What Can a Homeowner do to Ensure a Better Appraisal?

September 16, 2011 at 6:11 am | Posted in Uncategorized | 4 Comments
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For the last few years, a divider really has been put in place that supposedly improves transparency in the appraisal process. And while it may have some supposed benefits that help to eliminate fraud and inflated values, it really has screwed things up for the consumer. Now don’t get me wrong, a home is worth what it’s worth and “better comps” are typically not “more appropriate” comps. So when the borrower truly doesn’t know his house’s worth and he relies on one of the popular real estate websites that magically estimates the value sight unseen, then a certain dollar amount is planted in that borrower’s head. Well, when they start the loan process and pay $400, or $450, or $500 for an appraisal that used to only cost $350, now they’ve gone down a road that resembles a casino in Vegas.

Why is it a gamble? Because you really never know what kind of appraisal you are going to get. First of all, most lenders utilize Appraisal Management Companies (I shudder at the idea of capitalizing that), which means a middleman who serves as the barrier between the lender and the appraiser. That appraisal fee is then paid to that AMC who then looks for the cheapest and fastest appraiser they can find. And I’m not kidding when I say that some of these AMCs would offer as little as $120 to an appraiser to do the job. So let’s estimate low on the consumer fee of $400, subtract $120 and that leaves the AMC with $280 for essentially being the barrier. Now I’m not saying that these AMCs shouldn’t make money; they do have staff and overhead and sales people. But the actual appraiser doing the work gets 30 percent of the total fee? Does that seem fair?

Well an HVAC company may charge like $60 per hour to work on your air conditioner and the technician may only get $20 per hour. So that’s a good parallel right? Actually, no, because if your AC causes a fire and burns your house down, you don’t sue the technician- you sue the company. The appraisal is still signed by the appraiser who has his state issued license and his mandatory errors and omission insurance. If you have an issue with your appraisal, the AMC doesn’t care about it at all.

Now I’m not complaining about this process except in spirit- you see the “good” appraisers don’t play this silly game. They won’t drive from one corner of a metropolitan area to the other corner simply to get some work. These good appraisers have a little more pride. They have branched out into non-lender appraisals like bankruptcies, divorce or estate settlement. They only work with small lenders who are exempt from the AMC process and thus can still get full fees. They only work with the reputable AMCs (yes there actually are reputable ones) who value the work of an appraiser. These AMCs collect $400 from the client and pay $325 to the appraiser.

But what about the (let’s not say “bad” because they’re not necessarily bad) inexperienced, desperate, low self-esteem appraisers who will do this work for less than full fee? Well, in many cases, these are the appraisers who come to appraise YOUR house… yes it’s true- not always, but often.

So if you’re buying a home, the appraiser will get a copy of the contract and will find the listing in MLS (if it’s available) At least that way he will have an idea of what value is “needed”. Now before you jump on me about hitting a value, let me explain… if your house is in a newer tract neighborhood where every other house is the same floor plan and there are lots of sales and there are no foreclosures or short sales and the economy is stable, etc. etc. then there’s an efficient market. But it’s not like that. Today you may have several sales that sell on the exact same day- a short sale that is immaculate and sells for $200,000, a bank owned plain Jane model that sells for $205,000, an investor flip that sells for $225,000 another short sale that sells for $180,000 and a fixer bank owned that also sells for $205,000. So how much is YOUR house worth? The point of knowing the contract price is to at least have a number to check your work against.

There have been PLENTY of times when I came in lower than the purchase price and guess what- a few days later, I get a revised contract with the purchase price now matching my appraised value. On the other hand I’ve also come in low and had angry Realtors, AMC underwriters and $10 per hour AMC processors getting all up in my Shiite for killing their deal- and this is AFTER HVCC which was built to eliminate pressure. Again, knowing the contract price is a good check for your work.

But with a refinance, it’s completely different. You don’t see an estimated value or loan amount- it’s just an appraisal request- it’s actually a little daunting at times because the appraiser is actually being asked to do his job without guidance. What a strange concept- I don’t mean hand holding, but actual free reign to appraise a home for what it’s worth. It’s sort of refreshing. However, I just had one last week- a refinance where the owner lived in another state so they were having their rental property appraised for refinance. The last loan amount was $250,000 and the house is now worth $180,000. Do I think that they will get their refinance? It’s none of my concern… I’m helping the bank make a decision by providing them with data. If they shouldn’t do the loan, then they shouldn’t do the loan. But then again, I do wonder what might go through that borrower’s head. How much did they pay (in this case, they paid $350 and I got $350), what gave them the idea that their home was worth more?

But refinances are such a rare bird nowadays and they make up a very small portion of my volume- I’d say less than 3 percent in 2011. So this is where I come to giving some advice to people looking to refinance.

