for expenses such as a down payment or mortgage closing costs.
  • Before looking at homes, find an experienced loan officer "who's familiar with the first-time homebuyer down payment assistance programs that are available."
  • In many places across the United States, it continues to be a seller's market, in which there are more potential homebuyers than sellers. In the hottest markets, such as Denver, sellers can expect to get multiple offers if they price their homes well.

    Nationally, the inventory of homes for sale was less than 4 1/2 months toward the end of the year. "The inventory has been low, although if new homebuilding continues, that will help inventories," Ford says.

    It's especially hard to find lower-price homes suitable for first-time buyers. Entry-level homes have been kept off the market because so many owners owed more on their homes than they were worth, says Rick Sharga, chief marketing officer for Ten-X, which runs Auction.com. "Disproportionately, it was that segment of the market that was hit the hardest," he says.


    Lawrence Yun, chief economist for the National Association of Realtors, says, "The good news is that the tightening labor market is beginning to push up wages and the economy has lately shown signs of greater expansion."

  • January and February tend to have the least number of home sales, as people stay indoors and recover financially from the holidays.

    A.W. Pickel III, president of the Midwest division of AmCap Mortgage Ltd., believes that rising interest rates will push buyers into the market earlier in the year. People will try to buy in winter, figuring that higher interest rates will make homes less affordable in spring.

    "I think it'll begin to pick up in earnest in February, and in March it'll be running full-bore," Pickel says.


    READ MORE: Here's why you shouldn't panic over rising mortgage rates.

    Sharga believes that rising mortgage rates will cause home prices to rise more slowly in 2017 than they did in 2015 and 2016. Slower price increases should help sales, too, he says.

  • The new Donald Trump administration might tackle the fate of mortgage giants Fannie Mae and Freddie Mac. The government-sponsored enterprises have been under conservatorship since autumn 2008. In effect, they are managed by a federal agency.

    The conservatorship of Fannie and Freddie was supposed to be temporary, but policymakers haven't figured out what to do about the companies. Congressional conservatives favor abolishing them. Wall Street and many people in the mortgage industry favor privatizing them.

    Steven Mnuchin, the nominee to be Treasury secretary under Trump, says privatizing Fannie and Freddie will be a top priority. "It makes no sense that these are owned by the government and have been controlled by the government for as long as they have," Mnuchin told Fox Business.


    Rick Roque, president of MenloFinancial, a bank consulting firm, is heartened by Mnuchin's words.

    "Privatizing Fannie and Freddie will infuse those organizations with more capital, which will enable them to purchase greater volumes of mortgages from lenders," Roque says. "So that should have the effect of lowering interest rates, or at least keep them from going higher."


Housing outlook brightens despite higher rates


Economists say to expect more people to be looking to buy homes in 2017 despite higher mortgage rates. Sean Dowling (@seandowlingtv) has more. Buzz60

The housing market is expected to pick up moderately next year on steady job and income growth and an easing supply crunch, but rising mortgage rates are likely to temper the gains, economists say.

The "X" factor is President-elect Donald Trump. Some of his proposed policies could juice home sales and starts more than anticipated while others may constrain the market.

“We think 2017 is going to be another solid year” for housing, says Ralph McLaughlin, chief economist of real estate research firm Trulia. “But homebuyers will continue to face headwinds.”

Existing home sales are projected to increase 2% to a post-recession high of about 5.5 million in 2017, says Lawrence Yun, chief economist of the National Association of Realtors. But that’s less than this year’s 3.3% gain and below the 5.75 million considered normal in light of population growth.

Among the chief stumbling blocks is the rise in mortgage rates. Since late October, the average 30-year rate has climbed from 3.47% to 4.32%, boosting the monthly payment on a $200,000 mortgage by $97. Yun estimates the rate will increase to about 4.6% by the end of 2017, adding an another $34 to that monthly mortgage check.

Rates are rising in anticipation of higher inflation under Trump’s fiscal stimulus plan and faster interest rate hikes by the Federal Reserve.

McLaughlin notes that with rents soaring in recent years, owning a home is still a far better deal than renting in most of the country. But as mortgage rates edge higher, Yun says some low- and moderate-income buyers will no longer qualify for a loan.

“People at the margins (will be) priced out,” he says. He estimates the increase in rates over the next year will mean 400,000 fewer home sales than if borrowing costs were flat.

