Road Home Math - Appraisal Adjustment

One of the three inputs required for the Road Home one is the pre-storm value. There are four approved methods of checking and establishing the value;

1. The Road Home estimates a value using commercial home sales databases.
2. Broker Price Opinion, essentially a letter from a real estate broker establishing a value
3. A post-storm appraisal establishing the pre-storm value
4. A pre-storm arms length appraisal.

In theory the most accurate should be the pre-storm appraisal, because it represents a professional appraisal done by a disinterested appraiser. If your home was purchased since January 1, 2000 or you refinanced you home since that date an appraisal would almost certainly have been done. If you don't have a copy of the appraisal you may be able to get a copy from the Mortgage Company (Lender), the Title Company or the appraiser. If the Mortgage Company or the Title Company don't have copies, they may be able to tell you who the appraiser was and how to contact them. Appraiser are licensed by the state so the Louisiana Real Estate Appraisers Board may be able to give you the contact information if you have a name.


The Road Home describes how to adjust pre-storm appraisals for inflation;

To determine the pre-storm value, homeowners may provide an “arm’s length” appraisal (i.e., an appraisal ordered by a lender in conjunction with a loan, not an appraisal ordered by the homeowner) that was completed from January 1, 2000, up to the day before one of the hurricanes affected the homeowner (August 28, 2005, or September 23, 2005). These appraisals will be adjusted to reflect the market rate as of the second quarter of 2005, using figures released by Office of Federal Housing Enterprise Oversight (www.ofheo.gov).

Note that the Road Home refers to the Office of Federal Housing Enterprise Oversight Home Price Index (HPI). I have copied the relevant section as of today below. The index is recalculated quarterly so the index will change as time goes by but the relative differences should not

New Orleans-Metairie-Kenner, LA	1999	4	126.11	(0.65)
New Orleans-Metairie-Kenner, LA	2000	1	128.42	(0.65)
New Orleans-Metairie-Kenner, LA	2000	2	128.94	(0.62)
New Orleans-Metairie-Kenner, LA	2000	3	130.76	(0.62)
New Orleans-Metairie-Kenner, LA	2000	4	132.07	(0.63)
New Orleans-Metairie-Kenner, LA	2001	1	136.02	(0.61)
New Orleans-Metairie-Kenner, LA	2001	2	137.87	(0.60)
New Orleans-Metairie-Kenner, LA	2001	3	138.93	(0.61)
New Orleans-Metairie-Kenner, LA	2001	4	140.6	(0.60)
New Orleans-Metairie-Kenner, LA	2002	1	141.2	(0.62)
New Orleans-Metairie-Kenner, LA	2002	2	143.06	(0.63)
New Orleans-Metairie-Kenner, LA	2002	3	145.64	(0.63)
New Orleans-Metairie-Kenner, LA	2002	4	147.88	(0.63)
New Orleans-Metairie-Kenner, LA	2003	1	149.74	(0.64)
New Orleans-Metairie-Kenner, LA	2003	2	151.63	(0.64)
New Orleans-Metairie-Kenner, LA	2003	3	153.42	(0.66)
New Orleans-Metairie-Kenner, LA	2003	4	157.58	(0.74)
New Orleans-Metairie-Kenner, LA	2004	1	159.36	(0.74)
New Orleans-Metairie-Kenner, LA	2004	2	162.86	(0.75)
New Orleans-Metairie-Kenner, LA	2004	3	167.01	(0.81)
New Orleans-Metairie-Kenner, LA	2004	4	170.86	(0.84)
New Orleans-Metairie-Kenner, LA	2005	1	172.56	(0.88)
New Orleans-Metairie-Kenner, LA	2005	2	176.18	(0.86)
New Orleans-Metairie-Kenner, LA	2005	3	180.54	(0.97)

This index is for the entire New Orleans Metropolitan Statistical Area. This means it is an average index for the entire area including Jefferson and St. Tammany Parishes. Since house prices and price changes vary widely across the area this index is a relatively crude measure. In some cases (depressed neighborhoods) it may overstate the value and in rapidly appreciating areas it my understate the value.

I'm not sure how the Road Home is actually applying these values but if they are using the literal method above they are understating the value by using the end of the Second Quarter rather than by interpolating the value the additional two months until Katrina. Note that the 1index was 176.18 at the end of the Second Quarter, two months before Katrina it was 180.54 at the end of the Third Quarter one month after Katrina. If you interpolate between the two figures that represents an increase in value of 1.65%, . That would be an addition $1,650 per $100,000 in value. This is equivalent to a calculated index of 179.09. A similar calculation should be done on the front end to allow for appraisal dates falling between the quarters.

The value of the adjustment is calculated simply by dividing the Original Index by the Ending Index. The Original Index is the PHI on the date of the appraisal. The Ending Index on the date of the storm (179.09 above).

I have done some sample calculations to show the effect.

Appraisal	$150,000
06/30/03	151.63
08/31/05	179.09
Adjustment	1.18
Prue-K Value	$177,165
Increase	$27,164.81

That is a significant amount of money.

A second example going back to 2003 yields even higher values;

	Appraisal	$235,000
	06/30/02	143.06	PHI
	08/31/05	179.09	PHI
	Adjustment	1.25
	Value	$294,185
	Increase	$59,185.31

As I gather more information and come to additional conclusions I'll post it. I'd appreciate anyone who can provide additional information with specific numbers.

Please note that this calculation is a guide only. I have no information from the Road Home. This information is provided as a guide only, use it at you own risk. If anyone sees any problem with the methodology I've used please let me know.