First of all, I gave you the background on the appraisal ordering process to prove a point- you have no control over who appraises your house. However there are some precautions you can take.

  1. Check your home value on one of the popular websites. You can actually put in your address and they will give you a value based on their own proprietary system- whether or not it’s accurate, it’s a start.
  2. Get some perspective of your own house.  EVERYONE thinks their house is the nicest one around.  After all, they did pay for the lot premium and upgraded carpet padding, and upgraded vinyl flooring and they’ve got 2 extra feet in their garage and they have a soft water loop… WAKE UP!!!  You’ve been sold on BS!  You bought your house from a SALESperson.  So if you come down from you attitude that your house is awesome:
    1. Look at the sales in your neighborhood.  See what features they have.  If there is a rare open house, take a look- and then track if and when it sells and for how much.
    2. Make friends with your neighbors- only for the sake of getting into their house so you can compare it to yours.
    3. Find the close by neighborhoods that have homes similar to yours and see what they look like.  Are the common areas nicer?  Are the lots bigger?  Is the builder better?
  3. Are you ready for my pitch?  Are you ready for my angle and reason for writing this blog entry in the first place?  Here it is… Get some real data that an appraiser would use to appraise your house.

So how do you get real data that an appraiser would use to appraise your house?  Simple.  Call a local appraiser.  That’s right, go to Google or Bing and do a search for “your city appraiser” and you just might find a good appraiser.  Try it now.  Click this link and you’ll see what I’m talking about (and no it doesn’t go to porn!)  And when you get there, click on Advantage Appraisals- which of course is my company.  The point is that when you find that local appraiser in Cicero, Illinois or Hollywood, Florida or wherever you are, give him a call.  And be honest with him.  Let them know that you plan on refinancing and you want to know if you should proceed.  Here’s the possible outcomes:

  1. no answer (most common)- he’s out of business, which is an unfortunate reality of what HVCC did to my fellow appraisers across the country
  2. reply of “I can’t do that”- he’s clueless and is one of those $120 appraisers
  3. reply of “That’s illegal”- he thinks he knows what he’s talking about but he doesn’t.  Remember, you’re asking for data, not analysis
  4. reply of “I’d love to help you, but you’ve got to realize that regardless of what I provide for you, when you do get the actual appraisal, you might get some schmo who doesn’t know your neighborhood, drove 100 miles to get to your house and is only getting $120 to do all that work because he’s a loser appraiser”  That’s probably a good appraiser 😉 because that’s the exact conversation I had today.

The homeowner told me his situation and I told him “I will pull comparable sales based on what public records shows for your home.  Assuming that I am appraising your house today, I will pull comparable sales that a reasonable appraiser should find given your characteristics and typical lender guidelines for appraisal requirements (recent sales, similar style, similar age, actives, pendings, etc.  How the actual  appraiser (because it sure heck won’t be me) analyzes that information is up to him.  If you don’t get your appraisal for another 90 days then this information will be essentially worthless.  I won’t provide you with a report- just sales and listings.  But with that data, you can make a more informed decision on if you should proceed with your refinance.  Total cost- $55.”  To which he replied “Sounds like an easy decision and you should market this service to others”  After the call, the process was complete in an hour and the guy was ecstatic.  Guess what, I technically did an appraisal.  I created a workfile and I will keep it for the requisite number of years.

But here’s the next point of advice. The homeowner asked me if when the appraiser calls to set up the inspection appointment whether he should tell him that he has comparable sales for him.  My reply was “Heck no!  We appraisers are a proud bunch and if you happen to get a good appraiser and pull that line, you’ve immediately touched a nerve.  The “I know how to do your job” Realtor, borrower or loan officer is considered a douchebag to an appraiser.  As unprofessional as it may sound, and perhaps a generalization that is exaggerated, you don’t want to run the risk of offending an appraiser.  I told him that the best course of action is this.  When the appraiser calls to make the appointment, find out where he’s coming from- that’s it.  If he’s within 30 miles you should be ok.  But if he’s over 30 miles away, that’s a huge red flag.  You might want to google his name and look him up on the state licensing website to see if his license is in good standing.  Again, this applies to our world of cheap and fast appraisals.  If you’ve got a bad feeling, call your lender and tell him that the appraiser gave off bad vibes and you want another who is closer, or Certified, or designated or whatever it takes to put your mind at ease.  But you must do this before the appraiser actually comes to your house.  Once the inspection is done, if you get that vibe, you will probably have to pay extra for a second inspection.  I personally will drive over 30 miles for a full fee good client.  And if I don’t know the area well enough, I will get to know it (as I am legally required to do) before I appraise that home on the opposite side of Maricopa county.  Secondly, when he gets there, be cool.  Make small talk, and then you can present the data that you received from your local appraiser for only $50.  Stroke him first with “I don’t know how to do your job, but I’ve got some sales that you probably already have.  Just figured I could save you some paper by printing it out for you.  Some appraisers might refuse it, but again, the “good” appraisers will at least courteously thank you and  take the information.  Sure you might find it strewn across the community park later that afternoon, but the “good” appraiser will at the very least compare it to the data he already has.  Chances are he has the exact same sales, but he just might realize that you provided him with one or two good ones that he missed because the Realtor input it wrong in MLS.