Kendall Walker, a real estate agent at Redfin in Northern Virginia, says she hasn’t yet seen customers ditch their house hunts because of higher rates. But she adds, “We’ve had some buyers come down in price” to offset the bigger mortgage burden, reducing the size of their dream homes by as much as 30%.

Fortunately, Yun says, steady job and pay gains will result in an overall pickup in home sales in 2017. Many economists expect current average annual earnings growth of 2.5% to approach 3% by the end of next year as the low, 4.6% unemployment rate forces employers to bid up for workers.

Another positive development is the prospect of somewhat more ample supplies. There was a four-month inventory of homes nationally in November, according to the Realtors group, well below a healthy six-month stockpile. That has crimped sales and pushed up prices, which have risen 5% to 6% the past couple of years.

One reason for the meager inventory: the housing crash left many homeowners owing more on their mortgages than their homes were worth. Some have hesitated to unload their units until they realize bigger equity gains, McLaughlin says. Also, many investors snapped up cheap homes during the crisis and rented them out, leaving fewer on the market.

But as a result of rising prices, the share of homeowners who are “seriously underwater” fell to 10.8% in the third quarter from 29% in 2012, according to ATTOM Data Solutions and RealtyTrac. Higher home values also have prodded more investors to sell their units, a trend McLaughlin expects to continue.

Meanwhile, home builders are expected to respond to the tight supplies by putting up more houses. Housing starts are estimated to increase 10% from 1.18 million this year to about 1.3 million in 2017, according to a survey of 53 economists by Blue Chip economic Indicators. That’s not too far from the 1.5 million deemed normal and well above the roughly 400,000 bottom in 2010. Yun says single-family home construction will drive the gains.

As the fresh supplies hit the market, he predicts the current four-month inventory of existing homes will increase to five months by midyear, helping moderate annual home price gains from 5.5% this year to about 4% in 2017.

That would still outpace wage growth for many Millennial first-time homebuyers, a group that also will be particularly squeezed by higher mortgage rates. Yet Yun says many Millennials are likely itching to move out of their parents’ homes and settle down after postponing marriage and families for several years. He predicts the share of homes bought by first-time buyers will rise from 32% in November to 35% next year – still below a normal 40%.

Trump’s policies are a wild card. His tax cuts could put more money in buyers’ pockets and goose demand, Goldman Sachs says. And his proposal to lift some financial regulations could make it easier for some consumers to obtain mortgages, McLaughlin says.

But his proposed restrictions on immigration may curtail population growth and dampen housing demand while exacerbating a construction worker shortage that’s already constraining housing starts, Goldman and McLaughlin say.

Six Things to Remember When Valuing a Newer Home in an Older Neighborhood

How do you value a new home in an old neighborhood? Here are six things I keep at the forefront of my mind when approaching this situation and choosing comps. What else would you add? I’d love to hear your take in the comments.

  1. Premium: There is usually a premium for new construction. Just as buyers pay more for that new car smell, buyers will typically pay more for a home that has never been lived in.
  2. Fading Premium: However, the premium for new construction fades VERY quickly. This is important to keep in mind because any premium paid when the house was built a few years ago may not exist in today’s resale market.
  3. Infill Location: If the newer home is part of an infill project, it might have a bad location since the best locations were probably already built out. Moreover, infill projects tend to have tiny lots compared to larger ones found with older properties.
  4. Quality: Sometimes newer homes may not have the same quality as older homes, which reminds us new is not always more valuable. Other times though new homes are far superior to the surrounding area.
  5. Conformity: Does the property fit in with the neighborhood in terms of design and size? Or does it stand out in a bad way? The principle of conformity is a very relevant dynamic in real estate, and whether a property fits in the neighborhood or not can impact its value.
  6. Neighborhood Acceptance: Sometimes neighborhoods go through a period of change where it becomes more acceptable for older homes to be torn down and newer bigger ones rebuilt (East Sacramento). Other times it is not common or acceptable, so a new home might look like a sore thumb.

When valuing a newer home next to older ones, it’s easy to automatically assume it’s worth more. Yet we have to ask, how does the market see this new property? Is the market willing to pay more for this or not? What are buyers looking for in the neighborhood? The proof is in the data, so often times we need to dig deep for comparable sales. It might even be helpful to search through the past several years of sales to find something else that was new. What was comparable to the new property at the time of its sale? Did it sell with any premium? Or did it sell right on par with other older homes? Be careful of course when interpreting new construction comps since sometimes newly constructed homes are loaded with concessions and credits, which can inflate the price.

