2012 in Review- An Appraiser’s Personal Perspective

December 24, 2012 at 7:44 pm | Posted in Uncategorized | 1 Comment
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In November 2011, after a long search for our next home, my family was in escrow with plans to close by Christmas.  We told the kids that we wouldn’t decorate our current house but would make that the first priority in the new house- a week before Christmas.  This was a resale home in a neighborhood that we had been eyeing for some time.  It needed minor updates but was ideal for many reasons.  As an appraiser who had been looking to move for the prior two years, this was the end of a long and painful process.  You see, I’m too smart for my own good…

As an appraiser, I’d like to think I have a pretty keen sense of the real estate market (like a financial planner does…).  I can quickly estimate the value range of a home and I know good neighborhoods.  As the real estate market was in its nadir in 2010, we were just looking for the right deal.  On top of that, besides appraising homes all over the valley, I worked for a servicer of Fannie Mae defaulted loans, doing nationwide appraisal fraud investigation- so I knew that the pipeline for distressed homes was endless- think the Sta-Puft Marshmallow man of shadow inventory. staypuft I would not overpay, and it was a buyer’s market.  I have friends who buy houses at auction- fix and flippers.  We weren’t looking to get in that game ourselves, just use those sorts of resources to get a home at auction.  But we don’t have the cash available to buy a houe outright.  We’d need traditional financing.

However, this proved to be more difficult than anticipated.  At first my wife and I were very particular about neighborhoods.  We’d research the homes coming to auction over the next 60 days, check them out and then put in a bid.  However, so many auctions were cancelled or postponed, that the ratio of homes actually going to auction on the dates scheduled was like one in ten.  So despite this arduous research and planning, we were only able to bid on four houses during a year’s span- and in every case, we lost out by just a few thousand dollars.

This process was made worse by the fact that we had previously seen short sale listings- that take forever to close, and they actually closes during the time that we had been searching through our process.  A friend of mine actually put in a bid on short sale and has subsequently moved in.  So with this in mind we decided to expand our search to the Multiple Listing Service.  Through this process, we actually found a home that fit our criteria and placed a full price offer on a home that appeared to be slightly undervalued.  Our good friend loan officer told us that we would have no problem with the loan- despite a HAMP loan mod in 2010- and we didn’t even need to rent out our current house (though we would)!

Well, as my wife worked at a bank, her in-house lender got wind of our move and asked “why don’t you do the loan through the bank?  It will essentially be a free loan since you’re an employee.”  At this we decided to have the in-house lender do our loan.  Our friend told us that he couldn’t beat that deal and we decided that it was the best route to take to save a few bucks…

We un enrolled the kids from their schools, their classmates threw them going away parties and gave them goodbye cards, we met up with some renting friends from the neighborhood for a little celebration, got a carpeting quote and placed a down payment through Home Depot, we had the inspection done and we had the appraisal done.  We even had a tenant lined up with rent several hundred above our mortgage payment.   All was well- until the loan officer told us that loan wouldn’t go through because of our loan modification- despite the fact that they were already aware of it and said it wouldn’t be a problem.  But not to fear she told us, she had another lender who said they could do the deal- it would just take another two weeks.  A week later and now the middle of December- the day after school let out for Christmas, we were told that this second lender had also balked at our loan.  We were devastated and slightly pissed off and we started venting about it with our friends.  Everybody and their brother heard of our plight and assured us that they knew someone who could do our loan- even our friend lender who we were supposed to work with from the get go.  He was astonished that our loan was dead and assured us that his in-house underwriter was already aware of our situation and was ready to fund our loan.

However, this would mean another three weeks minimum as we’d be starting from scratch.  We’d be pushed out to mid January, school would have already started, and still, we had doubts that it would go through.    The president of my wife’s bank actually approached us and offered to give us a private loan for 12 months until we could get conforming financing (they don’t keep residential loans in house).  We respectfully declined.  So after some praying and discussion, and insight from a local real estate expert… my wife and I decided to back out of our deal completely with the notion of starting from scratch in the new year.  Total out of pocket expenses- $250 for the inspection, $400 for the carpet down payment.  But we had already packed our entire house so our garage was filled with stuff- ready for the move.

Christmas was fine with a rush decorating job but we were happy nonetheless.  Kids were a little confused but started up school again in our district at their old schools.

In January, we found a remodeled house in the MLS.  We threw caution to the wind and placed a full price offer the day it was listed (through our original lender) and lost out to a cash bidder who offered less.