Besides that, it really is a gamble.  But I’d sure as heck like to play a game with better odds- like Baccarat or Blackjack, than slot machines or Roulette.  Unfortunately, we live in a world with a lot of one-armed bandits- so watch out!

Visit our website at http://www.advantageappraisalsllc.com, and if that doesn’t roll off the tongue, just try http://www.appraiserdude.com. Or now you can follow us on Twitter at @appraiserdude AND we just added a Facebook page for you to “like” at http://www.facebook.com/appraiserdude. Give me a call at 480-544-1217 if you have any questions. I look forward to working with you.

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What’s the Typical Appraisal Workload Nowadays?

October 1, 2009 at 5:27 pm | Posted in Uncategorized | Leave a comment
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As times change, lines of appraisal work shift.  Back in 2003-2004, my work was about 47% rate and term refinances, 47% purchases, 6% “other” which included review work, estate settlement, bankruptcy, divorce, and hard money (like the guy who needed to refinance so that he could raise enough money to post bail for his son)

When I moved to Phoenix in 2005, the chunk of purchases jumped up to about 60% and then starting around 3rd quarter of 2007, that ratio shifted to a lot fewer purchases and actually volume so low that I can now admit was too small to gague statistics.

But today, I can actually measure my work volume and it has shifted significantly.  I went back 90 days to itemize the work I’ve done and here’s the approximate rundown:

 

My Trailing 90 Days Volume Breakdown

What, were you expecting actual numbers? 

Anyway, keep in mind that of the refinances, a lot (I assume) ended up below what they “needed” to make their deal work, but at least now I don’t feel the lender pressure to hit some sort of value with the unspoken threat of losing future work.  How do I know this?  Let’s just say that if they bought the home in 2006 for $350k with a $320k first mortgage and now the home is worth $160k, I surmise that they didn’t pay down their mortgage by over $160k over those 3 years.

As you can see, I now do a lot of Review appraisals.  Back in the day, these would be reviews of recently completed appraisals.  I rarely get those now.  What these reviews are is typically foreclosed homes that were appraised in the 2005-2007 era back when values were very high.  Someone wants to know if that appraisal was inflated.  And for the sake of privacy, I’ll just leave it at that.  And of those that I review, I’d say 95% of them WERE inflated.  At first I was a little confused on the purpose of these assignments because I would assume that some of these Appraisers are now out of business with little or no possible recourse.  But in actuality, these are not for the purpose of hunting down bad Appraisers, but instead to determine the big picture of the original transaction.  These assignments are pretty low stress in that I never enter the home being appraised, but it’s pretty glum work as that’s a lot of assignments where I never step out of the car.  And as an aside, I often see the original appraisal from say 2006, which shows a beautiful home, and when I see it (from the street and perhaps a newer listing now that it’s foreclosed), it’s a completely thrashed home- complete with holes everywhere, nasty carpets, overgrown yards and green pools.

REO work is Real Estate Owned assignments.  These are an example of how appraisal volume has increased over recent years.  These assignments are essentially pre-listing reports requested by the bank that now owns a foreclosed home.  Take for example the bank based in South Dakota that now owns a foreclosed home in Arizona.  They don’t know the market out here.  They KNOW that these free online home valuation sites are a complete waste and completely unreliable.  So among other things, they order what is known as an REO appraisal.  Basically, they want to know the appraised value based on closed sales, but they are very interested in what it would take to make the property truly competitive with other homes for sale, so a very detailed list of things wrong with the home is required.  Also, the other available listings are paid very close attention to.  Basically, the bank wants to get rid of these non-performing assets so they want to know what it will take to get these homes sold in a relatively fast time.

Estate work is on the rise.   People are always dying and the estate needs assets valued.  But when you add in a bad economy, you unfortunately get a lot of personal issues that require appraisals.  Bankruptcy and divorce are prime reasons why homes are appraised, so that the parties know how to proceed.  It’s sad but reality.

So, let me paint an image of the volume of appraisal work that I’m seeing or that can affect a single property over a relatively short period.

