Specialized Buyers Agent Answers Real Estate Questions
Rather than answer questions, in this column I address two problems that are becoming major sticking points in residential transactions in our area. Please know I love your questions, so don’t stop sending them in!
The first is the appraisal problem. Every agent reading this knows exactly what I am addressing. Since the “mortgage crisis”, we have all suffered because of the bad behavior of a few lenders and borrowers. Reminds me of those teachers who used to keep the whole class in from recess when one kid acted up.
What has occurred is that any of the Fannie Mae & Freddie Mac lenders (most are) are not permitted to hire appraisers with whom they have had a long standing relationship. This is because some lenders and appraisers were in cahoots and jacked up values to the detriment of lenders. So instead of punishing the bad behavior we now have lenders required to hire “independent” appraisers from a “blind rotating” list who may not even know the neighborhood. You can get some ridiculous results—one value I saw was about $100,000 under what anyone who lived in the neighborhood would know was the going price for homes there.
The appraisal procedure correction unfortunately has coincided with a downturn in the market. So as the market tried to recover, appraisals can hold it back.
The good news is that local, non-Freddie Mac lenders can pull from a list of vetted, long term-relationship appraisers. They cannot, however, contact that appraiser to try to persuade them to come up with a certain number, which is a good thing and does address some of the issues we were seeing.
The second thing the lenders are doing is having their underwriting department review and critique the appraisals. Many of these employees would be considered clerical workers—certainly not professional real estate appraisers. In the past, this did not occur, as the appraisers were considered the experts whose opinions were given weight. It is common for these underwriters to ask questions like: “Why aren’t you relying on the 2 lowest sales in the area rather than the 2 highest?” Or “Even though the last sale in that area was 7 months ago and is a direct comparable, we need to use a more recent sale—just go to the next neighborhood over and use the sale from last month” (which might have been a foreclosure). This can have disastrous results.
The third thing that drives me crazy is the lender who is not even in the game for 80%–maybe only lending 60%, and they still insist that the house appraise for 100% of price. The buyer knows there is good value and is putting down enough cushion but the lender refuses to loan. Makes no economic sense. The house shouldn’t have to appraise at 100%. The loan amount is all that needs to be based on the appraised value. But the one with the money often wins the argument.
The second issue that is stopping folks from buying homes, perhaps unnecessarily, is the fear about stucco. I think every 10 years this industry has another scare that affects how we handle the transactions. In the 70’s it was lead paint. In the 80’s it was radon. In the 90’s it was mold. And now it is stucco. I have noticed recently that most home inspectors will call for a stucco expert to come in if they suspect either of 2 things:
Synthetic stucco–also called EIFS (“Exterior Insulation and Finish System). The most famous brand name for this system is Dryvit.
Poor window flashing installation, even with traditional, concrete stucco exteriors.
EIFS homes can create ideal conditions for moisture that can cause the wood inside to rot because EIFS does not “breathe”. In addition, most model building codes incorrectly require vapor barriers in all construction scenarios, even EIFS, which should not have such a barrier. In 1995, a number of EIFS clad homes in North Carolina developed serious moisture damage behind the cladding. Class action lawsuits were filed and the main class action was settled by manufacturers. These lawsuits have made the home buyers, agents, inspectors and insurers overly sensitive to this risk and sometimes overprotective towards home buyers. I try to err on the side of caution but not to the point of stupidity.
Here is what I believe to be true:
There is not a lot synthetic stucco used in residential construction in this area—it was mostly used in the south. Traditional stucco, on the other hand, is a common wall finish that has been popular for more than a century in our area, because it performs well in all types of climates, is durable, has a versatile appearance, resists fire, and is economical.
One way (but not the only way) to determine the type of stucco is by looking at whether the stucco was applied over metal lathe (traditional) or insulation board (EIFS). However, there are some traditional stucco installations that can look like a synthetic arrangement.
Poor flashing installation can result in water penetration for both EIFS and traditional concrete stucco.
Any one of the above can cause an inspector call for another expert opinion. If it is clear that non-synthetic stucco was used, it is difficult to say whether that is really required. Good stucco experts are hard to find and are charging $1500 and up to check out a house. The inspection usually involves penetration into the walls, something a seller is not always willing to permit. My experience is that a good home inspector can usually tell a buyer if water penetration has occurred due to bad flashings, for example, or has caused wood rot or mold, although he may have to remove some interior wall sections.
Although the current version of the standard Seller Disclosure form used in most transactions requires disclosure of EIFS systems, many homeowners do not know what this is or if their home has it. They cannot disclose what they don’t know. This makes it imperative that the buyer take the steps to be sure.
The problem of poorly-installed or inadequate window flashing is a related one. This can cause moisture to enter the house even behind traditional stucco and has caused a number of claims against builders, some in our area. That in turn has caused buyers to avoid these builders’ homes or any home where an inspector questions the window flashing. I have seen homes built by the same builder where the flashing was done right on one and wrong on another. One option could be to test the interior of the home for any mold spores, which can be cheaper than having a stucco inspector come in to test bore the various areas for moisture. Of course, that would not disclose non-moldy wet wood behind walls.
It is unfortunate that a few problems have made buyers and inspectors wary in all circumstances. Careful analysis of each set of facts relating to stucco is the best approach, in my opinion.