Differentiating Marketing Time and Exposure Time

 The lenders that we work with have made us aware of a concern that they have with the manner in which Exposure and Marketing time are being reported.  While the length of time for each may be similar in some instances, it is important to note that these terms have distinctly different meanings.  As such, they cannot be used interchangeably and need to be independently disclosed.

The additional guidance provided within the ASB, USPAP Frequently Asked Questions section provides a good explanation of these differences.  It states:

  • ·         Although the two may be the same length of time, the meanings are different. The exposure time opinion required by USPAP is specific to the subject property and represents the length of time the subject would likely have been listed for sale prior to a hypothetical sale of the subject property on the effective date of the appraisal. Marketing time, in this context, is the typical length of time the properties in that neighborhood would be expected to be on the market prior to a sales agreement.

 The 2014-2015 edition of USPAP further defines these terms as follows:

  • ·         Exposure Time: Estimated length of time that the property interest being appraised would have been offered on the market prior to the hypothetical consummation of a sale at market value on the effective date of the appraisal. Comment: Exposure time is a retrospective opinion based on an analysis of past events assuming a competitive and open market.


  • ·         Marketing Time: An opinion of the amount of time it might take to sell a real or personal property interest at the concluded market value level during the period immediately after the effective date of an appraisal.

Exposure time occurs prior to the effective date on the report and Marketing time occurs after the effective date on the report.  While these time frames can be similar when a market is stable, it is important to note that they can also be vastly different when changing market conditions are present. 

 The following examples are statements that have been included in appraisal reports and deemed unacceptable by our clie

How do appraisers account for a difference in age between comps?

 Ryan originally posted this on his blog  to help real estate agents understand the thought process appraisers go through when choosing comps in the hopes that it would help them when pricing homes.

There are so many factors to consider when valuing a property. Anyone who works in real estate knows this. So how do we account for a difference in age between comps? Does age matter? Should we make any value adjustments? Someone asked me this recently, so I figured it was worth kicking around the issue together. I’d love to hear your take in the comments below.

Question: How do appraisers account for a difference in year built? Do appraisers give an adjustment when to comps there is an age difference?

Answer: Here’s my take. Most of the time buyers tend to buy based on condition instead of age. Thus if there is a difference of a few years or so within a subdivision, it might not have any impact on value as long as the condition is similar. For instance, in some tracts we see an age range of 1977 to 1983. If one house was built in 1977 and another in 1983, and they are in the same condition, it’s unlikely to see the 1983 home command a value premium unless for some reason it has a higher quality or if it is located on a stronger street. Sometimes buyers are actually not even aware of the age of the home. They’re really just looking at the neighborhood and buying what is there. Do you agree?

My $500 Adjustment: I’ll admit when I first began appraising I used to adjust $500 per year on all comps in every appraisal because that’s what I was taught to do. In very technical terms, this valuation methodology is…. bogus. After all, a $500 adjustment per year certainly doesn’t apply to every neighborhood, every market, or every property type. These days though I rarely make any adjustment for year built since most of the time I’m looking at condition instead. However, if the age gap is too large, there may be a difference in value, and we we have to begin asking if we should even be comparing the homes in the first place. For instance, is 1977 vs. 1990 a good comparison? What about 1990 vs. 2003? Maybe not because we might be dealing with a different quality of construction, different tracts, or different markets. But at the same time, we might see homes in one area were built in 1955 and another nearby area has homes built in 1972. If there is no price difference observed between both areas, then the homes may easily be competitive despite their age gap. The thing we need to do though when valuing a 1955 home is to be sure to find 1955 sales instead of just 1972 sales (this helps prove the market really does pay the same amount for both ages).

Subjective Mush: I know this begins to sound very subjective, but there is no rule out there when an adjustment is needed other than when buyers at large have clearly paid more or less because of a feature. In reality it can be tempting to make value adjustments for every single distinction, but sometimes it’s best to not force adjustments by remembering the market isn’t so sensitive as to warrant a price reaction for every single difference. However, a good rule of thumb when searching for comps is to take an “apples to apples” approach. This means we start by searching for similar-sized homes with a similar age rather than choosing newer or older sales that really might not be competitive. I know this sounds basic, but when we keep the fundamentals in mind, it keeps us sharp (right?).