At about the same time, I appraised my first home in a brand new tract of a neighborhood that had been heavily depressed over the past several years.  This house was selling for $30,000 more than resales of the same utility!  I was astounded.  I subsequently did about 30 houses in that subdivision and whenever I went there, people were packed in the sales office.  Competitior sales offices were also packed.

In February, the loan officer from my wife’s bank WAS FIRED for INCOMPETENCE!!!!!!

We placed an offer on another MLS house- full price, lost out to a cash buyer.  A friend who fixes and flips and did over 50 deals in 2011 had gone through the first quarter of 2012 wihtout finding a single house.  Investors had started to pay 10 percent over “zestimate” on auction homes- simply to get the homes and in most cases rent them out immediately.  Another fix and flipper had reworked his margins but was having a slower year.  My wife started unpacking boxes in about April.  We discovered clothes that we forgot we had.  I appraised many more homes with increasing prices.  We found none for ourselves.  My work doing Fannie Mae Appraisal Fraud review continued robustly.  There was a never ending supply of bad loans.  Yet the talk of the press was “recovery” and it was legitimate.  Or was it?

Sales were up, but in most cases- at least in Phoenix, it was investors, and they were paying cash.  The common man (AKA me) couldn’t buy a house despite being qualified.  And we couldn’t exactly overbid because of the fear of the appraisal coming in low and not having the funds to make up the difference.

In our favor was the fact that we never had to move in the first place.  Our house is beautiful and big enough for us and more.  We have views of two mountain ranges, are on a golf course and have a beautiful oasis pool that my wife designed herself.  We have a very good (modified) loan and our payment will stay low throughout its duration.  By the way, our renter friends whom we celebrated with a year ago?  They literally justed moved into their new construction home last week.

Am I too cheap?  Am I too conservative?  Am I too “smart” for my own good- despite the countless lost opportunity costs associated with being frugal?  The answer is undoubtedly YES with a little sarcasm around the quoted “smart”.  The house we were in escrow with is now worth 20-percent more.  There are very few homes on the market that we like and now they are listed for 30-percent more than they were a year ago, and quite frankly, we can’t afford that.trend

The good news is that all our moving boxes are out of the garage so we can park our cars there, we painted some rooms that needed it badly, and our home value has also gone up about 30- percent- but we’re still $60k in the hole.  From a personal perspective, we ended up where we started, but from a professional perspective, I can confidently tell you that whatever reasons you use to explain this recovery, it has been legitimate in 2012.  Where will things go in 2013?  If you can’t figure me out already, I have faith that the combination of fiscal cliff, high unemployment, increasing entitlements and lack of “real” buyers will cause things to slow down if not reverse- sort of a dead cat bounce.  But since I’ve made that proclamation, you can rest assured that we’ll continue to go up!  Have a Merry Christmas and Wonderful New Year filled with happiness, and good fortune!

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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Do AMCs Really Eliminate Lender Pressure?

October 14, 2009 at 10:41 pm | Posted in Uncategorized | 1 Comment
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When HVCC mandated the use of Appraisal Management Companies (AMCs) earlier this year, the hope was to eliminate lender pressure on Appraisers.  Now as I’ve mentioned in previous posts, I’ve already worked with AMCs for a few years so the transition for my practice wasn’t as painful as it was for others who only had only done full fee work.  So the AMC’s I work with know the quality of my work, I understand their quirks and we’ve accepted the relationship.  I may have to work harder for less pay, but it’s something I’ve accepted as reality.  I now treat them like my client and I’d like to think that they respect the quality of my work.

I just did an assignment for an AMC.  This AMC provides services nationwide and their client list includes very prominant banks.  I know what each of these end clients require- whether it be specific verbiage or photos or additional forms.  We’ve worked together for a long time now.

So I received an appraisal request in San Tan Valley (which is a suburb of Phoenix) for the purchase of a custom home that is a short sale.  In other words, the sellers are financially unable to keep their home and they have to sell or face foreclosure, and their lender is negotiating the price for them.  I did the appraisal- it was  beautiful custom home built by the owner.  It had beautiful ornate wrough iron.  It had very nice upgrades.  It had a cool ramada.  It had a few stables.

I found the most appropriate comparables and did the report and finished with an appraised value.  The contract price was higher than the appraised value.  But I shouldn’t care right?  After all, I’m not in charge of making a deal happen am I?  Isn’t that called fraud if I appraised it for more that it’s worth?  Isn’t it lender pressure when I have to worry about future work depending on the results of current work?  But with HVCC and AMC’s I’m ok right?