  1. Family buys a home in early 2006- conventional appraisal
  2. Family refinances their home in late 2006 to take out money for improvements- FHA appraisal
  3. Family decides to sell home in 2008- listing appraisal (not required but often done)
  4. Family can’t sell home by late 2008 and lowers price to point to breakeven point, spouse loses job, couple decides to divorce- estate appraisal
  5. Owner negotiates with bank for a short sale- bank gets an offer below asking price in early 2009 and questions if it’s a good offer- REO appraisal
  6. Short offer falls through, home is foreclosed in March 2009, bank wants to relist it- REO appraisal
  7. Third party questions original refinance appraisal August 2009- Retrospective review appraisal
  8. New buyer comes in and buys home September 2009- FHA appraisal

That’s right, we’re talking 8 separate appraisals on the same home within a very short period, all for different reasons or for different parties.  That’s a lot of potential work for Appraisers nowadays.

Now don’t get me wrong, I don’t want anyone to get the idea that I’ve got more work than I can handle- after all, I just spent the past few hours writing this blog!  More on the socialization of the appraisal industry some other time.  Don’t even get me started on the 20 year veteran getting the same pay/volume as the newbie.  (I’m somewhere in between- just a squirrel trying to get a nut)

Visit our website at www.advantageappraisalsllc.com, and if that doesn’t roll off the tongue, just try www.appraiserdude.com. Or now you can follow us on Twitter at @appraiserdude.  Give me a call at 480-544-1217 if you have any questions. I look forward to working with you.

My Analysis on the HVCC

July 16, 2009 at 12:08 am | Posted in Uncategorized | 2 Comments
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Here’s the layman’s synopsis of the dreaded Home Valuation Code of Conduct and why it’s important to you- regardless of who you are.  I recently gave this presentation to a group of other local professionals, and now I’ve attempted to put it in some sort of written form.  Now that I’ve read it back, it’s downright boring!  But it is important and worth a few minutes of your time.

BACKGROUND

In the late 1980’s there was the great Savings and Loan collapse.  “Bad lending practices” is the 2 second synopsis.  And the US Goverment (taxpayers) bailed them out to the tune of $125 billionish.  In the wake of this, among other things, Appraisers were officially required to be licensed, follow universally accepted standard, etc.  In other words, rules and regulations were established.  Those rules included minimum education hours, minimum experience hours, testing standards, licensing procedures, background checks, etc.  Today, that means 2500 hours of experience, 120 hours of initial education, FBI check, nationally established test, a 4 year college degree, errors and omissions insurance, etc.

And every two years, Appraisers are required to repeat one specific class known as USPAP, which basically covers the methodology of appraising- including ETHICS.

Why so much to be an Appraiser?   Well after all, Appraisers are signing a legal document saying what the estimated value of a property is.  And that document is then used by decisionmakers on whether a loan should be given for a particular property.  Basically, the Appraiser is giving the diagnosis on a piece of property, and the bank then decides the course of action.

Every state has an Appraisal Board which consists of a group of professionals who enforce appraisal standards and licensing.  And when someone complains about an Appraiser for competence, ethics, or any other legitimate reason, that board investigates complaints against Appraisers.   The board reprimands Appraisers up to and including revocation of licenses and even pursuit of criminal charges to be carried out by the Attorney General or whomever else would pursue the matter (I’m not a lawyer).

All these things have been mandated or expanded since 1989 by what is known as FIRREA- you can google that on your own if you’d like.

Recent Housing Situation

So as we’ve all seen, over the past several years, the market has seen a significant decline, and by significant, I mean huge.  But rather than accept the fact that it’s normal for markets rise and fall, the tendency is to try and place blame. 

So whose fault was this big mess? 

  • Was it the homeowners- who saw prices going sky high and did whatever they could to buy a house, or two, or ten.  Or maybe they irresponsibly overleveraged themselves to get these homes.  Or maybe they even lied in order to get these loans.
  • Was it the Realtors, who took their clients to homes that were above their price range and “sold” them into going through with a purchase that they really didn’t feel comfortable with.
  • Was it the Appraiser’s fault for falsely estimating values because they were scared that they’d lose clients if they “killed” deals?  Or perhaps they were working in cahoots with lender in some sort of “straw buyer” scheme.
  • Was it the mortgage broker’s fault for putting borrowers in risky loans- or fudged the financials of the borrower to make them fit into a loan? 
  • Was it the lender’s fault for creating these risky loans in the first place- like stated income, no income no job, or negative amortization loans? 
  • Maybe it the politicians- who passed legislation and threatened to sue lenders if they didn’t provide more loans to unqualified borrowers simply for the sake of giving more minorities the chance to own a home.

The answer- it was everyone’s fault and more.

But now that the mess is made, sure we see the news stories of heartache and trashed homes and bankruptcy and divorce.  But the people who we hear and see most now are the politicians who represent us and are able to promote legislation (or mandate it).  But let’s just say that I am cynical and although I believe that many politicians have noble intensions, oftentimes they are only posturing in order to let the masses think that they are doing their job.  The politicians have to look like they care right?