Brand New Homes: As I mentioned recently, we do need to be careful about comparing brand new homes with ones that are even a year or two old because brand new homes tend to sell at a price premium. This means despite only 1-2 years difference in age, we might see a pretty big difference in value.

What is an Arm’s Length Transaction?

 What is an arm’s length transaction? The question seems simple enough, right? Just mentioning it on an appraiser blog creates a flurry of debate over what exactly is an arm’s length transaction. While doing research for this article, it evoked a lot of emotion from my peers. Everyone has an opinion and many believe their opinion is the correct one.

The Appraisal of Real Estate, 13th Edition, published by the Appraisal Institute, states that an arm’s length transaction is “a transaction between unrelated parties under no duress”. The common definitions of market value usually set out the criteria for an arm’s length sale in detail (1).” On the page prior to this definition in this text, it reads, “Sales that are not arm’s length market transactions (in accordance with the definition of market value used in the appraisal) should be identified and rarely, if ever, used (1).”

In the new FHA/HUD Handbook the definition of arm’s length transaction is, “An Arm’s Length Transaction refers to a transaction between unrelated parties and meets the requirements of Market Value.” This is where the lines get blurred. Grandma can sell me her home at market value, under no duress, and it is not arms length but can be at market value. A property that sells for less than market value may occur because it is under duress, such as REO, but it is not between related parties. They can be mutually exclusive. They are not interchangeable terms.

Simple examples of a non-arm’s length transaction are buying a home from someone you have a relationship with (like a family member or a friend). More complex transactions typically involve builders, developers, “flip” transactions, properties being held in trusts or corporations and being sold to the trust or corporation owner. Other examples include real estate agents selling properties to themselves, etc. It is important to examine the relationship of the buyers and sellers to determine whether or not the transaction is arm’s length.

A good illustration of this involved a vacant land sale in Sedona, AZ that I discovered while researching sales for a vacant land appraisal. The sales price was $800,000 in a market of typically $200,000 properties. To add to the complexity of that sales price, the property backed to a highway and medical center, which would typically adversely impact market value, not add to it. Turns out the developer sold the lot to himself to create comparable sales.

To complicate matterssome State assessor’s offices list REO transactions as “non arms length” when they simply should be listed as REO. There are other influences on value aside from being between related parties.

This article is relatively short on a topic that can be written about at length (no pun intended). There is a lot more that can be said about arm’s length transactions but hopefully this has cleared up some of the ambiguity. I invite any constructive comments and feedback. As appraisal professionals, we all need to continue to evolve, grow and learn from one another in a positive arena.

Depreciated Cost, a Test of Reasonableness

With all of the clamor and excitement that Fannie Mae’s Collateral Underwriter (CU) is creating, we started working on a new article that addresses some possible solutions. In this one, we are expanding a bit on using the cost approach as a means to develop and support some adjustments. Each of the three traditional approaches to value can be used to develop a basis of analysis in any of the approaches. As such, the cost approach can be a reliable means to develop a gross living area adjustment, or lend additional support for it. While it does not work each time, has proven successful for us many times, and as such, we do urge studying it and putting it into your toolbox of solutions for supporting adjustments.

For more great articles by Rachel Massey, Woody Fincham, and Tim Anderson visit their site 3approaches.wordpress.com


Quantitative adjustments require some type of support. CU is not changing anything regarding this premise. Appraisers are supposed to have support within the workfile for adjustments made, and then support the adjustments with commentary within the report. This is in harmony with USPAP. Many appraisers do not address specifics on the adjustments made, let alone explain how they were developed and applied. So here is one method that can be relied on as a means to support a gross living area (GLA) adjustment. Sometimes it can be used for other items.

One aspect of Collateral Underwriter (CU) that many have been discussing concerns price/SF. In the example from the CU webinar, it is stated that if an appraiser is using $15/SF for adjustments regarding gross living area (GLA) adjustments and the comparables sales indicate $200-$300/SF, then it will be probably be flagged as a higher-risk item. So part of the advantage of using this technique will help you address this with analysis. Let us look at some improved sales now that we have an idea of what site values are for the market (Read More)


What constitutes as a complex appraisal assignment? Basically a complex property can be anything that is “atypical”; meaning that specific characteristics of the property being appraised differ from what is the norm in the neighborhood or market area of which the property is located.

