Houston Real Estate Blog

FHA Appraisal Tips

The following are excerpts from HUD Mortgagee Letter 2005-ML-48 regarding repair and inspection requirements.  

FHA Repair Requirements:   Below are examples of minor property conditions that no longer require automatic repair for existing properties include, but are not limited to:  

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As many Greater Houston homeowners face the daunting task of rebuilding since the aftermath of Hurricane Ike they have found that building ordinances in their cities may require their houses to be elevated so many feet above sea level before they can obtain a building permit. This requirement is true IF the cost of repairs to their home is equal to or greater than 50% of the STRUCTURES market value prior to the storm. For instance, citizens of Nassau Bay, Texas and Taylor Lake Village, Texas are required to elevate their homes to 14' above sea level or base flood elevation, whichever is greater*.

(From my understanding, this is actually a FEMA requirement placed on all cities that are in flood prone areas. If a city refuses to adopt the ordinance then FEMA can disqualify all citizens of the city from the National Flood Insurance Program. )

The basis of the structure's market value will be taken from HCAD records but unfortunately these values are terribly inconsistent and generally inaccurate. Considering the fact that HCAD recently announced that they will be altering many homeowner's tax records to indicate a more accurate valuation of land and structure separately (See Article Here). I don't know about you, but that doesn't invite too much confidence in HCAD's original assessment in my eyes. Also take into account that many homeowners appeal their property taxes each year thus making their overall property value on tax records lower.

So what alternatives do homeowner's have in determining whether or not their repairs exceed 50% of the STRUCTURES market value? Most literature I have come across states that if you do not agree with the counties assessment then you may have a licensed real estate appraiser prepare an appraisal for the cities consideration. Unfortunately determining JUST the market value of a structure requires a very complex appraisal, one which will be very costly. When real estate appraisers determine market value of a property we almost always use what is known as the sales comparison approach. That is, we take and compare recent sales within your market area to determine a reasonable market value for you property. This approach does not make a distinction between land value and structure value since most properties sale as a whole. If there have been recent land or lot sales in your area then we can perform a standard appraisal to determine overall market value and then perform a land appraisal to determine just land value. We would subtract the land value from the overall market value to arrive at just structure value. As you can see this requires two appraisals and will naturally cost more than just a standard appraisal.

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In the aftermath of Hurricane Ike here in the Greater Houston area, I thought the topic of on-property landscaping and vegetation would be something of relevance. As an example, my home has a good size yard with three large and very old Oak Trees on it. These trees provide great natural shade and a very pleasing curb appeal. After the storm passed, I came home to find that Ike had split one of these trees down the middle and it was now in danger of falling on my house. I quickly had the tree removed but afterward was very bummed about how my yard looked with this enormous tree now missing. The following day I received a call from another homeowner who had the same situation and wanted an appraisal that would reflective the value of the property without the trees. I had to explain to this homeowner that unfortunately, unless the property were agricultural and the vegetation was income producing, that there was no way for an appraiser to value the loss (or addition) of landscaping.

And that brings us to the point of this article; in most cases trees and landscaping are not taken into consideration when performing a real estate appraisal for residential property. It's undeniable that a well landscaped yard and large beautiful trees improve the curb appeal and overall desirability of a property, but there is no way to place a dollar amount on these items. For one, as in my case, these items could die or be destroyed in the blink of an eye. And secondly, market value is developed by comparing sales from within the market area and making adjustments to the comps based on what the market is paying for these items. There is simply no way to say, "well, looks like buyers are paying $10,000 per tree over 30'."

So does your landscaping not count for anything at all when your home is being appraised? Not exactly, we take landscaping and curb appeal into consideration under overall "condition" of the property. Just don't go planting award winning Azaleas and expect to get an increase in appraised value!

I was recently sent a request to perform an appraisal on a property in the Shady Acres subdivision of Houston. At first glance, the appraisal assignment seemed easy enough, a simple purchase transaction in a well established area of the Heights. A quick search of previous sales in Shady Acres over the past 6 months confirmed that the sales price was reasonable and that everything looked kosher. However, this area of the Houston Heights abuts the White Oak Bayou waterway that runs along T.C. Jester and I knew the area along the Bayou was prone to flooding. With this is mind I decided to do a bit more research on our property. I headed over to the FEMA site to look at the flood maps for this area. Sure enough our property was directly in an "AE", or 100 year flood plain. I knew that I now must include at least 2 sales that shared this same "negative factor" or else the lender would not accept the appraisal. (It is always considered "good practice" to include sales that have similar factors, this confirms and supports your conclusion on whether the factors affect value or not.)