So here’s the deal.  A few years ago, Washington Mutual got in trouble for putting pressure on Appraisers to get deals done.  Turns out that WAMU owned their very own appraisal company subsidiary.  So if you got a loan through WAMU, your appraisal was essentially done by an employee of WAMU.  So ultimately their staff Appraisers were caught inflating values to make deals work- even if they weren’t wise decisions for the bank.  People complained and it was uncovered that the “objective” Appraisers were anything but- and that they were pressured into inflating values.  WAMU is now in the process of being bought by Chase so we know how that worked out for WAMU. 

So about this time, the attorney general of New York- a single person named Anthony Cuomo took it upon himself to dictate that mortgage companies are not allowed to directly contact the Appraiser, but instead use a “neutral” Appraisal Management Company (AMC) who then selects Appraisers at random.  You can read the actual code here if you’d like.  Appraiser independence, no pressure.  Yay!… But does it really provide Appraiser independence and does it really eliminate lender pressure? 

Once the code was announced, these AMCs appeared out of nowhere in droves.  Everyone wanted a piece of the action.  I mean where else can you start a business that mortgage companies have to use?  And did I mention that these AMCs are unregulated?  Did I mention that these AMC’s are unregulated? (yes I meant to repeat myself).  So starting May 1st of 2009, it is now required that for any transaction backed by Fannie Mae or Freddie Mac, safeguards must be in place to eliminate any whiff of guidance by the loan officer on the Appraiser.

So… how do these AMC’s make money?  Well, it used to be that the borrower would pay the Appraiser- around $350 for a typical home appraisal.  Good lenders would insist that borrowers pay the Appraiser directly- that way, even if the deal fell through, the Appraiser got paid for services rendered.  So if the Appraiser gets $350, then  how does the AMC make money?  Two choices- charge more for the appraisal so the Appraiser can still get paid the same amount, or find an Appraiser who will do the work for less than $350.  Oh wait, three choices- charge more for the appraisal AND find an Appraiser who will do the work for less than $350.  So it’s now common for borrowers to get charged $500 for an appraisal and the Appraiser gets paid $250, $200, or even less- depending on how much the AMC is willing to pay and how desperate the Appraiser is.  And since lenders must now use AMC’s, Appraiser must now work with AMC’s.  So in a given market- say Phoenix, a single AMC might have 30 Appraisers to choose from to do an assignment.  And one AMC in particular will simply email an opportunity to all local Appraisers and the one who quotes the best combination of cheap and fast, gets the work.  Or the “better” AMCs will broadcast an assignment and the first one to reply will get the work.  Sounds sort of like a feeding frenzy eh?

Now before you start saying that Appraiser’s are sharks, please remember the sharks aren’t filming the video, and the sharks aren’t providing the fish.  These sharks are hanging around waiting for food because they are starving to death.  Meanwhile the smart shark has been out on his own, doing his own fishing- but now he’s not allowed to do so and he has to join in with the others or starve to death.  Sounds a bit like socialism doesn’t it?  And who are the starving Appraisers who are doing the work for very little compensation?  It’s the freshest and greenest Appraisers who aren’t necessarily the best at what they do.  Why do high end cancer specialists and baseball players and singers get paid so much?  Because they have proven themselves and their work speaks for itself.   What if you wanted to see a concert and when you got there it wasn’t someone you’ve heard of, and it was rock when you are a country fan and they weren’t very good?  Not very good for the consumer is it?

And what happens if the appraisal is bad and the lender isn’t happy?  Who can they take it out on?  Sure the Appraiser’s name is on the report.  It’s the Appraiser’s errors and ommissions insurance and license and phone number on the report.  But with a dead deal, what’s the simplest solution for the lender?  Go to a different AMC who will provide appraisals that make value.  So the “pressure” was perhaps on the Appraiser from the lender, but now the pressure is on the AMC who now puts pressure on the Appraiser- another layer of beauracracy.  So if an Appraiser comes in at a value that isn’t good enough, he might stop getting orders from the AMC- again, the unregulated AMC.

Who is benefitting from the HVCC?  It’s not the Appraiser.  It’s not the borrower.  In actuality it’s the lender and the AMCs that are benefitting most.  The lender can now charge a strange fee of say $500 that covers the appraisal.  The lender can pay the AMC $350, who then pays the Appraiser $200.  And even if the appraisal kills the deal, the lender makes $150.  So instead of the Appraiser charging a simple $350, two other entities make money out of the same transaction.  Now I know that this scenario is very simplistic, but it’s a perfect example of how some are taking advantage of the HVCC.

This rant has gone on pretty long so if you’ve even made it this far, I thank you and I will try to wrap it up.  I’ll actually give real examples later down the road.