So a few days later, I get a call from the AMC saying that the lender wants to reopen the assignment and that I should consider two additional “closed sales” that they provided.  Now some Appraisers might say “no way”, but I will NEVER be too cocky to think that I’m immune to errors.  So I look at these two “closed” sales.  One was a NON closed sale- in fact a home not even under contract that has been on the market for 670 days.  Oh yeah, and that home was in another county with a different city name.  The second one was a closed sale, was similar in size to the subject but was in a different city, wasn’t horse property and was actually part of a large tract home neighborhood.  I send an email back to my contact at the AMC and they agreed that this was a stupid request.  However, at their request, I filled out an addendum which explains why those two sales were not applicable for this assignment.

Fast forward to 24 hours later.  I now get an email condition saying that the lender wants me to now include two more closed sales, but that these sales must NOT be distressed situations.  Distressed situations include short sales, preforeclosures or bank owned.  So I redo my search and find nothing new.  Then I expand my search.  Then I expand my search more.  Here’s what I came up with:

I searched all closed sales from January 1, 2009 though October 13, 2009 with a size range of 1500 square feet smaller and 1500 square feet larger than the subject and I came up with 40 closed sales.  Of those 40 closed sales, 38 were “distressed” situations.  That’s right, only 2 sales were not distressed.  One of those two sales indicated a value significantly lower than what my appraisal was and the other was higher than my appraisal by $120,000.  This high transaction also was the highest transaction in the area by a very large amount.  So any “good” Appraiser would treat this oddball high comparable as an anomaly and eliminate it from consideration.

Bottom line is that with their newly requested two additional sales, the appraised value remained the same.  When all was said and done, I had now spent an additional two hours on this report.  Did I receive any additional fee for my services? No comment.

But my commentary is this: If you are a bank and you want a true appraisal for a home, then you accept the results as is.  If you don’t like the value because it doesn’t meet the contract purchase price, then you are not the bank- you are the specific morgtgage broker who has a vested interest in closing this specific loan.  And when you ask the Appraiser (through a third party) to jump through more hoops to try to find comparables that support the deal, then that’s lender pressure and that can lead to fraud and that can lead to more of what we are seeing every day in our country with defaults and broken families and more government bailouts.

But what is the Appraiser to do in situations like these?  Back in the day, if a loan officer pulled this sort of stuff, I could talk with him or her.  And if that wasn’t getting anywhere, I could talk with the manager or whomever it took to ensure that rules were being followed.  Or I could stop working with them altogether.  But that’s because I can speak intelligently and defend my work.  With HVCC and the new layer of AMC’s, I am now unable to speak with the client. I have to trust that the AMC understands my report and can speak intelligently about it.  And quite frankly, that’s a level of trust that most Appraiser’s simply don’t have.

Sure, they’ve set up what is known as the Independent Valuation Protection Institute– sounds good eh?  Well, if you visit the site you’ll see that it might as well be one of those “under construction” animated gifs.

animated construction gif

animated construction gif

And say that with one specific deal like this, the client is now so upset about the results that they now feel that they need to take some sort of recourse.  They can’t really fire the AMC in this situation since the AMC does so much work for their company as a whole, but what if the client now refuses to accept any more work from that one Appraiser.  And now what if that AMC cannot assign orders to that Appraiser from that specific client?  They might find that so inconvenient that they simply stop ordering appraisals through that one Appraiser- all rooted in the results of one assignment- not a sloppy report, not one fraught with errors, but one that a client was simply unhappy about because it killed their deal. 

Is lender pressure eliminated by HVCC?  You tell me.

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.

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.

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

What’s in a Foreclosed Home?

October 20, 2008 at 3:46 pm | Posted in Uncategorized | Leave a comment
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That’s a weird question. i’d like to think that a Foreclosed home has the same stuff as a non-foreclosed home. You know, doors, windows, toilets, carpeting, kitchen, lights. Well in most of the ones I’ve appraised, everything’s there. And everything is in decent shape- no different than any other house that’s sold. But we live in an age with a lot of foreclosed homes that are so because of the screw financial situation we’re experiencing. And with that comes a lot of anger. And with anger has come some very vengeful and destructive behavior that’s downright shameful.

