Monday, January 22, 2007

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 (
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.


Puddinhead said...

We just got our offer letter...based on what they've listed as our pre-K value and the square footage of our Gentilly Terrace home they've apparently used a figure of $67/sq.ft. to do their calculation. That seems rather low to us, considering one 1300 sq.ft. home across the street from us sold four months before the storm for $158,000 and another (slightly below 1300 sq.ft.) was on the market at the time of the flood for $185,000. I understand that the value of the land would have to be stripped out in each case to compare to our offer letter figure...but in one of the cases you'd have to say the land was worth more than the house to get down to the same $67/sq.ft. as used for our home.

mominem said...

The value of the land is not deducted. I've heard Walter Leger say so on the radio. He touted that as one of the factors which will help make people whole.

The $67 per sq. ft. value seems very low. I have some figures from Vista Park which are more like $100 per sq. ft.

I'd also be interested in getting the LRA damage estimate from you if you're willing share it. Just email me. I'm compiling some information which I intend to use in a future post.

If you refinanced since 2000 you may be able to get a copy of the appraisal used by the lender from them and challenge their value. If the lender doesn't have it any longer the title company or the appraiser may also have it.

Puddinhead said...

I don't mind sharing, but I'm not savvy enough to find your email address...LOL. I'll be happy to fill you in once you...well, fill me in.

We haven't refinanced, so that idea's a dead end.

I'm surprised the figures for Vista Park aren't higher than $100 per sq. ft., considering the home across from us went for $122 per sq. ft., and it only has one bedroom. The other home was on the market at $142 per sq. ft., but it hadn't sold yet, and I think they were going to have trouble getting that kind of price for it. My wife did get some info from a realtor who indicated that homes in our neighborhood were selling in the $117 to $127 per sq. ft. range. I'd check into the figures for Vista Park again if I were you, because based on this it really seems as though it should be higher than you say.

If the value of the land is not deducted, then it really seems like a slap in the face...since we actually sit on four lots (100x120) on a corner...LOL.

mominem said...

My email is

mominem at mindspring dot com

You can also look under "view my complete profile" on the main page and there is a link to my email.

I apologize. I just re-added it. It used to be there. I think it got deleted when I upgraded to Blogger 2, and I didn't notice.

Michael Homan said...

Mominem, i have a question for you. We received $120,000 from the Road Home. We are suing Allstate and hope to get about $60,000 from them. But from that we will have to pay our attorney $20,000. Will we owe the Road Home $60,000 or just the $40,000 that we received? We can't afford to lose $20,000.

mominem said...

I'm not totally sure.

My understanding is that the Road Home Grant will be reduced by the net difference. In this case $60,000-$20,000=$40,000.

I think it would be fair for the State to split the attorney fees with the Home Owner, since filing a law suit is a stressful and time consuming process. The State has an interest in getting as much as possible from the insurance companies.

I'd try to get confirmation from the Road Home, in writing.

Keep in mind I am trying to understand how this is working and my research is for my information. I'm trying to share what I find out and get other people to share their experiences.

I don't really know any more than anyone else.

Puddinhead said...

Well, we've sent off our letter (requested a return receipt so we'll at least know someone accepted it) to the Road Home folks complaining about the method they've used to determine the value of our home, our $0 elevation allowance, etc. Hopefully I won't have to wait for a year or so before someone there figures out what their "official policy" is going to be.

Not a Road Home question, but is anyone familiar with the Corps of Engineers "Form 95 - Claim for Damage, Injury, or Death"? I picked one up at a meeting probably close to a year ago now, but since I knew I had until August 29, 2007 to get it back I procrastinated. Looking at it I have some questions on just what information they're asking for in some of the spots...for example, what does the Corps consider to be "accident insurance", which they ask for in one place, as opposed to "public liability and property damage insurance", which they ask for a few lines below?