What Can Be Done by YOU

Don’t get me wrong, clients come and go, so I still appreciate referrals of mortgage professionals, management companies, lawyers, Realtors and even homeowners.  But my request for you today is to take action against this legislation.  And here’s why it’s not a futile attempt.

  1. The appraisal industry has the weakest lobbying group in DC.  So it was easy for the HVCC to get crammed into action.
  2. The National Association of Realtors (NAR) has one of the biggest lobbying groups in DC and while they let this go into effect, the impact has been enormous in just two months.  Realtors and mortgage brokers are seeing their deals getting killed by inexperienced Appraisers and borrowers are seeing very high Appraisal fees and even second Appraisal fees for deals that go nowhere.
  3. So the president of the NAR is finally taking action against the HVCC and has met with Anthony Cuomo.
  4. Go to this website and watch the video which is very well done and explains much of what I have done in this blog.  (and sorry if you read it first and are now saying “you mean I could have watched the movie instead of reading this poorly written crap?!)
  5. Sign the petition on that same website.  Last I checked it had 52,000 signatures so far.
  6. Share that website with everyone you know.
  7. There is a bill in the US House of Representatives right now- HR 3044.  It already has 19 cosponsors.  Please contact your congressman and voice your support for this bill.  Hopefully he or she will want to cosponsor the bill.

Visit our website at www.advantageappraisalsllc.com, and if that doesn’t roll off the tongue, just try www.appraiserdude.com. Give me a call at 480-544-1217 if you have any questions. I look forward to working with you. Now serving the San Tan Valley community.

Faith in Humanity- Restored (for now)

July 3, 2009 at 6:19 pm | Posted in Uncategorized | 2 Comments
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Get ready for a long story and rant.  But there’s a lesson to be learned…

Ever since moving to Arizona, I’ve worked with a particular Realtor who has fed me all his appraisal deals- I golfed with him, we went to each others kids’ birthday parties and I considered him a friend.  As a business owner, you have to make executive decisions on getting paid and although sometimes slow, I’d always get paid for the appraisals I did for him.  He had his go to loan officer whom I never got along with, but it was a relationship with the Realtor that precluded anything else.  The loan officer (she) would often call me in a huff- either to whine about the value I came in at or otherwise second guessing my work.  I have confidence in my work so I always found it annoying that after 3 years she never lightened up.

In May 2008, I got an appraisal request for a property purchase.  The order- as always, said “COD” but all orders in this arrangement say COD.  As a small business, I always err on the side of COD if I am at all leary of whether I’ll get paid or not.  I’ll bill orders through escrow only if I have an established professional relationship.

So I finish the appraisal, the deal looks like it will work handily based on value and I submit the report.  Well about three weeks later I get a call from the loan officer.  She tells me that she’s changed companies midstream and needs the appraisal changed to show the new client (who is the company that is actually doing the loan).  I ask her to send that request via email so that I can have a record of it and then she asks for me to show the invoice as Paid.  I tell her that I can’t do that since I haven’t received payment yet and she said, “well the deal is closing this week, so just change it to Bill Through Escrow and everything will be fine.  Again, my own personal accounting practices are just that- my own.  I feel confident that if I don’t get paid through escrow, my Realtor friend will cut me the check, so I oblige the loan officer.

Fast forward another three weeks.  I notice a few unpaid appraisals and shoot an email to the loan officer asking for status.  She says that the loan closed and that she already got paid and that I should have as well.  I ask her to look into it for me and instead of doing so, she sends me the phone number for the escrow company- so now it’s my job to check up on my payment (typically, a loan officer will look out for their Appraiser and do this for them).  I give in and call the escrow officer who very nicely says that everything’s been distributed.  She shows that the appraisal fee was paid to the mortgage company as part of a lump sum.  I ask for documentation and she happily sends me a copy as well as what is known as a Disbursement Recap which shows my fee which is supposed to go to my company.  Here’s where the situation turns bad.

I call the loan officer back who sais that she doesn’t know what happened, and like the escrow officer, she gives me the main phone number of the mortgage company- no contact, no introduction, just a worthless level of help.  I call the office and speak with the “branch manager” who says that she will look into it and get back to me later that day.  Fast forward another call like this with no call back and I ask for her boss.  I leave him a voice mail, follow it up with an email and get no reply.  So now I’m getting a little bit upset (ok, I got upset a few days prior).  In the meantime, I had called my Realtor friend, the loan officer and even the borrower.  The borrower gladly sent me a copy of his settlement statement which clearly shows that he was charged for an appraisal fee.  He even offered to go down to the mortgage company and “kick someones ass” on my behalf.  I tell him to lay low.

In all this time, the owner of the mortgage company never called me back but then I got an email from him- that’s right, a saveable and printable conversation where he basically accuses me of trying to steal from their company and he even threatens to blacklist me for even trying to collect my fee.  I know my own integrity, and after googling his name I see that he’s at the other end of the spectrum.  I research and then find that I should file a complaint with the Arizona Board of Financial Institutions.  I’m skeptical of government beuracracy but I reply that I will file a complaint unless he sends me payment.  He then replies with an offer to pay me half my fee!