Over the past 5 years or so, the housing market has been booming- particularly in places like Phoenix- where I appraise. The ridiculous rise in home prices wa fueled by cheap money, relatively inexpensive homes and the mindset that homes were ATMs. Couple those factors with the phenomenon of multiple investment homes for oftentimes out of state owners, and the “demand” was more a demand for investments- not the need for
owner occupied homes.As an appraiser, I can do a little research and have done so for an example. I live in a master planned community of about 1700 homes- surrounding a golf course, with a community pool, clubhouse, parks, school, etc. On my street alone of 34 homes- built in 2005, we have “investment” homes which are owned by people who don’t live there, and “owner” homes which are owned by the occupants.  I can break it down to the following:
  • 9 bought as owner occupied and still owned and occupied by those original owners
  • 2 investment homes subsequently sold to owners who still live there
  • 13 investment homes that are still investment homes
  • 1 investment home that was sold to an owner that was then foreclosed and was bought by another investor
  • 1 investor home that was sold to an owner that was then foreclosed and was bought by another owner
  • 4 investment homes subsequently sold to other investors.
  • 1 investment home sold to an owner which is currently in foreclosure
  • 3 that I categorize as unknown since tax records show that the mailing address is the same as the physical address.
I won’t even go into analysis of their mortgage amounts compared to market values. It’s quite depressing. So the point of my breakdown hopefully demonstrates exactly what the situation is in many neighborhoods- not just mine.But getting back to the topic at hand, as you can see, there are a lot of investment homes out there and a majority of those homes are used as rental properties. Now I don’t want to knock on renters as a group- after all, we’ve had a few great renter neighbors who were good people, took care of their rental and cleaned up when they left so they could get their security deposit back. But there are a LOT of renters who really don’t care that much.When renters pay their rent on time that’s great for the owner, but what happens when the rental income doesn’t cover the mortgage? And what if the mortgage payment is increasing each month because they got an adjustable mortgage- and the rent amount is the same? Well, you get an owner who stops making his mortgage payments, and unbeknownst to the renter, the house goes into foreclosure and then all of a sudden the tenant gets evicted because the bank now owns the home- the tenant who has been faithfully paying his rent each month. Sucks for him doesn’t it?

Well some of these upset tenants, and sometimes owner occupied residents all of a sudden lose their home, then it becomes a scene from The Jerk, where Steve Martin leaves his mansion with an armful of stuff. And how they leave varies depending on the type of person we’re talking about.

Neglect: The obvious is letting things go. Pools evaporate (after they turn green), weeds grow, black widows breed. Typically nothing intentional here. One extreme version is when a leak occurs and nobody knows about it til it’s too late. I had one of those recently where a toilet leak at the supply line seeped out into the bedroom and then you get what you see below- a virtual forest of mold:

Rapture: These are the sad ones. Toys in the backyard, clothes in the closet, food in the pantry, DVDs on the floor, pictures on the wall. Incidentally, I’ve always wondered what happens to all this stuff that is left behind. I recently did a house where some guys were putting in a pool pump and it was a company who does foreclosure home cleanup. According to them, they take that stuff to the Salvation Army as directed by the bank. So actually that’s reassuring. I’ve always wondered if these companies simply take whatever they want. (but I wouldn’t be surprised if some of that happens)

Messy: Everyone has different definitions of cleanliness. I’ve been in plenty of non-foreclosure homes that feel, look and smell like model homes. And I’ve been in plenty where I wished that I had a gas mask and some booties. so this is by no means a foreclosure phenomenom. But the most prominent thing I see is carpet that is covered with pet stains- and sometimes ones with actual pet droppings still there. You see that in a house, and you know you’ll see plenty on the outside as well. How about a shopping bag full of feces? Not sure what happened there “we’ll collect it, but we won’t put it in the trash can”

Removal: You buy a house, you add some stuff to it like ceiling fans. Well the foreclosure consensus is that those are yours to take. Technically those sort of thing are fixtures once attached just like over the range microwaves and garage door openers. But once they are gone then who’s to say they weren’t there in the first place? After all, garage door openers aren’t standard on many new homes. About 90% of the foreclosed homes I do have the exposed wires from where the ceiling fans were.

Destruction: Ahh, the good stuff. Some of it could be accidental, some of it could be intentional and in most cases I simply assume that it was due to a rushed exodus from the premises. We’re talking drywall holes, maybe a broken window or a stair rail that’s not mounted anymore. I’ll let you be the judge on the cause of these things.

But then there’s the obvious intentional destruction, and destruction doesn’t just mean damage. As you’ll see in the following photos, I’m talking about water heater taken, air conditioning system taken, kitchen cabinets, faucets and countertops taken. I’ve even seen examples of homes with graffitti inside the house.

So yes, these situations happen, and they happen in nice looking houses, in nice neighborhoods. It’s a shame.

Here’s the next question, which I’ll save for another article: Where does this stuff go?

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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