I. Don’t Count On Large Age Adjustments by Appraisers, Unless…
We used to finance new home purchases for a large developer that offered minimal front landscaping, no rear landscaping, and minimal window treatments.
As a result, appraisers sometimes made no age adjustment for a 4-year-old home as a comp for a brand-new home – if the 4-year-old home had landscaping and window treatments.
I also financed properties for an agent who constantly flipped homes. Every home he flipped had the same cheap updating – laminate hardwood, Home Depot cabinets and fixtures, budget paint jobs, and outdated granite counters that the granite warehouse practically gave away.
We would, of course, try to get appraisers to give us maximum benefit for these “remodels” and say the “effective age” was much newer…But appraisers well-recognized our “flip-special-remodeling-packages” and were sometimes less than accommodating.
We have an attached townhome/PUD appraisal involving a 5-year-old unit and an 18-year-old unit in the same development. The appraiser made a large upward age adjustment for the 18-year-old unit, which surprised me because the units still look very similar, and many appraisers consider 5 and 18 years to be similarly seasoned unless the 18-year-old unit has noticeably outdated design aspects.
More interesting, though, is that the listing agent wants the appraiser to make a much larger age adjustment. But if the appraiser did, every underwriter and reviewer would likely demand a full appraisal review, which would probably result in an even lower value (because reviewers wouldn’t like even the existing age adjustment).
Finally, we have another comp that is 55 years old, but it was recently torn down to the studs and completely remodeled. So, its effective age is the same as our 5-year-old comp.
My broader point is that appraisers are often reluctant to make large adjustments for age alone, unless there has been no updating at all and the design and appeal aspects of the older home are conspicuously outdated, e.g. a Brady Bunch home with avocado green counters and appliances, a sunken fire pit, wrought iron railings, and other groovy accouterments.
Many factors can affect a home’s “effective age.”
II. Condo/Attached PUD Appraisal Reminders
Reminder #1: Appraisers will correlate to properties within the same complex over all other comps. Agents will sometimes want us to correlate to units outside the complex if the updates or amenities are similar, ignoring the lower-value units within the complex. But – if appraisers do so, underwriters and reviewers will not approve.
Reminder #2: Appraisers must use at least one comp within the development – even if it is very dated or very different with respect to size or updating. This is often an issue for us with smaller complexes.
Reminder #3: Measurements often do not match county records. Appraisers measure attached units from inside the property (unlike houses, where they measure from the outside). As a result, the square footage estimates differ from county records or builder estimates. This is especially true for multi-story units with stair landings, which can confuse everyone when it comes to measurements (stair landing space should be counted for only one floor, not both).
III. Personal Consumption Expenditure (PCE) Inflation Is Cool?
If your financial planner charges you 1% of your portfolio to manage it, and it grows from $1 million to $2 million – is that inflation when your charge goes from $10,000 to $20,000?
I’d say no… but PCE data says “yes.”
This is why Barry Habib pointed out that PCE is actually cooler than the market thinks, as “portfolio management fees” drove much of the PCE increase that pushed rates up today.
Further, Jeff Snider insists that higher oil prices are DEFLATIONARY, as they prevent consumers from spending money elsewhere.
My point: This is somewhat encouraging, as it implies inflation may not be as out of control as many analysts believe – which hopefully means rates will remain in control too.
