Appraising During Coronavirus

First and foremost, I hope this finds everyone safe and in good health. The coronavirus pandemic has affected the whole world in a way that is unprecedented. The repercussions have carried over to the real estate market and have affected how appraisers run their business. While real estate appraisers are considered an ‘essential’ business, I made the decision a few weeks ago to suspend all interior inspections of occupied homes. This was to protect my own health as well a to protect the health of occupants. At the time I made this decision, I was as busy as I had ever been. When I looked at my past inspections on the calendar, I realized I had been in 25 different homes, including clients, friends, family members, etc., in 14 days. The health risks were too great to continue that path. Since then, I have practiced social distancing and have found other ways to continue to appraise properties.

Appraising Has Changed

On March 23, 2020 the Federal Housing Finance Agency (FHFA), the governing body that oversees Government Sponsored Enterprises (GSE’s) Fannie Mae and Freddie Mac, announced they were granting flexibility for appraisal standards. Other government agencies, such as the Federal Housing Agency (FHA), U.S. Department of Agriculture (USDA) Rural Development, and the Veterans Administration (VA) also announced separate valuation practices.

These agencies have directed that desktop and exterior-only appraisals can be completed for lending assignments. Every agency has slightly different guidelines and lenders can always require a different scope of work. In my opinion, this is the right thing to during this temporary state of national emergency.

Personally, I have created a questionnaire I email out to homeowners so they can provide details about interior materials and upgrades. If they are able, owners can also provide interior photos for use in the report, further enhancing an exterior-only appraisal. Desktop appraisals are typically reserved for purchase transactions where current MLS photos are available online and there is little question about the features and size of the home. Homeowners / clients should be rest assured every appraiser is always held to the standard there is enough data to make the appraisal reliable.

I have also used Zoom and FaceTime to conduct virtual interior inspections of properties. These are actually pretty fun and the homeowner can take me directly to any areas or features that I may have questions about.

Some appraisers are still out there inspecting the interiors of homes, but every appraiser I have spoken with is taking great precautions. They are continually asking if any occupants have a fever or are not feeling well before entering homes. While inside, most are wearing disposable shoe covers, disposable gloves, and masks. Every appraiser has always carried hand sanitizer in their car for after those ‘nasty’ houses, but now hand sanitizer is a must before and after every house.

What about the Market?

The extremely difficult part of any emergency is trying to determine its effect on the market. During the Camp Fire in Paradise, about 95% of the structures in town were destroyed. This was a huge and immediate decrease in market supply because everything had been destroyed. It also had a significant impact on market demand because so many occupants were left needing new housing. Before any homes were even listed or sold, we had a pretty good idea of what the market impacts would be.

The coronavirus pandemic will have a similar immediate effect, but at this time, the extent of its effect is unknown. Just like in Paradise, the market for homes changed before there was data to show it. The impact of closed sales won’t really be known for months, that is, until a home is listed and sold “Post COVID-19'.” It is imperative for every real estate professional to keep a keen eye on market indicators. Are buyers backing out of contracts? Are listings getting canceled or placed on hold? Are open houses getting canceled? While some of these may be temporary, all real estate professionals need to be in constant communication to discuss the current attitude of current buyers and sellers.

Employment

Back in October and November of 2018, I wrote a series of blogs on Predicting the Future (Part 1 and Part 2). One of the major conclusions was that unemployment can drastically influence the supply and demand of the housing market.

During the Great Recession in 2007-2013, when unemployment rose, the percentage of distressed sales (foreclosures and short sales) rose at the same time. When I wrote that article, the unemployment rate in Nevada County was near an all-time low of 3.4%. According to the California Employment Development Department (EDD), the unemployment rate in Nevada County was 3.9% in February 2020. Initial claims for Nevada County have not yet been released by EDD but show the number of claims statewide has dramatically increased in March 2020.

Unemployment claims have skyrocketed in the past couple of weeks and most forecasters think this is just the beginning. We won’t have the local Nevada County numbers for some time but I’ve known quite a few people who have already been furloughed or laid off.

A New York Times article from 4/3/2020 estimated the jobless rate is around 13%, higher than any point since the Great Depression. Joblessness and unemployment rates are expected to further increase over the coming weeks.

Conclusions

We are living through an era like most of us have never seen before. Ideally, this is all temporary and once stay-at-home orders are lifted, everyone goes back to work and our economy picks up right where it left off. The doomsday scenario is this is the beginning of a new depression where it may take decades for the economy to recover. In all likelihood, its probably going to be somewhere in the middle, but where in middle, we really have no idea. I’ll be keeping track of as many trends as I can and will be sure to update all of you. Stay safe.