Here is where things started getting sticky. I performed a search on MLS for homes in Shady Acres that were inside the flood plain like our subject. Over the last seven months there wasn't ONE sale; this threw up a huge red flag for me. With my curiosity piqued I Googled a few queries and stumbled upon something called the "White Oaks Bayou Flood Control Project" and the City of Houston Ordinance 19-43. In a nutshell, the documents revealed to me that the City of Houston passed an ordinance in early 2007 that heavily limited the future use of all property along the White Oak Bayou due to the flooding. This had in turn SEVERLY affected all property values within this area. I found a story on Chron.com about how one such property went from a value of $131,000 to $9,300 in a matter of a month. You can read the article here.

This was a great, although tragic example of how outside factors can affect value. This was also a prime example of WHY real estate appraisers are needed within the industry. Although both real estate agents involved in the transaction are seasoned professionals, neither were aware of the outside circumstances. After speaking with them and explaining all the details they were both very grateful of my research on the matter. It's nice to feel like something other than the enemy from time to time =)

What does this mean for values in the White Oak Bayou area? Well, currently there are several proposed amendments for Ordinance 19-43, how long it takes for homeowners and the City of Houston to hash out all the issues is a matter for the courts.

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As real estate appraisers we rely heavily on our data sources to assist us in performing our research. On of these sources are Realtors and their entries in our local MLS systems. I find it interesting that so many MLS on HAR.com listings are missing not only key information about the home or property, but good PHOTOS! These pictures act not only as your tools for showing off the property online to potential buyers but they also assist us in grading the interior quality of the home along with any amenities that can not be seen from the road.

As a Realtor what should you definitely photograph? A photo of the street, preferably both directions is one very helpful picture to homebuyers. Understandably if your property has a negative external factor that is within site you may not want to use that photo. A photo of the rear of the home should ALWAYS be included. Most of the time we are not able to access the rear section of properties when looking at our comparables, having a photograph of this is a tremendous help. And lastly, post photographs of ANY amenities. If it was worth bringing up in your MLS description, it is worth taking a picture and displaying it. These things include interior upgrades, covered patios, pools and spas, wood decks and gazebos, storage buildings, etc.

So here's a run down of a few items that Houston Area Realtors should always photograph and place in a MLS listing:

• Subject's Street (Both directions preferably)
• Rear of the Home
• Any Amenities the Home Has

Like any industry, Realtors and appraisers in the Houston area that primarily utilize HAR.com for all their MLS data are somewhat limited to how they can view this data. Until now, Internet Explorer was the only web browser that would properly navigate the MLS system. Having an IT background, I'm not a fan of IE at ALL. It has always been a huge target for hackers, crackers and other nefarious individuals that just love to wreak havoc onto anything Microsoft.

I prefer the web browser known as Firefox; an open source program. To those of you with no clue what I'm talking about, open source means that software developers are free to disassemble the software to view the "nuts and blots" of how it works. This allows developers to create plug-ins for the browser that add numerous functions and utility to the browser itself. Firefox is also a much more stable browser and more impervious to spyware, viruses and other malware.

So how does a Realtor or Real Estate Appraiser use it? Well, by utilizing one of these handy plug-ins, or add-ons as they are properly referred to, you can view ANY "IE only" website using Firefox. Simply head to https://addons.mozilla.org/en-US/firefox/addon/1419 and download the latest version of IE Tab. Once installed, all you do is simply click the little button it places in the bottom right hand corner to switch the rendering from Firefox to Internet Explorer. IE TAB is a very handy tool for any of us in the Houston real estate market.

There are a lot of myths about flooding in Houston and Harris County. With hurricane season once again on top of us, I thought this would be a good topic to discuss.

Myth #1: If I didn't flood during any previous storms or hurricanes, chances are I won't ever flood.

Most Harris County residents are vulnerable to flood because of Houston's flat topography and impermeable soil. Not all storms deliver their rainfall in the same areas or at the same rate therefore just because you haven't flooded yet, doesn't mean it isn't a possibility.

Myth #2: My house is not in a 100-year floodplain so I do not need flood insurance.

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