Examples of what most federal financial institutions consider “atypical” factors which could make an appraisal “complex” include but are not limited to the following:

  • Use of the property when contrasted with other land uses in the neighborhood
  • Location, single family in predominantly commercial or industrial developed area, ocean or lake front, mountain, island, a condominium unit or multi-family in a rural area, etc.
  • Property rights, environmental and zoning issues, etc.
  • Architectural style, unique, dome, earth berm, special use properties, etc.
  • Size of improvements, luxury dwellings, certified Green, under improved cabins, etc.
  • Dwelling historic in age or possibly a new construction home in an area of older construction

When completing complex assignments, it is critical that one expands on each step of the appraisal process in order to complete the assignment correctly. For complex assignments it is important that well written commentary with additional addenda validates the appraiser’s conclusions and helps the reader of the report understand the subject’s complexities.

Before taking on a complex assignment, you must be aware of and understand the methods and techniques that are necessary to produce credible assignment results. Remember to always determine the scope of work necessary and develop an appraisal that is credible given its intended use.

Why 2017 will finally be the year of the smart home: Consumers figure it out


The year of the smart home  

There are tons of high-tech gadgets to make homes "smarter" today, but homeowners are not asking for them as much as you might think.

Full home automation is not high on the average house hunter's priority list. That may be about to change. The trouble so far has been the technology itself: Consumers aren't sure how to integrate it into existing home systems. Plain and simple, they don't know how to use it.

"It's been a lot of fragmentation in the industry, a lot of confusion among consumers as to which devices are the best to go with. Is there longevity here? If they install a system tomorrow, will it be around in the next year," said Blake Kozak, principal analyst at IHS Markit.

Smart Home
Hero Images | Getty Images

In 2016, 80 million smart home devices were delivered worldwide, a 64 percent increase from 2015, according to IHS Markit. That includes Nest thermostats and smoke detectors, August smart locks, Ring video doorbells. A big chunk of it was personal home assistants like Google Home, Bosch's Mykie and Amazon's Alexa. Analysts say despite the growth last year, 2017 will be the year of the smart home because the companies behind the technology will be smarter about educating their consumers.

"The consumers today are incredibly confused as to what's the value that they're getting. A consumer could be spending upwards of $1,000 if they go to the retail market and they don't understand what's the value. Are they getting energy savings? Is it simply fun and they're not going to want to use it in a couple weeks' time?" said Kozak.

Consolidation in the industry has brought smaller home-tech companies under big umbrella home-service providers. That should help consumers feel more comfortable with the new devices.

"What the large players in the market like a ComcastAT&T, and security providers like Vivint, what these companies can do is provide more marketing and provide more opportunities for consumers to use these products first hand. Get these products in front of them, because it's very difficult just watching advertisements on TV, as to what the true value is," said Kozak.

Real estate agent Theresa Taylor said her buyers in Maryland are not asking for home technology. They tend to expect it in new construction, but not in existing homes, which are the vast majority of the market. 

"They're not willing to pay a premium for it. If the house has it, that's fine, but it's nothing that's on the top of their list," said Taylor.

Most buyers, she said, know that if they want a smart doorbell or thermostat, they can simply buy it on their own relatively inexpensively. The idea of a complete smart home is beyond their grasp.

"I think it's definitely an opportunity for the electronics companies to educate them more that this could be a savings, not just simplicity and making your life easier and being able to use your phone to do everything," said Taylor. "I think if they knew the benefits about how it could save them money, it would be a more attractive feature and instead of being at the bottom of the list of what people want, it would probably move up to the middle."

To that end, CNET, a consumer technology news and review website, is launching its Smart Home Matrix at the Consumer Electronics Show this week. It is a new feature on the site designed to walk consumers through the latest smart home technology.

"We've seen smart home technology increasingly take prominence at CES with more products announced each year," said Mark Larkin, SVP and GM at CNET. "From our own testing in the CNET Smart Home, we understand one of the largest hurdles in adopting smart home technology is getting multiple devices to work together. Our Smart Home Matrix helps consumers do just that by letting them know what devices are compatible with each other."

The year ahead will likely bring more innovations, but the focus, according to analysts at IHS Markit, will be lowering prices, educating consumers and enhancing security, so that no one can hack your fridge. Voice assist will become much more commonplace, and the smart home will integrate with the smart car — so as you drive away, your home will know to turn the heat down. They predict at least 130 million smart home devices will be shipped worldwide this year.