So about August of 2008, I print out numerous emails, copies of everything (the appraisal, the order, HUD-1 statement, etc), and send it all to the Arizona Board of Financial Institutions.  Within a month, I get a letter back- apparently they quickly sent the complaint to the mortgage company who had to reply rather quickly.  The response was that I was trying to double bill for the appraisal.  By this time, my energy level for this situation has been more than completely depleted, but I reply via another certified letter.

Fast forward to October of 2008.  I’m measuring a house and get a phone call from someone at the Arizona Board of Financial Institutions.  The gentleman is not some robotic turd, but instead he aks me to explain the situation (I guess they want to get a feel for my legitimacy) and he says that he will personally put this one at the top of his pile (of over 100 cases).  I sarcastically joke about beauracracy and he agrees completely.  Then he explains that his already short staff will be cut in half in November, so he might not even have a job.  Great guy, but I’m not feeling very confident in any resolution.

So the holidays pass, a new year begins, I do my taxes and see that this is the only outstanding bill for all of 2008 but I’m so far past caring that it’s no big deal.  I probably spent 20 hours “working” on this to no avail.

But in April of 2009 a call comes in.  A pleasant lady who says she works for the mortgage company in question.  She says she’s calling because of the complaint and tells me that.  She then tells me that the “owner” isn’t the owner and that he no longer works there.  In fact nobody still works there that did a year prior.  She asks me to confirm the details of the loan and then tells me… “we have no record of that loan”.  Now I’m not upset, because I couldn’t care less about what sort of Nixonesque mass shreading might have taken place when the prior regime left, but I got a little ill just thinking about all the other Appraisers who might have been ripped off here, or all the homeowners who might have done business with this company, or the fact that this company’s practices is NOT an isolated situation.  Yet it’s the lowly Appraiser and other professionals and homeowners who get hosed.  How many people do not take action and simply accept that they’ve been ripped off?

So, after sending copies of the appraisal, order, HUD-1, loan number, escrow number and more, what arrived in my mailbox literally 365 days after the inspection?  That’s right, my fee.  Was it worth it?  Well monetarily it absolutely was not worth it.  But coming from a cynical person like myself, the exercize served the purpose of giving me just a little bit of confidence in government entities, the power of documentation, the power of persistence, the power of knowing when you’re right, the power of foregiveness.

Lesson learned?  Always collect COD!

The Trouble with Free Online Home Valuation

January 2, 2009 at 10:40 pm | Posted in Uncategorized | 1 Comment
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Everyone is cost conscious nowadays.  And with the Internet, I myself do my best to find whatever data I can for free.  As an Appraiser, I pay a little extra so that my software identifies floodmaps for the homes I appraise (I can get it for free online if I really wanted to).  I pay for a sketching program so that I can quickly draw the floorplans of homes I inspect.  It then integrates with my appraisal software automatically (I could do this for free using any art program).  Onc I’ve put all my comparable sales in my report, I click a button and the software quickly gives me attractive maps of where the subject home is and where the comparables are (I could do this for free using an online mapping service).

Outside of appraising and on a personal level, I always want to get stuff for free and many people are the same way- people download music rather than drive to the store, you can call an 800 “information” phone number which sure beats paying a quarter each time you’re looking something up.  And there are tremendous tools which allow us to learn more about finance- whether it be stocks, commodities or yes, real estate.

But there are products (websites in particular) that will tell you how much your house is worth- for free.  Now as a person who makes a living by doing just that, of course I can see this as the competition and in some ways it is.  If you as a homeowner think your house is worth $500,000 and one of these sites says it’s worth $350,000 then you’d probably be angry and try to find a more credible opinion (Appraiser) to tell you that you’re right.  But if the tables are turned and one of these websites says $500,000 and an Appraiser says $350,000, then you now have an individual Appraiser to be upset with whether you are justified or not.

Now don’t get me wrong, I’ll be the first to point out that there are a lot of bad Appraisers out there- ones who have tarnished the image of the industry and who have been a part of the problem that has led to our housing crisis.  But I’d say there are more good Appraisers who have been lumped in with the bad ones.  And once someone in the mass media (financial reporting shows, politicians) generalizes about an industry, well that could be the kiss of death.

But getting back to the point of this entry- these free online home valuation tools, here’s what I’d like to discuss:

The most popular of these sites came available several years ago during the very steep climb in real estate prices.  What they do is pull data from county records within a certain proximity of your home and which sold within the past year.  This is some very basic appraisal theory in itself, and when there are a lot of sales- especially homes that are similar size, age and style to yours, then perhaps it can be a pretty accurate gauge.

But when the market was rising so rapidly, the service was actually a little behind on the true value of homes.  You’d have a house sell for $200,000 and then 2 weeks later the same exact model would sell for $210,000, and then another would sell for $225,000 only a few weeks after that.  So these models sort of learned to project out values based on the rate of appreciation that was going on.  And when I say “learned” I mean that someone programmed this into the results- based on whatever multiplier “they” decided was appropriate.  Hopefully they at least pulled their data from a reputable and unbiased source such as Case-Schiller or the National Association of Realtors.

The inherent problem was when our real estate markets started to peak and decline in 2006 and 2007.  That’s right, it’s been declining for two full years now despite what the mass media is telling everyone every night.  So as the market stopped going up, how were values determined by these sorts of websites?  Human Appraisers could see recent sales of homes say in the $350-$355k range but then there might be 3 current listings of the same home for $335k.  So what’s the true value of the house?  And how were these websites determining value?  This is a rhetorical question, because the market has now gone beyond decline…

Today, we are in such a declining market that in many areas it’s sort of a “catch the falling knife” mentality.  Just when I personally see prices so low that it looks like a great entry point, it goes lower, and lower.  So I supposed that logically, these websites can adjust their models to project out based on recent sales and whatever the decreasing percentage might be- but have they?

The newest monkey wrench in their estimates is still related to what they find in county records and it’s the Trustees Deed Upon Sale.  With all these foreclosures, homes are being “bought” by the mortgagee- so if your loan was through ABC Bank and you got foreclosed upon because you missed payments, then ABC Bank would officially be on the deed of your home.  But at least in Arizona, the bank would actually record a transaction dollar amount on what’s called a Trustees Deed Upon Sale- and this dollar amount was a privately negotiated amount with no relevance to the original loan amount and oftentimes, no relationship to current market value.  So now these “sales” prices are recorded in county records and then pulled by those free websites as sales.

Well first off, any human Appraiser who uses one of these transactions to help detemine market value of another property is flat out negligent and technically committing a fraud.  Now that I’ve libelled a certain type of individual, I will take that one step further and say that I have seen these automated valuation websites doing the same exact thing- is that good for you as a homeowner to believe your home is worth something based on faulty data?

Here’s an example of a home I just appraised.  The home is about 2900 square feet and is located in a neighborhood called San Tan Ranch- in Gilbert, Arizona.  You go to one of these sites and type in the address, and the estimate is that the home is worth $274,000.  By using the lending standards that Appraisers must adhere to, I search for similar properties that sold in the last 90 days as well as active listings of similar homes.  Once my analysis is complete- I have located a slightly larger home that sold for $249,000, one that sold for $240,000 and one that sold for $242,000.  I then find three listings of the same model for $225,000, $215,000 and $189,900.

So based on that simple data alone, do you believe that the house is worth $274,000?  Even if you’re not an Appraiser, you can easily see that it’s worth at the very most $249,000- that’s $24,000 LESS than their estimate- that’s a car, that’s an annual salary for a college graduate, that’s just flat out wrong.  So how did they come up with $274,000?  Now what if I told you that the subject house had no pool and one of the sale I used had a pool?  And one of those sites backed up to a busy street.  I’ll tell you right now that those sites do NOT take those sort of factors into consideration.

Well, first off what they did was use two sales from July and June of 2008- that’s 6 months ago. And even then, one of those sales was for $266,000- hardly $274,000.  And are they saying that home values haven’t declined in the past 6 months?  According to the National Association of Realtors, in the zip code of the property, home values have declined by 24% from Q3 2007 to Q3 2008.  On top of those two sales that they used, they had about 5 very recent sales for over $300,000- great.  But they are from totally different neighborhoods and they are  brand new homes on larger lots, and they’re one story homes (subject is 2).  Sure they’re closeby, but not really appropriate sales.  And then there were two recent sales that were of the aforementioned “Trustees Deed Upon Sale Variety” so not sales at all.  And as I mentioned earlier, I found 3 listings between $189,000 and $225,000.  Don’t those listings have any bearing on the value?  If a potential buyer in today’s market sees 3 sales for under $250,000 and 3 listings for under $225,000, then why in the world would they pay $274,000 for a similar home?  It just doesn’t make sense.

So in today’s market of cutting costs, technology still hasn’t eliminated the necessity of an Appraiser in providing accurate estimates of value- plus, you actually have recourse if you feel that the appraisal was bad.  What sort of recourse do you get with a free valuation from the internet?  I hate to sound cliche, but you get what you pay for.

Visit our website at www.advantageappraisalsllc.com, and if that doesn’t roll off the tongue, just try www.appraiserdude.com. Give me a call at 480-544-1217 if you have any questions. I look forward to working with you.

Sincerely,

George

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